NASA - Structured Profit/Fee

PURPOSE

To provide instructions for filling out the portions of the NF 634, Structured Profit/Fee Approach issued in conjunction with Procurement Notice (PN) PN 97-36, which are new. The instructions provide guidance for completing the computations required to develop a profit or fee objective for the Performance Risk and Contract Type Risk elements.

BACKGROUND

PN 97-36 modifies the agency's structured approach by: (1) eliminating the element of cost approach previously prescribed for establishing profit and fee objectives and focusing on performance risk analysis which requires the evaluation of specific technical, management and cost risk factors; (2) providing a new method for determining contract type risk and introducing a working capital adjustment provision; (3) retaining with modification the Other Considerations factor contained in the structured approach previously prescribed; and (4) establishing a ceiling of not to exceed 1 percent of the cost base for facilities capital cost of money offset.

GUIDANCE

NFS 1815.404-471 provides guidance on the NASA structured approach for determining profit or fee objectives. NFS 1815.404-470 requires the use of NF 634 to perform the analysis necessary to develop profit or fee objectives. The attached instructions provide an example which demonstrates how to compute a profit or fee objective for the performance risk and contract type risk (including working capital adjustment) portions of the form (Blocks 16 through 21).

The information required to complete Blocks 1 through 15 of NF 634 is contained in the contractor's proposal. Use the guidance in 1815.404-471-4 to fill out Blocks 22 through 26, Other Considerations. NASA's methodology for computing the facilities capital cost of money offset is contained in 1815.404-471-5. An automated version of NF 634 is available on the NASA Procurement Library Homepage at http://ec.msfc.nasa.gov/hq/library/macro2.html.

EFFECTIVE DATE

This PIC is effective as dated and shall remain in effect until cancelled or superceded.

HEADQUARTERS CONTACT: Donna Fortunat, Code HC, 202-358-0426, email: donna.fortunat@hq.nasa.gov.

R. Scott Thompson Director, Contract Management Division

INSTRUCTIONS FOR NASA FORM 634

The purpose of the following example is to provide instruction for performing the calculations required for the development of a profit or fee objective for the performance risk and contract type risk factors (including the working capital adjustment) in accordance with NFS 1815.404-471. These instructions cover Blocks 16 through 21 of the form which deal with the new calculations.

1. Assessing Performance Risk (1815.404-471-2)

Blocks 16, 17, 18, and 19

(1) Assign a weight to each risk factor according to its input to the total performance risk. The total of the three weights equals 100 percent.

(2) Select a value for each risk factor using the evaluation criteria in paragraphs (d), (e) and (f) of 1815.404-471-2.

(3) Compute the calculated profit/fee percentage for performance risk for each risk factor by multiplying numbers (1) and (2).

(4) Add the calculated percentages for technical, management and cost risk factors to determine Composite Performance Risk.

(5) Insert the amount from Block 13 of NF 634. Block 13 is total contract cost minus cost of money (COM).

(6) Multiply the Composite Performance Risk (4) by Base (5) to determine the profit/fee objective for this factor.

2. Assessing Contract Type Risk and Working Capital Adjustment (1815.404-471-3)

Block 20

(7) Select a value from the list of contract types in paragraph (c) of 1815.404-471-3 using the evaluation criteria in paragraph (d).

(8) Insert the amount from Block 13 of the NF 634.

(9) Multiply Block (7) by Block (8) to determine the calculated profit/fee objective.

Block 21 (Working Capital Adjustment):

(10) Insert the amount computed per paragraph (e) of 1815.404-471-3.

(11) Insert the appropriate figure from paragraph (f) of 1815.404-471-3.

(12) Use the interest rate established by the Secretary of Treasury. This rate is available at http:ec.msfc.nasa.gov/hq/library/interest.htm. Click on Prompt Payment Act Interest Rate. Do not use any other interest rate.

(13) Multiply (10) by (11) by (12) to obtain profit/fee objective for the working capital adjustment. This adjustment is limited to a maximum of 2 percent of the amount in Block 13.