Doing business with the Department of Defense (DOD) requires that you have disciplined company governance in specific areas as noted in the Defense Federal Acquisition Regulations (DFARs). In particular, DFARs 215.811 and 252.215-7003. DFARs 215.811 requires all DOD contractors, large and small, have adequate estimating systems to support their proposals. As part of a regulatory oversight requirement, the Defense Contracts Audit Agency (DCAA) will periodically perform contractor estimating system reviews. If you are a large defense contractor, you can expect your estimating system to be reviewed routinely. Smaller defense contractors can be audited at any time at the request of their customer. If DCAA finds that you have estimating system deficiencies, “Flash” reports are broadcasted to your customer and other defense agencies. If the deficiencies are serious, you may be suspended from submitting any further proposals until your estimating system is deemed adequate.
So what is an adequate estimating system? It is DOD policy that contractors have estimating systems that consistently produce well supported proposals acceptable as a basis for negotiating fair and reasonable prices. Estimating systems should be consistent and integrated with a contractor’s related management systems, and be subject to applicable financial control systems. To be considered adequate, an estimating system must be established, maintained, reliable, and consistently applied. It must also produce verifiable, supportable and documented cost estimates.
DFARs 215.811-70 delineates attributes of an adequate estimating system. So if your estimating system is tested, you will be scored on following:
1. Establishes clear responsibility for the preparation, review, and approval of cost estimates.
2. Provides a written description of the organization and duties of personnel responsible for contributing to the estimating process
3. Ensures that relevant personnel have sufficient training, experience and guidance
4. Identifies sources of data and the estimating methods and rationale used in developing cost estimates.
5. Provides for appropriate supervision
6. Provides for consistent application of estimating techniques.
7. Provides for detection and timely correction of errors.
8. Protects against cost duplication and omissions.
9. Provides for the use of historical experience, including vendor pricing information where appropriate.
10. Requires use of appropriate analytical methods.
11. Integrates information available from other management systems as appropriate.
12. Requires management review [of the estimating system]
13. Provides for internal review of and accountability for the adequacy of the estimating system, including the comparison of projected results to actual results and an analysis of any differences.
14. Provides procedures to update cost estimates in a timely manner.
15. Addresses responsibility for review and analysis of subcontract prices.
The new Administration has renewed attention to Defense Acquisition Reform. I suggest that you do not wait for DCAA to come knocking at your door to ensure that you have an adequate estimating system. Do a self-audit of your practices using the attributes above. Put yourself in the shoes of your local DCAA auditor – did you pass the test? Fill in the gaps, document your process, practice what you documented, and revisit and renew your vows periodically.