LESSON 5 - MGMT 5211 Lesson 5 The costs the Government will...

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Lesson 5 The costs the Government will reimburse a contractor for in the performance of work depend on several things. If the contract is a ‘commercial” contract [FAR Part 12], costs are not an issue. Products and services procured by the Government on a commercial basis must procured using Firm Fixed Price (FFP), Fixed Price With an Economic Price Adjustment Clause (FP/EPA), Time and Materials (T&M), or a Labor Hour (LH) type contract. Regardless of the type of contract, the procurement must be “competitive.” The contract is awarded based on “price” not cost. So, the Government should not request cost information on commercial procurements. But, information on sales data, etc. are fair questions. If the Government is going to award a “cost type” contract, understanding and evaluating the contractor’s cost is important. If the award if going to be a competitive award of a cost-type contract, the Government has a fiduciary responsibility to ensure the offerors’ cost [proposal] represents the realistic cost of performing the service or providing the product (depending on what’s being procured). In a cost-type contract, the Government pays the contractor (the winning offerors) their actual, allowable costs. (The contractor’s proposal represents their estimate of what they think their “actual, allowable costs” will be.) For example, the Jimmie Hendrix Services Company bid on a DHS contract that was for IT support services. Below is a summary of the costs they included in their cost proposal: Direct Materials $10,000,000 Direct Labor Program Manager $ 150,000 Senior Systems Analyst 2,500,000 Systems Analyst 4,500,000 Administrative Support 240,000 Total $7,390,000 Overhead 2,850,000 Other Direct Costs 10,000 1,480,000 Total Cost $21,730,000 Fee 1,500,000 Total $23,230,000 The costs above are estimates of what the Jimmie Hendrix Services Company thinks it will incur [spend] in order to provide the services outlined in the statement of work in the solicitation. If the company actually ends up spending more than the $21,730,000 when they perform the contract (because labor rates are higher than expected, materials cost more than expected, etc.) then the Government will reimburse them more (their “actual costs” not their estimated costs). And, if the company actually spends less than the $21,730,000, then the Government will
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LESSON 5 - MGMT 5211 Lesson 5 The costs the Government will...

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