Cost and Price Analysis Flashcards

What is 'price escalation' and why is it relevant in long-term public contracts?

Answer: A contractual mechanism to adjust prices for anticipated changes in labor or material costs over time

Price escalation clauses allow for contractual price adjustments based on indices like the Consumer Price Index, protecting both parties from cost volatility in multi-year contracts.

Which index is commonly used as a benchmark for labor cost escalation in government contracts?

Answer: Employment Cost Index (ECI)

The Bureau of Labor Statistics Employment Cost Index (ECI) measures changes in labor costs and is commonly referenced in government contracts to adjust labor-based pricing.

What is a 'Truth in Negotiations Act' (TINA) defective pricing claim?

Answer: A government claim that a contractor provided inaccurate, incomplete, or non-current cost data

A TINA defective pricing claim arises when a contractor submits certified cost data that is found to be inaccurate, incomplete, or not current, potentially requiring a price reduction.

How does a 'cost-plus-fixed-fee' (CPFF) contract differ from a 'firm-fixed-price' (FFP) contract in terms of risk allocation?

Answer: CPFF places cost risk on the government; FFP places it on the contractor

Under CPFF, the government reimburses all allowable costs plus a fixed fee, bearing cost risk; under FFP, the contractor bears cost risk since the price does not change regardless of actual costs.

What is the purpose of an 'overhead rate audit' in public procurement?

Answer: To verify that the vendor's proposed overhead allocation is accurate and complies with cost accounting standards

An overhead rate audit verifies that the contractor correctly calculated and allocated indirect costs in compliance with Cost Accounting Standards (CAS) and FAR cost principles.

Which of the following best describes 'learning curve theory' in cost analysis?

Answer: As production volume doubles, per-unit labor cost decreases by a predictable percentage

Learning curve theory holds that as cumulative production doubles, the average labor hours per unit decrease by a consistent rate (e.g., 80%), reflecting worker efficiency gains.