VARIABLE PRICE CURVE GROUND RULES
AND PRICING INSTRUCTIONS Scenario #1
P-3 Life Extension Program (LEP)
TOTAL PROGRAM PRICING
JANUARY 8, 2008
I.
GENERAL INSTRUCTIONS
The overall objective of this pricing effort is to establish a methodology enabling the
exercise of Options against a pricing curve and variations in lot size, thus
preventing the need for numerous Requests for Proposals.
In order to ensure that the P-3 LEP Program remains competitive and is successful,
it is imperative that your pricing reflects a continuous price improvement in constant
year dollars. It must also be understood that neither LM Aero nor its customer shall
be held liable for termination costs, close out costs, or any other fees for failure to
exercise any option.
Pricing is to be reflected in July 2007 economics with escalation identified in
the order agreement which defines the procedure for converting the July 2007
prices to "then year" price. You are requested to propose escalation by year
based on the year of delivery.
The following will need to be provided:

Labor costs and material costs shall be segregated.

A summary definition of July 2007 dollars is as follows:


Actual applicable direct labor rates as of July 2007

Cost of all direct materials as if they had been delivered and paid for in
July 2007

Indirect expense rates (overhead and G&A expense) should be
defined as the Fiscal Year rates which would be applicable to July
2007 or the representative rate when escalation is applied the supplier
will neither gain nor lose as the result of escalation.
Escalations shall be provided based on CY09 through CY13 Delivery. Purchase
Order escalations will be based on the year of hardware delivery.
P-3 LEP Pricing Instructions
Page 1
These instructions are to assist the Offeror in developing and presenting the
information required to support proposals for the production of hardware deliverables
to LM Aero in support of the P-3 LEP. If Lot 1 (Norway for 6 S/S for core parts) prices
have been negotiated, please include pricing as negotiated. Proper presentation and
adequate supporting documentation shall ensure your cost proposal is fairly evaluated
by LM Aero.
This solicitation shall not create a relationship, contractual or otherwise, between LM
Aero and Offeror, and LM Aero shall not be liable for any expenses incurred by the
Offeror in the preparation and submittal of its quotation in response hereto. Nor does
this solicitation supersede or invalidate any current pricing agreement between
our companies.
Please provide with your proposal the name and phone number of an individual who is
knowledgeable regarding the preparation of your cost/price proposals. The purpose of
this point of contact will be to enable LM Aero Procurement personnel to obtain rapid
and accurate responses relative to clarifications and/or questions regarding the
preparation of your price/cost proposals
II.
PROPOSAL GROUND RULES
1. Each supplier is to retain their positions as negotiated with LM Aero for Lot 1
(Norway for 6 S/S) RFP for the following:
Terms and Conditions (As Applicable)
Access to Records
Small Business / Small Disadvantaged Business (As Applicable)
Shipping Instructions
Quality System Requirements
Use of Government-Owned Facilities
Diminishing Manufacturing Sources (DMS) (As Applicable)
2. Exclusions/Exemptions/ Exceptions
If the Offeror believes that exclusions, exemptions, or exceptions are warranted
that would result in less than full compliance with this request, the Offeror shall
provide specific written rationale for Offeror's position(s).
P-3 LEP Pricing Instructions
Page 2
3.
Expenditure and Termination Liability Forecasts
Termination Liability Forecasts will be requested at a later date as Lockheed
Martin receives Requests for Proposals from specific customers.
III. GENERAL PRICING INFORMATION
It is anticipated that all requirements for hardware, including conditional parts, will
be bought utilizing this contract.
Your proposal is to be returned by 11 February 2008 and remain valid until 11
February 2009.
We are asking that you provide only one (1) paper copy of your proposal. In lieu
of additional paper copies we ask that your proposal be submitted
electronically, via CD, in a format which will provide the same information which
normally is submitted via paper copies. Our preference for submittal is via the
current MS Office suite; MS Word, MS Excel etc. The normal detail submitted
with your proposal, which will provide understanding into the derivation of your
pricing, should continue to be included with your proposal.
1.
Detailed Pricing Ground Rules
Your proposal shall include all FAR Part 15 requirements and should reflect FirmFixed prices as negotiated, and for pricing not yet negotiated, present pricing in
Base Year July 2007 economics.
a. This request contains the parts and quantities to be quoted. Pricing of these
elements are to be included and should conform to your pricing and cost
accounting standards and procedures (See Part list included in the RFP email
for part numbers, and quantities).
b. All currently un-negotiated prices will be in July 2007 base year dollars. You are
requested to propose escalation and methodology for escalation by year of
delivery.
c. Estimated recurring and non-recurring costs shall be identified
separately.
2. Required Support Information
All proposals shall be prepared and submitted in accordance with FAR 15.403-4.
FAR Part 15.4 can be accessed at
http://www.arnet.gov/far/current/html/Subpart%2015_4.html#wp1208365
P-3 LEP Pricing Instructions
Page 3
A. Cost elemental breakdowns should be submitted for each cost element within
your proposal. Cost or pricing data must be submitted. Your proposal should
include the following information:








Elemental breakdowns for all cost elements including identification of the
supplier’s standard warranty within their proposal. It is requested that
you provide an electronic copy of the elemental breakdown in Microsoft
Excel.
Identification of the direct and indirect rates utilized, their derivation and
appropriate explanation.
If your proposal is predicated on cost history, this should be identified
and supported as appropriate. The rationale for each estimate category
(experience from specific previous programs, judgmental factors, etc.)
should be identified in supporting schedules as appropriate.
Data that is too bulky for submission must be summarized and identified
and the identification attached to your proposal. All data submitted or
not, must be identified by specific reference. It must be made
unmistakably clear that making data available does not constitute
submission.
Upon completion of negotiation, a Certificate of Current Cost or Pricing
Data will be required on those procurements exceeding a total proposal
value of $650,000.
Escalation factors / methodology to convert current dollars to then-year
dollars by calendar year / cost element.
Identification of the profit percentage and the method used to determine
it.
Separate cost detail line item for Warranty and basis of estimate
B. Additionally, it is essential that you provide the appropriate traceability between
your proposal pricing and the additional supporting information. It is also
requested that you provide the following information with your proposal:

Material - It is requested that you provide an electronic priced bill of
material (BOM) with your proposal. Please provide the BOM for each
quantity break identified in the material pricing.
For part numbers contained in the top 70% of the BOM provide
supporting documentation in the form of current quotes and/or purchase
history, as appropriate.

Labor - It is requested that you provide a detailed explanation of the
methodology used to calculate the proposed labor (i.e. fabrication,
assembly, inspection, program management, engineering and test)
hours contained in your proposal. Particular attention should be placed
on explaining the learning curve rationale you are using to calculate the
P-3 LEP Pricing Instructions
Page 4
proposed hours. In support of your proposed hours, it is requested that
you provide historical, actual labor hours.

Access to Records - Your proposal must include an affirmative
statement that you grant to LM Aero and the Government or an
authorized representative of either the right to examine, at any time
before award, books, records, documents, or other directly pertinent
records to verify the reasonableness of prices contained in your
proposal.
C. Proper presentation and adequate supporting documentation shall ensure
your proposal is fairly evaluated by Lockheed Martin Aeronautics. The burden
of proof for cost credibility rests with the Offeror; therefore, you are cautioned to
submit cost/pricing information, which is fully responsive to Federal Acquisition
Regulation (FAR) requirements, and which will provide sufficient detail for
adequate evaluation of your proposal. Furthermore, the first page of the
proposal submittal must comply with the directives of FAR Subpart 15.408,
Table 15-2.
IV. CUMULATIVE PRICE CURVE: Recurring Production Pricing –
1 through 60 S/S Variable Quantity Pricing
1. General
The pricing data to be submitted for this proposal will contain the following
categories:

Recurring Base Hardware Price for 60 S/S

Variable Quantity Price Differential

Non-recurring Tooling and Test Equipment Prices for Varying Production
Rates
Tabular listings showing the cumulative recurring hardware price for the
quantity of 1 through 60 S/S for each part number in the following format shall
be required (see Attachment A). These listings will establish the recurring
hardware price for any quantity ordered by LM up to a maximum of 60 S/S.
The basis of the cumulative pricing curve will be a rate of production at 1
S/S per month. Quantity variable factors will be established to adjust the
baseline price to account for actual order quantities.
Cumulative learning slope identification is to be submitted with the proposal,
which will relate directly to the tabular listing. An example of this data is:
P-3 LEP Pricing Instructions
Page 5
a. Value (price) of first unit
b. Units 1 through 60 on an 85% pricing slope or units 1 through 10 on an
75% pricing slope, units 11 through 60 on an 98% pricing slope or any other
cumulative quantity price breaks used in developing your estimate as
submitted.
c. Tabular Listings
Cumulative
Quantity
1
2
3
4
5
--------60
Cumulative
Recurring Base
Hardware Price
$XXXXX
$XXXXX
$XXXXX
$XXXXX
$XXXXX
$XXXXX
The pricing data to be submitted for this proposal will identify the
prices for any quantity of 1 through 60 S/S of parts (see Attachment
1). The cumulative pricing curve is based upon a production rate of
1 S/S per month. In essence, any cumulative average price at any
point in the curve is representative of a delivery rate of 1 S/S per
month.
2. Recurring Hardware Prices
These prices will be the basis for determining the price for actual quantities
ordered at a specific production rate.
These prices will consist of those recurring items which can be identified to a
total price for any given quantity from 1 through 60 S/S of items. These prices
will include set-up costs associated with direct manufacturing labor, recurring
direct labor, direct materials, applicable overheads, G&A expenses, cost of
money, profit, etc.
3. Variable Quantity Price Differential on Recurring Hardware Price
This portion of the proposal will allow for the calculation of a recurring
production hardware price delta percentage, plus (+) or minus (-), resulting
from a program authorization. The subcontractor should specify where the
most economical quantity price break percentages occur, by lot size. This
information should be submitted by the subcontractor in the following format:
P-3 LEP Pricing Instructions
Page 6
Quantity Variable Recurring Price Adjustment Percentages
S/S Qty
(Authorization Size)
Recurring Price
1-4
5-8
9-12
13-15
16-20
21-25
26-32
33-60
+XX%
+XX%
+XX%
0%
-XX%
-XX%
-XX%
-XX%
The subcontractor must identify the quantity steps applicable to his particular
operation where most economical price breaks occur. The subcontractor will
submit complete support and justification for each quantity break and the
percentage adjustments.
4.
General
A. All assumptions that are required in providing the above requirements must be
well documented and provided with the prices.
B. Any costs associated with warranty should be itemized separately in the cost
details. Please identify standard warranty and provide monthly extended
warranty coverage in the event it is requested by LM Aero’s customer.
C. All non-recurring costs must be separately identified.
D. For reference only, see the variable price curve training PowerPoint
presentation contained in the RFP link.
E. Alternate payment plans may be proposed with identification of the
corresponding price reductions, however, a proposal must be
provided based on standard payment terms (net 30 days) in order
for your proposal to be considered compliant.
F. Provide lead time by part number
P-3 LEP Pricing Instructions
Page 7