The Weighted Guideline
Approach
Determining Contract Fee per DFAR Part 215.404-70
through 215.404-71-5
DFAR Policy
• Contracting officers shall use a structured approach
for developing a prenegotiation profit or fee objective
on any negotiated contract action when certified cost
or pricing data is obtained, except for cost-plusaward-fee contracts or contracts with Federally
Funded Research and Development Centers.
• There are three structured approaches
• The weighted guidelines method;
• The modified weighted guidelines method; and
• An alternate structured approach.
DFAR Policy
• When using a structured approach, the contracting officer—
• Shall use the weighted guidelines method, except as provided in
paragraphs below
• Shall use the modified weighted guidelines method on contract
actions with nonprofit organizations other than FFRDCs.
• May use an alternate structured approach when
• The contract action is—
• At or below the certified cost or pricing data threshold (see FAR 15.4034(a)(1));
• For architect-engineer or construction work;
• Primarily for delivery of material from subcontractors; or
• A termination settlement; or
• The weighted guidelines method does not produce a reasonable
overall profit objective and the head of the contracting activity
approves use of the alternate approach in writing.
DD Form 1547, Record of Weighted
Guidelines Method Application
• Provides a numerical approach
to calculating fee based on:
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Performance Risk
Contract Type Risk
Facilities Capital employed
Cost Efficiency
• Analysis performed by CO
who assigns values to various
profit factors based on risk or
other criteria
• Normal Value
• Designated Range of Values
Risk Types
• Performance Risk assesses the
Contractor’s degree of risk
• Technical Risk – the
uncertainty of performing
contract requirements or
meeting technical objectives
• Management/Cost Control
Risk - The degree of
management effort required to
ensure technical requirements
are met and costs are
controlled.
• Risk is weighted (percentage
basis) between Technical and
Mgt/Cost Control such that
they total 100 percent.
• Risk is assigned to Technical
and Mgt/Cost per specific
DFAR guidance
• Composite “Performance Risk”
is then calculated per the
weighting factors.
Apportionment of Risk
• The DFAR does NOT specify a
particular range or rules
concerning how to apportion
between Technical and
Mgt/Cost
• Only guidance is to weight
them based on their
“contribution to the total
performance risk”
Technical Risk
•
Standard Range
• Nominal value is 5%
• Designated range is 3% - 7%
• Used for “.. Most contracts”
•
Technology Incentive Range
• Nominal value is 9%
• Designated range is 7% to 11%
• Restricted use to Development and
application of “innovative new technologies”
• Not permitted if effort restricted to
studies and analysis or demonstrations
that have a technical report as primary
deliverable
Evaluating Technical Risk in
the “Normal Range”
• Review SOW to determine
• Technology being developed or
applied
• Technical Complexity
• Program Maturity
• Performance Specifications or
Tolerances
• Delivery Schedule
Assignment of Values
•
No justification required for
assigning the “Normal” (median)
value (5%)
•
Justification required for values
above or below the median
•
Above normal (5.1 – 5.8)
• Aggressive delivery schedule
• Tight production tolerances or
performance specifications
• Extreme importance to
Government
• Highly skilled/experienced
personnel and/or state-of-the-art
machines/technology
Note: Sample values (e.g. 5.1 – 5.8) are for illustrative purposes only
Assignment of Values
• Significantly above normal (5.9
– 6.5)
• Extremely complex, vital effort
• Overcome difficult obstacles
• Personnel with exceptional
abilities / professional credentials
• Maximum values (6.5 – 7)
• Development of a new item
especially if performance
requirements/tolerances are
extreme
• High Degree of development or
production concurrency
Assignment of Values
• Below Normal (4% - 5%)
• Requirements relatively simple
• Technology not complex
• Routine efforts
• Follow-on effort
• Program is mature
• Significantly Below Normal
• Routine services
• Simple operations with Government
property/equipment
Technology Incentive Range
• Range from 7% to 11%
• Introduction of new technology that
fundamentally changes the
characteristics of an existing product or
system resulting in increased technical
performance, reliability or reduced
costs
• New products or systems that contain
significant technical advances over the
product or system they replace
• Relative value of innovation must be
weighed against the acquisition as a
whole.
Management/Cost Risk
•
Contractor’s management and internal control system
•
Based on Contracting Office information concerning and
reviews made by field contract offices
•
Degree of Management involvement
•
Degree of cost mix
•
•
Resources applied
Value added by contractor
• Extent of subcontracting
• What critical tasks are performed by contractor
•
Support of Socio-economic programs
•
Expected reliability of cost estimates
•
Adequacy of Contractor’s management approach to
control cost and schedule
•
Other factors
•
Currency exchange rates
Above Normal Rating
•
Above Normal
• Considerable and difficult to perform
value added
• High degree of integration
• Good past performance on technical
and socioeconomic programs
• Appropriate make-buy decisions
• Proven record of cost tracking and
control
•
Maximum
• Large-scale integration of most
complex nature
• Major international activities with
significant management
coordination
• Critically important milestones
Below Normal Rating
•
Below Normal
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•
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The program is mature and many end item deliveries
have been made;
The contractor adds minimum value to an item;
The efforts are routine and require minimal
supervision;
The contractor provides poor quality, untimely
proposals;
The contractor fails to provide an adequate analysis of
subcontractor costs;
The contractor does not cooperate in the evaluation
and negotiation of the proposal.
The contractor's cost estimating system is marginal;
The contractor has made minimal effort to initiate
cost reduction programs;
The contractor's cost proposal is inadequate;
The contractor has a record of cost overruns or
another indication of unreliable cost estimates and
lack of cost control; or
The contractor has a poor record of past performance.
Significantly Below Normal
Rating
• Reviews performed by the
field contract
administration offices
disclose unsatisfactory
management and internal
control systems (e.g.,
quality assurance, property
control, safety, security);
• The effort requires an
unusually low degree of
management involvement.
Contract Type Risk
Contract Type
Normal Value
(Percent)
Designated Range
(Percent)
Firm Fixed Price, No Financing
5.0
4 to 6
Firm Fixed Price with Performance Based Payments
4.0
2.5 to 5.5
Fixed Price with Progress Payments
3.0
2 to 4
Fixed Price Incentive, no financing
3.0
2 to 4
Fixed Price Incentive with performance based payments
2.0
0.5 to 3.5
Fixed price with redetermination
Special
Instructions
Fixed price incentive with progress payments
1.0
0 to 2
Cost plus incentive fee
1.0
0 to 2
Cost plus fixed fee
0.5
0 to 1
Time and Materials
0.5
0 to 1
Labor Hour
0.5
0 to 1
Fixed Price Level of effort
0.5
0 to 1
Other Factors
•
Facilities Capital employed
• Beyond scope of this presentation
• See DFAR 215.404-71-4
• Can add 10 to 25 percent
•
Cost efficiency factor
• May add as much as 4 percent
• Contractor must show
• Actual cost reductions on previous
contracts
• Process improvements that reduce
cost
• Effective incorporation of
commercial items and processes
• Investment in new facilities if they
contribute to better asset utilization
or productivity
Crunching the Numbers
•
Download template DD Form 1547
•
Fill in yellow blocks
• Objective values for Materials, DL,
ODC, G&A and Indirect cost come
from cost proposal
• Blocks 21 and 22 “Assigned Value”
comes from risk analysis
• Block 21 “Assigned Weighting” is
somewhat subjective – more later
• Block 24 is from contract type risk table
• Blocks 25 to 28 will not be discussed
• Block 29 “Cost Efficiency Factor” if
applicable
•
Block 30 is the “recommended” fee.
Negotiating Tips
•
Establishing your case for a higher fee (or
profit) begins with the proposal
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Go to the qualifications for “above average”
and include specific verbiage in your proposal
showing how you meet these criteria
Make sure you identify the degree of difficulty
for managing and coordinating project efforts
• Include how you will control these activities
to ensure on-time delivery etc.
Ring your bell
• Tout your accomplishments with cost
control
• If you have a great record of small business
or other socio-economic programs
participation – include that in your proposal
If the technical or management volumes of the
proposal are page limited put this information
in the cost volume
Negotiating Tips
• Help the negotiator come to the
same factors as you assigned for
the risk categories
• Know the criteria
• Discuss and document (hopefully
in your proposal) how you meet
the criteria for “above average” or
higher.
• Give them plenty of fodder for
their negotiation memorandum
• They will usually be fair but
will need to adequately justify
their decisions
• Hard data is the best argument
Negotiating Tips
•
The split between technical risk
and management risk must be set
appropriately
• What percent of the effort will be
spent in each area
• Remember “Management Risk”
includes technical management so
look at
• Subcontractors
• Virtual teams
• Relative amount of attention
required to keep program on
track and coordinate efforts
• A 50/50 split is probably not
appropriate