FAR 15.407-5—Estimating systems.
Plain-English Summary
FAR 15.407-5 addresses estimating systems used to prepare proposals and the Government’s review of those systems. It explains why an acceptable estimating system matters: it improves the accuracy and reliability of proposals, helps the Government and contractor spend less time rechecking the same estimating methods on every procurement, and can speed up negotiations. The section also covers the role of cognizant audit activities in establishing and managing regular review programs for selected contractors’ estimating systems or methods, the requirement to document review results in survey reports, and the auditor’s duty to distribute those reports and any official corrective-action notices to contracting and contract administration offices with substantial business with the contractor. Finally, it warns that unresolved significant deficiencies in the estimating system must be considered in later proposal analyses and negotiations, which means a contractor’s past estimating performance can directly affect future pricing discussions and Government confidence in proposed costs.
Key Rules
Acceptable systems improve proposals
Using an acceptable estimating system benefits both parties by making individual proposals more accurate and reliable. In practice, this means the contractor’s estimating methods should be organized, consistent, and capable of producing supportable proposed costs.
Regular reviews may be established
Cognizant audit activities shall establish and manage regular programs for reviewing selected contractors’ estimating systems or methods when appropriate. The purpose is to reduce the need for repeated detailed review of each proposal and to speed negotiations.
Reviews must be documented
The results of estimating system reviews must be documented in survey reports. This creates an official record of the system’s condition, findings, and any needed corrective action.
Reports must be distributed
The auditor must send the survey report and the official notice of corrective action to each contracting office and contract administration office having substantial business with the contractor. This ensures the offices most affected by the contractor’s pricing practices are informed.
Uncorrected deficiencies matter later
Significant deficiencies that the contractor does not correct must be considered in later proposal analyses and negotiations. Unresolved problems can therefore affect the Government’s evaluation of future proposals and the outcome of price discussions.
Responsibilities
Cognizant audit activities
Establish and manage regular programs for reviewing selected contractors’ estimating systems or methods when appropriate, and document the results in survey reports.
Auditor
Prepare the estimating system survey report and send copies of the report and any official notice of corrective action required to the relevant contracting offices and contract administration offices.
Contractor
Maintain an acceptable estimating system, respond to corrective-action requirements, and correct significant deficiencies identified in reviews.
Contracting offices
Use the survey report and corrective-action information in proposal analyses and negotiations, especially when the contractor has substantial business with the office.
Contract administration offices
Receive and use the survey report and corrective-action notice to support oversight of the contractor and inform future pricing or administration actions.
Practical Implications
A contractor with a strong estimating system can reduce the amount of detailed scrutiny each proposal receives and may move through negotiations faster.
If a contractor’s estimating system has significant deficiencies, those issues can follow the contractor into future procurements and weaken its position in price negotiations.
Contracting and contract administration offices should not treat estimating system reviews as isolated events; the findings are meant to inform later proposal evaluations.
A common pitfall is failing to correct identified deficiencies promptly, which can lead to repeated concerns, more intensive review, and less confidence in proposed costs.
Another practical issue is communication: the required distribution of survey reports means multiple Government offices may rely on the same findings, so consistency and documentation are important.
Official Regulatory Text
(a) Using an acceptable estimating system for proposal preparation benefits both the Government and the contractor by increasing the accuracy and reliability of individual proposals. Cognizant audit activities, when it is appropriate to do so, shall establish and manage regular programs for reviewing selected contractors’ estimating systems or methods, in order to reduce the scope of reviews to be performed on individual proposals, expedite the negotiation process, and increase the reliability of proposals. The results of estimating system reviews shall be documented in survey reports. (b) The auditor shall send a copy of the estimating system survey report and a copy of the official notice of corrective action required to each contracting office and contract administration office having substantial business with that contractor. Significant deficiencies not corrected by the contractor shall be a consideration in subsequent proposal analyses and negotiations.