CMP CMP Pricing Strategy & Cost Analysis 1 — Questions and Answers
Question 1: In capture management, 'price-to-win' (PTW) is defined as:
- The price at which the capture team believes it can most likely win the contract (Correct answer)
- The lowest possible price that covers all direct costs
- The government's independent cost estimate for the requirement
- The arithmetic average of all known competitor prices
Correct answer: The price at which the capture team believes it can most likely win the contract
PTW analysis uses competitive intelligence and customer budget data to determine the price point most likely to secure the award.
Question 2: What does 'should-cost' analysis involve in government contracting?
- The government's assessment of what a contract should cost under efficient contractor performance (Correct answer)
- The contractor's minimum acceptable profit margin on the work
- A bottom-up pricing model independently built by the capture team
- A comparison of prior contract prices for identical historical work
Correct answer: The government's assessment of what a contract should cost under efficient contractor performance
Should-cost analysis gives the government a basis for challenging contractor-proposed prices and driving cost reductions during negotiations.
Question 3: Which contract type places the greatest cost risk on the contractor in government contracting?
- Cost-plus-fixed-fee (CPFF)
- Firm-fixed-price (FFP) (Correct answer)
- Time-and-materials (T&M)
- Cost-plus-incentive-fee (CPIF)
Correct answer: Firm-fixed-price (FFP)
Under FFP, the contractor absorbs all cost overruns because the price is locked regardless of actual costs incurred during performance.
Question 4: In capture pricing, a 'wrap rate' refers to:
- The multiplier applied to direct labor to account for overhead, G&A, and fringe benefits (Correct answer)
- The margin added on top of subcontractor pass-through costs
- The total evaluated price submitted in the cost proposal
- The discount rate used for net present value calculations
Correct answer: The multiplier applied to direct labor to account for overhead, G&A, and fringe benefits
Wrap rates combine all indirect cost burdens into a single multiplier applied to direct labor, enabling rapid fully-burdened cost calculations.
Question 5: A 'basis of estimate' (BOE) in proposal pricing serves to:
- Document the rationale and methodology behind each cost estimate element (Correct answer)
- Establish the final negotiated price with the contracting officer
- List all subcontractors and their respective quoted amounts
- Define the fee objective and profit structure for the contract
Correct answer: Document the rationale and methodology behind each cost estimate element
A BOE justifies every cost element by showing auditors and contracting officers that estimates are reasonable, traceable, and defensible.
Question 6: When performing competitive price analysis, the most valuable input for a capture team is:
- Modeling competitors' prices based on their estimated cost structures, labor rates, and past bids (Correct answer)
- Matching the single lowest historical price for similar scope work
- Setting price equal to the government's published budget estimate
- Averaging all publicly available competitor prices from USASpending.gov
Correct answer: Modeling competitors' prices based on their estimated cost structures, labor rates, and past bids
True PTW analysis requires modeling competitor behavior and cost structures rather than simply averaging historical data, which may not reflect current conditions.
CMP CMP Pricing Strategy & Cost Analysis 1
In capture management, 'price-to-win' (PTW) is defined as: