VARIABLE PRICING GROUND RULES
AND PRICING INSTRUCTIONS Scenario #2
P-3 Life Extension Program (LEP)
TOTAL PROGRAM PRICING
JANUARY 8, 2008
I.
GENERAL INSTRUCTIONS
The overall objective of this effort is to establish pricing based on variations in order
quantity, 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:
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Labor costs and material costs shall be segregated.
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A summary definition of July 2007 dollars is as follows:
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Actual applicable direct labor rates as of July 2007
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Cost of all direct materials as if they had been delivered and paid for in
July 2007
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Indirect expense rates (overhead and G&A expense) should be
defined as the Fiscal Year rates which would be applicable to July
2006 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.
These instructions are to assist the Offeror in developing and presenting the
information required to support proposals for the production of hardware deliverables
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to LM Aero in support of the P-3 LEP. 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 of core items) 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).
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.
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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. Present Firm Fixed
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 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
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.
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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
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.
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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.
RECURRING PRODUCTION PRICING – 1 - 12 S/S
1. Variable Quantity Price on Recurring Hardware Price
A. This pricing will establish the recurring hardware price for any quantity
ordered by LM up to a maximum of 12 S/S per year.
These prices will consist of those recurring items which can be identified
to a total price for any given quantity from 1 - 12 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.
B. This portion of the proposal will allow for the calculation of a recurring
production hardware price, resulting from a program authorization. The
subcontractor should specify where the most economical quantity price
break percentages occur, by lot size. A separate quantity table should be
provided for core and conditional parts, as appropriate. This information
should be submitted by the subcontractor in the following format:
Quantity Variable Recurring PriceCore Parts
S/S Qty
Recurring Price
(Authorization Size)
1-2
3-4
5-6
7-8
9-10
11-12
$XXXXX
$XXXXX
$XXXXX
$XXXXX
$XXXXX
$XXXXX
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Quantity Variable Recurring PriceConditional Parts
Qty
Recurring Price
(Authorization Size)
1-2
3-4
5-6
7-8
9-10
11-12
$XXXXX
$XXXXX
$XXXXX
$XXXXX
$XXXXX
$XXXXX
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
recurring price.
2.
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.
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