Cost Efficiency Factor - DFAR 215.404-71-5

215.404-71-5 Cost Efficiency Factor

Incentive for Contractors to Reduce Costs

(a) This special factor provides an incentive for contractors to reduce costs. To the extent that the contractor can demonstrate cost reduction efforts that benefit the pending contract, the contracting officer may increase the prenegotiation profit objective by an amount not to exceed 4 percent of total objective cost to recognize these efforts .

Cost Reduction Criteria

(b) To determine if using this factor is appropriate, the contracting officer shall consider criteria, such as the following, to evaluate the benefit the contractor's cost reduction efforts will have on the pending contract:

• (1) The contractor's participation in Single Process Initiative improvements;

• (2) Actual cost reductions achieved on prior contracts;

• (3) Reduction or elimination of excess or idle facilities;

• (4) The contractor's cost reduction initiatives (e.g., competition advocacy programs, technical insertion programs, obsolete parts control programs, spare parts pricing reform, value engineering, outsourcing of functions such as information technology). Metrics developed by the contractor such as fully loaded labor hours (i.e., cost per labor hour, including all direct and indirect costs) or other productivity measures may provide the basis for assessing the effectiveness of the contractor's cost reduction initiatives over time;

• (5) The contractor's adoption of process improvements to reduce costs;

• (6) Subcontractor cost reduction efforts;

• (7) The contractor's effective incorporation of commercial items and processes; or

• (8) The contractor's investment in new facilities when such investments contribute to better asset utilization or improved productivity.

Contracting Officer HAS MAXIMUM FLEXIBILITY

(c) When selecting the percentage to use for this special factor, the contracting officer has maximum flexibility in determining the best way to evaluate the benefit the contractor's cost reduction efforts will have on the pending contract. However, the contracting officer shall consider the impact that quantity differences, learning, changes in scope, and economic factors such as inflation and deflation will have on cost reduction.

Summary

The contracting officer may increase the prenegotiation profit objective by an amount not to exceed 4 percent for contractor cost efficiencies.