CMP CMP Pricing Strategy & Cost Analysis 2 — Questions and Answers
Question 1: What is the primary purpose of an Independent Government Cost Estimate (IGCE)?
- To establish a baseline for evaluating the reasonableness of contractor-proposed prices (Correct answer)
- To set the maximum price the government is legally authorized to pay
- To replace the contractor's cost proposal during negotiations
- To document the government's preferred fee and profit objective
Correct answer: To establish a baseline for evaluating the reasonableness of contractor-proposed prices
The IGCE gives the contracting officer an independent benchmark to assess whether proposed prices are fair, reasonable, and consistent with market conditions.
Question 2: 'Cost realism analysis' is most commonly applied to which contract type?
- Firm-fixed-price (FFP) contracts
- Cost-reimbursable contracts (Correct answer)
- Indefinite delivery / indefinite quantity (IDIQ) task orders
- Blanket purchase agreements (BPAs)
Correct answer: Cost-reimbursable contracts
Cost realism analysis evaluates whether proposed costs on cost-type contracts reflect a genuine understanding of the work and are neither inflated nor unrealistically low.
Question 3: In capture pricing strategy, 'value-based pricing' means:
- Setting price based on the customer's perceived value of the solution, not just internal costs (Correct answer)
- Pricing at the lowest level that fully covers overhead and G&A
- Exactly matching the leading competitor's price to stay competitive
- Using historical contract awards as the primary basis for the price point
Correct answer: Setting price based on the customer's perceived value of the solution, not just internal costs
Value-based pricing aligns the proposed price with what the customer believes the solution is worth, often enabling higher margins than cost-plus approaches.
Question 4: Which of the following best defines 'fully burdened cost' in a government cost proposal?
- Total cost including direct labor, fringe benefits, overhead, G&A, and fee (Correct answer)
- Direct labor costs only, before any indirect cost application
- A subcontractor's quoted price before the prime contractor's markup
- Material costs plus applicable shipping and handling charges
Correct answer: Total cost including direct labor, fringe benefits, overhead, G&A, and fee
Fully burdened cost represents the true total expense of delivering a service or product once all indirect cost layers and fee are applied.
Question 5: A 'not-to-exceed' (NTE) ceiling price on a time-and-materials contract primarily protects the:
- Contractor from below-cost performance obligations
- Government from unlimited cost growth (Correct answer)
- Subcontractors from prime contractor non-payment
- Teaming partners from uncontrolled scope expansion
Correct answer: Government from unlimited cost growth
The NTE ceiling caps the government's financial exposure on T&M contracts, requiring contractor notification and government approval before the ceiling can be exceeded.
Question 6: In competitive proposal evaluation, the 'evaluated price' may differ from the proposed price because:
- The government may adjust proposed costs for realism or include option period costs in the total (Correct answer)
- The contractor may revise pricing downward after final proposal revisions (FPRs)
- Past performance ratings are added as a dollar premium to the proposed price
- Small business set-aside rules automatically reduce the evaluated price by a fixed percentage
Correct answer: The government may adjust proposed costs for realism or include option period costs in the total
Evaluated price reflects government adjustments — such as cost realism uplifts and option years — that normalize proposals for a fair, apples-to-apples comparison.
CMP CMP Pricing Strategy & Cost Analysis 2
What is the primary purpose of an Independent Government Cost Estimate (IGCE)?