Proposal Preparation Techniques

1
Pratt Whitney Rocketdyne Supplier/Buyer
Training July 21, 2009
2
Presenters

• Ed Kasaba
• Greg Manley
• Gary Pedersen
• Jim Scarpati
• Mike Suever

3
Supplier Proposal Training

• This training is generalized in nature
• 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
  requirements
• Buyers 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

4
AGENDA

• Disclaimer Mike Suever
• 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

5
Proposal and Contracts Overview
6
Customers

• PWR has different types of customers and sales as
  identified below
• 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.

7
Business Life Cycle
8
Types of Solicitations

• RFP -- Request for Proposal
• 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 programs
• PRDA -- Program Research and Development
  Announcement
• Used by DOD for exploratory research that has
  general application and is not system specific

9
Contract Types

• Contract types are grouped into two broad
  categories
• Fixed price
• 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

10
Types of Contracts

• Cost Reimbursable (Cost Type)
• 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

11
Types of Contracts

• Time and Material (TM) Contracts
• A TM 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 (GA) expenses, and profit.
• b. Materials at cost, including, if appropriate,
  material handling (overhead) costs as a part of
  material costs.

12
Contracting Methods

• Formal advertising (sealed bid) is preferred by
  the Government
• Contracting by negotiation is the alternative
• Governed by FAR 15-101
• Basis for agreement on terms and price

13
Cost Type (Cost Reimbursable)

• Costs are paid provided they are
• Allowable check FAR
• Allocable charge the right contract and comply
  with the CAS Disclosure Statement
• Direct or Indirect or GA
• Fee is based on Target Cost
• Proposal and negotiations determine target cost
  and are used to establish fee

14
Firm Fixed Price

• Used when costs can be estimated with good
  assurance e.g., based on recent production cost
  experience
• You do a defined job and get a defined payment
• Can be used for large production contracts
• Risks and opportunities are high

15
Fixed Price Level of Effort

• Used for small contracts or task orders
• For example
• 200 hours _at_ 200 / hour. Bill hours at a rate.
• Your billing rate includes your profit.
• Subtleties about engineering hours vs. business
  hours
• Ensure contract is clear.

16
Risk vs. Reward

• Cost reimbursable contracts inherently have
  limited 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 cost.
• Profit opportunities may be greater on FP
  contracts than on cost reimbursable.

17
Contract Modifications

• The Government uses the Changes clause to add
  or 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

18
What Is A Winning Proposal?
A business proposal is a written offer from a
seller to a 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 evaluators?

19
What Is A Winning Proposal?

• Winning proposals have four characteristics in
  common
• 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.

20
Governing Laws, Regulations Policies

• Legislation
• 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

21
PWRFirewall Training
22
PWR Firewall Training

• Definition of a Firewall

• A process or procedure that limits the flow of
  information from, to, or within PWR.
• It is used primarily where unrestricted access to
  the protected information might introduce bias or
  confer an actual or apparent unfair competitive
  advantage to PWR.
• A firewall procedure specifies both how protected
  information will be treated and with whom
  authorized PWR employees (or consultants) may
  share the information.

23
PWR Firewall Training

• 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

24
PWR Firewall Training

• Firewall Procedure/Process
• A firewall assures compliance with the terms of a
  Nondisclosure Agreement (NDA) with another
  company.
• A NDA assures that PWR will use that companys
  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 companys
  proprietary information.

25
PWR Firewall Training

• Firewall Procedure/Process (cont)
• 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.
• A firewall may arise where PWR is a participant
  on more than one team competing for a contract.
• - It assures that the PWR IPTs supporting the
  different teams bidding for the contract do not
  share information about their teams proposal
  with persons supporting any other team.

26
PWR Firewall Training

• PWR Management Responsibilities

• Manages the business.
• Primarily handles resource, commitment,
  programmatic issues.
• Assures even and level competition.
• Programmatic and technical oversight.
• Executive communication with the customer
  primarily commitments.
• May have knowledge of multiple customers
  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
  customers strategy, concepts, program plans or
  any other competitive aspects of his/her
  proposal/project.

27
PWR Firewall Training

• Firewalled Team Responsibilities

• Manages the Project/Program.
• 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
  customer.
• 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.

28
PWR Firewall Training

• Non-Firewalled Process Area Support Team
  Responsibilities

• Defines task assignments with PWR Firewalled
  interface
• Performs reports task outcomes to PWR
  Firewalled interface
• Does not communicate with the customer
• - Should limit work on more than one customer to
  the extent possible

29
PWR Firewall Training

• Restrictions

• Non-firewalled personnel SHALL NOT perform or
  participate in the following
• Development of the customers strategy, concepts,
  program plans or any other competitive aspects of
  his/her proposal/project.
• Generating, reviewing, or negotiating the
  customers proposal, or of PWRs proposal to the
  customer that would be embodied by the customers
  proposal other than to provide generic PWR data
  such as past performance, etc., or to review
  specific portions of PWRs proposal that clearly
  are not competitive discriminators between the
  customers proposal (e.g. PWR pricing data).
• Push suggestions that could cross pollinate a
  customers ideas to other customer or PWR
  interfaces or otherwise influence a customers
  competitive position on knowledge of another
  customers proposal.

30
PWR Firewall Training

• 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.
31
What is a Non Disclosure Agreement (NDA)

• 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 parties

32
When is An NDA Needed

• 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

33
Non Disclosure Agreement (NDA)

• 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.

34

• PWR Proposal Process

35
Pre-RFP Planning

• Identify customer needs/funding constraints
• Understand market needs
• 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, CP, QA, others as needed)
• Identify requirements
• Develop PA budget for management and team
  (inchstone level)
• Identify IRD/capital requirements

36
Proposal Process
Programs Marketing Business Plans Should Cost
Program Manager Contract Manager Cost
Volume/Business Manager
Program Manager Project Engineer Cost
Volume/Business Manager
Program Manager Project Engineer Cost Volume/BM
Mgr.
Market Price
Develop Proposal Strategy
Program Definition
Function Overview
RFP RFQ

• Establish
• Due Date
• RFP Requirements
• Deliverables/MIRs, TCs
• Estimating Methodology
• Similar To Programs
• Make/Buy
• Affordability/DTC Goals

• Present/Discuss
• Program Approach
• Pricing Strategy
• Estimating Assistance
• Identify Similar To

• Prepare
• Program Plan
• Program Schedule
• Test Plan
• Bill of Materials (M/B)
• Work Breakdown Structure
• Resp. Assignment Matrix

Program Manager Project Engineer Cost Volume
Mgr. Functional Mgr.
Technical Cost Volume Manager
Profit Analysis Risks and Opportunity, Capital
Investment
Estimating Pricing
Function Directors/VP

• Detail Estimating
• Task Descriptions
• Estimate
• Basis of Estimates

• Functional Review
• Evaluate Estimating
• Access Cost Risk(if any)

Publish Cost/Technical and Mgmt Volumes
Risk Assessment/ Commitment
Complete Technical Volume Pricing Actions
Prepare Cost Volume

• Cmt Review Cycle
• Est. Pricing
• Contact Mgmt.
• Executive Mgmt.

• Evaluate Risk
• Assume Risk
• Revise Estimate
• Rescope

Program Manager Contract Manager Cost Volume Mgr.

• Labor Standards
• CERs
• Detail Estimates
• Parametrics
• Similar Tos
• Round Table/Expert Opinion
• Supplier Quotes
• P.O. History
• Catalog Prices

• Substantiation (-3s)
• Labor
• Material
• ODC

• Support
• Audit
• Fact Finding
• Negotiations

37
Proposal Process Overview
38
Analyze the Proposal Requirements

• Read the request for proposal (RFP)
• Understand the statement of work (SOW) and
  proposal type
• 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
39
Think of the RFP as a Quiz

• 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

40
Beginning of the Proposal Process

• Proposal manager identified
• Review available data
• 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

41
Proposal Compliance

• Developing Requirements Matrices

42
Proposal Receipt

• RFP receipt by PWR Contracts
• 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

43
Purpose

• Ties proposal response to requirements and
  evaluation criteria
• Flows RFP requirements to proposal outline
• Tool for establishing proper page count
• Ensures compliance with proposal requirements

44
How Matrix Developed

• 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/instruc
  tions, and linkages to customers evaluation
  criteria

This is an inexpensive option, but there are
products available on the market that will parse
RFPs. See APMP.org
45
Requirements Matrix

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

46
DRD Matrix
Develop a separate matrix for Data Requirements
Deliverables
47
How Suppliers Can Help

• We recommend that Suppliers use a similar
  principle in reviewing PWR Requests for Proposals
  or Quotations
• Often, we have tried many ways of identifying
  key/critical elements needed within the proposal
  and with rare exception theyre 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 RFPs read
  by the Suppliers!!

48
Generating the Proposal
49
Proposal Preparation

• Proposal Outline
• Themes
• Mockup
• Technical Cost are to be Prepared Together
• Approach must be Life Cycle Oriented
• PWR Affordability Process
• Proposal Schedule

50
Proposal Steps
Price Task
51
Proposal Planning Steps

• Develop
• 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

52
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
• Redline the RFPthen write your outline
• Analyze the similarities and differences in
• Instructions, Evaluation Criteria and Technical
  Description/requirements
• 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

53
Proposal Kick Off Meeting (PPOA)

• Brief proposal team operating groundrules
• Brief Program requirements, MIRs, Potential
  Competitors etc
• Distribute SOW, specifications, WBS etc.
• Brief proposal outline, mockups, and executive
  summary
• Distribute schedules, RAMS, budgets (hours/task
  for each person)
• 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

54
Technical and Cost are Prepared in Parallel
Technical Proposal Phases
Capture Planning
Outline
Mockups
Draft
Final
Proposal
Cost Targets
Design to Cost
Basis of Estimates
Preliminary Cost Run
Final Cost Run
Cost Proposal Phases
Each Technical Proposal phase has a
counterpartCost Proposal phase
55
The Proposal Schedule (30 days)

• Must be complete prior to kickoff meeting
• Should include
• Exact calendar dates based on RFP data
• 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 dayhighlighting concern areas
56
Fact-Finding

• PWR Pricing acts as lead to support ALL audit
  activities
• Provides DCAA, etc. With proposal copies
• 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

57
Negotiations

• PWR Legal/CA acts as lead to support ALL
  Negotiation activities
• 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 CP data coordinates disclosures
  w/CA
• Pricer performs sweeps certs if applicable
• CA completes memo of negotiations

58
Make/Buy
59
Make or Buy Planning Process

• Executive Mgmt responsible will co-Chair or
  appoints 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

60
Make or Buy Planning Process

• The Make/Buy decision making process divides
  parts and processes into the following three
  categories
• Must Make Hardware consisting of details,
  subassemblies and assemblies that historically
  demand extreme attention close coordination
  between functions.
• 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.

61
Make or Buy Planning Process

• 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.

62
Make or Buy Planning Process

• IPT presents the program sourcing strategy of
  make or buy recommendations to the Make/Buy
  Committee
• The Committee is responsible for sourcing
  material in a manner the best utilizes PWR
  Operations and Supplier resources.
• 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

63
Make/Buy Analysis
Competitive Advantage
64
Supplier Risk Assessment
Risks
High
5
6
4
Medium
4

Likelihood of Occurrence
3
4
3
7
1
6
2
2
5
Mitigation Status
5
1
3
7
Low
1
2
3
4
5
Consequence of Occurrence
Original
Change
65
Manufacture or Purchase Planning Process

• Internal Process to decide
• Sufficient capacity and support to core
  competencies 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

66
Types of Estimates
67
Types of Estimates

• Within the proposal process, various kinds of
  estimates and quotations are prepared as defined
  in the following text. These definitions are
  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 uncertainties.

68
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 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 quotation.

69
RFP/RFQ ProcessRFQ-RFP Training
70
Difference of RFP and RFQ and RFI
71
Difference of RFP and RFQ and RFI

• Definitions
• Types of solicitations
• Evaluation criteria
• SPI Process

72
Difference of RFP and RFQ and RFI

• Request for Proposal (RFP)
• Request for Quote (RFQ)
• Request for information (RFI)

73
Difference of RFP and RFQ and RFI

• 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
  approach.

74
Difference of RFP and RFQ and RFI

• DEFINITION of RFQ
• 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.

75
Difference of RFP and RFQ and RFI

• DEFINITION of RFI
• 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 SSME

76
Types of solicitations

• 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)

77
Invitation for Bids (IFB)

• The Invitation for Bid (IFB) is the solicitation
  document used in Sealed Bidding procurements.
• IFBs must describe the Governments 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.

78
Buyers Role in the RFQ/RFP Process

• Upon receipt of a requirement the Buyer reviews
  and 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 required.

79
RFQ Structure

• The Buyer is responsible for the entire content
  of the 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.

80
TINA, CAS, SB Plan

• 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)

81
Supplier Steps To Providing A Responsive Proposal

• Dos
• 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
• Donts
• 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

82
Request for proposal

• Key objectives
• 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.

83
Evaluation Criteria

• Responsive Bid
• Price
• Delivery
• Technical Solution
• Past Performance (SPI)
• Financial Stability
• Agreed Upon Terms Conditions

84
Steps In The RFP Evaluation Process

• Step One Review All Proposals
• 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

85
Steps In The RFP Evaluation Process

• Step Six Discussion/Negotiation. This step can
  be 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.

86
Source Selection
87
Proposal/Source Selection

• Receipt of Proposal
• Best Value Proposal Evaluation
• Quality Performance
• Schedule Performance
• Price
• Non-recurring costs impact to overall price
  evaluation
• Proposal Evaluation Tool (SPI Tool)
• Terms Conditions
• Technical Evaluation (as required)
• Source Selection Board (as required)

88
Source Selection

• 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

89
Source Selection process

• PWR Buyer Criteria See PWR 5.3.2
• Selection Process
• Competitive (Best Value SPI evaluation)
• Non-Competitive (Determination of reasonableness)
• Fact-finding
• Negotiation
• Award

90
Evaluation of Quotations or Offers

• Many source selections are relatively straight
  forward and 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
  suppliers technical, management, cost or price,
  and schedule elements, as well as the suppliers
  past performance record with PWR, intended to
  select the source offering the greatest overall
  benefit in response to the requirement.

91

Lowest Evaluated Proposal

• Price Analysis based on comparing two or more
  proposals using the Supplier Performance Index
  (SPI) model.

92
SPI Process

• A formula used to evaluate suppliers delivery
  and quality performance.
• The model is weighted 40 SDR (Supplier
  Delivery Rating) and 60 SQR (Supplier Quality
  Rating).

93
SPI Calculation

• The Supplier Performance Index (SPI) is
  calculated as follows
• Here are some sample calculations
• 2 ( SQR .60 SDR .40) SPI
• 100
• 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

94
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 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 suppliers SPI is to 1.000, our
  experience indicates, the more likely they will
  meet PWRs quality and delivery requirements.

95
Fact-Finding

• PWR Fact-Finding Questions will be covered in our
  next section
• Certified cost and pricing data will be discussed
  in the next section

96

• PWR Evaluation Criteria and Process

97
Agenda

• PWR Price / Cost Analysis
• Fact-Finding
• PWR Technical Evaluation of Supplier Proposals
• Funding Profiles, Ogives and PTL

98
PWR Price and Cost Analysis
Greg Manley July 2009
99
Why Do We Need a Cost Analysis?

• 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.

100
What is a Price Analysis?

• A price analysis is the process of examining and
  evaluating a prospective price by comparing the
  price with other available pricing
• 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

101
What is a Cost Analysis?

• A cost analysis is the review and evaluation of
  the separate cost elements and proposed profit of
  a suppliers 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

102
Overall Cost Analysis Process
Receive Request for Cost/Price Analysis
Preliminary Fact Find Questions
Start Field Fact-finding
Support Negotiations as Member of the Team
Supplier SOW Development
Receive Technical Evaluation
Issue Cost Analysis Position
Draft Submit RFP to Supplier
Request DCAA Assist Audit
Receive Supplier Proposal
Request Technical Evaluation
Receive Clarification Responses from Supplier
Complete Fact-finding
Documentation Sign-off
Approve Cost Analysis Plan (CAP)
Support Pre-negotiation Review
Receive DCAA Assist Audit Report
Only on Government Contracts Optional
Note Some of these tasks will overlap or will
be done in parallel with other tasks.
103
DCAA Assist Audit

• 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 subcontractors 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 DCAAs findings will be utilized in the final
  cost analysis report.

104
Cost Analysis Process

• The Supplier Management Agent/Buyer is
  responsible for
• 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.

105
Learning Curve

• Rate of Improvement
• 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 performance

106
Learning Curve

• 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.

107
Learning Curve

• Determining the Curve Slope
• First, perform regression analysis of the actual
  data.
• If the projection produces an unrealistic answer,
  the correlation is poor, or you have only one
  data point, then
• 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
  percentages
• Sheet Metal 95
• Machining 90
• NC Machining 95
• Assembly 85
• There are published lists of curve slope
  percentages.

108
Learning Curve

• Advantages
• 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.)

109
Quantity Adjustment

• 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.

110
Material

• Materialpurchased items/services which become
  part of the final, deliverable product
• Four common categories of material are as
  follows
• Raw materialrequires further processing.
• Subcontracted Itemsassembled parts that have
  been offloaded to another supplier for
  manufacture.
• Outside processing.
• Purchased partsparts processed from raw material
  that are bought complete.

111
Material

• Bill of Material (BOM)
• The engineering drawings are the source of the
  BOM.
• An itemized listing of all the material
  items/services that are required to build a
  product.
• 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.

112
Rate Verification

• Forward Pricing Rate Agreement
• 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.

113
Rate Verification

• 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).

114

• Fact-Finding

115
PWR Fact-Find Questions

• The following data is the standard supporting
  documentation the Cost Analysis Department
  requests when certified cost and pricing data is
  required
• 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 GA 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 BOM
• 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.).

116
PWR Fact-Find Questions

• Basis for forecasting burden rates (Engineering,
  Manufacturing, etc.)
• Actual Burden rates experienced by year for the
  previous two calendar years.
• 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.)

117
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?
• 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 application?
• Are there other contingencies in supplier's
  proposed material cost? If yes, please describe.
• Basis for forecasting GA 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
• Explanation of the difference between a b - if
  applicable
• Analysis of G A pools by account and by year
  for the previous two calendar years classified by
  fixed and variable costs.

118
PWR Fact-Find Questions

• 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.

119

• PWR Technical Evaluation of Supplier Proposals

120
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 suppliers technical and cost
  proposals
• The Technical Evaluation of the suppliers
  technical proposal is a comprehensive and
  responsive evaluation of the criteria set forth
  in the solicitation
• The Technical Evaluation of a suppliers 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 (ODCs).

121

• Ogives and PTL/Funding Profiles

122
PWR Ogive Definition

• 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

123
Program Termination Liability (PTL)
124
Background

• 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

125
Responsibility

• 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 costs.

126
What is Termination Liability?

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

127
Termination Liability Funding

• 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 terminated.
• If this situation occurs, the contractor may not
  be able to recover any incurred costs in excess
  of the funded amount.

128
Termi