14 FAH-2 H-350
INDEPENDENT GOVERNMENT COST ESTIMATE
(CT:COR-35; 08-03-2015)
(Office of Origin: A/OPE)
14 FAH-2 H-351 GENERAL
(CT:COR-35; 08-03-2015)
a. An independent Government cost estimate (IGCE) is the U.S. Government's estimated cost/price of the proposed acquisition. Its purposes are:
(1) To serve as the basis for reserving funds for the contract as part of acquisition planning;
(2) To serve as a basis for comparing costs or prices proposed by offerors; and
(3) To serve as an objective basis for determining price reasonableness.
b. The contracting officer’s representative (COR) prepares the IGCE. The estimate remains confidential between the COR and the contracting officer. The U.S. Government may not provide this information to contractors unless the CO determines it to be appropriate during negotiations or debriefings.
c. An IGCE is required for supplies or services that have a value over the simplified acquisition threshold.
d. Estimating methods include comparison with previous buys, comparison of catalog or market prices, benchmarks or yardsticks, and grounds up estimates.
e. Price comparisons should identify the agency that made the purchase and the price. Adjustments might include differing quantities, time period, warrantees, varying terms or conditions, industry conditions, delivery overseas versus domestic and price of commodity inputs. Contact the contracting officer about previous procurements. Review websites such as www.usaspending.gov, www.fedbizopps.gov and www.fpds.gov for information on prior acquisitions.
f. Catalogs can be obtained from vendors or from their websites. The General Services Administration (GSA) maintains contracts and catalog information on its website.
g. Benchmarks or yardsticks can be developed if it is determined that there is a cost estimating relationship. An example is the square footage of a house or the number of bedrooms to the price of the house, the size of a yard to landscaping services, or the weight of a truck to the cost of its rental. Check industry associations for estimating guidelines that may be useful.
h. A grounds up estimate is a detailed estimate developed without any of the above techniques and is discussed below.
14 FAH-2 H-352 BASIC COST/PRICE CONSIDERATIONS
(CT:COR-35; 08-03-2015)
a. A grounds up cost estimate includes:
(1) The direct costs of production;
(2) A portion of the contractor's indirect or overhead costs (for administrative staff, supervisory staff, rent, insurance, management, heat, lights, and power); and
(3) An amount for profit.
b. A cost is considered reasonable if it represents a decision that a prudent business person would have taken at the time the cost was incurred.
c. Direct costs are costs that can be identified with the production of a particular item, process, or service. Typical examples of direct costs include direct labor, equipment, materials, travel, and subcontracts.
d. Indirect costs (overhead costs) are costs that are not directly identified with a single, final cost objective such as the production of a particular item, but identified with two or more final cost objectives. A final cost objective may be a single contract, production item, process, or service. Indirect costs are accumulated in logical groupings according to the areas they benefit. The most commonly identified groupings are labor overhead (supervision, tools, miscellaneous parts) or fringe benefits (vacation and sick leave, medical and life insurance), materials overhead (purchasing, incoming inspection, inventory, storage), and general and administrative expenses (top management, corporate staff, corporate insurance) (G&A). These costs are expressed as a percentage of some base, which distributes them equitably among the contractor's projects. The contracting officer may be able to provide information on indirect rates for a specific industry based on historical information or there may be previously negotiated indirect rates that can be used in the estimate.
e. Profit or fee is an amount that contractors receive for contract performance over and above allowable costs. Profit is available for rewarding owners and shareholders or reinvestment in the business.
14 FAH-2 H-353 COST MODELS
(CT:COR-35; 08-03-2015)
A cost model is an arithmetic model that, when given labor hours, rates, and other factors, will perform calculations for developing an estimate. It can make elemental cost computations. Exotic cost models may require extensive computer models. Simple cost model calculations are often accomplished using spreadsheet software.
14 FAH-2 H-354 LUMP-SUM AND DETAILED ESTIMATES
14 FAH-2 H-354.1 Lump-Sum Estimates
(CT:COR-35; 08-03-2015)
A lump-sum estimate projects the acquisition cost on a "bottom line" basis. This type of estimate may be useful when the ultimate award price can be determined without examining individual cost elements. Two methods of lump-sum estimating are "round table" and "comparison":
(1) Round table estimating: Experts in engineering, manufacturing, contracting, accounting, or related fields develop the estimate based on their technical expertise and knowledge of the current market. The degree of accuracy is dependent on the expertise of the participants; and
(2) Comparison estimating: A previous acquisition similar to the current requirement is selected as the starting template. The known costs are adjusted by adding or subtracting elements of material, time, and economic or inflationary changes as necessary to reflect the current market. This method is used when relatively few adjustments are needed to develop the estimate.
14 FAH-2 H-354.2 Detailed Estimates
(CT:COR-35; 08-03-2015)
a. Detailed estimates serve as a basis for determining the type of contract, evaluating bids or cost proposals, and conducting negotiations with offerors.
b. Detailed estimates involve an analysis of the cost elements, i.e., direct labor and materials; applying updated labor rates, overhead amounts or rates (percentages), and material prices; and then adding an amount or percentage for profit.
c. When the requirement is for services, the detailed estimate should be an assessment of the contractor's price to complete the work assuming reasonable efficiency on the contractor's part. Estimates for services should include an estimate of the direct costs (wages of direct-service providers, equipment, supplies, travel); indirect costs (overhead plus general and administrative expenses, such as supervisory and management salaries, office rental, office staff wages, payrolling, training, and fringe benefits); and then adding profit.
d. When the requirement is for supplies or equipment, the estimate should take into consideration the recent price history and current warehouse inventory.
e. For manufacturing processes, factors for analysis include costs for direct labor, materials, purchased parts, special tools and dies, material waste and spoilage, and overhead.
f. Estimates for labor-hour contracts should identify labor categories and provide ceilings (the maximum number of hours to be worked) for each category.
g. For construction contracts, estimate all labor by crew labor hours showing crew composition and applicable contract wage scales, plus fringe benefits. Crew hours should be identified with a specific item of material placed or operation performed. The estimate should be based on the average crew rate hour. If the Bureau of Overseas Buildings Operations (OBO) is involved in the project, then OBO will be the source for the U.S. Government cost estimate. 48 CFR 36.203(a) requires that the estimate for a construction project must be prepared in as much detail as if the Government were competing for the award.
h. In order to obtain an accurate assessment of the probable costs of a contract to the Government, a solicitation for an indefinite quantity of services or supplies must contain estimates of the number of units to be ordered, since without them the Department cannot compare proposals on an equal basis or ascertain which offeror submitted the lowest overall cost.
14 FAH-2 H-355 ELEMENTS OF COST
(CT:COR-35; 08-03-2015)
A detailed estimate should contain an estimated amount for each applicable cost element. Reference the Federal Acquisition Regulation (FAR) 48 CFR part 31, "Contract Cost Principles and Procedures" for various costs and their applicability to contracts whenever cost analysis is performed.
14 FAH-2 H-355.1 Direct Costs
14 FAH-2 H-355.1-1 Direct Labor Costs
(CT:COR-35; 08-03-2015)
Identify the tasks and determine the categories of direct labor required for each task, e.g., packer, senior guard, engineer, research assistant. Estimate the total hours needed for each such labor category by task. Determine the hourly rate for each labor category. Consider both the actual wages plus all direct fringe benefits (called a "loaded labor rate"). Multiply the number of hours needed by the rate(s). This will yield the estimated direct labor cost.
14 FAH-2 H-355.1-2 Material Costs
(CT:COR-35; 08-03-2015)
Estimate the type and amount of raw materials, purchased parts, and acquired services that will be required, and the cost of each. To estimate material costs, use conventional product or system units of measure and quantities. Include reasonable material quantities for reasonable overruns, spoilage, or defective work. Take local working conditions into consideration. Reference 48 CFR 31.205-26, Material Costs.
14 FAH-2 H-355.1-3 Equipment Costs
(CT:COR-35; 08-03-2015)
Identify the cost of equipment needed exclusively for the contract including cost of moving, import duties, set-up, tear down, and amortization. Determine whether equipment is likely to be owned or rented to prevent duplication of costs in overhead or depreciation. Establish whether fuel and operator costs are included in equipment hours or calculated separately. See 48 CFR 31.105 for construction equipment actual cost data and predetermined schedules of construction equipment use rates.
14 FAH-2 H-355.1-4 Subcontract Costs
(CT:COR-35; 08-03-2015)
If subcontracts are anticipated, identify the tasks to be subcontracted and estimate the cost. Subcontracting is standard procedure in construction contracting worldwide.
14 FAH-2 H-355.1-5 Travel and Transportation Costs
(CT:COR-35; 08-03-2015)
a. Estimate travel and per diem costs for official company business travel expressed as the number of round trips per individual. Identify the destination and approximate number of trips.
b. Ensure that travel and per diem rates will be reimbursed at no more than the rates permitted in U.S. Government regulations, as follows:
(1) The Federal Travel Regulations 41 CFR 300 through 41 CFR 304 prescribed by GSA for travel in the contiguous 48 United States and the District of Columbia;
(2) The Joint Travel Regulations prescribed by the Department of Defense for travel in Alaska, Hawaii, the Commonwealth of Puerto Rico, and possessions of the United States; and
(3) The Department of State Standardized Regulations (DDSR) for travel in areas not covered by subparagraphs b(1) and b(2) of this section.
c. Reference FAR 48 CFR 31.205-46, Travel Costs.
14 FAH-2 H-355.2 Indirect Costs (Overhead, General and Administrative)
14 FAH-2 H-355.2-1 Overhead Rates
(CT:COR-35; 08-03-2015)
Overhead rates are usually a percentage of the direct labor rate inclusive of fringe benefits. General and administrative (G&A) rates are generally a percentage of the total cost base.
14 FAH-2 H-355.2-2 Taxes
(CT:COR-35; 08-03-2015)
Taxes, such as value added tax (VAT), income tax, and foreign sales tax, are also part of indirect costs. The U.S. Government is generally exempt from paying state sales tax. The Department of State frequently negotiates VAT exemption for overseas procurements. Check with the contracting officer to verify exemptions and whether foreign taxes should be included in the price evaluation or not. The post may provide insights for contracts to be performed overseas. Reference FAR 48 CFR 31.205-41, Taxes.
14 FAH-2 H-355.2-3 Training Costs
(CT:COR-35; 08-03-2015)
Estimate specialized training costs necessary to accomplish the specific requirement. General training costs are part of overhead costs. Reference FAR 48 CFR 31.205-44, Training and Education Costs.
14 FAH-2 H-355.3 Profit
(CT:COR-35; 08-03-2015)
a. Profit is expressed as a dollar amount which equates to a percentage of the estimated cost. Profits generally range from 5% to 15% with 10% to 12% being the average for fixed-price contracts and 5% to 7% being the average for cost-reimbursement contracts. There are structured analytical approaches available to facilitate the estimation of profit or fee for various contract types.
b. 41 U.S.C. 3905 limits the fee in cost-plus-a-fixed-fee contracts as follows:
(1) In general, the fee in a cost-plus-a-fixed-fee contract must not exceed 10 percent of the estimated cost of the contract, not including the fee;
(2) The fee in cost-plus-a-fixed-fee contract for experimental, developmental, or research work must not exceed 15 percent of the estimated cost of the contract, not including the fee; and
(3) The fee in cost-plus-a-fixed-fee contract for architectural or engineering services may include the contractor's costs and must not exceed 6 percent of the estimated cost of the contract, not including the fee.
c. See FAR 48 CFR 15.4 and the DOSAR 48 CFR 615.4 for additional information concerning the Department use of a structured approach for profit/fee analysis. Also, overseas posts may request a waiver from A/OPE, if post is unable to negotiate a price for architect-engineer services within the 6 percent fee price limitation.
14 FAH-2 H-355.4 Cost Estimate
(CT:COR-35; 08-03-2015)
When these data have been compiled, the detailed cost estimate can be prepared. Instructions to prepare a cost estimate are provided at 14 FAH-2 Exhibit H-355.4(1). 14 FAH-2 Exhibit H-355.4(2) includes a sample cost estimate worksheet for services. 14 FAH-2 Exhibit H-355.4(3) includes a sample cost estimate worksheet for manufacturing or construction. 14 FAH-2 Exhibit H-355.4(4) includes a sample independent U.S. Government cost estimate worksheet for travel.
14 FAH-2 H-356 THROUGH H-359 UNASSIGNED
14 FAH-2 Exhibit H-355.4(1)
Instructions for Preparing U.S. Government Estimates
(CT:COR-35; 08-03-2015)
[14 FAH-2 EXHIBIT H-355.4(2), 14 FAH-2
EXHIBIT H-355.4(3)
AND 14 FAH-2 EXHIBIT H-355.4(4) CONTAIN SAMPLE WORKSHEETS]
The instructions below apply to the 14 FAH-2 Exhibit H-355.4(2) Independent U.S. Government Cost Estimate Worksheet.
Line A: List all applicable labor categories, estimated number of hours, and hourly rate. Multiply the number of hours for each category by that category's hourly rate. Add up this amount (hours x rate) for all of the categories to get a total estimated cost for direct labor and enter this number in line A-1 in the right-hand column.
Line B: Enter an estimated total cost for material and equipment.
Line C: Enter the sum of lines A-1 and B.
Line D: Enter the estimated overhead rate (such as 150%); multiply it by the amount in line C, and enter this number in line D in the right-hand column. For example, if line C is $100,000, and the overhead rate is 150%, then line D should be $150,000.
Lines E, F, G: Enter any estimated costs for construction, training, and other direct costs.
Line H: Enter the sum of lines C through G.
Line I: Enter the estimated general and administrative (G&A) rate (such as 40%), multiply the rate times the amount in line H, and enter this G&A amount in line I in the right-hand column. For example, if line H is $250,000, and the G&A rate is 40%, then line I should be $100,000.
Line J: Enter the sum of lines H and I.
Line K: Enter the estimated profit rate, multiply it by line J, and enter the result in line K in the right-hand column. For example, if the profit rate is 10%, then (using the above example), line J should be $250,000 + $100,000 = $350,000, times 10% = $35,000 in line K.
Line L: Enter the sum of lines J and K in the right-hand column. In this example, the total is $350,000 + $35,000 = $385,000.
14 FAH-2 Exhibit H-355.4(2)
Sample Independent U.S. Government Cost Estimate Worksheet for Services
(CT:COR-35; 08-03-2015)
Estimate valid until: MM/DD/YYYY Estimated by:
Joe Estimator
Date: MM/DD/YYYY Sheet 1 of 1
COST CATEGORIES HOURS RATE TOTAL
(A) Direct Labor (by category)
Worker Chief 1,000 x $25.00 =$ 25,000
Worker Manager 2,000 x $12.50 =$ 25,000
Worker A 2,500 x $10.00 =$ 25,000
Worker B 5,000 x $ 5.00 =$ 25,000
(A-1) Total Direct Labor =$100,000
(B) Material & Equipment = 0
(C) Total (A-1) + (B) =$100,000
(D) Overhead @ 150% (Rate (%) x (C) ($100,000)) =$150,000
(E) Construction = 0
(F) Training = 0
(G) Other Direct Costs
Supplies = 0
Equipment Rentals = 0
Travel = 0
Other (Describe) = 0
(H) Direct Costs (no General and
Administrative
(G&A) Costs) (Add Lines (A-1) through (G)) =$250,000
(I) General and Administrative Costs
(G&A)
@ 40% (Rate (%) x (H) $250,000) =$100,000
(J) All Costs (Including G&A)
(Add lines (H) + (I)) =$350,000
(K) Profit @ 10% (Rate (%) x (J) $350,000) =$ 35,000
(L) Total Estimated Price (Add lines (J) + (K)) =$385,000
14 FAH-2 Exhibit H-355.4(3)
Sample Independent U.S. Government Cost Estimate Worksheet for Manufacturing/Construction
(CT:COR-35; 08-03-2015)
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Estimate valid until: MM/DD/YYYY |
Estimated by: |
Date: MM/DD/YYYY |
Sheet 1 of 1 |
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Work Description |
Quantity |
Material |
Labor |
Total |
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Number of. Units |
Unit of Measure |
Per Unit |
Per Unit Subtotal |
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TOTALS |
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Transfer
Total to Line E - Construction on Estimate
Worksheet
14 FAH-2 Exhibit H-355.4(4)
Sample Independent U.S. Government Cost Estimate Worksheet for Travel
(CT:COR-35; 08-03-2015)
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RFP NO. __________ |
PROJECT TITLE |
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Round |
Number |
Number |
Number |
Number |
Airfare |
Auto |
Communications |
Per Diem |
Total |
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SIGNATURE: |
DATE: MM/DD/YYYY |
TOTAL COST: $________
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Transfer Total to Line G - Travel on Estimate Worksheet