Please explain cost realism.
This response is based on the information provided. We suggest you discuss with your contracting team, program manager and/or legal department as appropriate.
Cost realism as defined at FAR 2.101 "means that the costs in an offeror’s proposal-
(1) Are realistic for the work to be performed;
(2) Reflect a clear understanding of the requirements; and
(3) Are consistent with the various elements of the offeror’s technical proposal."
A paraphrase of the definition appears at FAR 15.404-1(d)(1).
Essentially cost realism the government is trying to assess whether the offeror's costs are realistic as they relate to the work what is being provided; labor mix, materials, technical approach. Through cost realism, we are also evaluating whether we believe the offeror understands our requirement sufficiently.
Most Probable Cost - at FAR 15.404-1(d)(2), "Cost realism analyses shall be performed on cost-reimbursement contracts to determine the probable cost of performance for each offeror.
(i) The probable cost may differ from the proposed cost and should reflect the Government’s best estimate of the cost of any contract that is most likely to result from the offeror’s proposal. The probable cost shall be used for purposes of evaluation to determine the best value.
(ii) The probable cost is determined by adjusting each offeror’s proposed cost, and fee when appropriate, to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis."
The VAAR adds nothing further on cost realism.