(a)Description. This profit factor addresses the contractor's degree of risk in fulfilling the contract requirements. The factor consists of two parts:
(1)Technical—the technical uncertainties of performance.
(2)Management/cost control—the degree of management effort necessary—
(i)To ensure that contract requirements are met; and
(b)Determination. The following extract from the DD Form 1547 is annotated to describe the process.
(1)Assign a weight (percentage) to each element according to its input to the total performance risk. The total of the two weights equals 100 percent.
(2)Select a value for each element from the list in paragraph (c) of this subsection using the evaluation criteria in paragraphs (d) and (e) of this subsection.
(3)Compute the composite as shown in the following example:
(4)Insert the amount from Block 20 of the DD Form 1547. Block 20 is total contract costs, excluding facilities capital cost of money.
(1)Standard. The standard designated range should apply to most contracts.
(2)Technology incentive. For the technical factor only, contracting officers may use the technology incentive range for acquisitions that include development, production, or application of innovative new technologies. The technology incentive range does not apply to efforts restricted to studies, analyses, or demonstrations that have a technical report as their primary deliverable.
(1)Review the contract requirements and focus on the critical performance elements in the statement of work or specifications. Factors to consider include—
(i)Technology being applied or developed by the contractor;
(i)The contracting officer may assign a higher than normal value in those cases where there is a substantial technical risk. Indicators are—
(A)Items are being manufactured using specifications with stringent tolerance limits;
(B)The efforts require highly skilled personnel or require the use of state-of-the-art machinery;
(C)The services and analytical efforts are extremely important to the Government and must be performed to exacting standards;
(D)The contractor's independent development and investment has reduced the Government's risk or cost;
(E)The contractor has accepted an accelerated delivery schedule to meet DoD requirements; or
(F)The contractor has assumed additional risk through warranty provisions.
(ii)Extremely complex, vital efforts to overcome difficult technical obstacles that require personnel with exceptional abilities, experience, and professional credentials may justify a value significantly above normal.
(i)The contracting officer may assign values within the technology incentive range when contract performance includes the introduction of new, significant technological innovation. Use the technology incentive range only for the most innovative contract efforts. Innovation may be in the form of—
(A)Development or application of new technology that fundamentally changes the characteristics of an existing product or system and that results in increased technical performance, improved reliability, or reduced costs; or
(B)New products or systems that contain significant technological advances over the products or systems they are replacing.
(ii)When selecting a value within the technology incentive range, the contracting officer should consider the relative value of the proposed innovation to the acquisition as a whole. When the innovation represents a minor benefit, the contracting officer should consider using values less than the norm. For innovative efforts that will have a major positive impact on the product or program, the contracting officer may use values above the norm.
(e)Evaluation criteria for management/cost control.
(i)The contractor's management and internal control systems using contracting office data, information and reviews made by field contract administration offices or other DoD field offices;
(ii)The management involvement expected on the prospective contract action;
(iii)The degree of cost mix as an indication of the types of resources applied and value added by the contractor;
(iv)The contractor's support of Federal socioeconomic programs;
(v)The expected reliability of the contractor's cost estimates (including the contractor's cost estimating system);
(vi)The adequacy of the contractor's management approach to controlling cost and schedule; and
(vii)Any other factors that affect the contractor's ability to meet the cost targets (e.g., foreign currency exchange rates and inflation rates).
(iii)If the contractor demonstrates efficient management and cost control through the submittal of a timely, qualifying proposal (as defined in 217.7401) in furtherance of definitization of an undefinitized contract action, and the proposal demonstrates effective cost control from the time of award to the present, the contracting officer may add 1 percentage point to the value determined for management/cost control up to the maximum of 7 percent.
(J)The contractor has a record of cost overruns or another indication of unreliable cost estimates and lack of cost control; or
(K)The contractor has a poor record of past performance.
(ii)The following may justify a value significantly below normal—
(A)Reviews performed by the field contract administration offices disclose unsatisfactory management and internal control systems (e.g., quality assurance, property control, safety, security); or
(B)The effort requires an unusually low degree of management involvement.