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3.145. Cost and Profit

  1. For a contract to be awarded on a non-competitive basis, or when, following a competitive process, price negotiations with the successful bidder are required, the anticipated cost and profit becomes part of the strategy and forms part of the determination of the type of contract contemplated to be put in place.
  2. The contracting officer must estimate the cost for the procurement planning phase. Conceptual cost estimating is derived from a mix of industry standards and historical data for similar procurement. The total project budget and estimate should be considered using an optimistic and pessimistic price to determine a cost range. It is important to consider fixed costs, external influences, such as exchange rates and supply and demand. Also, consideration should be given to the build of a contingency fund and a management reserve fund. It would be beneficial to include a description of the scope of work, and the basis for the estimate. Assumptions made must be documented and an outline provided relative to the range of possible cost.
  3. In general contract negotiations, profit is a representation of the risk a bidder is taking in delivering the contract. If Canada is assuming the majority of the risk then the profit applied should be low. If the bidder is assuming the risk then the profit allowable should be higher. Although not all contracts demand the application of the profit policy and all its components, the profit policy does represent the factors to be considered when negotiating the applicable profit. Consideration should be given to the factors detailed in the Policy even though detailed analysis and calculations may not be performed.
  4. For more information on cost and profit, see Chapter 10 Cost and Profit.