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Your Estimating System: Why You Should Make It As Important As Your Accounting System


10/13/16

Synopsis
Over the past decade, the Federal Government has elevated the importance of a Federal contractor’s accounting system in reporting and billing costs on Government contracts. However, these days, an adequate accounting system may not be enough to get you into the game. Now, the Government is also looking at a contractor’s estimating system as a requirement and differentiator.
 
Background
Contractors, particularly small to mid-size contractors, need to understand the Government’s objective in current and future procurements. In short, this objective is fairly simple – obtaining the right product at the right cost (or lower). However, the way the Government determines who can provide the right product at the right cost has changed. 
 
With the enactment of the 2016 National Defense Authorization Act (NDAA), the Defense Contract Audit Agency (DCAA) is no longer permitted to seek and perform audits in support of non-Department of Defense (DoD) agencies. However, long before the 2016 NDAA was issued, DCAA had already focused its initiatives on resolving its extensive backlog of incurred cost audits. DCAA had lengthy delays (or even cancellations) in their performance and completion of system audits. Many Government RFPs have improved the procurement process by accepting certifications and reviews performed by independent CPA firms on the adequacy of a contractor’s accounting system. This acceptance and use of independent CPA firm reviews has resulted in a larger pool of contractors that can account for and manage costs as the Government requires and needs.
 
Issue
As more contractors qualify for each Government opportunity, more proposals will be received for each solicitation issued. As a result, more proposals will need to be evaluated. This comes at a time where the Government is moving away from traditional Low Price Technically Acceptable (LTPA) methodology and toward Best Value. This means the Government will be evaluating proposals in greater detail and relying more heavily on non-cost areas such as past performance, acceptability of contractor business systems, and technical approach. 
 
As the Government continues to tighten its budget, it needs to be more selective in its contract awards. Therefore, it must ensure it selects the right contractor the first time and that contractor can provide the requested product and/or service at a fair and reasonable price. These factors are driving the Government’s preference for contractors with acceptable estimating systems to help ensure that it pays fair and reasonable prices based on reliable estimating data.
 
As a contractor, you should be asking yourself: “How can I develop my proposals in the most timely and adequate manner for the Government to review? This is important because the Government has already asked itself: “What can we do to improve the reliability of contractor proposals?”
 
The answer to both lies in having an acceptable estimating system.
 
Defining an Acceptable Estimating System
Even though Defense Federal Acquisition Regulation Supplement (DFARS) Clause 252.215-7002, Cost Estimating System Requirements, does describe what is an acceptable estimating system, many non-DoD agencies also rely on the same criteria when evaluating the acceptability of a contractor estimating systems. The DFARS clause contains four major criteria, drawn from 21 sub-criteria, that comprise an acceptable estimating system. While all of the criteria and sub-criteria are essential, Criteria 4 is especially important and states:
 
“The Contractor’s estimating system shall 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…”
 
Criteria 4 also include 17 of the 21 sub-criteria. This is especially important because it outlines the key aspects (and good practices) of an acceptable estimating system.
 
Why else should an estimating system be considered so important to the Government – and to you?
 
Typically, FAR Part 31, Contract Cost Principles and Procedures, apply when contractor costs have been incurred under a Government contract. However, these principles also apply to costs that are estimated. Cost Accounting Standards (CAS) and (FAR Part 30) may also apply, even though the proposal or contract could be exempt from CAS. Therefore, it is important to understand which regulations apply and how they can be addressed within contractor business systems.
 
Lastly, the accounting system (per the definition in DFARS 252.242-7006, Accounting System Administration), also has criteria that are applicable to the estimating system. Failure in one of these areas may result in failure in the others such that a seemingly small issue can easily become much more significant.
 
How You Can Use This Information
Providing a quality product and service is your goal.  Shouldn’t your proposals reflect a similar level of quality? Get ahead of the competition and turn business possibilities into business opportunities with an acceptable estimating system. Do this before it becomes the industry standard. Having an acceptable estimating system today helps provide a higher level of assurance with your proposals and may even earn you additional evaluation points in the next proposal.
 
Learn More
CohnReznick is focused on helping government contractors develop processes, identify strengths and weaknesses, or evaluate business systems used by their companies. Toward that end, we have these resources you should look into:
 
  • CohnReznick Insights: Provides CohnReznick’s latest insights on business trends, regulatory developments, and economic issues. You can subscribe to receive Insights e-newsletters by email.
  • CohnReznick GovCon360: Keeps you up-to-date on the ever-changing regulatory environment that is government contracting. From reference materials to educational presentations and thought leadership pieces on industry matters, GovCon360 is a valuable resource for the Government contracting professional.
 
Contact
For more information on government contractor estimating systems, please contact Long Nguyen, Manager, at long.nguyen@cohnreznick.com or 703-744-6747 or Kristen Soles, Partner, at  kristen.soles@cohnreznick.com or 703-847-4411.
 
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