CPPB Cost and Price Analysis 2 — Questions and Answers
Question 1: In a competitive sealed bid environment, which pricing method is most commonly used?
- Cost-plus-percentage-of-cost
- Firm-fixed-price (Correct answer)
- Cost-plus-incentive-fee
- Time-and-materials
Correct answer: Firm-fixed-price
Firm-fixed-price contracts are preferred in competitive sealed bidding because they place maximum risk on the contractor and provide stable pricing for the government.
Question 2: What does the term 'price reasonableness' mean in public procurement?
- The price is the absolute lowest available in the marketplace
- The price is fair to both the buyer and seller based on current market conditions (Correct answer)
- The price has been verified by an independent audit
- The price equals the government's independent cost estimate
Correct answer: The price is fair to both the buyer and seller based on current market conditions
Price reasonableness means the price is fair and equitable to both parties given the circumstances, not necessarily the lowest possible price.
Question 3: Which document provides the government's independent estimate of contract costs before solicitation?
- Statement of Work
- Independent Government Cost Estimate (IGCE) (Correct answer)
- Bid Abstract
- Price Negotiation Memorandum
Correct answer: Independent Government Cost Estimate (IGCE)
The Independent Government Cost Estimate (IGCE) is prepared before solicitation to establish a baseline for evaluating whether vendor prices are reasonable.
Question 4: What is the difference between direct costs and indirect costs in a government contract?
- Direct costs are fixed; indirect costs are variable
- Direct costs are specifically identified with a single contract; indirect costs benefit multiple contracts (Correct answer)
- Direct costs require government approval; indirect costs do not
- Direct costs are labor only; indirect costs are materials only
Correct answer: Direct costs are specifically identified with a single contract; indirect costs benefit multiple contracts
Direct costs can be attributed to a specific contract (e.g., labor, materials), while indirect costs—like overhead and G&A—benefit multiple contracts and are allocated proportionally.
Question 5: A public buyer is evaluating a sole-source proposal. Which analytical method is most appropriate?
- Price analysis using competitive bids
- Cost analysis of the vendor's detailed cost breakdown (Correct answer)
- Catalog price comparison only
- Award without further analysis due to urgency
Correct answer: Cost analysis of the vendor's detailed cost breakdown
Without competition to benchmark against, cost analysis of the vendor's detailed cost elements is the most rigorous method to determine price reasonableness.
Question 6: What is 'profit' considered in the context of government cost analysis?
- An unallowable cost that cannot be reimbursed
- A negotiable element separate from cost that rewards contractor risk and performance (Correct answer)
- A fixed percentage mandated by regulation
- An indirect cost included in overhead rates
Correct answer: A negotiable element separate from cost that rewards contractor risk and performance
Profit is a negotiable element that compensates contractors for risk and investment; it is evaluated separately from costs using structured profit analysis tools.
CPPB Cost and Price Analysis 2
In a competitive sealed bid environment, which pricing method is most commonly used?