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  • Question

    Do I include a separate line item for the proposal costs and then include profit for the amount? or do I just add the negotiated amount to the total after negotiation without profit? Please advise


    Answer

    Let’s begin by defining the cost item of “proposal costs.”  We find a definition in the Federal Acquisition Regulation (FAR) at paragraph 31.205-18(a):

    “Bid and proposal (B&P) costs” means the costs incurred in preparing, submitting, and supporting bids and proposals (whether or not solicited) on potential Government or non-Government contracts. The term does not include the costs of effort sponsored by a grant or cooperative agreement, or required in the performance of a contract.

    The FAR further assumes that bid and proposal costs will not be a direct charge item at paragraph 31.205-18(c) as follows:
    (c) Allowability. Except as provided in paragraphs (d) and (e) of this subsection, or as provided in agency regulations, costs for IR&D and B&P are allowable as indirect expenses on contracts to the extent that those costs are allocable and reasonable.

    So, now to your specific question - Do I include a separate line item for the proposal costs and then include profit for the amount?  A separate line item would imply a direct cost item which, as the above reference indicates, is not the normal method to charge for proposal costs.  In fact, if this is a proposal submitted to be awarded as new contract, then the company would normally charge the proposal costs as part of their General and Administrative expense as they seek to obtain new business.  Further, if the proposal costs are not listed in their proposal as a separate cost element, then what caused the question or concern?  If they do bid these costs separately, you must consult their Disclosure Statement (see
    FAR 30.205-5) to see if that is their approved methodology versus the more normal indirect charge method.  The part of the question on profit is troubling because you indicated that the contract type is CPIF/AF.  Your line items (CLINs) should be at cost and the incentive or award fee (if applicable) would be calculated at the end of an award fee period or at the end of the entire contract for the incentive fee.

    Lastly, I cannot imagine negotiating an amount for proposal cost when the contractor has not proposed it!


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