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Pricing your Product or Service

Florida Gulf Coast UniversitySmall Business Development

Center Procurement Technical Assistance

Center 239-745-3708

dtelep@fgcu.edu

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Objectives Cost Cost Realism Price Price Analysis Profit

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References FAR 14 Sealed Bidding

FAR 15 Contracting By Negotiations

FAR 16 Type of Contracts

FAR 30 Cost Accounting Standards Administration

FAR 31 Cost Principles and Procedures

FAR Appendix B Cost Accounting Rules

WWW.ARNET.gov/far (Down Load as a PDF file) Federal Acquisition Regulations

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Methods of Procurement Sealed Bids (Price only) Invitation For Bid (IFB)

Negotiated (Price or Cost) Request For Quote (RFQ)

(Price only) Request For Proposal (RFP)

(Price or Cost Data)

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What is Cost?

Cost is the expense the contractor will incur in performing the work

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Cost Criteria:

Reasonable, Allowable and Allocable

Variable, Fixed, andSemi-Variable

Direct and Indirect

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COST CONTRACTS

Cost-Plus-Fixed FeeCost-Plus-Award FeeCost-Plus-Incentive FeeCost-Sharing

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THREE BASIC Cs FOR COST TYPE CONTRACTS Know your

Costs

Know your Customer

Know your Competition

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What will the Government Pay?

The Government will reimburse the

contractor to do the work as long

as the costs are allowable, reasonable, and properly allocable

to the contract.

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What are the Cost Elements? (Your Company)

Direct Labor Overhead Material Subcontractors General and

Administrative Travel Profit

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1) Overhead may Include: Cost of Doing

Business ! ! ! ! ! Taxes

Federal Taxes Social Security

Taxes (FICA) Employer portion

Medicare Taxes Property Taxes

Licenses State Licenses County Business

Licenses

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2) Overhead Continued:

Fringe Benefits: Employee

Health Insurance

Annual LeaveSick LeaveFamily LeaveRetirement

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3) Overhead Continued:

Office Space Furniture Electricity Air Conditioning Heat Equipment

Copiers Computers Phones

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4) Overhead Continued:Utilities:

Sewage

Waste Water Treatment

Trash

Removal

Recycle

Program

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5) Overhead Continued:

Insurance: Building Car Truck

Worker’s Compensation Contract agreements:

Credit Cards Bldg.

MaintenanceLawn Service

Depreciation Interest on Loans

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What are the Cost Elements? (State) Salaries Fringe Benefits Travel Other Direct

Costs In-House

Charge Indirect Costs Profit

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Build a Cheeseburger?

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Base Line for the Cheeseburger

One made every 30 seconds, start to finish

Includes: Direct Labor Overhead Material Profit

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Direct Labor- ½ minute labor $ 00.15 1 minute labor $ 00.30

Counter Clerk 6.00Cashier 6.00Cook 6.00

18.00

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Overhead is

100%

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Materials Build a cheeseburger starting at the

bottom– Bun Bottom– Mayonnaise– Mustard– Patty– Cheese– Pickle– Lettuce– Tomato– Ketchup– Sesame Seed Bun Top

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MaterialsBun Bottom 0.1251Mayonnaise 0.0005Mustard 0.0007Patty 0.2900Cheese 0.0300Pickle 0.0200Lettuce 0.0080Tomato 0.0500Ketchup 0.0004Sesame Seed Bun Top 0.1253

0.6500

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+ Materials

Wrapping Paper 0.015Bag 0.015Napkins 0.015Salt/Pepper 0.015

0.06

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Cost Elements for the Cheeseburger?

Direct Labor $ 0.15 Overhead 100% $ 0.15 Material $ 0.71 Subtotal $ 1.01 Profit 10% $ 0.10 Total Cost $ 1.11

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What is Total Cost?

Cost Elements

+ Profit =

Total Cost

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Cost Realism

Cost and Technical proposals must be realistic for the work to be performed

Reflect a clear understanding of the requirement

Cost must be consistent with the various elements of the technical proposal

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PROFIT Represents the

payment the contractor may receive for performance over and above the costs incurred for doing the work.

Contractor/Government Risk

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Profit Statutory Limits Cost Plus Fixed

Fee 10%

Research and Development Cost Plus Fixed Fee 15%

Architect and Engineering Services 6%

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What is Price?

Cost Elements

+ Profit =

Price

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What is the Price for Your Service? Direct Labor $10.00 (Unloaded

Rate)

Overhead $15.00 Est. 150%

Material $ 3.00 Subtotal $28.00

Profit $ 2.80 10%

Total Price $30.80 (Loaded Rate)

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Profit Factors for FFP Contracts

Market Competition

Contractor Risk

100%

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Sales-Direct Cost- Indirect Cost

= Net Profit

Are You Making a Profit ?

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Price Analysis

Process of examining and

evaluating a proposed price

without regard to evaluating the separate cost elements and proposed profit.

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Firm-Fixed-Price Firm-Fixed-Price

with Economic Adjustments

Indefinite Delivery Contracts Time and Material Labor Hour Letter Contract

Firm Fixed Price Contracts

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Price must be Fair and Reasonable

Based on

a) Adequate Price Competitionb) Previous Pricesc) Yardstickd) Published Prices or e) Independent Government Estimate

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Tips 2080 Hours = Gov Staff

Year Loaded/Unloaded Rates Separate Technical and

Cost Proposals Best Value Awards DCMA-

Direct Labor

RatesOverheadG&A (For a SpecificCompany)

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SUMMARY

CostCost

RealismPricePrice

AnalysisProfit

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Thank You Contact Dan Telep at SBDC/PTAC 239-745-3708dtelep@fgcu.eduwww.fgcu.edu/cob/sbdc