1.4.2.  Cost Elements.

The following are standard cost elements that should be included in the IGE, as applicable.

1.4.2.1.  Direct Labor Cost (DLC). . Direct Labor Cost is the cost of labor directly applied to producing the requirement. There are two types of DLC:

1.4.2.1.1.  Unburdened which includes only salary; and burdened, which includes salary plus an allocation of costs for overhead, general and administrative, profit, and any escalation for option years.

1.4.2.1.2.  Burdened rates simplify the cost estimating process. The accuracy of this method may depend on the availability of recent, competitively negotiated burdened rates that have similar skill requirements as your acquisition. Labor burden rates vary considerably depending on the contractor's organization and facilities and the type of work performed.

1.4.2.2.  Other Direct Cost (ODC). These are all costs (other than labor and materials) used to satisfy the requirement: Materials & Supplies, Equipment, Travel, IT, and any other direct cost such as bonds. Do not use "Lump sum" estimates. These estimates are not useful in evaluating the proposal.

1.4.2.2.1.  Contractors' Equipment Ownership and Operating Expense. Construction equipment is normally defined as a contractor's tool costing more than several hundred dollars and for which a prudent contractor would depreciate over several years or many hours of usage. It is necessary to know if the contractor will be using rented or owned construction equipment.

1.4.2.2.1.1.  If the contractor is using equipment they own, FAR 31.105(d)(2)(i) states actual ownership and operating expenses are used if they can be determined from the contractor's financial records for each piece of equipment. If actual expenses cannot be determined from the contractor's records, check the Civil Works Engineer Pamphlets for the appropriate Construction Equipment Ownership and Operating Expense Schedule.

1.4.2.2.1.2.  If the contractor is using rented or leased construction equipment, FAR 31.105 (d)(2)(ii) and FAR 31.205-36 provide guidance. Check rental rates with local suppliers or catalogues; check invoices if retrospective pricing.

1.4.2.3.  Overhead Costs (OVHD). These are the regular operating expenses of a business such as rent, utilities, facility maintenance, and taxes. Overhead rates vary from one contractor to another. Overhead rates can be actual indirect cost rates or DCAA audited rates. Either way, the purpose is to determine overhead rates based on costs that are allowable, allocable and reasonable.

1.4.2.4.  Profit. IAW DFARS 215.404-4, if Certified Cost or Pricing Data is required then one of the three structured methods identified must be used to develop a pre-negotiation profit or fee objective on any negotiated contract action. The most common of the three methods is the Weighted Guidelines Method. However, regardless of the need for Certified Cost or Pricing Data, it is still highly recommended that you use a structured approach to analyze profit for all acquisitions. The intent is to eliminate an arbitrary profit objective and to provide a consistent manner to reward risk, motivate efficiency and quality performance. The weighted guidelines method focuses on three profit factors:

1.4.2.4.1.  Performance Risk (Technical, Managerial & Cost Control)

1.4.2.4.2.  Contract Type Risk

1.4.2.4.3.  Working Capital Adjustment and Facilities Capital Employed

1.4.2.4.4.  The form normally used is DD 1547, Record of Weighted Guidelines Application.