FAR 15.404-4 requires that agencies use a structured approach for determining the profit or fee objective for acquisitions that require cost analysis. Within DoD, we find the policy at DFARS 215-404-4(b)(1): “Contracting officers shall use a structured approach for developing a prenegotiation profit or fee objective on any negotiated contract action when cost or pricing data is obtained, except …… “
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Then to specify a structured approach for DoD, DFARS 215-404-4(c)(2) says: “When using a structured approach, the contracting officer -
(A) Shall use the weighted guidelines method (see 215.404-71), except …… “
Then to specify the procedures for the weighted guidelines method, DFARS 215.404-71 provides detailed instructions for using DD Form 1547, Record of Weighted Guidelines Method Application.
Total costs for any type of contract include direct and indirect costs and we see on the DD Form 1547 (blocks 13-19) the individual cost items including direct and indirect costs, as well as G&A. When added together, these become the total cost (block 20) which is used throughout the form as the base for applying the assigned values for performance risk, contract type risk, costs financed, and cost efficiency factor - all contributing to the total profit objective (block 30).