CON 170 Student Book-July 1 2018.pdf - CON 170 Fundamentals of Cost Price Analysis Course Introduction Schedule 1 July 2018 This page intentionally left

CON 170 Student Book-July 1 2018.pdf - CON 170 Fundamentals...

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Unformatted text preview: CON 170 Fundamentals of Cost & Price Analysis Course Introduction & Schedule 1 July 2018 This page intentionally left blank CON 170 Course Syllabus A. Course Title: Fundamentals of Cost and Price Analysis B. Course Number: CON 170 C. Course Prerequisites: CON 090, CLC 057, CLC 058 D. CLPs/CEUs/Number of ACE-Recommended Credits: CLPs 80/CEUs 7 E. Course Description: Fundamentals of Cost and Price Analysis (CON 170) is a resident Defense Acquisition Workforce Improvement Act (DAWIA) Level I contracting course for newly hired GS-1102 contracting personnel. This course is two (2) weeks (approx. 10 days) in length and provides foundational knowledge of contract cost and price analysis. Specifically, the course provides training in applying quantitative tools to accomplish cost and price analysis in accordance with Federal Acquisition Regulations, Defense Federal Acquisition Regulation Supplement (DFARS), the DFARS Procedures, Guidance and Information (PGI), and the Contract Pricing Reference Guide (CPRG). F. Course Objective: Given a contracting scenario, the student will apply appropriate cost and price analysis techniques. G. The following concepts (ideas, goa ls, topics) will be covered: The first week of the course will teach quantitative analysis techniques, and present foundational information regarding the contracting environment in the Department of Defense. In the second week, students will apply the lessons learned in the first week to assess a contracting scenario, and apply the appropriate cost and price analysis techniques. H. Course Materials: CON 170 Student Guide I. The following critical performances are required in this course: a. Performance: Students must earn at least 80% of all possible points to pass (see Evaluation). b. Behavioral: Students must actively participate in classroom activities and complete all assignments to be successful. While the instructors will present fundamental quantitative techniques and teach essential concepts about the contracting environment, the vision for the course is for instructors to guide the students through several contracting scenarios, particularly in week 2, allow the students to think and work together, and ultimately execute a process for solving the cost or price analysis situation. J. Evaluation (how performance will be assessed): Before attending CON 170, the course “welcome message” provides students with “math refresher” material and self-assessment tests. The purpose of these materials is to enable students to refresh their basic math skills and take a self-test before attending the course. The welcome message encourages students to take the selfassessments, and consider deferring their attendance in the course if they have difficulty with the math refresher material. At the end of each week, students will be evaluated individually through an open book examination, for a total of two examinations in the course. 2 Examinations @ 100 points each 200 MINIMUM REQUIRED (80%) 160 K. Course Policies a. Attendance: Student attendance is mandatory. Students are not authorized to miss any class time. Failure to be present during all class hours is grounds for removal. In extreme cases, the instructor may, at his/her discretion, excuse student absences provided that the student has requested and obtained approval from the instructor and the student’s supervisor prior to the absence. In no circumstance will a student be permitted to miss more than 4 hours of class. b. Student Responsibility: Students are responsible for ensuring that they understand the learning objectives. As such, students must communicate any problems or difficulties that they are encountering to the instructor. c. Academic Freedom: Students shall have the privilege of debate with discretion on any subject related to curricula within the school forum. d. Non-attribution: Students shall treat statements made in the school forum as privileged information not to be attributed to a specific individual when outside the school forum. e. Make-ups and Extra Credit: There will be no opportunity for making up missed quizzes/exams, nor will there be an opportunity for students to earn extra credit. f. Student Issues/Concerns: DAU encourages students who have an issue or concern with the learning environment to discuss it with their instructor. Students who feel their issue is not resolved satisfactorily may go to the department chair/site manager or Regional Associate Dean for Academics. L. Course Sequence/Time Schedule: CON 170 will begin each day promptly at 0800 hours and end no later than 1700 hours. There will be at least a one-hour lunch break. The typical course schedule is provided on the attached pages. (Note: Class schedule will be adjusted if a holiday occurs during the class dates.) CON 170 CLASS SCHEDULE Week 1 MONDAY AM TUESDAY 0800 Introduction/ Orientation, DAU Mission Briefing 0800 U1 L4 Cost Principles 0900 U1 L1 Contracting with the Government 1000 U1 L5 Market Research WEDNESDAY 0800 U2 (*L4-6) U = Unit THURSDAY 0800 U3 L1 Contract Types NPV Cost Estimating Relationships Cost Volume Analysis L = Lesson FRIDAY 0800 WEEK 1 EXAM 1100 U3 L2 Contract Financing 1000 U1 L2 TINA Lunch 1200-1300 1300 U1 L2 TINA PM 1200-1300 1300 U2 (*L1-4) 1200-1300 1300 U2 (*L6-7) Quantitative Review Cost Volume Analysis Problems 1500 U1 L3 CAS Price Indexing Shape, Center, Trend, Spread 1200-1300 1300 U3 L2 Contract Financing Cost Volume Profit Analysis 1100-1200 1200 U4 L1 Price vs. Cost Analysis 1400 U4 L2 Price Analysis Techniques 1500 U3 L1 Contract Types NPV HMWK Complete U2 L1 problems; preview U2 L4 Preview U2 L6, L7 and U3 L1 Preview U3 L2 *TBD by individual instructors depending on pace of class Study for Exam 1 Preview U4 L3 CON 170 CLASS SCHEDULE Week 2 MONDAY 0800 U4 L2 Price Analysis Techniques TUESDAY 0800 U4 L4 Price Analysis Exercises AM 1100 U4 L3 Price Related Factors Lunch PM HMWK 1200-1300 1100 U4 L4 Price Analysis Capstone Exercise 1200-1300 1300 U4 L3 Price Related Factors 1300 U4 L4 Price Analysis Capstone Exercise 1600 U4 L4 Price Analysis Exercises 1500 U5 L1 Cost Analysis Process, Players, & Business Systems Preview Capstone material Preview U5 L2-5 WEDNESDAY U = Unit THURSDAY 0800 U5 L2 Direct Costs 0800 U5 L5 FCCOM 1000 U5 L3 Indirect Costs 0900 U5 L6 Profit/Fee (WGL) 1200-1300 L = Lesson FRIDAY 0800 U5 L7 Defective Pricing 1030 – end of class WEEK 2 EXAM 1200-1300 1300 U5 L4 1300 U5 L6 Understanding Rate Profit/Fee (WGL) NLT 1400 Applications U5 Graduation upon successful 1400 U5 1600 U5 L5 completion Cost Analysis FCCOM Capstone Preview U5 L6-7 Study for Exam 2 STUDENT GUIDE CON 170 Fundamentals of Cost & Price Analysis Unit 1, Lesson 1 Contracting with the Government October 2016 STUDENT PREPARATION Required Student Preparation Read Article #1 and complete questions 1-5 as pre-course assignment for CON170. Students are to read Article #2 in its entirety prior to Exam 1. Planned Academic Time Required: 1 hour Student performance will be informally evaluated during class discussions, and formally evaluated on Exam 1. CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 2 Lesson Presentation Read “Remaining Issues in Adopting Commercial Practices in Defense Acquisition,” by Dr. Michael Heberling and Mary E. Kinsella (included as Attachment 1 herein), and answer questions 1 through 5. 1. What are a few of the unique systemic and cultural differences of contracting with the Government compared to the commercial sector? Why do these differences exist? 2. With respect to Market Forces, explain Heberling & Kinsella’s metaphor indicating TINA and CAS are “surrogate market forces for the defense sector.” CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 3 3. What are a few common differences in products sold to DoD compared to the commercial market? 4. At a recent job fair, a hiring authority from a local contractor commented, “Many people with Government acquisition experience have a difficult time adjusting to the commercial environment.” How does this comment align with Heberling & Kinsella’s observations? 5. What are two ways Heberling & Kinsella recommend the government improve its acquisition process? To conclude the review of the Heberling and Kinsella article, it is important to recognize there are unique aspects of contracting with the Government. In developing our pricing skills, we must recognize these differences, and learn as much as possible about both Government and commercial practices through market research. CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 4 With some familiarity on the uniqueness of contracting with the Government, we will now examine a range of different market structures which contractors operate in when pursuing Government contracts. The following graph illustrates the general range of competition in markets for goods and services and can provide insight to the market pressures contractors are facing, which will influence their proposal pricing strategy. Different Market Structures There is a range of market structures: Perfect Competition Monopoly Monopolistic& Oligopolistic Competition Few Sellers Effective Competition Effective Competition Oligopsonistic Competition Monopsony Few Buyers Market structures influence seller pricing strategies CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 5 The left side of this graph: There may be several buyers on the left side of the graph, but there are only a few sellers. Those few sellers may not control the market, but exert disproportionate influence on the market. The right side of the graph: There may be several sellers engaged in the market, but there are only a few buyers. Those few buyers exert disproportionate influence on the market. The center of the graph indicates there are enough buyers and sellers to have competition without a dominant influence by a single buyer or seller, or group of buyers and sellers. Discussion: For non-contingency, operational contracting requirements within the United States, where would you expect the level of competition to be on this “bow-tie” graph? For production of a new missile air defense system, where would you expect the level of competition to be? For modification to the missile air defense system 3 years after award, where would you expect the level of competition to be? CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 6 Read “Seller Pricing Strategies: A Buyer’s Perspective,” by David V. Lamm and Lawrence C. Vose and answer question 6 through 8. 6. How do Lamm & Vose describe the importance of understanding seller strategies? According to Lamm & Vose, there are several different seller pricing strategies, each with challenges to the government buyer. The following slides describe these strategies. CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 7 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 8 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 9 The article explains that contractors, in selecting a pricing strategy, will consider both external and internal factors. Recognizing these factors is important to Government buyers, particularly during the market research and proposal evaluation phases. Lamm & Vose present several external and internal variables which influence seller pricing strategies, as summarized on the following pages/slides. 7. According to Lamm & Vose, is there a relationship between a contract type and pricing strategy? CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 10 8. Lamm & Vose make a claim: “If a selling firm believes that a buyer may not be aware of competing products or substitutes, it may be inclined to increase the profit margin.” - Could this really happen in the commercial world? - Explain the term “caveat emptor” (let the buyer beware): Although not directly stated in the article, MARKET RESEARCH is the process buyers and Government acquisition teams need to use to learn the external (and internal) variables, and gain insights into a contractor’s potential pricing strategy. Market research will be covered in more detail in Unit 1 Lesson 5. CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 11 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 12 Exercise: Assess the Seller’s Strategy Learning Objective Differentiate between seller pricing strategies Introduction After reviewing and discussing the Lamm & Vose seller strategies, one should begin to recognize circumstances that might employ the use of those strategies. Complete the following questions based on the class lecture, discussion, and slides. Assessment This activity is not scored or graded. Student Instructions: Based on the readings for this lesson, what is the Lamm & Vose’s seller strategy that the seller will likely employ? Be prepared to defend your answers. 1. Over the summer, a self-employed craftsman started his own business, and hired 5 students. He was aware of the general pricing practices of other painting firms, “Cost of Labor and Material, plus 50% to cover bonding, insurance, transportation and profit.” As a new company, he priced bids as “labor and material plus 45%.” What strategy? 2. A software corporation introduced a smart-phone to the market at a time when its capability was essentially unmatched. Because of their significant investment, and the ability for other businesses to enter the market with a reasonable substitute, their initial selling price was significantly higher than other phones entering the market. Their earnings skyrocketed in the short term. What strategy? 3. As airline security and fuel costs continued a rapid climb, the major airlines introduced new fees and raised airfares. Soon after, the smaller airlines did the same. What strategy? 4. A home computer printer manufacturer is practically “giving away” printers with an impressively low market price. After capturing market share, the company should have the opportunity to earn additional profits through additional cost reductions, and follow-on support purchases such as toner cartridges. What strategy is this closest to? CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 13 5. Emily submitted a bid for entomology services at less than 30% of her competitor’s bids. Her company was new in the area, and had just received a small business grant which covered most of her fixed costs. Which strategy is she employing? Is it rational? 6. Lamm and Vose indicate buyers will face challenges in obtaining data which would help minimize risks associated with seller strategies. How will you face this challenge? CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 14 LESSON SUMMARY 1.1 Given an acquisition situation, successfully distinguish various seller pricing strategies • • • 1.101 Explain the unique aspects of Government contracting compared to commercial contracting 1.102 Explain the different market structures 1.103 Differentiate between seller pricing strategies CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 15 Unit 1 Lesson 1 Attachment 1 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 16 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 17 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 18 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 19 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 20 CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 21 Unit 1 Lesson 1 Attachment 2 SELLER PRICING STRATEGIES: A BUYER’S PERSPECTIVE By David V. Lamm and Lawrence C. Vose Copyright does not allow for electronic distribution. A paper copy of the article must be provided to students in class. CON170, Unit 1 Lesson 1 - Contracting With The Government - Page | 22 STUDENT GUIDE CON 170 Fundamentals of Cost & Price Analysis Unit 1, Lesson 2 Truth In Negotiations Act July 2018 STUDENT PREPARATION Required Student Preparation Read TINA Language, FAR Part 15, DFARS Part 215, and CPRG Vol 1 Ch. 3 Planned Academic Time Required: 3.5 hours Student performance will be informally evaluated during class discussions, and formally evaluated on Exam 1 CON170, Unit 1 Lesson 2 –Truth in Negotiations Act - Page | 2 Lesson Presentation Understanding the Truth In Negotiations Act (TINA) is one of the most important lessons of all, for members of the contracting profession. This course’s coverage of TINA is packed in two blocks - one here in Unit 1, and the other in Unit 5. This lesson provides a solid foundation about the important principles relative to TINA including what it is, it’s purpose, the requirement for Certified Cost or Pricing Data, exceptions to TINA, and the application of TINA in contracting scenarios. CON170, Unit 1 Lesson 2 –Truth in Negotiations Act - Page | 3 To begin, let’s consider how the Truth in Negotiations Act works to protect the Government’s interests: Imagine yourself on vacation, driving across the plains of northern Colorado, through Wyoming, up to Montana. Suddenly, your car breaks down in the middle of nowhere. There is no cell phone coverage where you are. After hours of waiting, a mechanic pulls up in a tow truck. He is the only person who can fix your car within a reasonable timeframe. Under these circumstances, how would you fare in negotiating a price to fix your car, compared to shopping for a mechanic in a local city? OR After some storms in one of the plains states, nearly a thousand residential homes in a particular town or city suffered severe roof damage. With winter weather approaching, roofing companies could not keep up with demand for repairs. With every roofing company booked solid through the end of the roofing weather timeframe, competition was typically limited to a single offeror. Roofing materials and labor prices were skyrocketing. Under these circumstances, how would you fare in negotiating a roof repair? In situations like those with limited competition, or extreme market conditions, determining a fair and reasonable price can be particularly challenging. How would you determine a price to be fair and reasonable in the car repair scenario? How about in the roofing scenario? Would it help you in those situations to have a law which required those contractors to give you the factual data behind their price? Or at least required them to give you some insight regarding their customary prices for the same goods or service under similar conditions? In a sense, this is what the Truth in Negotiations Act (TINA) was designed to do. In order to safeguard from excessive expenditure of taxpayer dollars, TINA requires contractors to provide the Government with pricing information when normal market forces are not present, or almost any time a Contracting Officer does not have adequate data to determine a price to be fair and reasonable. This information gives us insight in to the contractor’s actual costs and cost estimates, ensures we have enough insight to determine “fair and reasonable,” and mitigates risk of the Government paying unusually high prices. CON170, Unit 1 Lesson 2 –Truth in Negotiations Act - Page | 4 TINA, as implemented by FAR Subpart 15.4, requires contractors to submit certified cost or pricing data, or data other than certified cost or pricing data in certain situations. Where can you find the definition of certified cost or pricing data? To find out, review the TINA language (Attachment 1) and FAR 2.101, and notice the definitions for these terms are included at the citations shown below: CON170, Unit 1 Lesson 2 –Truth in Negotiations Act - Page | 5 1. TINA Language, Title 10 U.S.C. 2306a Definitions: (h)(1) Cost or pricing data the term “cost or pricing data” means all facts that, as of the date of agreement on the price of a contract (or the price of a contract modification), or, if applicable consistent with...
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