|Fixed Price Proposal to You|
|Overhead @ 75%:||
|The A&E Firm' Annual Overhead Pool|
|Annual Direct Labor Base||
|Overhead Rate (a) divide by (b) 75 percent||
If the contractor has duplicated costs for CAD, as shown above, you will pay $9,000 as a direct charge when in fact the overhead rate of 75% already includes CAD costs. The contractor will recover CAD twice and the $9,000 he is charging you directly will be profit, not a reimbursement of cost incurred. The only way to prevent this duplication is to review the contractor's overhead pool as part of an audit process prior to award so that you can negotiate a fair price by removing the $9,000 charge for CAD. The audit will add to the pre-award time for processing the procurement and will also represent an administrative cost to the agency, but for larger awards the pre-award audit may be critical in order to ensure there is no duplication of billing in the proposal. The example assumes a fixed price contract not subject to later audit. If this were a cost plus contract and it was subject to a final cost audit, the auditor should detect the duplicate pricing of CAD when the final costs are audited, but this does not always happen. It would be advisable, if this were a cost plus fixed fee contract, to include an "advance agreement" in the contract stating that CAD will not be billed directly but be recovered as an indirect cost through overhead. (Reviewed: June 2010)
Q. How can the unit cost of a valve steel casting be arrived?
A. We regret we cannot help you with this cost accounting question. We have no expertise in this area.