APMP Pricing Strategy and Cost Volume Development 1 — Questions and Answers
Question 1: What is the primary purpose of the cost/price volume in a government proposal?
- To provide a detailed, auditable breakdown of proposed costs that allows the government to evaluate reasonableness and realism (Correct answer)
- To summarize the executive team's compensation structure
- To list the subcontractor profit margins for government review
- To justify the company's overhead rates independently of the technical solution
Correct answer: To provide a detailed, auditable breakdown of proposed costs that allows the government to evaluate reasonableness and realism
The cost volume must demonstrate that proposed costs are reasonable, allowable, and consistent with the technical approach described in other volumes.
Question 2: What does 'cost realism' mean in the context of government proposal evaluation?
- Whether the proposed costs accurately reflect the true cost of performing the work as proposed (Correct answer)
- Whether the price is lower than all competitors
- Whether the cost volume was formatted correctly per RFP instructions
- Whether indirect rates are consistent with DCAA audit findings
Correct answer: Whether the proposed costs accurately reflect the true cost of performing the work as proposed
Cost realism analysis determines if costs are too low to actually perform the work, which could indicate an unrealistic or risky offer.
Question 3: What are 'indirect costs' in a government proposal context?
- Costs not directly tied to a specific contract but allocated across multiple projects, such as overhead and G&A (Correct answer)
- Costs charged directly to a specific task or deliverable
- Costs associated with proposal preparation that are billed to the customer
- Costs that require prior approval from the contracting officer
Correct answer: Costs not directly tied to a specific contract but allocated across multiple projects, such as overhead and G&A
Indirect costs like overhead, fringe benefits, and G&A are allocated to contracts through approved rates and must be disclosed in cost proposals.
Question 4: What is the role of DCAA (Defense Contract Audit Agency) in the context of proposal pricing?
- To audit contractor accounting systems and proposed costs for adequacy and compliance with federal regulations (Correct answer)
- To approve the proposal format before submission
- To negotiate final pricing on behalf of the government
- To evaluate technical approaches for cost effectiveness
Correct answer: To audit contractor accounting systems and proposed costs for adequacy and compliance with federal regulations
DCAA audits help the government determine if a contractor's accounting practices and proposed costs are reliable and allowable under FAR.
Question 5: What is a 'basis of estimate' (BOE) in cost proposal development?
- A documented explanation of how labor hours, materials, and costs were estimated for each cost element (Correct answer)
- A summary of the company's annual revenue used to justify indirect rates
- A historical price list from prior government contracts
- A contractor's proposed profit percentage above total cost
Correct answer: A documented explanation of how labor hours, materials, and costs were estimated for each cost element
A BOE provides the rationale and methodology behind every cost estimate, giving the government confidence in the proposal's accuracy.
Question 6: Why is it important to align the cost volume with the technical and management volumes?
- Inconsistencies between volumes raise evaluator concerns about the offeror's understanding of the work (Correct answer)
- Government regulations require identical content in all volumes
- The cost volume page count must match the technical volume
- Alignment is required only for cost-plus contract types
Correct answer: Inconsistencies between volumes raise evaluator concerns about the offeror's understanding of the work
If the technical volume describes work that is not reflected in the cost estimate, evaluators may conclude the team does not understand the full scope.
APMP Pricing Strategy and Cost Volume Development 1
What is the primary purpose of the cost/price volume in a government proposal?