CFCM Pricing and Negotiation 3 — Questions and Answers
Question 1: During source selection, a technical proposal receives an 'Acceptable' rating while the price is significantly lower than all other offerors. What should the contracting officer investigate first?
- Whether the offeror intentionally low-balled to win and then seek modifications
- Whether the price is unbalanced across contract line items
- Whether the low price reflects a misunderstanding of requirements or buy-in pricing (Correct answer)
- Whether the offeror's accounting system is adequate
Correct answer: Whether the low price reflects a misunderstanding of requirements or buy-in pricing
An unusually low price warrants investigation for buy-in (unrealistically low price to win) or misunderstanding of requirements, which could lead to poor performance or default.
Question 2: In a cost-reimbursement contract negotiation, the government negotiator establishes an independent government cost estimate (IGCE) of $800K. The contractor's initial proposal is $1.1M. What is the negotiator's most appropriate first step?
- Reject the proposal and resolicit
- Request field pricing support and identify specific cost elements to challenge (Correct answer)
- Accept the proposal since it is within 10% of IGCE
- Issue a unilateral contract at the IGCE amount
Correct answer: Request field pricing support and identify specific cost elements to challenge
The negotiator should obtain field pricing support (e.g., DCAA audit) and build a government position by identifying specific cost elements that appear unreasonable before negotiating.
Question 3: What is 'unbalanced pricing' in federal contracting, and why is it a concern?
- A pricing structure where direct costs exceed indirect costs
- A proposal where some line items are priced significantly higher or lower than actual cost, potentially increasing government risk (Correct answer)
- A contract where labor costs are higher than material costs
- Pricing that includes unallowable costs
Correct answer: A proposal where some line items are priced significantly higher or lower than actual cost, potentially increasing government risk
Unbalanced pricing occurs when line item prices are materially over- or understated, which can obscure the true total cost and increase financial risk to the government if requirements change.
Question 4: A contracting officer determines that a sole-source procurement exceeds $2M and certified cost or pricing data are required. The contractor claims an exception applies. Which of the following is NOT a valid exception under FAR 15.403-1?
- Prices are set by law or regulation
- Commercial item acquisition
- Adequate price competition exists
- The contractor is a small business (Correct answer)
Correct answer: The contractor is a small business
Small business status is not an exception to the certified cost or pricing data requirement; the valid exceptions are adequate competition, prices set by law/regulation, and commercial items.
Question 5: Under FAR 31.201-2, for a cost to be allowable it must meet several criteria. Which of the following is NOT one of them?
- Allocable to the contract
- Authorized or not prohibited by the contract
- In accordance with GAAP (Correct answer)
- Reasonable in nature and amount
Correct answer: In accordance with GAAP
FAR allowability requires costs to be reasonable, allocable, comply with CAS or GAAP as applicable, and not be prohibited—but simple GAAP conformance alone is not the test; CAS compliance or consistent accounting practices govern.
Question 6: What is the distinction between 'direct costs' and 'indirect costs' under FAR 31.202 and 31.203?
- Direct costs are fixed; indirect costs are variable
- Direct costs are identified specifically with a final cost objective; indirect costs benefit multiple cost objectives and are allocated (Correct answer)
- Direct costs are labor only; indirect costs include all overhead
- Direct costs are always allowable; indirect costs are sometimes unallowable
Correct answer: Direct costs are identified specifically with a final cost objective; indirect costs benefit multiple cost objectives and are allocated
FAR 31.202 defines direct costs as those identified specifically with a particular final cost objective, while FAR 31.203 defines indirect costs as those that benefit multiple objectives and require allocation.
Question 7: A negotiation reaches an impasse on profit rate. The contractor proposes 12%; the government's position is 8%. What negotiation technique is most appropriate to break the impasse?
- Unilaterally award the contract at 8% profit
- Introduce objective criteria such as weighted guidelines analysis to support a middle ground (Correct answer)
- Terminate negotiations and re-solicit
- Accept the contractor's position to maintain the relationship
Correct answer: Introduce objective criteria such as weighted guidelines analysis to support a middle ground
Using objective criteria like the weighted guidelines method provides a principled basis for moving off stated positions and reaching a mutually acceptable profit rate.
CFCM Pricing and Negotiation 3
During source selection, a technical proposal receives an 'Acceptable' rating while the price is significantly lower than all other offerors.
What should the contracting officer investigate first?