INQUIRY: Dear Paul,Truly enjoyed your class last Tuesday...thank you.The SBA office and I were discussing a proposal I'm working and it was suggested I email you with the problem I'm having. The problem is how to price because I'm not sure how to apply my indirect costs?
Here is the problem. The contract is subdivided into more than one Lot and CLIN. In addition, some of the CLINs are performance based and some are requirements based. The CO stated they plan to award the work to 1 or up to 3 contractors. Not knowing which pieces of work we may win can dramatically impact our indirect costs. For example, One CLINs is to perform work on 14 acres while another CLIN is for 1100+ acres. Additionally, one contractor may be offered only requirement based CLINS.
Someone suggested we Price each CLIN separately like it is the only piece of work? My concern is our price will not be competitive and we won't get any work. On the flip is what if we win just limited pieces of the work and have not accommodated for our indirect costs?
I emailed the CO with my concerns and her reply basically just directs us back to the statement of work (SOW). So what would you suggest? Thank you for your time and consideration.
RESPONSE: Your concerns are valid. Things don't always seem as simple when the soup gets stirred. That is when sound judgment and experience is required to minimize risk because after all, you have to do something, right?
I would look at the results of pricing both ways.
First, I would price on a CLIN by CLIN basis and see how high or low the prices are. If applicable, I would include in my projection any existing and anticipated highly probable work in the estimates when determining the Indirect Rates and Costs. Then, the impact of each CLIN would be added to the Indirect Pool(s) and Indirect Base(s) as applicable. Until this is reviewed, we don't know what the prices would be and if they are competitive or not.
Alternately, I would do my best to estimate the probability of which ones and how many of the CLINs my company might receive. I'd be conservative but realistic. Then I would review the pricing results.
After reviewing pricing from both approaches, if I could remain competitive I would go with pricing based on award of only each CLIN separately.
Remember, where possible, price based on your normal policy for estimating and proposing. Calculate your indirect rates under both assumptions (CLIN by CLIN or a Group of CLIN's) and determine what your prices would be. You do not have to use those rates. If you want to use lower rates for competitive reasons, and you feel other work can absorb some of the indirect costs or you are willing to absorb some of the indirect costs under some CLINs from your fee/profit: Then you can propose lower rates to be more competitive.
However, you will most likely be stuck with those rates on the contract. You may also be setting a precedent that shows a MFC (Most Favored Customer) rate. You might get the government, especially GSA Schedule, wanting any discounted rates.
There is no answer that will eliminate all risk. Only minimize the risk. That is partially what the Fee/Profit is; Contract Risk Factor to account for the risk contractor takes when estimating our prices. The best we can do is accurately account for as many Direct Costs as possible, add an indirect rate factor based on our best estimate of what might happen during the performance of the contract. Then add a fee.