Proposal Preparation Techniques by wuxiangyu


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                       Pratt & Whitney Rocketdyne
                         Supplier/Buyer Training

                               July 21, 2009
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                          Ed Kasaba
                          Greg Manley
                          Gary Pedersen
                          Jim Scarpati
                          Mike Suever
                                        Supplier Proposal Training

                          This training is generalized in nature
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                          Each Proposal has its specific requirements
                          No two Proposals are the same, but, many similarities
                           do exist
                          Programs tend to develop boilerplate RFQ/RFP
                           packages tailored to their specific customer
                          Buyer’s tend to modify boilerplates to satisfy their
                           needs – ensuring all requirements are there
                          So, we recognize RFQ/RFPs from various
                           programs/buyers look different – PWR working to
                           standardize the process
                          Disclaimer                          Mike Suever
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                          Proposal Cost Overview              Greg Manley
                          Firewall                            Ed Kasaba
                          Proposal Process                    Greg Manley
                          Proposal Compliance                 Mike Suever
                          Generating the proposal             Greg Manley
                          Make/Buy                            Mike Suever
                          Types of Estimates                  Greg Manley
                          RFP/RFQ                             Mike Suever
                          Difference of RFP and RFQ and RFI   Gary Pedersen
                          Source Selection                    Gary Pedersen
                          PWR Evaluation Criteria             Jim Scarpati & Greg Manley
                          Completing the PWR Proposal         Greg Manley
                          Change Proposals                    Mike Suever
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                       Proposal and Contracts Overview
                       PWR has different types of customers and sales as identified below:
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                          Government contracts - Prime. These consist of sales to
                           Department of Defense (DoD) (Army, Navy, Air Force, and other
                           DoD agencies); National Aeronautical and Space Administration
                           (NASA) development centers, laboratories, test centers; and other
                           Government departments and agencies (e.g., transportation,
                           energy, and so forth.). Also included are foreign military sales
                           contracted through a DoD or Government agency.

                          Subcontract. Programs within PWR may be contracted as a
                           subcontractor or team member to another aerospace company or
                           team of contractors on a Government contract.

                          Commercial and direct foreign sales. These types of sales are to
                           other companies for products or services not subject to
                           government procurement regulations, and to foreign governments
                           as a direct sale.
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                       Business Life Cycle
                                             Types of Solicitations

                          RFP -- Request for Proposal
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                          RFQ -- Request for Quote
                          ITQ -- Invitation to Quote
                          ECP -- Engineering Change Proposal
                          BAA -- Broad Agency Announcement
                                   Used by DOD for basic and applied research not related to the
                                    development of a specific system or hardware procurement
                          CAN -- Cooperative Agreement Notice
                                   Used to advance and commercialize technology where
                                    government has unique capabilities
                          NTE -- Not to Exceed Proposal
                          NRA -- NASA Research Announcement
                                   Used by NASA for research interests in support of NASA
                          PRDA -- Program Research and Development Announcement
                                   Used by DOD for exploratory research that has general
                                    application and is not system specific
                                                 Contract Types
                          Contract types are grouped into two broad categories:
                              Fixed price
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                              Cost reimbursement

                          The specific contract types range from firm fixed-price, in which the
                           contractor has full responsibility for the performance costs and
                           resulting profit (or loss), to cost-plus-fixed-fee, in which the
                           contractor has minimal responsibility for the performance cost and
                           the negotiated fee is fixed. In between are the various incentive
                           type contracts in which the contractor's responsibility for the
                           performance costs and the profit a fee incentives offered are
                           tailored to the uncertainties involved in contract performance.
                          Time and materials contracts offer characteristics of both fixed-
                           price and Cost-reimbursement type contracts. Indefinite-delivery
                           type contracts also offer unique contracting characteristics
                                   Types of Contracts

                           Cost Reimbursable (Cost Type)
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                            Cost Plus Percentage of Cost (Illegal)
                            Cost Plus Fixed Fee
                            Cost Plus Award Fee
                            Cost Plus Incentive Fee

                           Fixed Price
                            Firm Fixed Price
                            Fixed Price Level of Effort
                                          Types of Contracts

                          Time and Material (T&M) Contracts
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                          A T&M type contract provides for acquiring supplies or
                           services on the basis of both
                           a. Direct labor hours at specified fixed hourly rates that include
                              wages, overhead, general and administrative (G&A) expenses,
                              and profit.
                           b. Materials at cost, including, if appropriate, material handling
                              (overhead) costs as a part of material costs.
                                     Contracting Methods
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                          Formal advertising (sealed bid) is preferred by the

                          Contracting by negotiation is the alternative

                          Governed by FAR 15-101

                          Basis for agreement on terms and price
                               Cost Type (Cost Reimbursable)

                          Costs are paid provided they are
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                              Allowable – check FAR
                              Allocable – charge the right contract and
                               comply with the CAS Disclosure Statement
                              Direct or Indirect or G&A
                              Fee is based on ―Target Cost‖
                              Proposal and negotiations determine target
                               cost and are used to establish fee
                                      Firm Fixed Price

                          Used when costs can be estimated with good
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                           assurance e.g., based on recent production
                           cost experience

                          You do a defined job and get a defined

                          Can be used for large production contracts

                          Risks and opportunities are high
                                         Fixed Price Level of Effort
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                          Used for small contracts or task orders
                            For example –

                              200 hours @ $200 / hour. Bill hours at a rate.

                              Your billing rate includes your profit.

                              Subtleties about engineering hours vs. business hours

                              Ensure contract is clear.
                                          Risk vs. Reward

                          Cost reimbursable contracts inherently have limited
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                           risk for the contractor. They are most frequently
                           used for new technology and research and
                           development contracts – not production.

                          Fixed price contracts involve risk. The contractor
                           needs to deliver a good product no matter what the

                          Profit opportunities may be greater on FP contracts
                           than on cost reimbursable.
                                       Contract Modifications

                          The Government uses the ―Changes‖ clause to add or
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                           delete work

                          Must be in scope of original contract

                          Requires and ―equitable adjustment‖ to contract cost,
                           fee, period of performance, schedule, place of
                           delivery, etc.

                          Change proposals are submitted and negotiated on a
                           fairly routine basis
                                         What Is A Winning Proposal?

                           A business proposal is a written offer from a seller to a
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                           prospective buyer. Business proposals are often a key step in the
                           complex sales process--i.e., whenever a buyer considers more than
                           price in a purchase.
                           There are three distinct categories of business proposals: formally
                           solicited, informally solicited, and unsolicited.

                            Having defined a proposal, what is a winning proposal?
                            What are the characteristics of the proposal, the
                             organization, and the solution which make it attractive to
                                     What Is A Winning Proposal?

                       Winning proposals have four characteristics in common:
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                          The supplier fully understands the needs and problems.

                          The supplier knows how to satisfy the needs or solve
                           the problems and offers a suitable plan.

                          The supplier is well qualified by virtue of experience and
                           resources, including personnel, to carry out the
                           proposed plan; and

                          The price asked is reasonable and is within the
                           organization's budget.
                           Governing Laws, Regulations & Policies

                          Legislation
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                             Truth in Negotiations Act (TINA)
                             Anti-Trust Laws
                             Foreign Corrupt Practices Act
                             False Claims Act

                          Regulations
                             Federal Acquisition Regulations (FAR)
                             Cost Accounting Standards (CAS)

                          Policies
                             Government directives
                             Armed Services Pricing Manual (ASPM)
                             Defense Contract Audit Agency (DCAA) manual
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                       Firewall Training
                                            PWR Firewall Training

                          Definition of a Firewall:
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                           1. A process or procedure that limits the flow of
                              information from, to, or within PWR.
                           2. It is used primarily where unrestricted access to the
                              protected information might introduce bias or confer an
                              actual or apparent unfair competitive advantage to
                           3. A firewall procedure specifies both how protected
                              information will be treated and with whom authorized
                              PWR employees (or consultants) may share the
                                 PWR Firewall Training
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                          Types of Firewall Work Restrictions:

                           •   Duration of the Firewall

                           •   Physical Segregation of Work

                           •   Electronic Segregation of Information

                           •   Past Employment Restrictions

                           •   Future Work Restrictions

                           •   Information Marking Requirements
                                         PWR Firewall Training

                      Firewall Procedure/Process:
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                       1.   A firewall assures compliance with the terms of a
                            Nondisclosure Agreement (NDA) with another company.

                             –   A NDA assures that PWR will use that company’s
                                 proprietary information only for the purposes identified
                                 in the NDA

                             –   A NDA assures that only a defined group (e.g.,
                                 employees and possibly contract labor and/or
                                 consultants) who have a need to know the information
                                 will have access to that company’s proprietary
                                          PWR Firewall Training

                       Firewall Procedure/Process (cont):
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                       2.   A firewall is appropriate when a Boeing organization is
                            involved in assisting an agency (or other customer) to
                            define the requirements for a program, and another
                            organization within PWR is likely to bid for the program.
                            - FAR 9.505-1 or 9.505-2 may prohibit PWR participation
                               in the subsequent procurement because of the concern
                               that PWR might craft the requirements so as to give it an
                               advantage against potential competitors.
                       3.   A firewall may arise where PWR is a participant on more
                            than one team competing for a contract.
                            - It assures that the PWR IPT’s supporting the different
                              teams bidding for the contract do not share information
                              about their team’s proposal with persons supporting any
                              other team.
                                         PWR Firewall Training
                          PWR Management Responsibilities:
                            - Manages the business.
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                            - Primarily handles resource, commitment, programmatic
                            - Assures even and level competition.
                            - Programmatic and technical oversight.
                            - Executive communication with the customer – primarily
                            - May have knowledge of multiple customer’s projects –
                              must firewall internally.
                            - Must restrict information given to the firewalled teams.
                            - Generally will limit information received from the
                              firewalled teams to a need to know basis.
                            - Should not participate in the development of the
                              customer’s strategy, concepts, program plans or any
                              other competitive aspects of his/her proposal/project.
                                          PWR Firewall Training
                          Firewalled Team Responsibilities:

                           - Manages the Project/Program.
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                           - Translates Prime requirements into specific PWR
                             technical system requirements and requests.
                           - Handles All Programmatic, Technical, and Business
                             Communication with the customer.
                           - Communicates technical and business data to the
                           - Communicates task requirements and outcomes with
                             process support personnel outside the firewall.
                           - Controls (i.e. filters & sanitizes) information flowing to
                             both the customer and the non-firewalled process area
                             support personnel to assure that competition sensitive
                             data, including both hard data and abstract information is
                             not transferred.
                                          PWR Firewall Training

                          Non-Firewalled Process Area Support Team
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                           - Defines task assignments with PWR Firewalled interface

                           - Performs & reports task outcomes to PWR Firewalled

                           - Does not communicate with the customer

                           - Should limit work on more than one customer to the extent
                                           PWR Firewall Training
                          Restrictions:
                       Non-firewalled personnel SHALL NOT perform or participate in
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                         the following:
                       - Development of the customer’s strategy, concepts, program
                         plans or any other competitive aspects of his/her
                       - Generating, reviewing, or negotiating the customer’s
                         proposal, or of PWR’s proposal to the customer that would be
                         embodied by the customer’s proposal other than to provide
                         generic PWR data such as past performance, etc., or to
                         review specific portions of PWR’s proposal that clearly are
                         not competitive discriminators between the customer’s
                         proposal (e.g. PWR pricing data).
                       - Push suggestions that could ―cross pollinate‖ a customer’s
                         ideas to other customer or PWR interfaces or otherwise
                         influence a customer’s competitive position on knowledge of
                         another customer’s proposal.
                                          PWR Firewall Training
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                          Third Party Proprietary Information

                             When PWR is working cooperatively with another
                             company, the obligation in the firewall should be limited
                             to protect proprietary information of the other party.
                              -   Even where the information is not marked, however,
                                  it must be treated as protected if its contents are
                                  clearly proprietary information, such as financial
                                  information or trade secrets.
                              -   This information should not be shared with another
                                  part of PWR or any other defined group.
                             What is a Non Disclosure Agreement (NDA)
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                          A Non Disclosure Agreement is an Agreement between the
                           Parties that:
                             Protects trade secrets and proprietary information
                             Defines rights and obligations of parties with respect to
                              information being shared
                             Describes nature of information, permitted use, type of
                              protection, how long will the information be shared, with
                              whom, etc.
                             An NDA is a legally binding contract when executed by all
                                   When is An NDA Needed
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                          NDAs are used generally when disclosure of
                           Proprietary Information will take place in the
                           course of discussions prior to execution of a
                           definitive business contract.

                          Prepared in connection with specific programs or
                           business or technical discussions
                                Non Disclosure Agreement (NDA)
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                          An NDA is not required when the exchange of data
                           occurs under the scope of a purchase order (PO) that
                           incorporate proprietary information protection in the
                           Pratt & Whitney Rocketdyne, Inc. (PWR) General
                           Provisions unless there is a PWR/program requirement
                           to obtain a separate agreement even though PO
                           includes the proprietary information.
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                       PWR Proposal Process
                                       Pre-RFP Planning

                          Identify customer needs/funding constraints
                          Understand market needs
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                          Identify competition and determine their approach
                          Evaluate your strengths & weaknesses vs. competition
                           & customer expectations
                          Identify your proposal team and sub-tier suppliers
                          Generate capture strategy - win factors, themes
                          Identify key personnel -capture team (Engineering
                           processes, OPS, C&P, QA, others as needed)
                          Identify requirements
                          Develop PA budget for management and team
                           (inchstone level)
                          Identify IR&D/capital requirements
                                                                        Proposal Process
                                             Programs                   Program Manager                     Program Manager                       Program Manager
                                             Marketing                  Contract Manager                    Project Engineer                      Project Engineer
                                           Business Plans             Cost Volume/Business                Cost Volume/Business                    Cost Volume/BM
                                            Should Cost                     Manager                             Manager                                 Mgr.

                                               Market                      Develop                             Program
                              RFP                                                                                                                       Function
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                              RFQ              Price                                                           Definition                               Overview

                                                                  Establish:                          Prepare:                               Present/Discuss:
                                                                  • Due Date                          • Program Plan                         • Program Approach
                                                                  • RFP Requirements                  • Program Schedule                     • Pricing Strategy
                                                                  • Deliverables/MIR’s, T&C’s         • Test Plan                            • Estimating Assistance
                                                                  •   Estimating Methodology          • Bill of Materials (M/B)              • Identify “Similar To”
                                                                  •   “Similar To: Programs           • Work Breakdown Structure
                                                                  •   Make/Buy                        • Resp. Assignment Matrix
                                                                  •   Affordability/DTC Goals

                                                                                       Program Manager
                                                                                                                  Technical &      Profit Analysis
                                                                                       Project Engineer
                                                                                                                  Cost Volume      Risks and
                            Estimating & Pricing   Function Directors/VP               Cost Volume Mgr.
                                                                                                                   Manager         Opportunity,
                                                                                        Functional Mgr.                                                         Publish
                           Detail Estimating        Functional Review                                                              Capital Investment
                                                                                      Risk Assessment/                                                       Cost/Technical
                           • Task Descriptions      • Evaluate Estimating                                         Complete          Cmt Review Cycle
                                                                                        Commitment                                                             and Mgmt
                           • Estimate               • Access Cost Risk                                            Technical         •Est. & Pricing            Volumes
                           • Basis of Estimates       (if any)                         Evaluate Risk               Volume           •Contact Mgmt.
                                                                                       •Assume Risk                Pricing
                                                                                       •Revise Estimate           Actions &         •Executive Mgmt.
                                                                                       •Rescope                    Prepare                                  Program Manager
                       • Labor Standards
                                                    Substantiation (-3’s)                                           Cost                                    Contract Manager
                       • CERs
                                                    • Labor                                                        Volume                                   Cost Volume Mgr.
                       • Detail Estimates
                       • Parametrics                • Material                                                                                                Support
                       • “Similar To’s”             • ODC                                                                                                     •Audit
                       • Round Table/                                                                                                                         •Fact Finding
                         Expert Opinion                                                                                                                       •Negotiations
                       • Supplier Quotes
                       • P.O. History
                       • Catalog Prices
                       Proposal Process Overview
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                                Analyze the Proposal Requirements
                        Read the request for proposal (RFP)
                        Understand the statement of work (SOW) and proposal type
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                        Generate ground rules and assumptions
                        Proposal preparation guidelines
                           Due date
                           Required volumes
                           Page and print specifications
                        Evaluation criteria
                        Technical description (SOW)
                        Expected program length
                        Expected program cost
                        Procurement contract type
                        Deliverable items (hardware, data, etc.)

                             Create and generate a compliance matrix early
                                       Think of the RFP as a Quiz
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                          Answer the questions clearly and explicitly
                              What?          -- SOW/WBS/program plan
                              How?           -- Baseline/tech approach
                              When?          -- Master program schedule
                              Who?           -- Organization/RAM
                              Where?         -- Facilities
                              Why?           -- Discriminators, themes, trades
                           Beginning of the Proposal Process
                          Proposal manager identified
                          Review available data
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                          Capture strategy
                          Program overview
                          MIRs or selection criteria - Win factors, themes
                          Develop WBS & dictionary
                          SOW & specifications
                          Design-to-cost targets
                          Program schedule
                          Risk management plan
                          Business plan (Program Performance Plan)
                          Establish technical concepts
                          Program organization
                          Make/buy plan
                          Hardware list
                          Test plan
                          Determine profit objective
                       Proposal Compliance
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                       Developing Requirements Matrices
                                          Proposal Receipt

                          RFP receipt by PWR Contracts
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                          Accounting Established

                          Proposal Plan of Action Developed

                          Proposal Manager Calls Kick-off meeting

                          Proposal Team begins the Requirements Review and Shred

                          Systems Integrity develops Supplier Flowdowns

                          Ties proposal response to requirements and
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                           evaluation criteria

                          Flows RFP requirements to proposal outline

                          Tool for establishing proper page count

                          Ensures compliance with proposal requirements
                                                How Matrix Developed
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                           We use a macro developed in house that parses a Word
                            document into an Excel spreadsheet*

                           We then use the spreadsheet to develop an annotated
                            proposal outline with descriptive headings, section
                            assignments, page allocations, graphic notes, themes,
                            writing assignments/instructions, and linkages to customer’s
                            evaluation criteria

                       *This is an inexpensive option, but there are products available on the market that will parse
                        RFPs. See
                                              Requirements Matrix

                          Each requirement should be a separate line
                          Most Important Requirements (i.e., Evaluation Criteria) drive page allocation
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                                                  DRD Matrix

                       Develop a separate matrix for Data Requirements Deliverables
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                                       How Suppliers Can Help

                          We recommend that Suppliers use a similar principle in
                           reviewing PWR Requests for Proposals or Quotations
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                          Often, we have tried many ways of identifying key/critical
                           elements needed within the proposal and with rare exception
                           they’re missed

                          In the past, we have bolded the key/critical elements,
                           developed checklists, etc. to no avail.

                          We welcome any ideas on how to get our RFP’s read by the
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                       Generating the Proposal
                                     Proposal Preparation
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                          Proposal Outline

                          Themes

                          Mockup

                          Technical & Cost are to be Prepared Together

                          Approach must be Life Cycle Oriented

                          PWR Affordability Process

                          Proposal Schedule
                                                                       Proposal Steps
                         Customer RFP Requirements
                RFP-     Ground-Rules and Assumptions
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            Statement of
                Work     Terms and Conditions

                                       WBS         Design to Cost (DTC) Targets
                                                   Work Organization & WBS Task Description

                                                                 Integrated Program Master
                                                Program Plan
                                                                 Schedule/Major Milestones and
                                                                 Activity Schedules
        Work Decomposition                                       Make/Buy
        Contract Data
        Requirements/Data                                     Task Planning
        Requirements etc
                                                                                                    Scope Risk and Opportunities                  Assess/Identify
                                                                                                    Identify R&O’s when Estimating                  Scope for
                       Estimate Development                                  Estimate
                       Identify Historical References or other Basis      Hrs, mat’l, ODC
                       for Estimate – Data Driven Estimates

                                                                                        Price Tasks within          Within
                                        Target Assessment                                   – 1st Pass,
                                                                                                                    DTC                     Yes
                                                                                                                                                   Price Tasks

                                                                                        Compare to Target          Target?
                                                                                                                                     Price Task
                                      Proposal Planning Steps

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                          Proposal schedule
                          Executive/process management review plan
                          Volume outlines
                          Proposal responsibility assignment matrix
                          Identify attendees to kick-off meeting
                          Identify relevant program history from which to base estimates
                          Proposal ground rules & pricing instructions
                          RFP compliance matrix
                          Plan proposal kickoff meeting
                            Study the RFP, Then Create the Outline

                          Write the outline to match the RFP
                            What the customer asked for, the way they asked for it
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                            Redline the RFP–then write your outline

                          Analyze the similarities and differences in:
                             Instructions, Evaluation Criteria and Technical
                          Choose a technique to address all areas:
                             Embed one section's requirements within another
                             Cross reference to account for all requirements

                          Coordinate outline with compliance matrix
                                Proposal Kick Off Meeting (PPOA)

                          Brief proposal team operating groundrules
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                          Brief Program requirements, MIR’s, Potential Competitors etc
                          Distribute SOW, specifications, WBS etc.
                          Brief proposal outline, mockups, and executive summary
                          Distribute schedules, RAMS, budgets (hours/task for each
                          Communicate Make/Buy plans (ie for the Bill of Material)
                          Distribute DTC goals for each IPT
                          Communicate Tech Volume and Cost Volume requirements
                          Identify outstanding information and action plan
                       Technical and Cost are Prepared in Parallel
                                        Technical Proposal Phases
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                       Planning   Outline   Mockups    Draft       Final


                        Cost      Design     Basis of Preliminary Final
                       Targets    to Cost   Estimates Cost Run Cost Run

                                            Cost Proposal Phases

                            Each Technical Proposal phase has a counterpart
                                         Cost Proposal phase
                       The Proposal Schedule (30 days)
                           Must be complete prior to kickoff meeting
                           Should include:
                              Exact calendar dates based on RFP data
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                              Kickoff Preparation
                              Include capture team products
                              Proposal input preparation periods
                                 Final Outline
                                 Mockups
                                 Drafts
                                 Final revisions complete
                              Pricing schedule
                                 Final cost targets
                                 Manpower inputs/BOEs
                                 Subcontractor/purchased material bids
                                 Final pricing runs
                              Reviews
                              Printing/Shipping

                                        Make it as detailed as practical
                            Update and status every day–highlighting concern areas
                          PWR Pricing acts as lead to support ALL audit activities

                          Provides DCAA, etc. With proposal copies
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                          Coordinates all meetings between DCAA & PWR staff

                          Documents all issues and responses

                          Attends exit conference

                          CA acts as lead to support all fact finding activities

                          Coordinate all meeting between customer & rd

                          Documents all issues and responses

                          PM & functions support both as need
                          PWR Legal/CA acts as lead to support ALL Negotiation
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                          coordinate all meeting between customer & RD
                          documents all issues and responses
                          exchanges offers & counter offers
                          Summarize cost impacts for Management
                          PM & functions support both as need
                          Pricer updates C&P data & coordinates disclosures w/CA
                          Pricer performs sweeps & certs if applicable
                          CA completes memo of negotiations
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                                Make or Buy Planning Process

                          Executive Mgmt responsible will co-Chair or appoints
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                           Program Manager to co-Chair the Make/Buy Committee
                          Operations Executive Mgmt will co-Chair or delegate to a
                           subordinate manager the Make/Buy Committee
                          Make/Buy Committee consists of:
                            Finance
                            Supply Management (Committee Secretary)
                            Engineering
                            Quality Assurance
                            Business Development
                            Contracts
                            Human Resources
                            Small Business Administrator
                                  Make or Buy Planning Process

                          The Make/Buy decision making process divides parts and
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                           processes into the following three categories:
                              Must Make: Hardware consisting of details,
                               subassemblies and assemblies that historically demand
                               extreme attention & close coordination between
                              Must Buy: Hardware such as raw material,
                               castings/forgings, catalog or industrial hardware that
                               PWR cannot produce.
                              Can Make or Buy: Hardware not contained in the above
                               categories and could be made in house or procured.
                               Typically, the majority of Program requirements fall into
                               this category.
                               Make or Buy Planning Process
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                       A Bill of Material (BOM) or conceptual BOM is developed by
                       the Integrated Product Team and/or Engineering.

                       The Integrated Product Teams, based upon recommendations
                       from PWR Operations, and in conjunction with their Industrial
                       Systems Integration Teams performs an assessment of
                       capacity, capability, overall costs required to support the
                       program and develop a sourcing strategy.
                                 Make or Buy Planning Process
                          IPT presents the program sourcing strategy of make or buy
                           recommendations to the Make/Buy Committee
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                          The Committee is responsible for sourcing material in a
                           manner the best utilizes PWR Operations’ and Supplier
                              Prime consideration is given to quality, cost and
                               schedule requirements
                           The Committee reviews the Program Sourcing Strategy
                           considering core competencies, cost, schedule, risks,
                           requirements, Small Business objectives, etc.
                          A Specific Program Make/Buy Plan developed & Approved
                              Plan integrated into the Program Execution Plan
                                              Make/Buy Analysis

                                         Unique Components               Strategic In-house Make
                                    (LTA’s, Strategic Alliances, Etc)          (Must Make)
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                                    Buy – Common Not a Comp Adv.          Competitive Advantage
                                                                           (Can Make/Can Buy)

                                                         Competitive Advantage
                                                     Supplier Risk Assessment

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                              5                                                    High
   Likelihood of Occurrence

                              4               Medium

                                                 4     3

                              2                                6
                                                                       5               2
                                                                                           Mitigation Status

                              1                            5

                                    Low                3           7

                                        1        2        3         4                  5
                                  Original   Consequence of Occurrence
                             Manufacture or Purchase Planning
                          Internal Process to decide:
                             Sufficient capacity and support to core competencies
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                               exist to make product
                             If not, recommend outsourcing
                             Decision to be in concurrence with the PWR-Operations
                               Strategic Plan
                          Similar to Make or Buy – Committee formed to review same
                           as Make or Buy
                             Normally convenes after Prime Contract Award to PWR
                          Analysis performed to consider Program schedules, cost,
                           shop load and process capabilities and risks
                          Upon analysis completion, subcommittees present
                           recommendations to Committee
                          Committee approves and documents manufacture or
                           purchase plan
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           Types of Estimates
                                                Types of Estimates

                        Within the proposal process, various kinds of estimates and quotations
                          are prepared as defined in the following text. These definitions are
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                          consistent with those published by the Society of Cost Estimating and
                          Analysis (SCEA) and DoD. Cost estimates are primarily prepared to
                          respond to solicitations, however; they are also prepared to support
                          technical studies, life cycle cost (LCC), cost as an independent variable
                          (CAIV), "what if exercises, and design trade studies.
                        Budgetary and Rough Order of Magnitude(ROM) - These estimates
                          are for comparative studies on new programs and long-range
                          procurement planning for established programs. Both the customer and
                          PWR use them for analysis, preliminary program planning and
                          scheduling purposes, and establishment of fund allocations. These
                          estimates are usually prepared from minimum design and work
                          statement information. Planning, budgetary, and rough order of
                          magnitude (ROM) estimates do not bind PWR to perform a contract
                          within a given price. However, because of the frequent reliance on these
                          cost/prices for fiscal year funding and procurement planning and
                          scheduling, considerable effort is made to achieve accuracy in their
                          preparation. Contingencies may be added to these estimates to cover
                                               Types of Estimates

                        Firm Quotations - These are prepared to definitize the price of a program
                          or work package. When definitized, the price is a binding obligation on
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                          PWR. Estimates for firm quotations are normally based on well-defined
                          statements of work and plans, but can also be based on minimum design
                          and work statement information.

                        Not-to-exceed (NTE) - A not-to-exceed (NTE) estimate is a firm and
                          binding obligation by PWR to perform at a cost to the customer not
                          greater than the NTE quotation, assuming no change in the contractual
                          baseline. NTE estimates are generally quoted to a customer when the
                          statement of work and other conditions are definitive enough to establish
                          a firm baseline. A contingency is often added to allow for definition and
                          cost estimating uncertainties.

                        Not-less-than (NLT) -A not-less-than (NLT) estimate is a firm credit
                          estimate by PWR and includes all requirements of an NTE proposal
                          except for the ensuing commitment, which will not be less than the NLT
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                       RFP/RFQ Process

                           RFQ-RFP Training
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                       Difference of RFP and RFQ and RFI
                       Difference of RFP and RFQ and RFI
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                                 Definitions
                                 Types of solicitations
                                 Evaluation criteria
                                 SPI Process
                       Difference of RFP and RFQ and RFI
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                              Request for Proposal (RFP)

                              Request for Quote (RFQ)

                              Request for information (RFI)
                        Difference of RFP and RFQ and RFI
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                       DEFINITION of RFP:

                          Request for Proposal (RFP) - A solicitation to
                           prospective suppliers where the supplies and/or
                           services described are highly complex,
                           undeveloped products and/or services, requiring
                           a response detailing technical and management
                           expertise and a proposed design/development
                           Difference of RFP and RFQ and RFI

                       DEFINITION of RFQ:
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                          Request for Quotation (RFQ) - A solicitation to
                           prospective suppliers wherein the requirements
                           described are existing, ―off-the-shelf‖ equipment,
                           build-to-print parts with known specifications,
                           common services, or otherwise sufficiently defined
                           so that the award can be made on the basis of price
                           and past performance from the responsive bidders.
                           Difference of RFP and RFQ and RFI

                       DEFINITION of RFI:
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                          Request for information (RFI) - is a standard
                           business process whose purpose is to collect written
                           information about the capabilities of various
                           suppliers. Normally it follows a format that can be
                           used for comparative purposes.
                          An RFI is primarily used to gather information to help
                           make a decision on what steps to take next. RFIs
                           are therefore seldom the final stage and are instead
                           often used in combination with the following: request
                           for proposal (RFP), and request for quotation (RFQ).
                          See Sample RFI – NASA Display of Shuttle and
                                    Types of solicitations
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                          A solicitation is a document, sent to prospective
                           contractors by a Government agency,
                           requesting the submission of offers or
                           information. This is a generic term that includes
                           the following types of solicitations:
                          Invitations for Bids (IFBs)
                          Requests for Proposals (RFPs)
                          Requests for Quotations (RFQs)
                                          Invitation for Bids (IFB)

                          The Invitation for Bid (IFB) is the solicitation document used in
                           Sealed Bidding procurements.
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                          IFBs must describe the Government’s requirements clearly,
                           accurately, and completely.
                          It includes all documents needed by prospective bidders for the
                           purpose of bidding plus all terms and conditions of the
                           prospective contract (except price) so that all bidders will submit
                           bids on the same basis and award can be made solely on the
                           basis of price and price-related factors.
                          FAR 14.101. You will use this type of solicitation when your
                           requirement is definitive, pricing is stable, competition is
                           expected, and there is not a need to hold discussions with any
                           potential bidders.
                           Buyer’s Role in the RFQ/RFP Process

                          Upon receipt of a requirement the Buyer reviews and
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                           determines if the originating organization(s) has
                           furnished complete specifications, blueprints,
                           statements of work (SOW), description of item(s) to be
                           purchased, etc., so that requirements can be
                           adequately defined in the RFQ/RFP and any resulting
                           Purchase Order (PO).
                          The Buyer will contact originating organization(s) or
                           Integrated Product Teams (IPTs) if additional data is
                                            RFQ Structure

                          The Buyer is responsible for the entire content of the
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                           RFQ. The RFQ should be structured in such a
                           manner to assure that all requirements are clearly
                           delineated on the RFQ and that the supplier clearly
                           understands the requirements.

                           In some cases, the Buyer may need to provide
                           additional clarification of the requirements to assure
                           complete understanding by the supplier. In such
                           cases, the Buyer is responsible for providing
                           consistent information to all solicited suppliers.
                                       TINA, CAS, SB Plan
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                          REMINDER:
                          During solicitation phase for Government
                           procurements $500K and above, consider the
                           applicability of:
                              TINA - $650K (FAR 15.403-4)
                              CAS - $650K (FAR 52.230-2)
                              SB Subcontracting Plan - $550K (FAR 52.219-9)
                       Supplier Steps To Providing A Responsive
                          Do’s
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                              Read the RFP Instructions
                              Contact the Buyer regarding RFP questions
                              Meet the RFP deadline and provide a Proposal which
                               meets the RFP instructions
                              Protect PWR proprietary data
                              Protect Export controlled data
                          Don’ts
                              Contact technical personnel for questions during the
                               proposal process unless Buyer instructed
                              Wait to the last minute to ask for an extension
                              Continually ask for extensions
                                   Request for proposal

                       Key objectives
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                          Obtain correct information to enable sound
                           business decisions.
                          Ensure that all suppliers have an equal
                           understanding of the requirements.
                          Enable a broader and creative range of solutions
                           to be considered.
                          Responsive Bids allow PWR purchasing to
                           evaluate proposals to obtain a favorable deal.
                               Evaluation Criteria
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                          Responsive Bid
                          Price
                          Delivery
                          Technical Solution
                          Past Performance (SPI)
                          Financial Stability
                          Agreed Upon Terms & Conditions
                            Steps In The RFP Evaluation Process

                          Step One: Review All Proposals
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                          Step Two: Determine Status. Determine if proposal is
                           ―responsive‖ or ―non-responsive‖
                          Step Three: Score Proposals based on criteria established
                           in the RFP
                          Step Four: Discuss Proposals. The evaluation committee
                           reaches a ―unified understanding‖ of the criteria and
                           corresponding responses. Individual scores may be
                           adjusted at this point based on discussion. Tally results.
                          Step Five: Interview. This step is optional. This is an
                           opportunity for both sides to explain their viewpoints
                              Steps In The RFP Evaluation Process

                          Step Six: Discussion/Negotiation. This step can be
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                           optional, but may be required.
                          Step Seven: Best and Final Offer. This is optional. Once
                           a BAFO is received the committee will evaluate it in the
                           same manner as the original proposal.
                          Step Eight: Recommendation. Written recommendation
                           includes scores, justification and rationale for the decision.
                          Step Nine: Management Review of committee scoring and
                           justification. If accepted, the winning proposal will be used
                           to roll up in PWR proposal or award PO to supplier if using
                           company funds or after PWR is awarded a contract.
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            Source Selection
                               Proposal/Source Selection
                       1.   Receipt of Proposal
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                       2.   Best Value Proposal Evaluation
                                   Quality Performance
                                   Schedule Performance
                                   Price
                                      Non-recurring costs impact to overall
                                        price evaluation
                                   Proposal Evaluation Tool (SPI Tool)
                                   Terms & Conditions
                       3.   Technical Evaluation (as required)
                       4.   Source Selection Board (as required)
                                      Source Selection
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                       PURPOSE AND SCOPE:
                          To define the process for fairly and ethically
                           evaluating and selecting best value sources
                           of supplies and services.
                          Competitive Procurements
                          Non-Competitive Procurements
                                     Source Selection process

                          PWR Buyer Criteria – See PWR 5.3.2
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                          Selection Process
                              Competitive (Best Value – SPI evaluation)
                              Non-Competitive (Determination of reasonableness)
                                  Fact-finding
                                  Negotiation
                                  Award
                               Evaluation of Quotations or Offers

                          Many source selections are relatively straight forward and
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                           may be completed primarily on the basis of price
                           competition. Other more complex source selections require
                           an assessment of other factors.

                           Best Value Analysis - An evaluation technique based upon
                           an integrated assessment of a supplier’s technical,
                           management, cost or price, and schedule elements, as well
                           as the supplier’s past performance record with PWR,
                           intended to select the source offering the greatest overall
                           benefit in response to the requirement.
                             Lowest Evaluated Proposal
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                       • Price Analysis based on comparing two or
                         more proposals using the Supplier
                         Performance Index (SPI) model.
                                         SPI Process
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                       • A formula used to evaluate suppliers’ delivery and
                          quality performance.

                       • The model is weighted: 40% SDR (Supplier
                          Delivery Rating) and 60% SQR (Supplier Quality
                                        SPI Calculation

                          The Supplier Performance Index (SPI) is calculated
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                           as follows:

                           Here are some sample calculations:

                           2 – ( SQR * .60 + SDR * .40) = SPI

                           SUPPLIER A      2 – ( 0.588 + 0.400 ) = 1.012
                           SUPPLIER B      2 – ( 0.582 + 0.388 ) = 1.030
                           SUPPLIER C      2 – ( 0.528 + 0.352 ) = 1.120
                                         How is the SPI used?
                      PWR buyers use the SPI as the primary factor in their evaluation of
                       supplier proposals for inspected items. The example below
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                       illustrates how it works.

                     SUPPLIER A                             SUPPLIER B SUPPLIER C
   QUOTED PRICE         $1,035.00                            $1,050.00      $1,023.00
   multiplied by SPI      1.012                                1.03          1.12
                       ---------------                       ------------- -------------
   EVALUATED PRICE    $1,047.42                             $1,081.50      $1,145.76

   Supplier A could be selected for the award, even though their quoted
     price was not the lowest.

   The closer a supplier’s SPI is to 1.000, our experience indicates, the
     more likely they will meet PWR’s quality and delivery requirements.
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                          PWR Fact-Finding Questions will be covered in
                           our next section

                          Certified cost and pricing data will be discussed
                           in the next section
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                       PWR Evaluation Criteria and Process
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                          PWR Price / Cost Analysis

                          Fact-Finding

                          PWR Technical Evaluation of Supplier Proposals

                          Funding Profiles, Ogives and PTL
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                                     PWR Price and Cost

                       Greg Manley
                       July 2009
                             Why Do We Need a Cost Analysis?
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                      For government contracts, the Truth in Negotiations Act (TINA),
                       requires the submission of cost and pricing data:
                         When the proposed price is expected to exceed $650,000.
                         When the pricing of a change or modification to a contract
                          exceeds $650,000

                      For commercial contracts a cost analysis is required:
                         To comply with company procedures.
                         Because it makes good business sense.
                                    What is a Price Analysis?
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                      A price analysis is the process of examining and evaluating a
                       prospective price by comparing the price with other available

                      Typical price analysis techniques include:
                         Competition
                         Catalog/market pricing
                         Comparison to other costs (historical, similar-to, in-house
                          estimate, parametric/cost estimating relationships)
                         Value/visual analysis
                                   What is a Cost Analysis?
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                          A cost analysis is the review and evaluation of the
                           separate cost elements and proposed profit of a
                           supplier’s cost or pricing data.

                          It is the judgmental factors applied in projecting from
                           historical data to the estimated costs to form an
                           opinion on the degree to which the proposed costs
                           represent a fair & reasonable the cost.

                          Both of the above items assumes reasonable
                           economy and efficiency
                                           Overall Cost Analysis Process
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                                               Receive Request
                                                for Cost/Price                            Start Field          Support Negotiations as
                       Supplier SOW                                      Fact Find
                                                   Analysis                              Fact-finding           Member of the Team
                       Development                                      Questions
                                                                                                Receive        Issue Cost
                                      Draft &               Request DCAA
                                                                                               Technical        Analysis
                                    Submit RFP               Assist Audit*
                                                                                               Evaluation       Position
                                    to Supplier

                                    Receive                    Request           Receive              Complete          Documentation
                                    Supplier                  Technical        Clarification         Fact-finding          Sign-off
                                    Proposal                  Evaluation        Responses
                                                                              from Supplier
                                               Approve Cost                                                  Support Pre-
                                               Analysis Plan                          Receive DCAA           negotiation
                                                 (CAP)**                               Assist Audit            Review

                        *    Only on Government Contracts
                        **   Optional

                        Note: Some of these tasks will overlap or will be done in parallel with other tasks.
                                                DCAA Assist Audit
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                      In the event a subcontractor denies access to their cost & pricing or rate data the
                       Cost Analyst should request DCAA audit or rate verification

                      The DCAA audit request is initiated by submitting a request in writing to the cognizant
                       ACO, along with a copy of the subcontractor’s proposal. The request will identify the
                       supplier, contract number and any specific audit needs, i.e. Material, labor hours, rates,
                       etc. or just direct and indirect labor rates

                      A report will be released by the DCAA to the cognizant ACO

                      The ACO will release the report to the requesting Cost Analyst

                      The DCAA’s findings will be utilized in the final cost analysis report.
                                          Cost Analysis Process

                       The Supplier Management Agent/Buyer is responsible for:
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                             Request cost analysis from the Finance Cost Analysis if
                              thresholds are exceeded

                             Requesting additional information from the supplier (as required)
                              to complete a cost analysis

                             Supporting fact find (as required)

                             Responsible for understanding the logic/details of the cost
                              analysis as completed by the cost analyst

                             Preparing procurement board/memo for review with management.
                                               Learning Curve

                          Rate of Improvement
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                             100% curve slope = no learning
                                Robots, 100% automated (very rare)

                              Rate is less when most of the work is done by machines
                               (flatter slope)

                              As a task is repeated, the more efficient the task becomes,
                               due to operator efficiency, tool design, method and
                               process improvements, etc

                              All areas of the enterprise contribute to the overall
                                          Learning Curve
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                          The greater the amount of manual labor, the greater the
                           opportunity for improvement
                           (steeper slope)

                          The steeper the curve slope (lower curve %) the greater
                           the rate of improvement.
                                                Learning Curve
                          Determining the Curve Slope
                              First, perform regression analysis of the actual data.
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                                 If the projection produces an unrealistic answer, the
                                   correlation is poor, or you have only one data point,
                              Use a force curve using a single data point based on a
                               historical curve slope for a similar item. If no historical
                               slopes are available, then:
                              Then use the following rule of thumb curve slope
                                 Sheet Metal         95%
                                 Machining           90%
                                 NC Machining        95%
                                 Assembly            85%
                              There are published lists of curve slope percentages.
                                          Learning Curve

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                             Universal tool
                             Projects continuous improvement
                             Uses past performance to project the future
                             Able to find line of best fit

                          Disadvantages
                             Need to be aware of make/buy and process changes.
                             Must have data to develop.
                             Manufacturing problems are included in the historical
                              data base (rework, scrap, etc.)
                                          Quantity Adjustment
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                          An attempt to normalize (adjust) the historical data base (as
                           it relates to procurement quantities) to a constant base, in
                           order to account for large changes in quantities

                              When the item being procured has a large amount of
                               fixed cost or is a common commercial item, then that
                               quantity break is appropriate

                              Curve would be 100% with no fixed cost

                              As fixed cost increases, the curve slope % decreases.

                          Material–purchased items/services which become part
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                           of the final, deliverable product

                          Four common categories of material are as follows:
                              Raw material—requires further processing.
                              Subcontracted Items—assembled parts that have been
                               offloaded to another supplier for manufacture.
                              Outside processing.
                              Purchased parts—parts processed from raw material
                               that are bought complete.
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                          Bill of Material (BOM)
                              The engineering drawings are the source of the
                              An itemized listing of all the material
                               items/services that are required to build a
                              Determine the best value supplier and associated
                               cost for the material item or serves.

                          Typically the BOM is evaluated by validating a
                           sample of the total parts or BOM.
                                             Rate Verification

                          Forward Pricing Rate Agreement
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                           A written agreement negotiated between a contractor and
                             the government to utilize certain rates or prices during a
                             specified period in pricing contracts or modifications

                           Represents reasonable projections of specific costs that
                             may not easily be estimated for, identified with, or
                             generated by a specific contract

                           May include rates for labor, indirect costs, scrap,
                            obsolescence, etc.
                                             Rate Verification
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                          Government audits
                            Accounting and/or technical audit performed by a
                             government agency

                                 Government accounting audit is requested when
                                  PWR does not have audit rights

                                 Government technical audit is required when
                                  supplier will not provide cost/pricing data to PWR
                                  (i.e., Labor hour history).
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                                      PWR Fact-Find Questions
                        The following data is the standard supporting documentation the Cost
                        Analysis Department requests when certified cost and pricing data is
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                      A summary description of the operation of the supplier's cost estimating
                       system (New Projects & Existing/Repeat Projects).
                      Cost breakdown based upon supplier's estimating system (Non-
                       Recurring/Recurring-D.L.; Overhead; Material; Other Direct Cost; G&A;
                       Profit, etc.). Provide basis of estimate (actual, history, estimate, etc.) for
                       labor hours
                      Priced Bill of Material
                            a. Explanation of method and data used by the supplier in preparing the
                            b. Explanation of contingencies, if any.
                      Explanation of method and data used by the supplier in preparation of direct
                       labor hour forecast for this purchase order.
                      Direct labor hour forecast by month and by unit or lot if respective production
                       is involved.
                      Basis for forecasting direct hourly rates (Engineering, Manufacturing, etc.).
                                       PWR Fact-Find Questions
                          Basis for forecasting burden rates (Engineering, Manufacturing, etc.)
                          Actual Burden rates experienced by year for the previous two
                           calendar years.
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                          Negotiated burden rates experienced by year for the previous two
                           calendar years and the Government agency with whom such rates
                           were negotiated (i.e. DCAA) - if applicable.
                          Analysis of burden pools by account and by year for the previous
                           two calendar years classified by fixed and variable costs.
                          Total of direct labor hours or dollars expended by year for the
                           previous two calendar years.
                          Forecast of direct labor hours or dollars for the period to be covered
                           by and including the purchase order together with an outline of the
                           basis of the forecast.
                          Actual sales backlog at the beginning of the previous and the current
                           calendar year.
                          Profit substantiation.
                          Was a learning curve applied? What type of curve is used (CUM.
                           AVG. UNIT, etc.)
                                       PWR Fact-Find Questions
                      How many hours were proposed for the first unit?
                      Are there any contingencies in supplier's proposal for labor hours?
                      Was there any learning curve applied to material costs?
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                      Provide support documentation for "driver" items representing 80%
                       of material cost (i.e. Quote; P.O.; Inventory, etc.)
                      Does proposed material provide for mortality? If so, applicable to
                       all items?
                      Does material cost include a handling charge or other burden
                      Are there other contingencies in supplier's proposed material cost?
                       If yes, please describe.
                      Basis for forecasting G&A rate
                       a. Actual G & A rate experienced by year for the previous two calendar years
                       b. Negotiated burden rates experienced by year for the previous two calendar
                          years and the Government agency with whom such rates were negotiated
                          (i.e. DCAA) - if applicable
                       c. Explanation of the difference between a & b - if applicable
                       d. Analysis of G & A pools by account and by year for the previous two calendar
                          years classified by fixed and variable costs.
                                    PWR Fact-Find Questions
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                          Other Cost - Provide documentation to support other cost
                           items if applicable.

                          Does the proposal contain any unallowable cost (FAR:
                           31.205)? If so, please identify.

                          Provide documentation (actual cost or estimated cost at
                           completion) on current or previous PWR procurements of
                           the same or similar item.
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                       PWR Technical Evaluation of
                          Supplier Proposals
                               PWR Technical Evaluation Criteria
                      Technical Evaluations of supplier proposals form the
                       foundation for subsequent price negotiations
                          The Technical Evaluation consists of an evaluation of the supplier’s
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                           technical and cost proposals
                      The Technical Evaluation of the supplier’s technical proposal
                       is a comprehensive and responsive evaluation of the criteria
                       set forth in the solicitation
                      The Technical Evaluation of a supplier’s cost proposal is a
                       review and assessment by qualified technical personnel of the
                       following points:
                        labor mix appropriateness including number of hours and labor
                         category proposed;
                        type and quantities of material proposed;
                        special tooling and facilities proposed; and,
                        reasonableness and appropriateness of proposed other direct costs
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                       Ogives and PTL/Funding Profiles
                                            PWR Ogive Definition
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                          An Ogive is a frequency distribution of numerical data
                          Ogives are normally represented on bell curves
                          Example: If you are plotting 100 hours on a 20/80 Ogive
                              20 hours (100 x 20% = 20) would fall on the left side of the
                               bell and 80 hours (100 x 80% = 80) on the right side
                          Valid PWR / ProPricer Ogives: 10/90, 20/80, 30/70, 40/60,
                           50/50, 60/40, 70/30, 80/20, 90/10
                          PWR / ProPricer will spread the data between the start /
                           stop months based on the selected Ogives
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                       Program Termination Liability
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                          PWR Estimating Systems Manual

                          Termination Liability Topics
                              What is Termination Liability
                              Termination Liability Funding
                              Termination Costs
                              Termination Cost Risk Coverage
                              Special Termination Cost Clause
                              Estimating Termination Costs
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                       Estimating and Pricing must work with Contracts/Legal
                       Services and Program Management to ensure that costs
                       resulting from a potential termination are either

                        a. Included in requested contract funding and submitted in
                           the cost proposal.

                        b. Covered by appropriate contractual language (such as a
                           Special Termination Cost Clause).

                        c. Accepted by management as potentially unrecoverable
                                  What is Termination Liability?

                       Termination liability is the maximum amount the
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                       Government will reimburse a contractor if a contract is

                       It includes cost for contract work that has been incurred
                       up to the termination date plus termination cost. In the
                       case of a multi-year contract terminated before
                       completion of the current fiscal year, termination liability
                       includes costs for current year contract work prior to the
                       termination and termination costs for both the current and
                       out years.
                              Termination Liability Funding
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                       For incrementally funded contracts, the contractor usually
                       provides the Government an estimate of the funds required
                       to cover the anticipated contract work plus enough funds to
                       cover termination costs (not covered by special contract
                       clauses) for each period of the contract.
                       The Government will allocate funds to the contract for the
                       current contract performance period based on the funding
                       required. Failure of the contractor to adequately forecast
                       termination costs and include them in the funding
                       requirement may result in inadequate funds being made
                       available to cover costs in the event the contract is
                       If this situation occurs, the contractor may not be able to
                       recover any incurred costs in excess of the funded amount.
                                          Termination Costs
                       There are eight categories of termination costs. Organizations
                       should use these cost categories to help identify potential
                       termination costs in their program and make provisions to
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                       minimize the financial risk associated with them. The eight
                       different categories are
                            Before termination costs.
                            Costs continuing after termination (FAR 31.205-42(b)).
                              Initial costs (FAR 31.205-42(c)).
                             Loss of useful value (FAR 31.205-42(d)).
                             Rental under unexpired leases (FAR 31.205-42(e)).
                             Alterations of leased property (FAR 31.205-42(f)).
                             Settlement expenses (FAR 31.205-42(g)).
                             Subcontractor claims (FAR 31.205-42(h)).
                             Termination Cost Risk Coverage
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                       A upcoming chart displays the termination costs that have
                       been historically covered in the PWR termination estimate
                       (calculated by leading labor and material) or by the special
                       termination cost clause. Costs in the potentially uncovered
                       category are not addressed by either of these methods.

                       If a contract has no special termination cost clause, or has
                       significant costs in the potentially uncovered category, then
                       these costs need to be separately estimated and added to
                       the PWR termination liability line values, (see Figure 8.7-1)
                       covered by additional contract clauses, or accepted as
                       potential risks by management.
                             Special Termination Cost Clause

                       Government contracts and RFPs sometimes include a
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                       special termination cost clause. This clause recognizes
                       that if the contract is terminated there will be selected
                       termination costs for which the Government will be
                       obligated to provide additional funding. This clause usually
                       contains a not to exceed funding limitation.

                       Special termination costs are defined by Department of
                       Defense (DoD) FAR Supplement 252.249-7000.
                       Contracting agencies have different variations to the
                       language covering the specific costs included in a special
                       termination cost clause. Be sure to read the contract
                       provisions to determine the costs that are covered by the
                               Estimating Termination Costs
                  Estimating method-leading cost
                  PWR typically calculates a termination liability line by leading costs
                  for PWR labor, interdivisional labor, and supplier costs by set
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                  periods. Lead times are dependent on the particular circumstances
                  of the individual program. This technique includes in the current
                  funding request, costs for future periods for which PWR may be
                  contractually liable. An example of the approach follows.
                      PWR labor, associated overhead, and other costs are set
                        forward a specific period of time, usually one to three months.
                      The interorganizational costs are set forward a month, similar
                        to PWR costs.
                      Subcontract, supplier, and direct material costs are set forward
                        a specific period of time, usually three months. This offset
                        covers the subcontractor's and suppliers expenditures that
                        have been performed but not yet billed to the prime contractor.
                        For major subcontractors termination liability lines should be
                        requested and compared to the internal calculations.
                        Adjustments to the internal subcontract values should be made
                        if required.
                       Estimating Termination Costs
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                                     PTL Recommendation

                          Document current processes (All)
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                          Investigate existing processes (DoD)
                          Develop PTL tools (Review Questionnaire)
                          Review Termination Liability costs with Programs
                          Determine Program Termination Liability costs
                          Price costs in the ProPricer System
                          Review Termination Liability costs with Management
                          Present Termination Liability values to customer
                                               PTL Process Description
                       Typical Six Step PTL Process
                       1.   Identify the following elements of PTL for the Program life from the Business
                            Operations Budgeting System
                              A.Total Expenditures (i.e. MPM/SAP extract)
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                              B.Non Labor Costs, Budgeted value including       common budget elements (i.e. G&A,
                               COM and Fee)
                              C.Labor Costs, calculated (mathematical difference of A less B).
                       2.   Determine PTL values
                             • Identify Labor and Non Labor lead values required to provide PTL
                               coverage in months (Burn Rate)
                                  Before Termination Costs
                                  Costs Continuing After Termination     (partial de-staffing only)
                                  Subcontractor Claims
                              • Identify   any PTL Special Termination Cost Clause values
                                  Costs Continuing After   Termination
                                  Settlement Expense
                              • Identify   any potentially uncover costs
                                  Initial Costs
                                  Loss of Useful Value
                                  Rental Under Unexpired Leases
                                  Alterations of Leased Property
                       3. Calculate a PTL by GFY quarter
                       4. Review PTL values with Program Management
                       5. Report PTL values to Upper Mgmt
                       6. Review and update PTL values as required
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                       Completing the PWR Proposal
                                   Wrapping Up the Proposal

                          Create Draft /Prelim Run of Pricing
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                          Write technical proposal based on approved mockup
                          Submit remaining graphics for login and formatting
                          Check pricing input for completeness and consistency
                           to proposal plan
                          Draft BOEs
                          Submit preliminary cost data for Pricing/Finance
                           Management Approval
                          Review program plan / risk analysis /
                           T&Cs/cost/business plan with approving executives
                                 Create Finished Proposal
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                          Obtain IPT/process organizations approvals for
                           cost estimates and BOEs
                          Assemble final proposal
                          Prepare briefing/documentation for executive
                          Schedule Repro and Data Management effort
                          Complete technical, management and cost
                           proposal packages with all required backup
                          Identify/confirm delivery arrangements
                                   Proposal Submittal
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                          Submit for repro with instructions (include
                           backup copies)

                          Verify proposal completeness and prepare
                           for delivery

                          Deliver to customer
                       Prepare for Orals and Fact-Finding
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                           Team prepares for orals (if required)

                           Team responds to CRs & DRs (if any)

                           BAFO follows same steps as above

                           PM coordinates PA (or other) budget to
                            support post submittal activities

                           Develop BAFO strategy based on above

                          PWR Legal/CA acts as lead to support ALL Negotiation activities
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                          Coordinate all meeting between customer & RD
                          Documents all issues and responses
                          Exchanges offers & counter offers
                          Summarize cost impacts for Mgmt
                          PM & functions support both as need
                          Pricer updates C&P data & coordinates disclosures w/ CA
                          Pricer performs sweeps & certs if applicable
                          CA completes memo of negotiation
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            Change proposal
                                         Change Proposals
                          Changes occur for a variety of reasons/scenarios
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                              PWR Customer driven change
                              PWR generated change
                              Supplier generated change
                          Not all changes require an equitable adjustment
                          Equitable adjustment can be schedule and/or price
                              Adjustments can be increasing or decreasing
                          Equitable adjustment changes generally are scope or
                           schedule driven
                          Terms & Conditions are not re-negotiable
                                         Change Proposals
                          Not competitive
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                          Scope/schedule changes can be incorporated via an
                           undefinitized change notice (proposal & negotiations to
                          A formal RFQ/RFP may be sent by PWR
                          TINA requirements apply (aggregate value, i.e., $350K
                           increase + $300K decrease = $650K TINA change
                          It is not an opportunity to ―Get Well.‖ The equitable
                           adjustment must only consider the impact of the actual
                                        Change Proposals

                          Pursuant to PO ―Changes‖ clause, supplier obligated to
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                           place change notice into work.

                          Proposal & Negotiation Process should be timely (FAR
                           requirement to be complete in less than 180 days –
                           PWR Goal is 120 days)

                          Supplier is obligated to present PWR with a fully
                           documented change proposal within fifteen calendar
                           days of PO change receipt.

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