PRE-NEGOTIATION MEMORANDUM Introduction: 1. Proposal Date: 15 April 2000 Amount: $ 49,110, 651 Proposal Update Date: 10-13 March 2000 Contract type: upgrading of the H-19 mission computer together with its operational flight programs. 2. Sole Source : Malahy Aero Systems (prime contractor). Other: Galbraith Flight Systems (due to merging of divisional administrative functions with Malahy Aero systems) 3. Authority to Negotiate (Cite FAR reference) 4. Synopsis Requirement is needed. 5. Justification and Approval (J&A) Date: 7 June 2000 6. Legal Review Date: 7 June 2000 7. Subcontracting Plan is applicable. 8. The certificates for Contractor Procurement Integrity have been Received. 9. The EEO Clearance has been Received. 10. Offeror is not on the Debarred, Ineligible & Suspended Bidder Listing. Description of acquisition: The H-19 which is a joint system program office, has been tasked to upgrade through the Program Management Directive the H-19 Mission Computer as well as its Operational Flight Programs. There is also need by the evolving mission requirements to enhance the H-19C mission computer and also ensuring support mission requirements for the Operational Flight Programs (software). The new or updated Operational Flight Programs has to be fully integrated with the entire flight systems. The Mission Computer IPT belonging to the program office is however responsible for managing all the required changes are achieved to the H-19 Mission Computer. The Mission Computer IPT has the decided to work closely with their counterparts at Malahy Aero Systems in order to ensure that there is clear communication regarding performance and requirements. Thus, Malahy Aero Systems a division of the Whitty Global Systems Corporation merged with the Galbraith Flight Systems with an overall supervision of the Whitty Global Systems Corporation to implement the contract proposal which was initially 22 months long but later reduced by 3 months involving upgrading of the H-19 mission computer together with its operational flight programs.The tabular format of audit of material cost and pricing data The pricing and cost data which is contained in the proposal in the opinion of the management and auditor is adequate as a basis for n the negotiation purposes. However, some inadequacies were noted in the cost and pricing data submitted by the offeror in support of material as they were not prepared in the entire respects according to the applicable Standards of Cost Accounting as well as appropriate provisions of DFARS and FAR. However, this audit report remains qualified awaiting the receipt of the required technical report. Moreover, a specific analysis of the materials was considered in the contract proposal. Engineering Group Contractor’s Proposal Questioned Costs Unsupported Costs Government Negotiation 66-9210 $ 158,990 $ 34,294 $ 23,980 $ 100,716 67-1100 481,175 140,000 341,175 0 67-5200 593,409 197,504 45,558 350,247 68-2400 98,342 10,345 23,567 64,430 68-3800 47,883 47,883 0 0 68-4800 324,587 22,213 102,400 199,974 68-5300 193,758 0 89,325 104,433 69-1100 $19,078,766 0 0 0 Total $20,976,910 $ 452,239 $ 626,005 $19,898,666 The material cost and price analysis 66-9210: The $34,294 was questioned on the proposed cost because of changes in the performance period which was agreed upon between the contractor and program office. The three months performance period reduction should result in savings in computer and test equipment maintenance and rental time. It was determined that the contractor have unsupported cost of $23,980 on the basis of contractor transfer of the security equipment required from Engineering group #66-9210 to Engineering group #68-2400. Hence Malahy has already accepted to eliminate the amount which is unsupported. 67-1100: The amount of $140,000 was questioned because the proposed reduction in cartridge load software cost was no longer needed as a result of discussions which were initiated at the proposal development meeting (10-13 Mar 00). Thus, the remaining $341,175 is still unsupported. This cost is usually based on a software quote from Orbital Sciences, Fairchild Defense, this however expired on 15 Mar 00. On the basis of discussion with Ben Farmer the H-19 Contracting and Proposing, Orbital has submitted a quote which is revised (corrected) for $701,075. Malahy’s group for material has however experienced a 7% negotiation decrement with this subcontractor. 67-5200: (1) $19,976 was questioned in computer equipment cost which was removed from the contract requirements in the process of fact-finding with the H-19 SPO. MAS has also acknowledged that it was an error. (2) $177,528 was also questioned which was proposed for ADPE maintenance and security cost. With respect to this, the security cost for ADPE were $138,000 whereas that of ADPE maintenance were $39,528. An additional of $45,558 ADPE maintenance cost is also unsupported, this is because the proposed cost was done on the basis of an expired vendor quotes. 68-2400: $10,345 was questioned primarily resulting from updated quotes which were lowered for the parts which were used in this Engineering Group. Thus, $23,567 of unsupported cost were found on the basis of a decrement factor which was developed from a sample of 15 parts as well as the historically experienced decrement on the involved 15 parts. MAS disagreed stating that their proposal is actually based on sampling 50% of the parts followed by application of the decrement factor accordingly. 68-3800: $47,883 was questioned because it was proposed outside the bracket of vendor support cost due to the deletion of the task from the contract requirements throughout the meetings for fact-finding with the H-19 Special Project Office (SPO). 68-4800: $22,213 was questioned when maintenance cost detail was compared to vendor quotes on file. It was noted that the contractor’s proposal was actually submitted long before some of the written vendor quotes could be received. There was also, $102,400 which is unsupported because of the unspecified maintenance costs. This is due to the failure of MAS to provide supporting rationale for including this amount. 68-5300: $89,325 is unsupported mainly because the cost which is proposed was based on required test equipment before the video upgrades and the BRU-55 wiring modifications 69-1100: There were no exceptions in the proposed $1,378,766 to be used in supercomputing, $2,287,000 maintenance charges in support of H-19C testing of the system integration, $999,875 FAR Part 12 commercial item, which are a 100 high computer accessories as well as $14,413,125 in purchase of flight simulator for system testing and also training. Conclusion However, based on the analysis of the contract proposal by the Government, the contracting officer entered into discussions with the contractor for the purpose of providing clarifications on the pricing related to the acquisition. This was done after the identification of the questioned and unsupported prices whereby the government also provided its objectives for negotiation. Reference: McVay, B. L. (1989). Proposals that win federal contracts: how to plan, price, write and negotiate to get your fair share of government business. Michigan: Panoptic Enterprises.