In-House Cost Estimate
The IHCE is the part of the Government Management Plan that contains the estimated
cost of the Most Efficient Organization’s (MEO) performance of the commercial activity
as defined by the Request for Proposal (RFP).
More commonly, the term “IHCE” is used to describe the costs entered onto the Cost
Comparison Form (CCF) as produced by COMPARE. The costs on Line 1-6 are the Government
MEO-specific costs while the costs on Lines 8-13 are Government estimated costs
that are added or subtracted from Line 7 (the contract/ISSA price). Line 7 on the
CCF is the price offered by the contract/ISSA provider and is entered on the date
of the cost comparison.
The CCF is not a funding document – it represents estimated competitive costs (as
opposed to true operational costs) of Government performance that will be compared
to the cost of contract performance in order to determine a service provider, i.e.
MEO or contract/ISSA.
Note: The IHCE should not be confused with the term “Independent Government Estimate”
(IGE), which is an estimate of the costs and profit to perform the work depicted
in a PWS that is used in evaluation of contract/ISSA offer. It is developed by the
contracting office and used to determine if contract/ISSA offers are fair and reasonable.
What is calculated in Line 1, Personnel Costs?
Line 1 of the Cost Comparison Form, Personnel Costs, includes the cost of all direct
in-house labor and supervision, including quality control personnel necessary to
meet the internal quality control performance requirements described in the solicitation.
In-House Cost Estimates (IHCEs) that assume a mix of in-house labor and subcontract
support also include the cost of labor to administer the support contracts.
How are one-time conversion costs handled in a cost comparison?
Contract/ISSA costs for the phase-in period, typically included as a separate CLIN
in the offer, will be included in Line 7, Contract Price, of the Cost Comparison
Form. If the first performance period is designated as the phase-in period, then
severance pay costs will be calculated against the second period of annualized Line
1 basic pay labor costs and one-time conversion costs (excluding severance pay)
will be calculated in the period designated as the phase-in period against Line
10 one-time conversion costs.
How is the severance pay cost computed in a cost comparison?
Severance pay will be estimated by calculating four percent of the annual basic
pay of all Government civilian positions (performance period 1 only) and will be
entered on Line 1 (some exceptions apply). This calculation will be made without
fringe benefits or regard to the types of positions (e.g., intermittent, temporary,
part-time). The base year (which must be equal to 12 months) personnel costs are
calculated and the inflation factor applicable to the first performance period is
applied. If performance period 1 is designated as the phase-in period as specified
in the solicitation, the four percent severance pay is applied to the second performance
period salaries (the first period of full performance, i.e., twelve months). Prorate
the severance calculation if the number of permanently assigned employees (that
are in the function being competed and expected to receive severance pay) is less
than the maximum number of vacant positions in the MEO.
When is a mock RIF appropriate?
As soon as possible, management must submit to HR Office/Component HQ HR Command
a tentative list of positions to be abolished. HR Office/Component HQ HR Command
should use this list to conduct a mock RIF. Conducting a mock RIF is not a DoD requirement.
However, it provides many advantages, including the following:
- It can provide a learning process for HR specialists who have not been involved
in RIFs.
- It can provide a crosscheck on the quality control process.
- It gives some indication of the number of employees that will be affected adversely.
Managers need this information. The Contracting Officer uses it to estimate the
number of affected employees. This information also aids in determining whether
a hiring freeze, other stockpiling or advanced PP assistance will be necessary.
It also aids the specialist in making informed decisions on early out requests.
- It aids in assessing the impact of RIF on EEO.
- It allows assessment of financial implications (severance pay, unemployment costs,
annual leave payout, etc.).
It is possible that this information may be obtained from other sources, and a mock
RIF may not be appropriate.
A mock RIF will only be performed to justify costs other than the standard four
percent severance pay that are included on Line 10 of the Cost Comparison Form.
This mock RIF will be certified by the appropriate human resource or civilian personnel
office and will include a statement as to which employees are: expected to be retrained
for other Government jobs that will require the Government to incur the cost of
retraining these individuals; placed in other Government jobs that will require
the Government to incur the cost of relocation and possibly homeowners assistance;
and/or involuntarily separated from Government service (i.e., RIFed).
A mock RIF will not be conducted if the cost comparison is performed at an installation
or facility that is located in a geographic region in which there is an historically
high placement rate for Government employees in other Government jobs (e.g., Washington
DC, Norfolk, San Diego, San Antonio). The appropriate human resource or civilian
personnel office will make this determination based on historical data. Because
of the historically high placement rate for Government employees in these areas,
labor-related one-time conversion costs will be limited to the standard four percent
severance pay factor.
How are overhead costs calculated?
Line 4, Overhead Costs, represents 12 percent of Line 1, Personnel Costs, including
MEO subcontract administrators, and captures overhead costs associated with operations
of the commercial activity being competed that are not captured on Line 1 for the
MEO. Line 4 is calculated by multiplying Line 1 Personnel Costs (i.e., appropriated,
foreign national, NAF) for each performance period, including fringe benefits, by
12 percent (.12). Military personnel costs are not subject to this overhead rate
because the military composite rate includes the appropriate overhead costs for
these positions.
How is Federal income tax calculated and determined in a cost comparison?
Potential Federal income tax revenue will be considered in the cost comparison since
a contract provides a contract offeror with a certain amount of income subject to
Federal income tax. Federal income taxes are a deduction from the net cost of contracting
to the Government unless the prospective contract offeror is a tax-exempt organization
or the ISSA offeror is selected for competition with the Government offeror. If
the selected offeror is a tax-exempt organization or ISSA, line 12 equals 0. To
determine the Federal income tax deduction, the contract price for each performance
period is multiplied by the applicable tax rate and entered on Line 12 as a negative
number.
Resources:
Download COMPARE and COMPARE user's instructions
- COMPARE is the software used to prepare the In-House Cost Estimate. Get
COMPARE
!
Policy
Other Tables and Schedules:
Links Related To Personnel Costs
Service Contract Act & Wage Determination