Award of Contracts

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5.0 Overview

This chapter concerns the more important procedures and documentation requirements which are closest to and relate most directly to the time of the actual contract award. These are the final steps in the long process leading to the selection decision, the negotiation of a contract, the signing of the contract, and the notifications to unsuccessful offerors and the general public of who the winner is.

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5.1 Responsibility of Contractor

Requirement

Paragraph 7.h. of FTA Circular 4220.1E states:

Awards to Responsible Contractors. Grantees shall make awards only to responsible contractors possessing the ability to perform successfully under the terms and conditions of a proposed procurement. Consideration shall be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources.

Paragraph 7.i. of FTA Circular 4220.1E states:

Written Record of Procurement History. Grantees shall maintain records detailing the history of a procurement. At a minimum, these records shall include: . . . (3) reasons for contractor selection or rejection.

Definition

Responsible - If the lowest responsive bidder possesses, at the time of contract award, the ability to perform successfully and a willingness to comply with the terms and conditions of a proposed contract, the bidder is considered responsible.

Discussion

Responsibility is a procurement issue determined after receipt of bids or proposals and prior to the time of contract award. The contractor must be considered responsible to be awarded a contract, regardless of the procurement method used to select that contractor (sealed bidding, competitive proposal, or sole source). For example, suppose your procurement procedures allow for award of a contract to a sole source, provided there is sufficient justification. As it turns out, the sole source chosen has been debarred by the Department of the Army. If Federal funds are involved, a contract cannot be awarded to the sole source because the contractor is not considered responsible. 1 our analysis of the factors involved in making a determination of responsibility involves a great deal of subjectivity -- after all, you are grading a firm's "ability" to do a job.

You may have a procurement where it is necessary to determine the responsibility of a critical subcontractor in order for you to make a positive determination about the prime contractor's responsibility. 2 If that is necessary, you may use the same standards in determining the responsibility of the subcontractor as you would in determining the responsibility of the prime contractor.

5.1.1 General Standards of Responsibility

To be determined responsible, a prospective contractor must meet all of the following requirements:

  • (a) Financial resources adequate to perform the contract, or the ability to obtain them.
  • (b) Ability to meet the required delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments.
  • (c) A satisfactory performance record;
  • (d) A satisfactory record of integrity and business ethics;
  • (e) The necessary organization, experience, accounting, and operational controls, and technical skills, or the ability to obtain them;
  • (f) Compliance with applicable licensing and tax laws and regulations;
  • (g) The necessary production, construction, and technical equipment and facilities, or the ability to obtain them;
  • (h) Compliance with Affirmative Action and Disadvantaged Business Program requirements; and
  • (i) Other qualifications and eligibility criteria necessary to receive an award under applicable laws and regulations.

5.1.2 Special Standards of Responsibility

You may have a particular procurement or class of procurements which, due to the complexity of the products being acquired, require that prospective contractors meet special standards of responsibility. These procurements will require that contractors have specialized expertise or facilities in order to perform the contract adequately. These special standards of responsibility must be set forth in the solicitation. Failure to meet the special standards will disqualify a bidder from consideration for award. An example of a Special Responsibility Standard would be the Special Quality Assurance requirement concerning measuring and testing facilities and manufacturing controls which must be met by prospective bus manufacturers. 3

5.1.3 Obtaining Information for Determination of Responsibility

Before making a determination of responsibility, you must possess or obtain information sufficient to satisfy yourself that a prospective contractor meets the applicable standards and requirements for responsibility set forth in this section. Appendix B.11 represents an example of a "Responsibility Questionnaire" used by a major transit authority to obtain information from bidders which is necessary in order to make a determination of responsibility.

Sources of information available to your for your determinations could include:

  • (a) General Services Administration publication titled List of Parties Excluded from Federal Procurement or Nonprocurement Programs;
  • (b) Records and experience data, including verifiable knowledge of your agency's personnel;
  • (c) Information supplied by the prospective contractor, including bid or proposal information, questionnaire replies, financial data, information on production equipment, and personnel information;
  • (d) Preaward survey reports; and
  • (e) Other sources, such as publications, suppliers, subcontractors, and customers of the prospective contractor, financial institutions, government agencies, and business and trade associations.

5.1.4 Determination and Documentation

The FTA Circular 4220.1E Paragraph 7(i) requires grantees to maintain a written record of the procurement history, including "reasons for contractor selection or rejection." While the award of a contract itself can in some instances (e.g. small purchases) be considered implicit affirmation that a contractor has been determined to be responsible, where appropriate the written record should state the specific basis for a responsibility determination.

When an offer on which an award would otherwise be made is rejected because the prospective contractor is found to be nonresponsible, the Contracting Officer should make, sign, and place in the contract file a determination of nonresponsibility which states the basis for the determination.

Documents and reports supporting a determination of responsibility or nonresponsibility, including any preaward survey reports, should be included in the contract file.

Discussions with Offeror -- In doing the research necessary to make a responsibility determination, you are free to discuss with the bidder/offeror any concerns which you may have regarding the bidder's/offeror's responsibility. You are free to discuss issues of "responsibility" with the bidder, unlike issues regarding "responsiveness," which cannot be discussed with bidders (See BPPM Section 4.4.4).

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5.2 Cost and Price Analysis

Requirement

Paragraph 10 of FTA Circular 4220.1E requires a cost or price analysis for every procurement action:

  • Grantees must perform a cost or price analysis in connection with every procurement action, including contract modifications. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, grantees must make independent estimates before receiving bids or proposals.
    • (a) Cost Analysis - A cost analysis must be performed when the offeror is required to submit the elements (i.e., Labor Hours, Overhead, Materials, etc.) of the estimated cost; e.g., under professional consulting and architectural and engineering services contracts.
  • A cost analysis will be necessary whenever adequate price competition is lacking and for sole source procurements, including contract modifications or change orders, unless price reasonableness can be established on the basis of a catalogue or market price of a commercial product sold in substantial quantities to the general public or on the basis of prices set by law or regulation.
    • (b) Price Analysis - A price analysis may be used in all other instances to determine the reasonableness of the proposed contract price.
    • (c) Profit - Grantees will negotiate profit as a separate element of the price for each contract in which there is no price competition and in all cases where cost analysis is performed.
    • (d) Federal Cost Principles - Costs or prices based on estimated costs for contracts under grants will be allowable only to the extent that costs incurred or cost estimates included in negotiated prices are consistent with Federal cost principles. Grantees may reference their own cost principles that comply with applicable Federal cost principles.

Definitions

Cost Analysis - A cost analysis entails the review and evaluation of the separate cost elements and the proposed profit of an offeror's cost or pricing data and the judgmental factors applied in estimating the costs. A cost analysis is generally conducted to form an opinion on the degree to which the proposed cost, including profit, represents what the performance of the contract should cost, assuming reasonable economy and efficiency.

Price Analysis - A price analysis involves examining and evaluating a proposed price without evaluating its separate cost and profit elements. Price analysis is based essentially on data that is verifiable independently from the offeror's data.

Federal Cost Principles - It is important to understand that grant funds may only be used by the grantee to pay for allowable costs when the contract is a cost-plus-fixed-fee contract or when a fixed price contract is being negotiated on the basis of cost estimates submitted by the contractor. The term allowable cost is defined in 48 CFR 31.201-2. (48 CFR 31 is Part 31 of the Federal Acquisition Regulation (FAR). The common grant rule, found in 49 CFR 18.22 - Allowable Costs, requires that the cost principles found in the FAR (48 CFR 31) be used to determine allowable costs for commercial ("for-profit") organizations. The FAR may be accessed on the Internet. 4 Grantees may use their own cost principles if they are consistent with the Federal cost principles. This requirement to use the FAR cost principles affects the allowability of costs not only on cost-reimbursement contracts but also when evaluating and negotiating cost elements in order to establish a price on a fixed-price contract. Thus, whenever you do a cost analysis of an offeror's cost/price proposal you will need to use the Federal cost principles (or principles consistent with them) to determine what costs are acceptable.

Discussion

In general, the purpose of cost or price analysis is to ensure that you do not pay unreasonably high prices. However, prices which are unreasonably low can also be detrimental to your agency's program if they prove to be an indication that the offeror has made a mistake or doesn't understand the work to be performed. It is important to do a cost-realism analysis of cost proposals submitted for cost reimbursement contracts that are to be competitively awarded in order to determine the realism of the various proposals and not permit a "buy in" (an unrealistically low estimated contract cost and fee) that will eventually result in a substantial cost overrun.

Before issuing a solicitation, develop an independent estimate of the proper price level for the supplies or services to be purchased. The estimate can range from a simple budgetary estimate to a complex estimate based on inspection of the product itself and review of such items as drawings, specifications, and prior data (such as cost data from prior procurements). The estimate can then assist in a determination of reasonableness or unreasonableness of price and/or the estimated costs to do the job. If you will be requesting a proposal with a breakdown of estimated costs, be sure to require a format for the cost proposal that will allow you to compare the cost elements proposed with those that were developed for your in-house estimate.

Best Practices

The Federal Acquisition Regulation (FAR), Subpart 15.404-1(a)(7) - Proposal Analysis Techniques, references a five-volume set of Contract Pricing Reference Guides to guide pricing and negotiation personnel. These guides are informational and not directive. They are available via the Internet. 5

The National Transit Institute (NTI) at Rutgers University offers a course for FTA grantees titled "Cost and Price Analysis and Contract Negotiation." It is a four-day course offered free of charge to FTA grantees but it is also open to the public for a fee. 6 Part of the NTI course manual material includes a Pricing Guide for FTA Grantees that is based in part on the Defense Contract Audit Agency's (DCAA) Pricing Manual. The Pricing Guide for FTA Grantees is now available and grantees are urged to utilize this resource.

Price Analysis

The accepted forms of price analysis techniques discussed in the Pricing Guide for FTA Grantees are:

  1. Adequate price competition;
  2. Prices set by law or regulation;
  3. Established catalog prices and market prices;
  4. Comparison to previous purchases;
  5. Comparison to a valid grantee independent estimate; and
  6. Value analysis.

1. Adequate price competition requires the following conditions:

  • At least two responsible offerors respond to a solicitation.
  • Each offeror must be able to satisfy the requirements of the solicitation.
  • The offerors must independently contend for the contract that is to be awarded to the responsive and responsible offeror submitting the lowest evaluated price.
  • Each offeror must submit priced offers responsive to the expressed requirements of the solicitation.

If the four conditions above are met, price competition is adequate unless:

  • The solicitation was made under conditions that unreasonably deny one or more known and qualified offerors an opportunity to compete.
  • The low competitor has such an advantage over the competitors that it is practically immune to the stimulus of competition.
  • The lowest final price is not reasonable, and this finding can be supported by facts.

2. Prices set by law or regulation are fair and reasonable. Grantees should acquire a copy of the rate schedules set by the applicable law or regulation. Once these schedules are obtained, verify that they apply to your situation and that you area being charged the correct price. For utility contracts, this policy applies only to prices prescribed by an effective, independent regulatory body.

3. Established catalog prices require the following conditions:

  • Established catalog prices exist.
  • The items are commercial in nature.
  • They are sold in substantial quantities.
  • They are sold to the general public.

The idea behind catalog prices is that a commercial demand exists and suppliers have been developed to meet that demand. You are trying to ensure that you are getting at least the same price as other buyers in the market for these items. You need to be sure that the catalog is not simply an internal pricing document. Request a copy of the document or at least the page on which the price appears.

Established market prices are based on the same principle as catalog prices except there is no catalog. A market price is a current price established in the usual or ordinary course of business between buyers and sellers free to bargain. These prices must be verified by buyers and sellers who are independent of the offeror. If you do not know the names of other commercial buyers and sellers, you may obtain this information from the offeror.

4. Comparison to previous purchases -

Changes in quantity, quality, delivery schedules, the economy, and inclusion of non-recurring costs such as design, capital equipment, etc. can cause price variations. Each differing situation must be analyzed. Also ensure that the previous price was fair and reasonable. This determination must be based upon a physical review of the documentation contained in the previous files.

5. Comparison to a valid grantee independent estimate -

Verify the facts, assumptions, and judgments used by your estimator. Have the estimator give you the method and data used in developing the estimate. For example, did prices come from current catalogs or industry standards? Be sure that you feel comfortable with the estimate before relying on it as a basis for determining a price to be fair and reasonable.

6. Value analysis requires you to look at the item and the function it performs so you can determine its worth. The decision of price reasonableness remains with the contracting officer; however, the requiring activity should always be consulted for their expertise, and they should participate in making the decision.

Cost Analysis

Cost analysis is the review and evaluation of the separate cost elements and profit in an offeror's or contractor's proposal and the application of judgment to determine how well the proposed costs represent what the cost of the contract should be, assuming reasonable economy and efficiency.

Cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror's proposed cost estimate to determine whether the proposed cost elements are realistic for the work to be performed; reflect a clear understanding of the requirements; and are consistent with the unique methods of performance and materials described in the offeror's technical proposal. Cost realism analyses should be performed on competitively awarded cost-reimbursement contracts to determine the probable cost of performance for each offeror. The probable cost may differ from the proposed cost and should reflect the grantee's best estimate of the cost of any contract that is most likely to result from the offeror's proposal. The probable cost is determined by adjusting each offeror's proposed cost to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis. The probable cost should be used for purposes of evaluation to determine the best value.

Cost proposals and cost analysis are typically associated with negotiated procurements, including modifications and change orders to existing contracts. In order to facilitate the evaluation of contractor cost proposals, it is usually helpful to prescribe the format of the cost proposals in your solicitation. This will ensure that all offerors submit proposals that can be easily compared to one another on a cost element basis (if the procurement is competitive), and it will facilitate your evaluation of proposals against the in-house estimate and for purposes of a cost realism analysis.

A technical analysis of the proposed types and quantities of materials, labor, special tooling, equipment, travel requirements, and other direct costs will usually be necessary. These analyses will have to be performed by personnel specialized in engineering, science or other disciplines. At a minimum, the technical analysis should examine the types and quantities of material proposed and the need for the types and quantities of labor hours and the labor mix.

Advisory audit assistance is strongly recommended whenever the value of an offeror's proposal is significant and the costs of obtaining the audit assistance do not outweigh the potential benefits. If the offeror has performed work for Federal agencies, there may very well be a Federal audit agency, such as DCAA, that can be contacted by phone for the latest available audit information regarding direct labor rates, indirect cost rates, and other pertinent costs. If there are no Federal auditors, you should consider contacting the independent CPA firm that audits and certified the contractor's latest annual financial statements. Oftentimes these CPA firms can provide audit assistance. If you do request an advisory pricing audit for the purpose of conducting negotiations, be sure to inform the auditor that the FAR Part 31 cost principles must be used to determine allowable costs. 7 And also be sure to evaluate the proposed costs of any subcontractor that has submitted cost data to the prime contractor.

Profit/Fee - To negotiate a fair and reasonable profit, consideration should be given to:

  • The complexity of the work to be performed,
  • The risk borne by the contractor,
  • The contractor's investment,
  • The amount of subcontracting,
  • The quality of its record of past performance, and
  • Industry profit rates in the surrounding geographical area for similar work.

Negotiation and Documentation

Pre-negotiation Memorandum - Some form of pre-negotiation document should be prepared for all negotiations. The extent of detail and the content will depend on the magnitude and complexity of the negotiation. There are a number of important reasons for grantees to make use of a pre-negotiation memorandum:

  1. It will facilitate effective cost and/or price analysis. A lack of effective cost or price analysis has been one of the most common problem areas uncovered by FTA Procurement System Reviews (PSRs). 8
  2. It will encourage negotiations with the offeror by revealing those areas where the costs or price needs to be questioned and discussed with the offeror. Here again the PSRs have shown that many grantees simply accept contractor proposals without negotiations.
  3. It will document the file with an explanation of the basis for the contract price and it can be used to provide a history of the procurement. This failure to document how the contract price was determined and to provide a history of the procurement is yet another problem area disclosed by PSRs. 9
  4. It will afford the grantee an excellent method of supervisory/management review and approval of the contract negotiator's strategy for the negotiations. This would include the concurrence of the technical personnel (user office) in that strategy, which is an important point if the negotiations are to be successful and all of the agency's goals are to be met.

A sample PM is included in the Pricing Guide for FTA Grantees and is reproduced below. 10 This PM can be tailored to meet any negotiation scenario that you might have, from large competitive procurements to the negotiation of contract change orders or modifications.

PRE-NEGOTIATION MEMORANDUM (PM) FORMAT

1. Grantee Contracting Activity ___________________________________ 2. Date ____________

3. RFP/IFB or Contract Number _____________________________________________________

4. Modification Number ___________________________________________________________

5. This acquisition is being accomplished by (check one)

Full and Open Competition _____________

Other than Full and Open Competition _____

State reasons for other than full and open competition.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
6. Contract Type _________________________________________________________________

7. Offeror's (Name, Address)
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

8. Business Size and Type (Small, Large, WOB) ________________________________________

9. Offeror's Proposed Amount ______________________________________________________

10. Procurement Description (briefly describe the procurement) ___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
11.

Pricing Structure

Cost
Fee/Profit ______%)
Total Price

Prenegotiation Objective

$_______________
$_______________
$_______________
12. Delivery of Performance Period ___________________________________________________

13. Points of Contact for this Document (name and phone number) a. Contracts___________________________________________
b. Technical___________________________________________
PART A INTRODUCTION
  1. In this paragraph, describe the acquisition, including a brief history of the requirement, the place of performance, and any other pertinent information. Questions to be answered include: What is it? Why is it needed? What is it for? Quantity? If this is a contract modification, what events or circumstances contributed to the needed change? State the Grantee's estimated amount of the proposed acquisition.
  2. In this paragraph, address the extent of competition under the acquisition. Is the acquisition being accomplished under full and open competition? If other than full and open, include a statement regarding sole source approval. Additionally, was the requirement publicized in accordance with Grantee's procedures? (If not, cite the exception.) How many requests for solicitations were received? How many offers were received?
  3. In this paragraph, include your planned negotiation schedule, and identification of the Grantee's negotiating team members by name and position.
SPECIAL FEATURES, REQUIREMENTS AND PRENEGOTIATION COMPLIANCE

The following items should be addressed for all negotiated acquisitions:

  1. The use of sealed bid procedures is not appropriate for this acquisition because _______________________________________________________________________
    _______________________________________________________________________
  2. The prospective contractor(s) has/have been determined to be responsible technically and are financially stable. Yes_______ No_______
    Major subcontractors (list their names) have been reviewed and found to be technically responsible and are financially stable.
  3. The prospective contractor(s) is/are not on the list of "Parties Excluded from Procurement and Nonprocurement Programs."

    (The following items should be included when applicable:)
  4. Pre-contract cost in the amount of $___________ for the period__________________ were approved by (name of individual).
  5. Authority to enter into a letter contract was approved by (name of individual).
  6. Are optional quantities being proposed and are they being evaluated as part of the award decision? 11.
  7. The offeror has submitted "Cost or Pricing Data."
    Yes________ No_________
  8. "Cost or Pricing Data" for major subcontract(s) has been submitted.
    Yes__________ No__________
  9. Written waiver of the audit was granted by (name of individual).
  10. The offeror(s) has/have an adequate accounting system as determined by (name of individual). (Cost reimbursement contracts, fixed price with price redetermination, incentive types and contracts containing progress payment provisions.)
  11. EEO compliance has been requested or obtained.
    Yes_________ No_________
  12. In the event Grantee property is to be furnished to the offeror, has the Contracting Officer determined that the contractor has an acceptable property control system. Grantee furnished equipment estimated value $________________consisting mainly of ___________________________________________
    _____________________________________________. Grantee furnished material estimated value $_______________ consisting mainly of __________________________________________________________________________.
  13. Address any deviations, special clauses or conditions anticipated.
  14. The offer has _____ has not ______ submitted a subcontracting plan. Briefly discuss the subcontracting plan if applicable.
PART C COST AND PROFIT/FEE ANALYSIS

In this Part C, compare, in summary, the offeror's proposal, the audit and/or other recommendations, and the Grantee's Prenegotiation objective. For example:


Cost Element Offeror's
Proposal
Audit/Technical
Recommendation *
Prenegotiation
Objective
Numbered
Notes **
Direct Labor $ $ $ (1)
Labor Overhead $ $ $ (2)
Direct Material $ $ 4 (3)
Mat'l Overhead $ $ $ (2)
Other Direct Costs $ $ $ (4)
Subtotal $ $ $
G&A $ $ $ (2)
Subtotal $ $ $
Profit/Fee $ $ $ (5)
Total $ $ $ (6)

The above is an example of the various cost elements that should be reviewed when analyzing a proposal. These elements are not to be interpreted as all-encompassing because the cost elements of each offeror may be different.

*Audit/Technical Recommended:

In general, an audit report will not include recommendations on direct labor hours or the validity of material and other direct costs. The technical evaluation/analysis generally will not include rate recommendations. Therefore, this column should be a combination of your two reports (audit and technical). In cases where you have not obtained an audit, you need only reflect the "Offeror's Proposal" and "Prenegotiation Objective" columns. The technical evaluation results can be addressed in your discussions, and would normally be used in the establishment of your objective.

For your information, "Technical Analysis" is defined as the examination and evaluation by personnel having specialized knowledge, skills, experience, or capability in engineering, science, or management of proposed quantities and kinds of materials, labor, processes, special tooling, facilities, and associated factors which have been set forth in a proposal. In order to determine and report on the need for the reasonableness of the proposed resources assuming reasonable economy and efficiency, special knowledge is required. Therefore, a technical evaluation that doesn't address individual elements of cost (i.e., labor categories, labor hours, material, other direct costs, etc.), but merely states that the proposal is acceptable, is not considered adequate.

**Numbered Notes:
(1) Direct Labor

Compare, in detailed discussion, the proposal, the audit and/or technical recommendations, and the prenegotiation objective direct labor categories, hours and rates.

For example:

Labor Category Offeror's
Proposal
Audit/Technical
Recommendation
Prenegotiation
Objective
Hours Rate Amt. Hours Rate Amt. Hours Rate Amt.
Engineer xx $ $ xx $ $ xx $ $
Programmer xx $ $ xx $ $ xx $ $
Clerical xx $ $ xx $ $ xx $ $
Total     $     $     $
Offeror's Proposal

First subparagraph. Summarize the offeror's rationale for the proposed labor categories, hours and rates. Questions you can consider are: Are the proposed labor rates the result of a negotiated forward pricing rate agreement (FPRA)? Are they unaudited bidding rates which have been approved at a corporate level? Are they current actual rates for specific employees or a composite rate for personnel under each labor category? If the labor rates are developed on a specific base rate, what escalation factor (if any), has the offeror applied to the base rate? Is that a reasonable factor? Are the proposed labor categories and hours based upon the offeror's previous experience? What evidence of historically incurred hours has the offeror provided? Or, is the proposal an engineering estimate of the projected labor and expertise to accomplish the requirements of the acquisition? Do the proposed hours correspond to the performance period?

Audit/Technical Recommendation

Second subparagraph. Summarize the basis of the audit or other recommendations. How have the recommended labor rates been developed? For instance, audit reports generally use the Data Resources Indices in developing labor rate recommendations. This has been proven to be a reliable escalation predictor for labor rates and material items. If you have an audit report, the information for this subparagraph will be within the audit report. In the event you have not obtained an audit, it is advisable to contact your state audit office and request current rate recommendations. The recommendations of the technical evaluation should also be addressed under this subparagraph. It is important that the evaluation includes complete and factual support for any exceptions taken to proposed direct labor categories and hours.

Prenegotiation Objective

Third subparagraph. Discuss the Grantee's negotiation objective. What is it based upon? Did you rely on the audit recommendations? Did you rely on the technical evaluation in development of your objective labor categories and hours? An excellent resource for additional considerations during analysis of a proposal is the Armed Services Pricing Manual, ASPM. Additionally, the evaluation considerations in evaluating manufacturing labor in lieu of engineering labor differ greatly. In a manufacturing environment, other considerations may include application of learning curve theory, efficiency factors, recurring versus non-recurring labor, etc.

It is your responsibility to establish a reasonable objective after considering and analyzing all of the available data. Statements to the effect, " THE OFFEROR HAS PROPOSED THE SAME RATES ON OTHER CONTRACTS," are not adequate without discussion of how price reasonableness was determined under the other contracts.

(2) Labor Overhead, Material Overhead, and G&A

Compare, in detailed discussion, the offeror's proposal, the audit and/or other recommendations, and the Grantee's objective for labor overhead, material overhead, and G&A. For example:

Category Offeror's
Proposal
Audit/Technical
Recommendation
Prenegotiation
Objective
Rate Amt. Rate Amt. Rate Amt.
Labor Overhead xx $ xx $ xx $
Material Overhead xx $ xx $ xx $
G&A xx $ xx $ xx $
Offeror's Proposal

First subparagraph. Describe how the offeror developed the proposed indirect rates. Does a forward pricing rate agreement exist? If so, what is the period covered by the agreement? This information should be provided by the offeror.

Audit/Other Recommendation

Second subparagraph. Explain what the audit's recommendations are based upon. This may include exception taken to some cost elements within the overhead pool, such as fringe benefits, unemployment taxes, rent, depreciation, etc. This information should be reflected in the audit report. If you do not obtain an audit report, you can request current rate recommendations and/or historical actual rates from your state audit office. Comparing the offeror's proposed rates to the actual rates can provide a good measure on how accurate the offeror's proposed rates have been.

Prenegotiation Objective

Third paragraph. Address how you developed the Grantee's prenegotiation objective, and upon what information you relied. Are your objective rates based upon recommendations? Occasionally, you may experience a situation where you haven't obtained an audit report, and your state audit office has no information on a specific offeror. In such cases, it may be to your advantage to request an audit of the offeror's rates. Absent this information, you will need to evaluate the offeror's proposed rates in detail (i.e., cost elements included in the indirect pools) for allowability and allocability. Comparing one offeror's rates with those of another offeror's is not an acceptable method in any case. Also, comparing this year's proposed rates to last year's rates is not a basis for establishing reasonableness of the currently proposed rate.

(3) Direct Material

Provide a detailed breakdown and compare, in detailed discussions, the offeror's material quantities and unit prices.

Material Offeror's
Proposal
Technical/Audit
Recommendation
Prenegotiation
Objective
Qty UP Amt. Qty UP Amt. Qty UP Amt.
Pwr Sup xx $ $ xx $ $ xx $ $
CM Chips xx $ $ xx $ $ xx $ $
Wire xx $ $ xx $ $ xx $ $
Other xx $ $ xx $ $ xx $ $
Total     $     $     $
Offeror's Proposal

First subparagraph. Address the basis of the offeror's proposed direct material (engineering estimate? based upon history?, etc.) and costs associated with the material (catalog prices? oral quotes? written quotes? historical prices escalated by $?, competitive?, etc.) Will there be any scrap, attrition or variance factors to consider? If applicable, has the offeror included an analysis for large dollar items? Is the analysis meaningful?

Audit/Technical Recommendation

Second subparagraph. Address the audit/technical recommendations. Has the auditor/originator taken exception to any of the proposed material items, quantities or associated prices? Have exceptions been adequately supported?

Prenegotiation Objective

Third subparagraph. Support the Grantee's prenegotiation objective. If you have taken exception to any material items and/or quantities, what information have you relied upon to reach your conclusions? If you have taken exception to any pricing aspects of the offeror's proposal, explain fully how you arrived at your objective. In cases where you have no audit report, the importance of a thorough technical evaluation is increased. You must make a determination of price reasonableness for the direct material items. When challenging a cost, explain the basis for your position. "Appears too high," without rationale, is not sufficient.

(4) Other Direct Costs (ODC)

Compare, in detail discussions, the offeror's proposal, the audit and/or technical recommendation, and the prenegotiation objective for other direct costs. For example:

Cost Element Offeror's
Proposal
Audit/Technical
Recommendation *
Prenegotiation
Objective
Computer Support $ $ $
Freight $ $ $
Air Travel $ $ 4
Per Diem $ $ $
Consultant $ $ $
Total ODC $ $ $
Offeror's Proposal

First subparagraph. Summarize the offeror's rationale for proposing the various expenses. The elements above are examples of the types of costs generally included as other direct costs (ODC).

Technical/Audit Recommendation

Second subparagraph. Summarize the audit and/or technical recommendations. Address all the items included under this element. Any exceptions taken must be fully explained.

Prenegotiation Objective

Third paragraph. Provide an analysis of the items included under this cost element. For instance, are the number of trips scheduled considered reasonable by audit or your technical evaluation? Are the costs per trip reasonable?

You can check air travel rates with commercial airlines. How does the offeror's proposed costs compare with previous history? Did the contractor apply an escalation factor? Is it reasonable? In your analysis, you may need to show a lower level breakdown (i.e., a breakdown of the number and location of proposed trips).

(5) Profit/Fee Analysis

Provide a summary which compares the offeror's proposal and the Grantee's prenegotiation objective. For example:

Offeror's
Proposal
Prenegotiation
Objective
Rate Amt. Rate Amt.
xx% $ xx% $
Offeror's Proposal

First subparagraph. State the offeror's proposed profit/fee rate, that amount, and any other information provided by the offeror to support the proposed rate.

Prenegotiation Objective

Second subparagraph. Address the Grantee's prenegotiation objective profit/fee rate which should be based upon application of your structured approach.

  • Structured approaches for determining profit or fee prenegotiaiton objectives provide a discipline for ensuring that all relevant factors are considered.
  • Grantees should use a structured approach for determining the profit or fee objective in those acquisitions that require cost analysis; and
  • May prescribe specific exemptions for situations in which mandatory use of a structured approach would be clearly inappropriate.
  • Profit or fee prenegotiation objectives do not necessarily represent net income to contractors. Rather, they represent that element of the potential total remuneration that contractors may receive for contract performance over and above allowable costs. This potential remuneration element and the Grantee's estimate of allowable costs to be incurred in contract performance together equal the Grantee's total prenegotiation objective. Just as actual costs may vary from estimated costs, the contractor's actual realized profit or fee may vary from negotiated profit or fee, because of such factors as efficiency of performance, incurrence of costs the Grantee does not recognize as allowable and contract type.

    It is in the Grantee's interest to offer contractors opportunities for financial rewards sufficient to (1) stimulate efficient contract performance, and (2) attract the best capabilities of qualified large and small business concerns to Grantee contracts.

    Both the Grantee and contractor should be concerned with profit as a motivator of efficient and effective contract performance. Negotiations aimed merely at reducing prices by reducing profit, without proper recognition of the function of the profit, are not in the Grantee's interest.

PART D TYPE OF CONTRACT CONTEMPLATED

Explain the type of contract contemplated and the rationale for selection. 12 If this prenegotiation memorandum is being written for a modification to an existing contract, you must also address the contract type.

PART E MAJOR DIFFERENCES

Identify any anticipated problem areas, exceptions taken by the offeror(s) to the solicitation terms and conditions, or major differences which may interfere with negotiations, and your intended negotiation strategy.

PART F NEGOTIATION APPROVAL SOUGHT

Give your specific recommendation similar to the following:

"Approval of this Pre-Negotiation Memorandum is recommended based upon the information set forth herein and authority to negotiate and enter into a contract is requested. It is considered the opinion of the negotiator that the Grantee's prenegotiation objectives are realistic and can be achieved."


Prepared by: ______________________________ Date:_________________

(Signature and Title)

Reviewed by: ______________________________ Date:_________________

(Signature and Title)

Approved by: ______________________________ Date:_________________

______________________________
(Name and Title)

 

My Approval is: (check one) ____ a. Unconditional ____ b. Conditional (See attached exceptions.)

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5.3 Award Procedures

Discussion

Contract awards generally follow one of two procedures:

Offer and Acceptance - When you are fully in agreement with all of the terms and conditions of the offer and you desire to make an immediate contract award, you may wish to use a simple offer and acceptance form as the awarding document. All that is required is that you sign the "acceptance" block on the form and issue it to the contractor. The form may reference documents such as the Request For Proposal (RFP), which contain the terms and conditions upon which the offer is based. For an example of an offer and acceptance format, see Appendix B.7. 13 This approach may work well if there have been no changes to the terms originally established in the RFP, but where there have been changes, either in the offeror's proposed terms or resulting from negotiations, you may avoid confusion by drafting a bilateral contract document which defines the final terms agreed upon.

Bilateral Contract - In many cases there will have been changes to the RFP terms or the proposal terms during the course of discussions and negotiations with the offerors. In such cases you may want to issue a preliminary notice of award notifying the successful offeror that it has been selected for award and that an integrated bilateral contract document will be forthcoming. This integrated contract would incorporate the final negotiated terms and conditions, including price, specifications, warranty provisions, etc. Having the offeror sign the contract with the final terms and conditions avoids the problem of confusion as to what the final agreement actually was, which could happen if the offer and acceptance format were used after revisions were discussed. Offerors should be advised not to start work until a contract has been signed by both parties. Appendix B.8 contains the Federal contract award form.

5.3.1 Public Announcements of Contract Awards

Requirement
Paragraph 14 of FTA Circular 4220.1E, Contract Award Announcement, states:

If a grantee announces contract awards with respect to any procurement for goods and services (including construction services) having an aggregate value of $500,000 or more, the grantee shall:

  1. Specify the amount of Federal funds that will be used to finance the acquisition in any announcement of the contract award for such goods and services; and
  2. Express the said amount as a percentage of the total costs of the planned acquisition.

Discussion

Public Announcements - If your agency makes public announcements of its contract awards, and the award has an aggregate value of $500,000 or more, you are required to comply with the contract award announcement provision noted above. Public announcements may include press releases, announcements in public meetings, Internet postings and publicly released documents.

5.3.2 Debriefing of Offerors

Discussion

Debriefing of unsuccessful offerors can be valuable to both the offerors and the procuring agency. A debriefing can be helpful for a number of reasons:

  • It communicates a sense of fairness and appreciation to offerors who have made sizeable investments of time and resources in preparing bids or proposals for your program.
  • It may avoid a protest by convincing a disappointed offeror that your agency's decision was carefully made, factually well supported, and the best one for your agency.
  • Of most importance, it can help offerors improve their future proposals, which is a definite advantage to them and to your agency.

Best Practices

Time of Debriefing - Most agencies conduct their debriefings after contract award because they feel that evaluation information communicated to an offeror prior to award could encourage a protest or that it might result in an attempt by the unsuccessful offeror to resubmit an improved proposal and delay the selection process. On the other hand, some Federal agencies, such as NASA, have had considerable success in avoiding protests by using pre-award debriefings. NASA feels that an in-depth, pre-award debriefing will work to convince an unsuccessful offeror that the Agency chose the best proposal, thus discouraging a protest. In addition, NASA would prefer to deal with a protest, if they are going to get one, before award and not after award, when they would face the risk of having to terminate the contract. Whatever policy your agency chooses to use needs to be carefully coordinated with your written protest procedures, which are discussed in Section 11.1, Protests,, of the BPPM. 14

Pre-award Debriefing - The timing of the debriefing relative to contract award will affect the nature of the information you can provide to the offeror. If an offeror has been notified that it has been excluded from the competitive range or otherwise excluded from the competition, and the offeror requests a debriefing prior to award, you will have to decide whether to grant the request or delay the debriefing until after contract award. If you decide to grant the request for a pre-award debriefing, you must limit the information disclosed to that offeror's proposal and not disclose any information about the other offerors. To reveal information about other offerors would compromise the integrity of the procurement. Information revealed to an offeror prior to award must be limited to the following:

  • The agency's evaluation of the significant strengths and weaknesses of the offeror's proposal in accordance with the evaluation criteria;
  • A summary of the reasons for eliminating the offeror from the competition;
  • Reasonable responses to relevant questions about whether the evaluation procedures contained in the solicitation and other regulations were followed in eliminating the offeror from the competition.

Pre-award debriefings must not disclose the following:

  • The number of offerors;
  • The identity of other offerors;
  • The content or evaluation of other offerors' proposals.
  • The ranking of other offerors;
  • Confidential business information of other offerors. See below - Disclosure of Confidential Information.

Post-award Debriefing - Remember that the primary objective of the debriefing is to help the offeror improve its chances of success on future proposals, and not to defend the agency's selection decision. In light of this purpose, post-award debriefings may include, at the agency's discretion, the following information:

  • The agency's evaluation of the significant strengths and weaknesses or deficiencies in the offeror's proposal in accordance with the evaluation criteria;
  • Past performance information on the debriefed offeror but not the names of individuals providing reference information about an offeror's past performance;15
  • The overall evaluated cost or price and technical ranking, if applicable, of the successful offeror and the debriefed offeror. Evaluated cost or price would include the agency's estimated cost of correcting defects or weaknesses in the items or services offered;
  • A summary of the rationale for the selection decision;
  • Reasonable responses to relevant questions about whether the evaluation procedures contained in the solicitation and other regulations were followed.

Post-award debriefings should not include:

  • Point-by-point comparisons of the debriefed offeror's proposal with those of other offerors;
  • Specific numerical evaluation scores. This inevitably leads to having to explain the basis for, and defend, the numbers. It will put the members of the agency's evaluation team "on trial" for their scores, and will make no positive contribution to the objectives of the debriefing. It may well contribute to a protest;
  • Confidential business information. See below - Disclosure of Confidential Information.

Method of Debriefing - Debriefings may be done orally or in writing. If the debriefing is done orally, the contracting officer should conduct the debriefing and control what is being divulged. 16 If the reasons for rejection are highly technical, a subject matter expert may participate on a limited and controlled basis. The more people present, the more difficult to control the flow of information. Disclosure of the identity of evaluators can lead to personal friction and allegations of bias.

Disclosure of Confidential Information - Grantees should consult their individual state laws regarding the disclosure of proprietary information from competitors' proposals. Such information would include:

  • Trade secrets;
  • Confidential manufacturing processes and techniques;
  • Financial or business information that is confidential, such as cost information, profit, overhead rates, etc.

It is suggested that a disclaimer be used in the solicitation to state that information will not be disclosed without prior notice to the offeror and an opportunity (e.g., 10 days) to obtain court protection from disclosure.

In conclusion, the information communicated to the offeror must be of value to the offeror. The information must enable the offeror to understand why its proposal was not selected. This type of discussion may require some general comparison of the offeror's proposal with the winning proposal in order to communicate the basis on which the selection decision was made, and to meaningfully communicate the weaknesses in the offeror's proposal.

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5.4 Documentation of Procurement Action

Requirement

Paragraph 7.i. of FTA Circular 4220.1E requires a written record of the procurement history:

Grantees shall maintain records detailing the history of a procurement. At a minimum these records shall include:

  • (1) the rationale for the method of procurement,
  • (2) selection of contract type,
  • (3) reasons for contractor selection or rejection, and
  • (4) the basis for the contract price.

Discussion

Section 2.4.1, File Documentation,, contains a listing of the various types of contract file documentation which are typically required to document the history of a procurement. Section 9.1, Documentation of Contract Administration, contains guidance for documenting contract administration activity.

The purpose of this section is to discuss the documentation requirements which are closest to and relate most directly to the award of the contract. It might be helpful to note that documentation of contract decisions and actions is a perennial problem reported with regularity by review teams doing Procurement System Reviews for FTA's grantee community. These documentation problems are in the very areas of FTA's highest priority concerns, as expressed in Circular 4220.1E, and some are concerned with documentation related to contract awards. The most commonly noticed problems include:

  • No independent cost analysis prior to solicitation,
  • No cost or price analysis of contractors' proposals,
  • No documented rationale for the selected contract type,
  • No documentation for the contractor selection decision,
  • No documentation describing how the price was determined/negotiated.

5.4.1 Sealed Bid Procurements

5.4.1.1 Abstract of Bids

Best Practices

At the time of bid opening there should be a public reading of the bids and a recording of them, usually referred to as an Abstract of Bids. An example of an abstract is in Appendix B.4 which contains the GSA Forms 1409/1410, Abstract of Offers, used in Federal procurements for the recording of bids. Abstracts of bids should be available for public inspection.

5.4.1.2 Documentation of Award Decision

Best Practices

A written record of the award decision needs to be made. The elements of the award decision which need to be documented are:

  • A tabulation and evaluation of bids. This will include a determination that the low bid is fully responsive to the IFB. Responsiveness is discussed in Section 4.4.4, Responsive Bidder. When there are lower bids than the bid being accepted for award, the award decision document must give the reasons for rejecting the lower bids. When there are equal low bids, the documentation must describe how the tie was broken.
  • A determination that the low bidder is responsible. Responsibility is discussed in Section 5.1, Responsibility of Contractor..
  • A determination of the reasonableness of the price. Section 5.2, Cost and Price Analysis, discusses the FTA Circular requirement that every procurement action must include a cost or price analysis to determine the reasonableness of the proposed contract price. The starting point for this cost or price analysis should be the independent cost estimate. Significant differences between the independent cost estimate and the low bid need to be discussed.

5.4.2 Negotiated Procurements

5.4.2.1 File Documentation of Selection Decision

Best Practices

Having considered all of the available proposal evaluation data, the selection official must document the basis for the decision to select that offeror "whose proposal is most advantageous to the grantee's program with price and other factors considered." 17 The contract file documentation should include the following:

  • Determination of Competitive Range (See Section 4.5.3, Competitive Range). The Competitive Range Determination identifies those proposals that had a reasonable chance of being selected for award, given their relative technical strengths and weaknesses, and their relative prices.
  • The Technical Evaluation (See Section 4.5.2, Evaluation of Proposals and Appendix B.1). The technical evaluation information indicates the relative strengths and weaknesses of the proposals, together with the technical risks (if any) of the various approaches.
  • A Cost/Price Analysis (See Section 5.2, Cost and Price Analysis). In all instances, the contract file must reflect evidence of a cost or price analysis. You may wish to prepare a separate Cost/Price Analysis memorandum analyzing the costs or prices proposed against: (a) the independent cost estimate prepared prior to solicitation, (b) specific company information in the proposals, such as the particular technical approach being offered, and (c) any other pertinent information such as a technical evaluation of the cost proposal, an advisory audit of the offeror's cost proposal, or a comparison of prices offered with prior procurements.
    • If the contract being awarded is a cost-reimbursement type, the Cost/Price Analysis needs to address the realism of the various cost elements proposed, and where the costs are unrealistically low, an adjustment should be made to reflect what the agency believes the effort will actually cost given that offeror's specific technical approach as well as its direct and indirect cost rates. This cost realism assessment must be carefully considered when determining which offeror's proposal represents the best value for the procuring agency. All too often contractors are unrealistically optimistic in estimating costs in competitive cost-type situations (known as "buying in"). The result is that the lowest proposed/estimated cost is not necessarily the most advantageous choice for the procuring agency.
  • Determination of Selected Contractor's Responsibility (See Section 5.1, Responsibility of Contractor). Documentation regarding the selected contractor's responsibility should be included in the file.

5.4.2.2 Pre-Negotiation Plan

Best Practices

Many procuring agencies have adopted a requirement for written Pre-Negotiation Plans prior to conducting negotiations with offerors in negotiated procurement situations. The advantages of using this kind of document are numerous. First, it requires a reasoned analysis of the offeror's price, leading to the establishment of a negotiation objective which is acceptable to all organizational elements of the agency. Second, it allows you to develop a range of price objectives which is acceptable to your agency management, so that negotiations can be concluded if the price can be negotiated within the range established in the Pre-Negotiation Plan. A Plan also brings together the various interested parties of the agency in the development and approval of a unified negotiation position, so that internal agency differences of opinion can be resolved before negotiations begin, producing negotiation objectives that everyone can support.

An example of a grantee Pre-Negotiation Plan can be found in Appendix B.6. 18 Several features of this Plan are worth noting:

  • The independent grantee cost estimate was used in the price analysis of the contractor's proposal.
  • An advisory audit of the contractor's cost proposal was performed and the results were used to develop the prenegotiation position. Major subcontractors were also evaluated.
  • The technical program office and the contracts office met to jointly develop a negotiation position that was acceptable to both. (Note: some organizations find it helpful to develop their negotiation objectives as a range of prices, to include both a target price objective and a maximum price which will not be exceeded in negotiations without further approvals by agency management. This approach allows the negotiation team a degree of flexibility which is usually needed because contractors often bring information to negotiations which agency personnel did not have when they prepared their negotiation plan.) 19
  • Agency management officials reviewed the pre-negotiation strategy and approved the position adopted, thus precluding any after-the-fact "second guessing" during the contract review process.

5.4.2.3 Memorandum of Negotiations

Best Practices

It is essential that every contract award be documented with a Memorandum of Negotiations. An example of a Memorandum of Negotiations is in Appendix B.9. 20 This memorandum must describe the most important aspects of the procurement history, which at minimum would include the following information:

  • A statement of the purpose of the procurement.
  • A history of the procurement, including references to important documents with their dates and identifying numbers. These would include: advertisements of the procurement, RFP, technical evaluation of proposals, etc.
  • The names and positions of each person who participated in the negotiations.
  • An explanation of how the final price was negotiated. This explanation needs to reference the Pre-Negotiation Plan price objective (if a Plan was developed), the independent cost estimate (which should always be developed), and any advisory audits that may have been conducted. See Appendix B.12 (Negotiation Memorandum Sample Format) for an illustration.
  • A discussion of important contract terms and conditions, such as insurance requirements, DBE participation, Buy America provisions, etc.

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Chapter Footnotes

1 - If Federal funds are not involved, check local and state laws to determine whether a contractor that has been debarred by an agency of the Federal government may be considered "responsible."

2 - Normally, the prime contractor is responsible for determining the responsibility of its subcontractors. However, as indicated in FAR § 9.104-4, it may be necessary for you as the procurement official to determine a prospective subcontractor's responsibility such as when the prospective contract involves urgent requirements or substantial subcontracting.

3 - American Public Transit Association (APTA) Standard Bus Procurement Guidelines, Section 1.1.4.3.1 Qualification Requirements (III), January 1997.

4 - Internet address for Code of Federal Regulations is: http://www.arnet.gov/far/

5 - http://www.acq.osd.mil/dpap/

6 - Contact NTI at (732) 932-1700 or online at http://www.ntionline.com

7 - FTA Circular 4220.1E Paragraph 10.d.

8 - FTA Circular 4220.1E Paragraph 10.

9 - FTA Circular 4220.1E Paragraph 7.1.

10 - APPENDIX C: Negotiation & Documentation.

11 - FTA Circular 4220.1E Paragraph 9.i.(1)

12 - FTA Circular 4220.1E Paragraph 7.i.(2)

13 - APTA, Standard Bus Procurement Guidelines, January 1997, p. 30.

14 - The Federal debriefing procedures may be found in the FAR at subpart 15.505 and 15.506.

15 - As a rule, proposals should not be rejected on the basis of past performance information without allowing the proposer an opportunity to respond to unfavorable references (from inside or outside the agency). To do so would almost certainly be grounds for protest.

16 - If an oral debriefing is conducted, it might be advisable to create a transcript to memorialize what was discussed in the defriefing in the event there is a protest.

17 - FTA Circular 4220.1E Paragraph 9.d.(4)

18 - Metropolitan Transit Authority, Houtson, TX. Procurement Manual, Exhibit 9, dated August 1, 1994.

19 - BART Procurement Manual, Rev. 4, dated July 20, 1994, p. 297, "Price Positions."

20 - MTA, Houston, TX, Procurement Manual, Exhibit 10, dated August 1, 1994.


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