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    What are some typical reasons to justify an "above normal" profit object for an CPFF efforts?


    Answer

    1. The FAR and DFARS references quoted below in pertinent part are applicable to this response.

    FAR 2.101 -- Definitions
    “Should” means an expected course of action or policy that is to be followed unless inappropriate for a particular circumstance.

    FAR 15.406-1 -- Prenegotiation Objectives
    (b) The contracting officer shall establish prenegotiation objectives before the negotiation of any pricing action. … When cost analysis is required, the contracting officer shall document the pertinent issues to be negotiated, the cost objectives, and a profit or fee objective.

    DFARS 215.404-71 -- Weighted guidelines method
    DFARS 215.404-71-1 General
    (a) The weighted guidelines method focuses on four profit factors—
      (1) Performance risk;
      (2) Contract type risk;
      (3) Facilities capital employed; and
      (4) Cost efficiency.

    (b) … The designated range provides values based on above normal or below normal conditions. In the price negotiation documentation, the contracting officer need not explain assignment of the normal value, but should address conditions that justify assignment of other than the normal value. … .

    DFARS 215.404-71-3 -- Contract type risk and working capital adjustment
    (a) Description. The contract type risk factor focuses on the degree of cost risk accepted by the contractor under varying contract types.

    (d) Evaluation criteria.
    (1) General. The contracting officer should consider elements that affect contract type risk such as—
      (i) Length of contract;
      (ii) Adequacy of cost data for projections;
      (iii) Economic environment;
      (iv) Nature and extent of subcontracted activity;

    (3) Above normal conditions. The contracting officer may assign a higher than normal value when there is substantial contract type risk. Indicators of this are—
      (i) Efforts where there is minimal cost history;

    2. In evaluating Contract Type Risk, the only DFARS Weighted Guidelines (WGL) criteria that could apply to a CPFF contract are listed above at DFARS 215.404-71-3(d)(1)(i) through (iv). Therefore, these elements could be evaluated to determine if “above normal conditions” apply. However in evaluating each of these elements, the only WGL “above normal conditions” criterion as listed in DFARS 215.404-71-3(d)(3)(i) applicable to a CPFF contract is: “there is minimal cost history”. Based on the above and in direct response to this inquiry, we would recommend that the team use this WGL evaluation criteria to determine whether “above normal conditions” would apply to this acquisition situation and the resultant determination of CPFF contract type risk.

    3. In the event that the above approach is not viable, then there are two alternatives that could achieve the desired result as implied by this inquiry. One alternative would be to re-evaluate the other profit factors used the develop the fee objective (e.g., Performance risk) to determine whether a higher weight could be justified for that profit factor using the applicable WGL criteria applied to the facts of this acquisition situation. This approach could still result in an overall reasonable fee objective while still providing for a normal weighting for Contract Type Risk.

    4. As stated in DFARS 215.404-71-1(b), the contracting officer should address conditions that justify assignment of other than the normal value. As stated in FAR 2.101, the term “Should” means an expected policy that is to be followed unless inappropriate for a particular circumstance. Therefore, if an “above normal” weight for CPFF contract type risk cannot be justified using established WGL criteria, then pursuant to FAR 15.406-1(b), the team could document the pertinent issues in the pre-negotiation objectives memorandum (PNM) supporting the use of an above normal weighting for Contract Type Risk and explaining why the use of the normal weight would be inappropriate for this particular circumstance.



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