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In the 1996 film Jerry Maguire, there is a funny scene in which sports agent Jerry Maguire (Tom Cruise) is told to shout loudly and repeatedly, “Show me the money,” by football player Rod Tidwell (Cuba Gooding Jr.). Rod wanted to get Jerry’s commitment to negotiate a large contract, which he did.
Similarly, in proposals, the basis of estimate (BOE) is the tool used by offerors to provide the rationale for a bid price. The BOE is also analyzed closely by evaluators to determine if the justification warrants the price, hence, “show me the money.” A BOE is both the method used to document the critical aspects of the proposal cost estimate balanced against risk and a key part of the proposal submission. It is the description and reasoning for your estimate to do the work, and it shows your logic, estimating method, data, and calculations. A good BOE should be complete, well-organized, and concise, showing the proposal’s scope, risks, explanation of data, resource estimates, and calculations.
It is important to note that a BOE is a work estimate—not your cost proposal. It does not provide any pricing, travel, or cost information. The BOE must be developed first—before the cost volume—so that the pricing team knows the cost elements that will require pricing. A BOE helps explain a company’s estimated staffing level and technical solution for the selected government solicitation.
The Importance of a BOE
The BOE serves several key purposes. First, for U.S. government proposals, it is required by law. Specifically, Federal Acquisition Regulation sections 12 and 15 require that a proposal must provide sufficient amount of supporting information to allow the contracting officer (CO) to determine the reasonableness of the proposed price and to ensure that the final negotiated price is fair and reasonable. The Truth in Negotiations Act—for U.S. government acquisitions exceeding $750,000—has the same requirement. Most states and cities require similar supporting information for their RFPs.
Second, the BOE helps “sell” the proposal to evaluators. The justification provides logic and evidence to support the estimate’s accuracy. It demonstrates to the customer an understanding of the requirements and work effort, including the consideration of risk factors.
Third, the BOE enables reviewers to determine cost reasonableness, showing the development methodology, completeness, and math computation accuracy.
Fourth, the BOE enables reviewers to determine cost realism—to check if the estimate is compatible with the SOW’s work tasks and if it makes sense. The BOE is the only deliverable in the proposal that links the management and technical volumes to the price volume, which makes its logic and accuracy critical for evaluators and the CO.
A BOE is both the method used to document the critical aspects of the proposal cost estimate balanced against risk and a key part of the proposal submission.
Elements of a Good BOE
There are no specific formats or components for a BOE. Most large companies have their own BOE templates, policies, and procedures, and many government RFPs will describe what is required in the BOE. Here are a few key elements that should be addressed in a good BOE:
- Work Scope: The work scope provides a detailed description of the work, including the proposal name, date, estimator’s name, work breakdown structure (WBS) identification number, period of performance, CLIN number, time phasing, requirement source, risk ID tied to your proposal risk register response, deliverables, dependencies, assumptions, resources, labor, subcontracts, material costs, ODCs, and reviewer’s name.
- Methodology and Rationale: The methodology and rationale should describe the estimating technique used. The rationale explains how you derived the estimate to execute the effort described in the work scope section, based on cost resources, historical data, and proposal goals. There are several estimating methods you can use. For example, the analogy method bases the estimate on the same or similar effort performed on past programs, adjusting for differences based on the RFP’s requirements. The rationale lists assumptions that were made and the reasons behind them and any adjustments made to the estimate.
- Source Data: Source data provides the reference data used in the estimate, including historical, actual, and vendor quotes; time frames of the data; purchase orders; labor categories; resource estimates; and on- or off-site work location(s).
- Mathematical Calculations: Mathematical calculations show all the calculations used to build and support the BOE, including all materials, travel, subcontractor BOEs, time-phased breakout of labor hours, and support functions such as program management, contracts, finance, training, deliverable creation resources, purchase orders, and vendor quotations.
A good BOE shows traceability to the associated cost input, provides summarized data for the appropriate WBS requirement, and it is clear, concise, and understandable. Avoid these common BOE errors: making adjustments without explanations, failing to provide your subcontractors with BOE information, being out of sync with the technical volume, incorporating unjustified travel/material quantities, missing risks, and making math calculation errors.
There are numerous benefits to a well-written BOE. It is easy for evaluators to review, acts as a record of the findings that will be used later in negotiations, justifies the cost estimate, and provides support for both cost realism evaluations and possible customer audits. Finally, a good BOE is the scaffolding for your proposal—it is the documentation that shows your logic for the estimate. It shows the customer how you will satisfy the RFP requirements with the appropriate blend of resources, time, risk mitigation steps, and costs—so the customer can award you the contract based on your best value solution.
Chuck McKeever, CF APMP, is the owner of CMC LLC, a consulting services firm in Burke, Virginia. He can be reached at firstname.lastname@example.org.