CFCM Pricing and Negotiation 4 — Questions and Answers
Question 1: Under FAR 16.301, which contract type places the greatest cost risk on the government?
- Firm-fixed-price (FFP)
- Fixed-price incentive (FPI)
- Cost-plus-fixed-fee (CPFF) (Correct answer)
- Cost-plus-award-fee (CPAF)
Correct answer: Cost-plus-fixed-fee (CPFF)
CPFF contracts place maximum cost risk on the government because the contractor is reimbursed all allowable costs and receives a fixed fee regardless of the final cost outcome.
Question 2: What is the 'point of total assumption' (PTA) in a fixed-price incentive firm (FPIF) contract?
- The contract price at which the government assumes all administrative responsibility
- The cost point above which the contractor bears 100% of additional cost overruns because the ceiling price is reached (Correct answer)
- The target profit established at contract award
- The audit point at which DCAA assumes oversight
Correct answer: The cost point above which the contractor bears 100% of additional cost overruns because the ceiling price is reached
The PTA is the cost level at which the contract's ceiling price is reached, and above that point the contractor absorbs all additional costs, effectively assuming full risk.
Question 3: A contracting officer is preparing to negotiate a cost-plus-incentive-fee (CPIF) contract. Which element is NOT established at the time of contract award?
- Target cost
- Target fee
- Share ratio
- Final fee earned (Correct answer)
Correct answer: Final fee earned
The final fee earned under CPIF is not established at award—it is calculated after performance based on actual costs compared to target cost using the share ratio.
Question 4: Under FAR 15.405, when must a contracting officer document the price negotiation memorandum (PNM)?
- Only when the contract exceeds $25 million
- For all negotiated contracts, documenting the negotiation history and basis for the agreed-upon price (Correct answer)
- Only when certified cost or pricing data were required
- Only for cost-type contracts
Correct answer: For all negotiated contracts, documenting the negotiation history and basis for the agreed-upon price
FAR 15.406-3 requires a price negotiation memorandum for all negotiated contracts, documenting the negotiation history, government and contractor positions, and the basis for the final price.
Question 5: Which cost accounting standard (CAS) specifically addresses the allocation of business unit general and administrative (G&A) expenses to final cost objectives?
- CAS 402
- CAS 403
- CAS 410 (Correct answer)
- CAS 418
Correct answer: CAS 410
CAS 410 requires that G&A expenses be allocated to final cost objectives using a base that represents the total activity of the business unit.
Question 6: A contractor proposes a cost of $500K for subcontracted effort. What is the contracting officer's responsibility regarding this subcontract cost under FAR 15.404-3?
- Rely entirely on the prime contractor's assessment of subcontract reasonableness
- Accept the cost since subcontracts are not subject to government review
- Ensure the prime contractor has performed adequate cost or price analysis on the subcontract (Correct answer)
- Require a separate DCAA audit of each subcontractor
Correct answer: Ensure the prime contractor has performed adequate cost or price analysis on the subcontract
FAR 15.404-3 requires the contracting officer to ensure that the prime contractor has performed an adequate cost or price analysis of proposed subcontract costs.
Question 7: What does the term 'cost realism analysis' mean under FAR 15.404-1(d)?
- A comparison of the proposed price to historical prices paid for similar work
- An evaluation of whether proposed costs are realistic for the work, reflect sound understanding of requirements, and are consistent with the offeror's technical proposal (Correct answer)
- An audit of the contractor's cost accounting system
- A determination that proposed profit is within allowable ranges
Correct answer: An evaluation of whether proposed costs are realistic for the work, reflect sound understanding of requirements, and are consistent with the offeror's technical proposal
Cost realism analysis assesses whether proposed costs are realistic and consistent with the contractor's technical approach, used primarily in cost-reimbursement competitions.
CFCM Pricing and Negotiation 4
Under FAR 16.301, which contract type places the greatest cost risk on the government?