1 Serco Business Safer, Smarter, Better | Reimagining Government Together Safer, Smarter, Better | Reimagining Government Together December 2022 SERCO COST ESTIMATING SYSTEM POLICIES & PROCEDURES Presented By: Candice Murphy 2 Serco Business 2 Serco Estimating System SECTION 1 - OVERVIEW 3 Serco Business 3 Serco Cost Estimating System - Requirement • Cost Estimating System (ES) – Requirement DFAR/FAR • Applies to Contractors with $50+ million in DoD contracts • “An acceptable system should provide for the use of appropriate source data, utilize sound estimating techniques and good judgment, maintain a consistent approach, and adhere to established policies and procedures.” -DFAR 215.407-5 4 Serco Business 4 Serco Cost Estimating System - What • Policies and procedures for all Gov. cost proposals • Produces bids that form a basis for negotiating fair and reasonable prices • Integrates with Systems – HR/Comp, Accounting, FP&A, Procurement • Consistent, documented application across company • Documents source of cost estimates • Documents approval of price proposal • Produces verifiable cost estimates • Prescribes ES Training and Internal Audit Procedures 5 Serco Business 5 Serco Cost Estimating System - Why • Penalties Increased auditor requests, scrutiny, onsite presence, costs Reduced fee and/or modified cost based on deficiency(s) Delay of contract awards – Increased burden on Gov. COs Increased work for Serco in proposal development and cost justifications Increased chance of defective pricing and resulting penalties • Benefits Reduction or Elimination of Penalties More efficient cost proposal development, resource use Consistent reports for price proposal review and approval Reduction in errors and omissions Raise avg. proposal quality and Pricing knowledge base 6 Serco Business 6 Serco Cost Estimating System – Key Thoughts • Documentation is KEY – Especially historical data, assumptions/factors applied, cost quotations, QA Review, Approvals • ES is intended to provide primary methodologies for estimating practices across Serco BUT exceptions are allowed w/proper approvals and justification • ES provides for a verifiable, consistent approach to pricing our bids, compliance with FAR, improved quality and better protection from adverse audit findings Keys to performing well on an Estimating System audit: • Consistency • Documentation – Policies/Procedures, Data, Proposal File • Establishing realism & reasonableness and documenting • Following our own procedures and documenting 7 Serco Business 7 Serco Estimating System SECTION 2 - ESTIMATING SYSTEM PERSONNEL 8 Serco Business 8 ESTIMATING SYSTEM PERSONNEL • Defines Roles & Responsibilities of Proposal Staff @ Pricing Bids • Cost Analyst (You!) is focal point of cost/price proposal development • Cost Analyst is the role, may be sourced from varying departments • Serves as Cost/Price Volume Lead • Works with the Capture and Program Managers to determine the cost components to be included in the proposal • Coordinates and integrates cost data input from various departments such as Operations, Finance, Procurement, and Human Resources • Develops the cost estimate with input/guidance from Operations Staff, Proposal and Capture Manager, noting all assumptions and sources • Drafts the cost narrative when required with input from Operations • In coordination with Compensation and Operations staff, ensures proper mapping of RFP defined labor categories • Ensures the proposal is consistent with the relevant Serco BG Disclosure Statement and corporate accounting practices 9 Serco Business 9 ESTIMATING SYSTEM PERSONNEL • Operations = BU Lead or Technical Expert on Program • Contracts Department • Pricing Department • Purchasing (Part of Procurement) • Subcontracting (Part of Procurement) • Human Resource & Compensation Department • Business Group Finance • Capture Manager • Proposal Manager (sometimes = Program Manager within Operations) • Cost Analyst (Pricing, Operations, Finance, Contracts, or Project Control) * Refer to Estimating Manual for detailed descriptions 10 Serco Business 10 Serco Estimating System SECTION 3 – GOVERNMENT CONTRACTING ENVIRONMENT 11 Serco Business 11 Government Contracting Environment • Code of Estimating Standards (code of conduct, integrity standards) • Cost Analysts request a QA/compliance review from another Cost Analyst, Project Control, Finance, Pricing or Operations staff outside the immediate proposal team prior to submittal and conduct such reviews themselves when requested. Reviews are documented. • Save separate QA check file and e-mail communication confirming the QA Review • For all cost/price proposals approved at the CEO BLRT level or higher, a QA Review Checklist is completed and saved. • The Cost Analyst maintains designated back-up data and prepares to present this cost or pricing data during reviews of the cost estimates. • To the maximum extent practical, all cost estimates are consistently prepared and based on documented assumptions or historical data. • All cost estimates reflect the most current forward priced indirect cost rates as provided by the Pricing and Finance Departments. 12 Serco Business 12 Government Contracting Environment • Truthful Cost and Pricing Data - formerly (Truth In Negotiations Act, or TINA) • Requires government contractors to submit cost or pricing data and to certify that such data is current, accurate, and complete on the date of final agreement on price. • For pricing integrity, all Cost Analysts should assume that for federal government proposals, the cost estimates are subject to TINA requirements • Cost and pricing data are all information that affect price – they are factual, not judgmental, and are verifiable. • Distinction between Certificate of Current Cost and Pricing Data and the Data itself • Many proposals are exempt from the Certificate and the requirement is to provide Other than Certified Cost or Pricing Data (usually Section L) • TINA Certification exemptions : • Adequate competition • Price is set by law or regulation • Acquisition for a commercial item 13 Serco Business 13 Government Contracting Environment • Certificate of Current Cost and Pricing Data is Important • Violations are typically classified as Defective Pricing • Civil and Criminal Penalties possible, think Post Business Section • When Certificate required – TINA SWEEP Performed by Cost Analyst • Verify all cost or pricing data is current, accurate and complete as of the final date of agreement in price. • If new/additional cost or pricing data is identified and is considered relevant to the price negotiation, the data must be summarized and provided to Contracts, this data is then disclosed to the government • Actual Certificate is signed by Director of Pricing, Finance Director, or designee • PLEASE LIST VALUE OF PRICE PROPOSAL ON CERT. • Provide copy to Contracts Administrator • See ES Manual Appendix E for more information 14 Serco Business 14 Serco Estimating System SECTION 4 – PREPARATION OF TECHNICAL ESTIMATES 15 Serco Business 15 Technical Estimates Create Cost Estimates • The PM, Technical Lead, Operations Manager or other SME defines the technical solution(s) • Cost Analyst works closely to understand solution and key cost drivers • Prepare BOE Verification document for bids at CEO BLRT level • Save Records of BOE directives, assumptions in Inputs folder • Store working files showing BOE Analysis • Travel Build-up, Hours/FTE, # shifts per year, etc. • Cost Analyst does NOT define solution (LOE, ODCs, etc.) • However, should analyze and challenge technical assumptions 16 Serco Business 16 Technical Estimates – Basis of Estimate (BOE) • Small projects may only require a simple breakdown by task, CLIN or labor categories, or no breakdown at all • Larger programs may require the use of a detailed Basis of Estimate (BOE), WBS and/or Contract Line Item Numbers (CLINs) and SubClins • See CES Manual Appendix A1 for Sample BOE • See CES Manual Appendix A2 for Sample BOE Verification Template • The Cost Analyst will always keep documentation of the resource requirements for each cost element including labor, materials, subcontracts, travel, materials, other direct costs (ODCs) • May include justification memoranda, quotations, cost data from similar projects, historical data for follow-ons, engineering estimate worksheets • Proposal file should be able to verify source of BOE data • In compliance with RFP, the basis for all cost elements and any adjustment factors applied will be disclosed in supporting Cost Narrative 17 Serco Business 17 Technical Estimates – Basis of Estimate (BOE) • A formal BOE is a detailed breakdown of the proposed costs related directly to the SOO, SOW, and WBS, usually down to the 3rd level, and is prepared when required by the RFP or solicitation. (very rare) • A formal BOE Volume would contain at a minimum: (ES Appendix A1) • Name of the estimator & reviewer/approver • Description of the task with period of performance • Assumptions and technical parameters used • Estimating methodology (historical, parametric, learning curve, technical consensus, etc.) • Time-phased breakdown of labor hours proposed per labor category with a summary level • References to any supporting documentation • Any kind of BOE provides evaluators and auditors insight into the rationale for the development of the estimate – Should give credibility to realism and reasonableness 18 Serco Business 18 Technical Estimates – Cost Narrative • A Cost Narrative is prepared for each proposal unless: • Extending/modifying a current contract • Bidding under an existing IDIQ/GWAC/GSA with established rates, terms and conditions • Explicitly not required by the customer • Provides below supporting information as applicable – RFP Governs – General statement of basis of estimate – Period of performance – Direct labor rates – Escalation – Productive hours (DPLH) – Description of ODCs – Indirect cost rate pools used, cost composition and allocation bases – Statement on fee – Basic description of team members (Subcontract or Consultant) roles – Policy on uncompensated overtime (UCOT) – when required or FAR 52.237-10 – Cognizant DCAA and ACO points of contact – Status of Accounting System – Status of Estimating System 19 Serco Business 19 Serco Estimating System SECTION 5 – DIRECT LABOR 20 Serco Business 20 Direct Labor – General • If RFP specifies Direct Labor Hours, Categories: Follow Guidance • If there are LCAT Quals – Compensation must map to Serco LCATS • Otherwise - Operations staff will take the lead in defining the required types and amounts of labor resources – Estimate Ownership • Cost Analyst and other capture team should evaluate Direct Labor estimates – RFP compliance, SCLS, competitiveness • Cost Analyst or project control can provide available historical contract data • PM reports or CostPoint Access • Unique program requirements, projected contingencies, learning curve efficiencies and/or other judgments should also be considered • Document rationale for Direct Labor Hours, salaries, number of staff, category mapping as you build the proposal – this is almost always needed for submittal and possibly for audit