Chapter 9 - Audit of Cost Estimates and Price Proposals

DCAAM 7640.1; DCAA Contract Audit Manual

CHAPTER 9

Audit of Cost Estimates and Price Proposals

Table of Contents

9-000 Audit of Cost Estimates and Price Proposals

9-001 Scope of Chapter

9-002 Related Audit Guidance

9-003 The Total Audit Environment

9-100 Section 1 - Administrative Procedures for Field Pricing Support

9-101 Introduction

9-102 The Field Pricing Support Concept

9-102.1 The Approach

9-102.2 Applicability of Procurement Procedures

9-102.3 Applicability of Dollar Thresholds

9-103 DCAA Field Pricing Support at the Prime Contract Level

9-103.1 Coordination of the Request-Field Pricing Support

9-103.2 Acknowledging the Request

9-103.3 Audit Scope ¨C Field Pricing Support

9-103.4 Sampling Procedures to be Used

9-103.5 Request to Report by Line Item

9-103.6 Requests to Report on Comparative Historical Cost Information

9-103.7 Scheduling Audit Report Issuance

9-103.8 Technical Evaluation Impact on Audit Report Schedule

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9-104

Field Pricing of Subcontract Proposals Included in Prime

Contract Price Proposals

9-104.1 Basic Responsibilities for Subcontract Proposals

9-104.2 Deciding Whether a Government Field Audit of a Subcontractor¡¯s

Proposal Should be Obtained

9-104.3 Coordination of Major Program Subcontract Assistance

9-104.4 Processing Requests for Audit of Subcontractor Price Proposals

9-104.5 Special Requirements for Timeliness and Coordination of

Subcontractor Audits

9-104.6 Subcontractor Proposed Profit

9-104.7 Differences of Opinion Between DCAA Offices

9-105 Intracompany Proposals Included in Prime Contract Price Proposals

9-106 Special Considerations - Release of Data to Higher-Tier Contractors

9-107 Written and Telephone Requests for Specific Cost Information on Price

Proposals

9-107.1 Processing Requests for Specific Cost Information

9-107.2 Written Confirmation of Specific Cost Information

9-107.3 Special Considerations - Subcontractor Cost Information

9-108 Audit of Part(s) of a Proposal and Applications of Agreed-Upon

Procedures ¨C Price Proposals

9-109 Evaluation of Data Rights Price Proposals

9-110 Release of Contractor Proprietary Data to FMS/DCC Customers

Figure 9-1-1 Sample Format for Confirmation of Specific Cost Information

on Price Proposals

9-200 Section 2 - Evaluating the Adequacy of Certified Cost or Pricing

Data or Data Other Than Certified Cost or Pricing Data in Price

Proposals

9-201 Introduction

9-202 Definitions

9-203 Certified Cost or Pricing Data Requirements

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9-204 Determining Adequacy of Certified Cost or Pricing Data

9-205 Deficient or Denial of Access to Certified Cost or Pricing Data

9-206 Data Other Than Certified Cost or Pricing Data Requirements

9-207 Audits of Proposals Based on Data Other Than Certified Cost or Pricing

Data

9-208 Determining Adequacy of Data Other Than Certified Cost or Pricing Data

9-209 Audit of Parts of a Proposal

9-210 Reporting Results of Evaluations of Pricing Proposals with Certified

Cost or Pricing Data or Data Other Than Certified or Pricing Data

9-300 Section 3 - General Evaluation Procedures for Cost Estimates

9-301 Introduction

9-302 Adequacy of Cost Accounting System for Preparation of Price Proposals

9-303 Contractor Estimating Methods and Procedures-Cost Estimates

9-304 Price Proposals Format and Support

9-305 Coordination with Contracting Officers

9-306 Use of Specialist Assistance in Price Proposal Technical Evaluations

9-307 Incorporating Technical Evaluations into the Audit Report

9-308 Incorporating Cost Avoidance Recommendations into Audits of Price

Proposals

9-309 Evaluation of Methods and Procedures-Cost Estimates

9-310 Deficiencies in Specific Cost Estimates

9-311 Evaluation of Individual Cost Estimates and Cost Realism

9-311.1 Evaluation of Indirect Versus Direct Cost Classification

9-311.2 Evaluation of Consistency in Estimating and Accounting

9-311.3 Comparison of Estimated and Actual Costs

9-311.4 Cost Realism Analyses

9-312 Pre-Established Forward Pricing Rates and Factors

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9-313 Evaluation of Cost Estimates After Costs Have Been Incurred

9-314 Cost Estimates Based on Standard Costs

9-314.1 Estimates Based on Revised Standards

9-314.2 Variance Analysis

9-314.3 Variances by Product Line

9-314.4 Consistency in Using Standards

9-315 Evaluation of Statement of Income and Expense

9-316 Evaluation of Contractor Cost Controls

9-317 Evaluation of Cost Reduction Programs

9-318 Evaluation of Plans for Plant and Facility Improvements

9-400 Section 4 - Evaluating Direct Material Cost Estimates

9-401 Introduction

9-402 Direct Materials Estimating Methods

9-402.1 Source of Material Cost Estimates

9-402.2 Extent of Auditor¡¯s Evaluation

9-403 Price Proposals Bill of Material Evaluations

9-403.1 Evaluating Quantity Estimates

9-403.2 Using Operations Time Sheets

9-403.3 Using Engineering Drawings

9-404 Evaluating Contractor¡¯s Direct Materials Pricing Procedures

9-404.1 Sources for Pricing

9-404.2 Effect of Purchasing Procedures on Prices Paid

9-404.3 Using Previous Purchase Order Prices

9-404.4 Pricing of Company-Produced Components

9-404.5 Pyramiding of Costs and Profit on Material Purchases

9-404.6 Subcontract Decrements

9-404.7 Using Trade Information

9-404.8 Use of Consolidated Material Requirements

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9-405 Make or Buy Decisions ¨C Direct Material Cost Estimates

9-405.1 General Considerations

9-405.2 Special Considerations in Make or Buy

9-406 Evaluating Major Subcontract Proposal Cost Estimates

9-406.1 Contractor¡¯s Procurement Procedures

9-406.2 Significance of Type of Subcontractor or Purchase Order

9-406.3 Long Term Agreements

9-407 Direct Materials Requiring Special Considerations

9-407.1 Government-Furnished Material and Reusable Containers

9-407.2 Residual Inventories

9-407.3 Scrap, Spoilage, and Rework

9-407.4 Process Loss

9-407.5 Obsolescence and Inventory Adjustments

9-408 Using Direct Materials Cost Trend Data

9-408.1 Material Cost Scatter Chart

9-408.2 Material Cost Improvement Curve

9-500 Section 5 - Evaluating Direct Labor Cost Estimates

9-501 Introduction

9-502 Methods of Estimating-Direct Labor Costs

9-502.1 Basis for the Estimate

9-502.2 Classification of Labor

9-503 Direct Labor-Cost Estimates Based on Historical Cost

9-503.1 Current Nature of the Labor Cost Data

9-503.2 Guidance for Evaluating Estimates Based on Historical Data

9-503.3 Labor Cost Trends

9-503.4 Proposed Nonrecurring Cost of Labor

9-503.5 Proposed Engineering Changes Costs

9-503.6 Setup Time Cost

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