Independent Cost Estimate
Q. The City has a contract for Public Participation services, as needed and if needed; and individual projects may vary. Our independent cost estimate was based on historical usage of this contract. The estimate was determined to be $200,000. However, our using Department has a project in the works, which was unaccounted for in the independent cost estimate, and the project cost is approximately $190,000. The project is within the Scope of Work, however, we are leaning toward going out to bid for this particular project on its own. In this situation, what type of documentation does FTA require since one project is essentially eating up the dollars we established as the independent cost estimate?
A. In discussing this particular situation it appeared that the additional effort was in fact the same type/scope/objective as originally envisioned but to a greater degree; i.e., the work was more difficult and more demanding than first thought. We would advise you to document the reasons for the additional effort (e.g., the problems unforeseen), process a sole source justification if in fact the incumbent contractor is the only one who can realistically finish the work called for in this project. FTA requires that your contract file tell the story and explain why it is infeasible to expect another contractor to step in and finish the work at this point in time (if in fact that is the case). (Reviewed: August 21, 2009)
Q. When is an independent cost estimate needed?
A. The independent cost estimate is a tool to assist in determining the reasonableness or unreasonableness of the bid or proposal being evaluated and is required for all procurements regardless of dollar amount. FTA Circular 4220.1F, Ch. VI, Para. 6, advises grantees to "perform a cost or price analysis in connection with every procurement action, including contract modifications . . . the starting point for these cost/price analyses is an independent cost estimate which is made before receiving bids or proposals." The Best Practices Procurement Manual (BPPM), Section 5.2 - Cost and Price Analysis, suggests that the independent estimate can range from a simple budgetary estimate to a complex estimate based on inspection of the product itself and review of items like drawings, specifications and prior procurement data. The word "independent" does not imply that it is performed by someone other than the grantee. This could be the case, however, if the grantee does not have the expertise for a large complex procurement. The independent estimate is especially critical whenever there is no price competition (e.g., for architect-engineer procurements or where only one price proposal is received), or where offerors are submitting price proposals for goods or services that are not exactly comparable (e.g., for procurements of high-technology items or professional services). It is also useful in competitive procurements to alert the agency when all competitors are submitting unreasonably high cost proposals. (Revised: August 21, 2009)
Q. Is an Independent Cost Estimate required for all change orders, regardless of whether it would be executed on a T&M or lump-sum basis?
A. FTA Circular 4220.1F requires a cost or price analysis for every procurement action, including change orders, and the starting point for the analysis is an independent cost estimate which is to be used in the evaluation of the contractor's cost proposal. By "change order" we mean any contract action that calls for the negotiation of a cost or price proposal arising out of a change in the contract requirements. If there is a direction to the contractor that does not result in a price adjustment to the contract, then an independent cost estimate is not required. For example, if a written direction or authorization is given to the contractor to do certain work, but the work does not represent a "change" giving rise to a price adjustment (either increasing or decreasing the contract value), then no proposal will be forthcoming and no price negotiations will be required; therefore, no independent cost estimate will be required. (Reviewed: August 21, 2009)
Q. Are Independent Cost Estimates required only for services/materials that were procured using bids or proposals as indicated in FTA Circular 4220.1E, No. 10, last sentence which states that: "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 proposal"?
A. The last sentence in paragraph 10 of 4220.1E (now replaced by 4220.1F) means that the extent of the cost/price analysis, and thus the extent of the independent cost estimate, will be based on the particular circumstances. For example, if the contract arrangement is a Time & Materials one, as yours seems to be, you will not be evaluating billing rates in the contractor's price proposal since they are already established by contract terms, but you will be evaluating the proposed labor hours by labor category in order to determine the reasonableness of the proposed skill mix. You will also be looking at materials cost. For these negotiable items (type and quantity of labor, materials, etc.), you should have an independent cost estimate before the contractor submits its proposal in response to your change order. If the change order is an emergency one, the contract terms may give the contractor thirty days to respond with a price proposal, and the cost estimate could be developed by agency personnel within that thirty day period prior to the proposal. (Reviewed: August 21, 2009)
Q. What should be a reasonable cost for a bus shelter? The need is for a bus stop that will have a bench, shelter, and artwork of historical pictures to be molded into the back panels.
A. You will need to develop a written description of the shelter you envision, with dimensions, type of materials, and installation requirements that meet your local building codes. Then you might request bus shelter manufacturers to review your description and provide their informal cost estimates based on the quantities you expect to buy and install. With this preliminary information you can then establish your Independent Cost Estimate (ICE), and decide if you have the funds to formally issue an Invitation for Bids. You may also be able to obtain some cost data from other transit agencies if they have purchased similar shelters, although your design may be unique due to the requirement for artwork in the panels. (Revised: August 21, 2009)
Q. We buy a substantial number of commercial products, e.g. non-revenue equipment and vehicles. It does not seem like a useful expenditure of resources to try and develop a truly independent estimate for such items, especially since, in almost all cases, we will have adequate price competition and/or will pay no more than current market prices. What type/level of documentation is required for the independent cost estimate for such buys?
A. FTA would not expect you to perform a "cost estimate" in the sense of estimating the cost of manufacturing the commercial item. What FTA would require is simply a market survey of current prices or an examination of previous prices paid recently under competitive conditions. The documentation would be minimal, indicating that the requisitioner checked the market prices being offered to the public for similar items and found the range of prices to be $X to $Y. (Reviewed August 21, 2009)
Q. Please provide good examples of ICEs developed for A&E services for shelter programs and other amenities. We are developing the technical capacity of project managers to include preparation of ICE for A&E services for shelters (site inspections, design, permitting/negotiations, construction management, etc), super-stops, and on-call services. Our project managers have not done this before and they are being tasked to conduct ICE on pending statements of work.
A. FTA does not have examples of completed independent cost estimates but we are sending one transit agency's work forms and instructions to their in-house staff for preparing ICEs, including those for A&E contracts. We would suggest you contact other transit agencies that have done substantial A&E work to obtain examples of actual ICEs. MARTA in Atlanta has a significant construction program and they may be able to help you. The Procurement Manager at MARTA is Ms. Lisa DeGrace, (404-848-5467). We could also suggest Mr. Stanley Grill (V.P. of Materiel) at New York City Transit, (646-252-6050). (Posted: February 2009)
Q. What is the appropriate level of cost or price analysis that is required prior to authorizing a task order on an engineering services design contract? Can the Project Manager use the contractor's breakdown of labor hours/classifications as a beginning point for negotiation OR must they prepare a separate, independent estimate of required labor hours/classifications prior to initiating discussions with the contractor? As part of contract negotiations, the labor rates, G&A burden rate, and profit rate were examined and established via a Schedule of Rates that is part of the contract. The only "variable" when issuing a task order is the labor-hours and labor classification(s) needed in order to perform the requested deliverables.
A. The FTA Procurement Circular 4220.1F, on page VI-19 states:
"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."
The answer is clear from the Circular that grantees are required to make independent cost estimates before proposals are received in order to ensure the independence of the estimate. In your case the rates are already established, so the estimate would address the labor skills and hours for each category, travel requirements, and other direct costs. (Posted: May 2009)
Q. According to the Best Practice's Procurement Manual, page 326, last paragraph,
"In order to meaningfully evaluate and negotiate the A-E firm's cost proposal, it is critical that the grantee's technical staff prepare a detailed in-house cost estimate (work estimate) of the work required by the A-E firm before the solicitation is issue."..."In other words, the grantee's technical staff prepares its in-house estimate as if the grantee were the contractor proposing on the contract."
If our in-house technical staff provides a "percentage" on how much the A&E contract should roughly be from the entire construction project/budget, would this be sufficient?
A. Since this is an A&E procurement there will be no price competition. In these situations FTA requires the contractor to submit a detailed cost proposal and the grantee must evaluate the cost elements and profit in that proposal. Your staff must therefore prepare a detailed independent cost estimate (ICE) using the various elements of cost expected to be incurred to perform the contract (labor categories & hours/labor rates, travel, equipment, overhead, profit, etc.). These are the cost and profit elements that you would expect to see when the selected A&E submits its cost proposal. The agency will have to perform a cost analysis (not a price analysis) of the elements of cost since there will be no price competition. Your suggested approach of using a percentage of construction cost would not satisfy the FTA requirement for an ICE suitable for a cost analysis of the A&E proposal, which will have to present a detailed breakdown of the cost elements together with profit, for negotiation. The independent cost estimate would be the first step in the cost analysis process. (Posted: May 2010)
Q. Are independent cost estimates required for micro-purchases?
A. The FTA Procurement Circular 4220.1F, Chapter VI.3a.(2) (c) states the following with respect to documentation for micro-purchases:
"FTA's only documentation requirement for micro-purchases is a determination that the price is fair and reasonable and a description of how the recipient made its determination...."
The Circular may be found online: http://www.fta.dot.gov/FTA_Circular_4220_-Third_Party_Contracting_Guidance_-_7-1-10.pdf Based on the FTA Circular language, it is not necessary that you prepare an independent cost estimate for micro-purchases. The "only documentation required" is a determination in writing that the price being paid is fair and reasonable based on such facts as recent competitive purchases by your agency or other agencies; catalogue prices of commercial items sold in substantial quantities to the general public; the buyer's personal knowledge of prices posted by vendors for the item; etc. Completing these actions will in fact develop and result in "an estimate" of what the product or service should cost. This estimate is not, nor again is there a requirement for, a separately documented Independent Cost Estimate.
(Posted: June, 2011)
Q. A vendor is furnishing a redesigned and enhanced version their proprietary software to improve functionality. There are licenses that need to be acquired. Upon completion of beta testing vendor will furnish the CTA a full licensed production version of the software module. The software module will be customized to fit CTA's needs. Vendor is the only one that can modify this software. What would you use to base your ICE on?
A. The FTA Circular requires grantees to perform a cost analysis whenever there is no price competition to demonstrate the reasonableness of the proposed price. This would include situations where only one proposal is received, as is the case in all non-competitive situations. See FTACircular 4220.1F, Chapter VI, Page VI-20, which is available online: http://www.fta.dot.gov/laws/circulars/leg_reg_8641.html
Since the contractor is required to submit a cost proposal with a detailed breakdown of its costs, the ICE would also have to be structured by cost element so as to be useful in your cost analysis of the proposal. However, in this case the vendor may not be proposing to charge CTA with the cost of modifying the existing software (i.e., the labor and overhead costs to make the changes), but may propose to increase the price of the existing license to reflect the value of the enhancments made. If this is the case, then the ICE should be based on this approach. You could, for example, estimate the incremental value added to CTA that the enhancements bring to your operations. This puts the ICE more in the category of a price analysis than a cost analysis. We would also urge you to do some market research on the prices of other software products used by other agencies for similar purposes in order to compare the reasonableness of the price quoted by your vendor for the enhanced software. (Posted: December, 2011)
Q. We are currently building a new transit center and are working
our way through change orders. We are looking for direction when the ICE
and the cost submitted by the contractor are not in agreement. Is the
ICE considered the most our agency is permitted to agree too?
A. The ICE is the agency's best estimate of what the work "should cost."It is an estimate that is completed before proposals are received to assist in the cost analysis of the contractor's proposal once it is received, and is based on agency assumptions that may or may not be accurate. The ICE does not impose any limits on what you may finally negotiate. The requirement is that you determine the negotiated price to be fair and reasonable, considering all the information the presents at negotiations, including such things as complexity of the work, risks associated with performance, the amount of competition or the lack thereof, etc. (Posted: December, 2011)
Q. A Design/Build project that includes FTA funds was advertised by the funding recipient. After negotiations were concluded, the recommended award amount was found to be 15% higher than the cost estimate but below the allocated grant amount. However, the selection committee, based on the evaluation criteria and their professional knowledge, found the cost estimate to be low and therefore the proposal amount to be reasonable and fair. Based on the selection committee's proposed award recommendation and rationale, please advise whether FTA guidelines require the funding recipient to obtain further approval from FTA prior to proceeding with the award to the recommended consultant?
A. FTA has no requirement that you seek their approval for this contract award. You are required to perform a cost or price analysis of the proposal and to determine that the price to be paid is fair and reasonable. The file should reflect why the negotiated price is greater than the agency's independent cost estimate. (Posted: June, 2012)
Q. In cases where a contractor initiates a change order by submitting a claim proposal, (e.g., for unforeseen site conditions) how can our agency avoid being criticized by FTA for not having an independent cost estimate that was prepared before receipt of the contractor’s proposal?
A. We do not believe that FTA would criticize you in these type of cases since the agency would have no way of knowing, before the proposal was received, that an ICE would be necessary. We would suggest in these cases that the agency’s cost estimators not be given the cost proposal and that they be required to prepare their estimates independently of the contractor’s proposal. (Posted: March, 2013)