The costs the Government will reimburse a contractor for in the performance of work depend on
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
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
Below is a summary of the costs they included in their cost proposal:
Senior Systems Analyst
Other Direct Costs
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