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Federal Aviation Administration (FAA)

Request for Approval of Chief Financial Officer Acquisitions with an
Aggregate Value of \$10 million or more

Send requests for CFO Approval to:

Office of Financial Controls, AFC-1

800 Independence Avenue, Ste. 532

Washington, D. C. 20591

+-----------------------------------+-----------------------------------+
| **Requester:**                    | ###                               |
|                                   |  Approval of Proposed Acquisition |
+-----------------------------------+-----------------------------------+
| Printed Name:                     | Signature:                        |
+-----------------------------------+-----------------------------------+
| Date:                             | -   Approve                       |
|                                   |                                   |
|                                   | -   Disapprove                    |
+-----------------------------------+-----------------------------------+
| **LOB/SO Head:**                  |                                   |
+-----------------------------------+-----------------------------------+
| Printed Name:                     | Signature:                        |
+-----------------------------------+-----------------------------------+
| Date:                             | -   Approve                       |
|                                   |                                   |
|                                   | -   Disapprove                    |
+-----------------------------------+-----------------------------------+
| **ATO-F VP:** (For ATO sponsored  |                                   |
| procurements only)                |                                   |
+-----------------------------------+-----------------------------------+
| Printed Name:                     | Signature:                        |
+-----------------------------------+-----------------------------------+
| Date:                             | -   Approve                       |
|                                   |                                   |
|                                   | -   Disapprove                    |
+-----------------------------------+-----------------------------------+
| **Procurement Attorney:**         |                                   |
+-----------------------------------+-----------------------------------+
| Printed Name:                     | Signature:                        |
+-----------------------------------+-----------------------------------+
| Date:                             | -   Approve                       |
|                                   |                                   |
|                                   | -   Disapprove                    |
+-----------------------------------+-----------------------------------+
| **FAA Chief Financial Officer:**  | ###                               |
+-----------------------------------+-----------------------------------+
| Printed Name:                     | Signature:                        |
|                                   |                                   |
| Ramesh Punwani                    |                                   |
+-----------------------------------+-----------------------------------+
| Date:                             | -   Approve                       |
|                                   |                                   |
|                                   | -   Disapprove                    |
+-----------------------------------+-----------------------------------+

Note: ATO requires procurements originating in any ATO organization that
will require CFO approval to be reviewed and approved by ATO's Senior
Vice President for Finance prior to submission to the CFO's office.

Signatures of the line of business or staff office head, and the
procurement attorney must be secured by the requester prior to
submission to the CFO's staff for review.

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<tbody>
<tr class="odd">
<td colspan="20">Acquisition Review Checklist</td>
</tr>
<tr class="even">
<td colspan="10">AFC Tracking Number:</td>
<td colspan="10"></td>
</tr>
<tr class="odd">
<td colspan="3">Name, office symbol and telephone # of Requester:</td>
<td colspan="7"></td>
<td colspan="2">Estimated Cost:</td>
<td colspan="8"></td>
</tr>
<tr class="even">
<td colspan="20"><strong>Funding</strong></td>
</tr>
<tr class="odd">
<td colspan="20">Funding Information:</td>
</tr>
<tr class="even">
<td colspan="4">Region:</td>
<td colspan="6"></td>
<td colspan="6">BLI:</td>
<td colspan="4"></td>
</tr>
<tr class="odd">
<td colspan="4">Fund:</td>
<td colspan="6"></td>
<td colspan="6">Cost Center:</td>
<td colspan="4"></td>
</tr>
<tr class="even">
<td colspan="4">Budget Year:</td>
<td colspan="6"></td>
<td colspan="6">Object Class:</td>
<td colspan="4"></td>
</tr>
<tr class="odd">
<td colspan="4">AFC:</td>
<td colspan="6"></td>
<td colspan="6"></td>
<td colspan="4"></td>
</tr>
<tr class="even">
<td colspan="15"><h4 id="section-1"></h4></td>
<td colspan="3"><strong>Yes</strong></td>
<td colspan="2"><strong>No</strong></td>
</tr>
<tr class="odd">
<td colspan="15">Is this item funded in the current budget?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">Is this an F&amp;E funded item?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">--If F&amp;E funded, is it included in the CIP?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">--If F&amp;E funded, did the JRC approve it?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">--Is the requested contract within the approved
baseline?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="20"><strong>Documentation</strong></td>
</tr>
<tr class="odd">
<td colspan="15">Are the government preparer’s or approver’s name and
date prepared on the independent government cost estimate (IGCE)?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">Was the IGCE prepared in accordance with AMS
guidance?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">Did government personnel prepare the statement of work
(SOW)?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">Is this action exercising an option? If yes please
attach copies of the original contract, modifications, and the award
decision document.</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">Has an independent (DCAA) audit of this contract been
performed? If so please attach it to this checklist.</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">Is this acquisition part of a program that prepares an
Exhibit 300? If so, attach the latest Exhibit 300 submission.</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">Date and name of official that prepared the SOW:</td>
<td colspan="3"><mark></mark></td>
<td colspan="2"><mark></mark></td>
</tr>
<tr class="even">
<td colspan="15">Does the SOW have well-defined deliverables?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">Does the SOW have milestone dates?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">Does the SOW have acceptance criteria for
deliverables?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="20"><strong>Type of Procurement Action</strong></td>
</tr>
<tr class="even">
<td colspan="20">If this is a modification of an existing contract,
please provide the following information</td>
</tr>
<tr class="odd">
<td colspan="6">Date of Original Contract</td>
<td colspan="3"></td>
<td colspan="8">Total Estimated Value or Ceiling of Original
Contract</td>
<td colspan="3"></td>
</tr>
<tr class="even">
<td colspan="6">Percentage of contract work completed</td>
<td colspan="3"></td>
<td colspan="8">Estimated contract cost to complete work</td>
<td colspan="3"></td>
</tr>
<tr class="odd">
<td colspan="20">What type of competition is planned for this
procurement?</td>
</tr>
<tr class="even">
<td colspan="20">What type of contract will this be? If more than one
type please indicate the percentage of each type.</td>
</tr>
<tr class="odd">
<td colspan="5">Firm Fixed Price</td>
<td colspan="2"></td>
<td colspan="4">Cost Plus Fixed Fee</td>
<td colspan="3"></td>
<td colspan="5">Cost Share</td>
<td></td>
</tr>
<tr class="even">
<td colspan="5">Fixed Price – Economic Price Adjustment</td>
<td colspan="2"></td>
<td colspan="4">Cost Plus Incentive Fee</td>
<td colspan="3"></td>
<td colspan="5">Time &amp; Materials</td>
<td></td>
</tr>
<tr class="odd">
<td colspan="5">Cost Reimbursement</td>
<td colspan="2"></td>
<td colspan="4">Cost Plus Award Fee</td>
<td colspan="3"></td>
<td colspan="5">Labor Hours</td>
<td></td>
</tr>
<tr class="even">
<td colspan="5">Indefinite delivery (IQ/Req./other)</td>
<td colspan="2"></td>
<td colspan="7">Type of ID Task Orders (e.g. FFP)</td>
<td colspan="6"></td>
</tr>
<tr class="odd">
<td colspan="20">Other type:</td>
</tr>
<tr class="even">
<td colspan="20">Contract extension history (Dates and contract
amounts)</td>
</tr>
<tr class="odd">
<td colspan="20">If this is an agreement, what is the type of agreement?
Please attach a copy of the agreement to this checklist.</td>
</tr>
<tr class="even">
<td>Interagency</td>
<td></td>
<td colspan="4">Intra-Agency</td>
<td colspan="2"></td>
<td colspan="3">Cooperative Agreement</td>
<td colspan="2"></td>
<td colspan="6">Other Transaction</td>
<td></td>
</tr>
<tr class="odd">
<td colspan="15"></td>
<td colspan="3"><strong>Yes</strong></td>
<td colspan="2"><strong>No</strong></td>
</tr>
<tr class="even">
<td colspan="15">Will this be a proposed modification or task order
against an existing contract?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">Will this be a personal services contract?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">--If so, were the conditions in the FAE’s May 25, 2005
memorandum followed?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">--If so, has it been approved by the head of the line
of business?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="15">If time and materials or labor provisions will be
included, will there be a ceiling amount?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15"><strong>Contract Labor Rates</strong></td>
<td colspan="3"><strong>Yes</strong></td>
<td colspan="2"><strong>No</strong></td>
</tr>
<tr class="even">
<td colspan="15">Does this proposed contract include paying for labor of
contract employees reimbursed at specific rates per labor category?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="15">If yes, are the rates for the labor categories in the
IGCE comparable to the rates in existing FAA labor rate contracts?</td>
<td colspan="3"></td>
<td colspan="2"></td>
</tr>
</tbody>
</table>

  ----------------------------------------------------- --------- --------
  **COTR/Contract Monitoring**                          **Yes**   **No**

  Has a Contracting Officers Technical Representative             
  (COTR) been appointed for this proposed contract?               
  Please attach a copy of the delegation letter to this           
  checklist.                                                      

  Has the COTR been trained on the duties of the                  
  position? Please attach a copy of the training record           
  to this checklist                                               

  \--If not, will the COTR be trained prior to contract           
  award?                                                          

  Does the program office have sufficient resources to            
  adequately monitor the contractor's performance,                
  validate invoices, and track spending?                          
  ----------------------------------------------------- --------- --------

Format for Business Case

1.  Introduction

    -   Name of proposed acquisition.

    -   Identify whether or not this is a proposed acquisition for an
        ATO organization.

    -   Identify whether or not this is a proposed acquisition for the
        Next Generation Air Traffic System (NexGen or NGATS) program.

    -   Include a brief description of the proposed acquisition.

    -   Describe the need being addressed by this acquisition, the
        benefits of the acquisition (both monetary and non-monetary),
        and what the deliverables are anticipated to be.

2.  Alternatives Analyzed

    -   A market analysis is required, and should consider elements in
        AMS Procurement Guidance T3.2.1.2. Attach a copy.

    -   List and describe (including estimated cost) the alternatives
        that were evaluated to determine the best way to meet the
        requirement.

    -   Are there existing contracts that could be used for this
        requirement? If contracts exist that could provide the proposed
        deliverable, why are those contracts not being used?

    -   If the proposed acquisition includes labor, include a
        feasibility analysis of using federal employees. Also discuss
        whether labor categories/rates on existing FAA contract vehicles
        (such as BITS II, MASS, or NISC) were reviewed to compare rates
        and determine if the services are already available.

    -   If contract labor is included, how many FTEs per year are
        assumed? What is the basis for the estimate of FTE? What would
        be the cost of using federal employees to perform this work?

3.  Cost Estimates

-   An independent government cost estimate (IGCE) is required for CFO
    approval of a proposed acquisition. Independent government cost
    estimate requirements are as follows:

    -   The date the IGCE was prepared must be on it;

    -   The FAA employee's name and telephone number who prepared or
        approved the IGCE must be on it;

    -   A narrative must be part of the IGCE; it must document the
        sources of information for each cost element, and all
        assumptions and judgment factors for each cost element must be
        included;

    -   The source information must be current, complete, and accurate;

    -   The IGCE must show the estimated costs, by cost element (such as
        direct labor, overhead, G&A, and fee), for each year or option
        period and a summary for all anticipated costs;

    -   Retain copies of all supporting documentation used to
        substantiate estimated costs; and

    -   Using an Excel worksheet is recommended to avoid computation
        errors.

> A sample of items will be selected and detailed supporting
> documentation required to substantiate the cost estimates.

-   Please see *Guidance for Independent Government Cost Estimates* for
    additional information.

4\. Market Research, Method of Contracting and Contract Type or
Combination of Contract Types

-   Current market research and analysis must be conducted, documented
    and included in all CFO packages.

-   If this is a single source procurement, provide a copy of the single
    source justification and public announcement. The single source
    justification must address the items in AMS Procurement Guidance
    T3.2.2.4. If applicable, include a copy of the Procurement Plan or
    Exhibit 300 Program Baseline Attachment 3-Implementation Strategy
    and Planning.

-   If this is not a single source procurement, describe the competition
    planned for the proposed acquisition. If applicable, include a copy
    of the Procurement Plan or Exhibit 300 Program Baseline Attachment
    3-Implementation Strategy and Planning..

-   If a specific type of contract is being proposed, explain the
    reasons for selecting the proposed contract type or combination of
    contract types.

-   In all follow-on contracts, particularly for services, where the
    work was performed on a cost-reimbursement or time-and-materials
    basis, a fixed price contract must be considered.

-   If this is a support services contract, the contract ceilings
    established at the time of initial award must be reasonably related
    to the amount of work anticipated to be ordered and, in no instance,
    should exceed 110% of the anticipated funding required to support
    the work reasonably anticipated. For more information on support
    service contracting, see AMS Procurement Guidance T3.8.2.

-   Please see *Guidance on Market Research and Selection of Contract
    Types* for additional information.

5\. Implementation Approach

-   Describe the detailed procedures planned to monitor the cost and
    contractor's performance, including Earned Value Management if
    applicable.

6\. Other Items

-   A completed CFO checklist, business case, statement of work, and
    independent government cost estimate must be submitted to the Office
    of Financial Controls for evaluation.

-   If any of the above items are not applicable or cannot be provided,
    explain the circumstances.

**Guidance for Independent Government Cost Estimates**

[Purpose of the Independent Government Cost Estimate]{.underline}

-   The independent government cost estimate (IGCE) is the FAA's
    estimate of what the agency will incur through the performance of a
    contract. These costs include direct costs: such as labor, supplies,
    equipment, or transportation; and indirect costs such as labor
    overhead, material overhead, general and administrative (G&A)
    expenses, and profit or fee.

-   A well supported IGCE is a valuable tool for price negotiations,
    especially in the case of a single source acquisition.

    -   Clearly defined and supported cost components such as labor,
        overhead, and travel enable the FAA to make informed negotiation
        decisions.

    -   A well reasoned IGCE enables better checking of contractor cost
        proposals for completeness.

-   "The IGCE is an assessment of the total cost to be incurred...if the
    contract is to be awarded. These are used to determine
    reasonableness and completeness of the proposals and to detect
    buy-ins, unbalanced pricing, or other gaming techniques" (AMS
    Procurement Guidance T3.2.3 1i).

-   A well supported IGCE demonstrates to third parties such as the OIG
    and GAO that due diligence was performed to reasonably estimate the
    cost of an acquisition.

-   An accurate IGCE leads to more accurate projections of budget
    requirements.

[Requirements]{.underline}

> An independent government cost estimate (IGCE) is required for CFO
> approval of a proposed acquisition. Independent government cost
> estimate requirements are as follows:

-   The date the IGCE was prepared must be on it;

-   The FAA employee's name and telephone number who prepared or
    approved the IGCE must be on it;

-   A narrative must be part of the IGCE; it must document the sources
    of information for each cost element, and all assumptions and
    judgment factors for each cost element must be included;

-   The source information must be current, complete, and accurate;

-   The IGCE must show the estimated costs, by cost element (such as
    direct labor, overhead, G&A, and fee), for each year or option
    period and a summary for all anticipated costs;

-   Retain copies of all supporting documentation used to substantiate
    estimated costs; and

-   Using an Excel worksheet is recommended to avoid computation errors.

> A sample of items will be selected and detailed supporting
> documentation required to substantiate the cost estimates; and

[Guidance]{.underline}

The following sections are intended to assist in the preparation of an
IGCE. Other bases for estimates may be adequate in the specific
circumstances provided the estimates are reasonable and supportable.

[Guidance for Estimating Labor Hours]{.underline}

Labor costs are usually the most significant part of the cost estimate
for a contract. Direct labor is the labor directly applied to the task
or project performed under a contract.

Estimating hours for individual labor categories may be achieved using
one or a combination of several techniques:

1.  Evaluating historical actual cost data gathered from FAA contracts
    for similar goods or services to estimate future requirements. The
    comparison between past and future items or services can be
    accomplished at a summary or task level. Many companies keep
    detailed cost records at the task level, which may be utilized if
    the FAA has access to these records. When using this method consider
    aberrations that could skew the estimate. Consider also possible
    reductions in labor hours resulting from improvement from
    experience. This reduction can be estimated using learning curve
    theories.

2.  Labor standards may be used to estimate labor hours for
    manufacturing or repetitive functions. Labor standards are developed
    from data within the company, data published by trade associations,
    and data gathered from various other reference sources. For example,
    a company may determine that to produce a widget requires a standard
    of 12 hours of an engineer's time. This means that on average 12
    engineer hours are needed to produce one widget; the actual time may
    vary from widget to widget.

3.  Estimates based on the professional experience and judgment of
    engineers and managers may be used to estimate labor hours, but it
    is the least accurate approach to estimating.

4.  Determining the proper mix of labor categories is important to make
    sure that the type of labor as well as the skill level of workers is
    appropriate for the work to be performed.

5.  Labor hours may vary from year to year depending on the goods or
    services acquired. Estimated hours should be adjusted when more or
    less work is anticipated in different years.

6.  The productive hours for full-time contractor personnel should
    account for the anticipated vacations, holidays, sick days, and
    other administrative days. The number of potential work hours in a
    year is 2,080 (40 hours per week X 52 weeks per year); from the
    2,080 hours estimated hours for vacation time (e.g. 120 hours),
    holidays (e.g. 80 hours), and sick leave (e.g. 40 hours) should be
    deducted (2,080 hours -- 120 vacation hours -- 80 holiday hours --
    40 sick leave hours = 1,840 productive or direct hours).

Documenting the methods used to estimate labor hours is essential to
support the independent government cost estimate. This information must
be included in the IGCE narrative. Maintain copies of all source
information. A sample of labor hours will be selected for a detailed
evaluation by the Office of Financial Controls.

[Guidance for Estimating Labor Rates]{.underline}

Estimates for labor rates may be derived from many sources including the
following:

1.  Historical trends on FAA contracts for similar goods or services (be
    sure to determine if the labor rates are for direct labor or
    fully-loaded rates that include overhead, general and
    administrative, and profit) such as MASS, BITS II, and NISC.

2.  Labor rates for similar services on General Services Administration
    (GSA) schedules, Bureau of Labor Statistics (BLS), Office of
    Personnel Management (OPM) for comparison to federal employee
    salaries, and private surveys of labor rates may be used. Be sure to
    determine if the labor rates are for direct labor or fully-loaded
    rates that include overhead, general and administrative, and profit.

3.  Geography may influence labor rates. Work locations should be
    considered because labor rates vary significantly by location for
    the same labor skills.

4.  When the potential contractor is known (such as in a single source
    or contract modification situation) forward pricing rate agreements
    (FPRA) with the federal government (Often through the FAA or Defense
    Contract Audit Agency (DCAA)) may be available and should be used to
    support estimated labor rates.

5.  In the situation of a known contractor, a comparison of labor rates
    among FAA contracts should be performed; that is checking the labor
    rates with the labor rates on other FAA contracts (such as MASS,
    BITS II, and NISC) for the same labor categories by the same
    contractor. This comparison avoids paying higher rates for the same
    labor categories by the same contractor for similar work.

6.  Labor rates for future periods may be estimated by performing a
    trend analysis of past labor rates on similar projects, or by
    escalating labor rates. Escalation must be substantiated by a
    recognized source such as Bureau of Labor Statistics indices
    (Consumer Price Index or Producer Price Index).

7.  Estimates for exempt employees may be estimated for positions
    performing similar duties covered in Office of Personnel Management
    (OPM) position descriptions (PD) for general schedule (GS) or wage
    grade (WG) employees. For example, if an information technology
    management analyst was required, using OPM's "position
    classification" worksheet for a series GS-2210 for an information
    technology management analyst, following the worksheet instructions,
    the required analyst may be rated as a GS-14 employee equivalent.
    Using the salary tables published by OPM, a series 2210, GS-14, at a
    step 5 earns \$106,000 per year or \$50.95 per hour. This figure
    could be used as the basis for estimate.

8.  Estimates for non-exempt labor for services and construction are
    available from the Department of Labor wage determinations provided
    under the provisions of the Service Contract Act and the Davis Bacon
    Act. A non-exempt employee covered by one of these acts must be paid
    no less than the rate of pay listed in the wage determination.
    Examining the list may help in determining the appropriate labor
    categories.

Documenting the methods used to estimate labor rates is essential to
support the independent government cost estimate. This information must
be included in the IGCE narrative. Maintain copies of all source
information. A sample of labor rates will be selected for a detailed
evaluation by the Office of Financial Controls.

[Guidance for Estimating Indirect Costs]{.underline}

The following is a list of common indirect cost terms and definitions:

  ----------------------------------- -----------------------------------
  **Terms**                           **Definitions**

  Indirect Cost                       Any cost that cannot be *directly*
                                      identified with a single final cost
                                      objective (e.g. a specific job or
                                      product) but can be identified with
                                      multiple final cost objectives
                                      (e.g. two or more jobs or
                                      products).

  Overhead Expenses                   Indirect costs such as building
                                      maintenance, administrative labor
                                      (that benefits multiple jobs),
                                      supervision (of multiple jobs), and
                                      employee fringe benefits (which are
                                      often estimated as a separate
                                      overhead rate).

  General and Administrative (G&A)    General management (e.g. CEO),
  Expenses                            financial (e.g. payroll), or other
                                      (e.g. headquarters building
                                      maintenance) expenses that benefit
                                      the business as a whole.

  Material Handling Rate              Costs associated with ordering,
                                      receiving, inspecting, and shipping
                                      materials even when purchased for
                                      the FAA at cost.

  Facilities Capital Cost of Money    FCCOM is an imputed cost that
  (FCCOM)                             represents the cost to the
                                      contractor employing capital when
                                      investing in facilities or assets
                                      under construction that benefit the
                                      FAA.

  Indirect Cost Pool                  An indirect cost pool is a logical
                                      grouping of incurred costs
                                      identified with multiple final cost
                                      objectives.

  Cost Base                           The contractor organization that
                                      will receive an equal share (by
                                      application of a rate) of costs in
                                      an indirect cost pool.
  ----------------------------------- -----------------------------------

When the potential contractor is known (such as in a single source or
contract modification situation) forward pricing rate agreements (FPRA)
with the federal government (Often through the FAA or Defense Contract
Audit Agency (DCAA)) may be available and must be used to support
estimated indirect rates.

Understanding the composition of each indirect cost or overhead pool is
important to ensure proper treatment of costs and to avoid duplication.
If a cost estimate contains *fully loaded rates,* fringe benefits,
overhead, G&A, and fee may already be included. Additional overhead
should not be applied to avoid over estimating the cost.

*Material Overhead*

Material overhead or material handling includes the expenses associated
with acquiring, transporting, receiving, inspecting, handling, and
storing materials. Different options exist for collecting and allocating
indirect material-related costs. Because material costs can vary
significantly from contract to contract, a separate pool ensures that
overhead costs are charged commensurately with the material cost in the
contract.

*Labor Overhead*

-   Indirect labor consists of supervision, inspection, maintenance,
    custodial, and other personnel whose labor is not charged directly
    to a production or operation.

-   Costs associated with labor such as Social Security, unemployment
    taxes, and fringe benefits, if not in a separate indirect cost pool.

-   Indirect supplies such as small tools and janitorial supplies.

-   Fixed charges such as depreciation, insurance, rent, and property
    taxes.

-   Overhead may vary significantly if the work is being performed
    on-site (contractor's location) or off-site (government's location).
    Off-site work normally is lower because the contractor does not need
    to maintain a building and avoid costs such as utilities.

Labor overhead is often separated by labor function such as engineering
and manufacturing overhead.

*Fringe Benefits Overhead*

Contractors often have a separate pool for fringe benefits. Fringe
benefits may include vacation leave, sick pay, holidays, insurance,
payroll taxes, and supplemental unemployment benefits.

*General and Administrative (G&A) Expense*

General and administrative costs typically include labor for corporate
officers, clerical personnel, accountants, human resources personnel,
purchasing agents, and attorneys. It also includes the cost of corporate
level equipment, office supplies, utilities, interest expense, and legal
costs. Unallowable expenses such as entertainment expenses and fines and
penalties may not be included in the G&A pool.

The G&A rate is multiplied by one of three groups of costs:

1.  Total cost input (TCI) this is the preferred base to apply the G&A
    rate; the total cost input base includes all costs, both direct and
    indirect (excludes profit). This approach *must* be used unless
    there is a reasonable basis to use one of the other approaches.

2.  Value-added cost input is total cost minus material and subcontract
    costs. Value-added is appropriate when the inclusion of material and
    subcontract costs would distort the G&A allocation. When material
    and subcontract costs are significant, the use of value-added G&A
    allocation may be a better measure of G&A expense than total cost
    input.

3.  Single element cost input would use one cost element to allocate G&A
    expense. For example, the G&A rate would be multiplied by only the
    direct labor cost. This approach may be used when there are no other
    significant cost elements, or when other significant elements vary
    in the same proportion to total costs. This is the least preferred
    method.

[Guidance for Material Costs]{.underline}

The following approaches could support the estimated cost for materials:

-   If this is a follow-on contract or is similar to another FAA
    contract, the purchase history of the costs of materials could be a
    basis for estimate. The IGCE narrative should explain the
    similarities between the needed material and the historical basis.
    The estimate must be supported with accounting records, vendor
    invoices, bills of material, or other documentation that can support
    a per unit cost of the items being acquired, and any modification
    required for the new item being acquired should be estimated and
    supported.

-   Commercial items and catalog prices could be used to estimate
    material costs. Examples would include things like security cameras
    and doors. Copies of the catalogs used to estimate the material cost
    should be retained.

-   Vendor quotes can be used to estimate material costs. Vendor quotes
    from similar FAA contracts may be used to estimate material costs
    for the new acquisition.

-   Prices of some commodities may be regulated by law; in this case a
    copy of the law listing the particular commodity's price would
    support the cost estimate.

-   The Producer Price Index (PPI) is an example of a widely used
    published index for escalation of material cost. The Bureau of Labor
    Statistics' PPI lists products by commodity groups and individual
    items. Trade and industry publications are other possible sources
    for obtaining appropriate data for material cost escalation.

[Guidance for Escalation]{.underline}

Future periods may be estimated by performing a trend analysis of past
projects that are similar to the proposed work, or by using escalation
factors. Escalation must be substantiated by a recognized source such as
Bureau of Labor Statistics indices (Consumer Price Index or Producer
Price Index).

[Guidance for Other Direct Costs (ODC)]{.underline}

Other direct costs (ODC) are costs charged directly to the contract that
have not been included in proposed material, direct labor, indirect
costs, or any other category of costs. Examples of ODC include special
tooling, travel expenses, reproduction costs, royalties, and federal
excise taxes. All ODC should be listed in the IGCE, and supporting
documentation retained and available for inspection by interested third
parties.

*Travel Costs*

The program office must estimate the number of trips, the origin and
destination for each trip, the length of stay, and the number of persons
per trip before estimating the cost of travel. The purpose for the trips
should be included in the IGCE narrative. Travel costs usually include
cost of transportation, lodging, and meals and incidental expenses. The
*Federal Travel Regulation* prescribed by the General Services
Administration should be used to estimate lodging, meal and incidental
expense, mileage for privately owned vehicles used for official travel,
and so forth. Estimates for airfare and car rentals can be obtained
using several travel web sites. (Note: make and retain copies of all
source information used for travel estimates.)

[Guidance for Profit or Fee]{.underline}

Profit is the revenue in excess of the costs to perform a firm fixed
price contract, and a fee is a flat charge paid in addition to costs on
cost reimbursable contracts.

The use of several forms may develop an estimated profit by using
weighted-averages for different functions. These forms include DOT Form
4220 and DD Form 1547. A simpler approach is to apply a percentage the
total cost excluding general and administrative (G&A) cost and any
directly reimbursable items. The percentage will vary according to risk
factors, market factors, and location.

[Cost Estimates by Work Breakdown Structure (WBS)]{.underline}

Cost estimates by WBS provide detailed cost estimates to each task in
the WBS and usually include vendor quotes or catalogue prices for
materials and engineering labor estimates. Additional information on WBS
is AMS in the investment analysis section.

[Market Research and Analysis]{.underline}

Market research and analyses should consider collecting current cost
information in accordance with AMS procurement guidance section
T3.2.1.2. Market research and analysis is required for procurement
actions of \$10 million or more that require CFO approval.

**Sample IGCE Narrative**

Appendix 1

Independent Government Cost Estimate for the XYZ Acquisition

Narrative of Sources, Assumptions, and Judgment Factors

Prepared by George Washington, ATO-X

Tel. (202) 555-1987

Date prepared: June 15, 2017

[Labor Hours and Categories (Mix of Labor Skills)]{.underline}

The labor categories for this estimate are based on the history of the
PDQ program (FAA contract DTFA-07-0-1987). We examined the labor hours
over the three-year contract, which are as follows:

**Table 1 -- History of the Current Contract**

+-----------+-----------+-----------+-----------+-----------+-----------+
| **Labor   | **Base**  | **Option  | **Option  | **Total** | **        |
| C         |           | 1**       | 2**       |           | Invoice** |
| ategory** | *         |           |           | **By      |           |
|           | *Period** | *         | *         | C         | **Ref.**  |
|           |           | *Period** | *Period** | ategory** |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Program   | 2,000     | 2,000     | 2,000     | 6,000     | PDQ 1001  |
| Manger    |           |           |           |           | -- PDQ    |
|           |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| IT        | 1,033     | 1,838     | 592       | 3,463     | PDQ 1001  |
| S         |           |           |           |           | -- PDQ    |
| pecialist |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| System    | 2,167     | 3,326     | 981       | 6,474     | PDQ 1001  |
| Safety    |           |           |           |           | -- PDQ    |
| S         |           |           |           |           | 1036      |
| pecialist |           |           |           |           |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Technical | 150       | 275       | 65        | 490       | PDQ 1001  |
| Writer    |           |           |           |           | -- PDQ    |
|           |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Sr.       | 265       | 539       | 138       | 942       | PDQ 1001  |
| Training  |           |           |           |           | -- PDQ    |
| S         |           |           |           |           | 1036      |
| pecialist |           |           |           |           |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| F         | 1,662     | 3,889     | 750       | 6,301     | PDQ 1001  |
| unctional |           |           |           |           | -- PDQ    |
| Analyst   |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Document  | 1,018     | 1,887     | 465       | 3,370     | PDQ 1001  |
| Processor |           |           |           |           | -- PDQ    |
|           |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| R         | 426       | 319       | 169       | 914       | PDQ 1001  |
| egulatory |           |           |           |           | -- PDQ    |
| S         |           |           |           |           | 1036      |
| pecialist |           |           |           |           |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Subject   | [         | [         | [53]{.u   | [         | PDQ 2151  |
| Matter    | 3,500]{.u | 3,328]{.u | nderline} | 6,881]{.u | -- PDQ    |
| Experts   | nderline} | nderline} |           | nderline} | 2187      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Total     | 12,221    | 17,401    | 5,213     | 34,835    |           |
+-----------+-----------+-----------+-----------+-----------+-----------+

During the base year of the PDQ program, 500 widgets were designed,
produced, and deployed for a total of 12,221 hours. For the XYZ program,
we are planning to design, produce, and deploy 500 enhanced supersonic
widgets. We estimate using standard learning curve projections that we
can reduce the number of the previous contract by 15 percent, except
subject matter experts, which in our judgment can be reduced by 1,101
hours because the enhancements are not as complex as the original
widget. Our assumption is we will need the same labor categories because
the enhancements involve all aspects of the widget. We estimate the need
for the same level of program management.

During the first option year of the PDQ program, 720 widgets were
designed, produced, and deployed for a total of 12,221 hours. For the
XYZ program, we are planning to design, produce, and deploy about 700
enhanced supersonic widgets. We estimate using standard learning curve
projections that we can reduce the number of the previous contract by 10
percent. Additional subject matter expert hours are needed to link the
enhanced supersonic widgets to the high frequency tweeters. Our
assumption is we will need the same labor categories because the
enhancements involve all aspects of the widget. We estimate the need for
the same level of program management.

During the second option year of the PDQ program, 350 widgets were
designed, produced, and deployed for a total of 12,221 hours. For the
XYZ program, we are planning to design, produce, and deploy about 325
enhanced supersonic widgets. We estimate using standard learning curve
projections that we can reduce the number of the previous contract by 5
percent. Our assumption is we will need the same labor categories
because the enhancements involve all aspects of the widget. We estimate
the need for the same level of program management.

Based on the history of the PDQ program, improvement curve estimates,
and our judgment factors, we estimate the following number of hours and
the labor categories:

**Table 2 -- Adjusted History to Estimate Hours Needed for Future
Tasks**

+-----------+-----------+-----------+-----------+-----------+-----------+
| **Labor   | **Base**  | **Option  | **Option  | **Total** | **        |
| C         |           | 1**       | 2**       |           | Invoice** |
| ategory** | *         |           |           | **By      |           |
|           | *Period** | *         | *         | C         | **Ref.**  |
|           |           | *Period** | *Period** | ategory** |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Program   | 2,000     | 2,000     | 2,000     | 6,000     | PDQ 1001  |
| Manger    |           |           |           |           | -- PDQ    |
|           |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| IT        | 898       | 1,671     | 564       | 3,133     | PDQ 1001  |
| S         |           |           |           |           | -- PDQ    |
| pecialist |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| System    | 1,884     | 3,024     | 934       | 5,842     | PDQ 1001  |
| Safety    |           |           |           |           | -- PDQ    |
| S         |           |           |           |           | 1036      |
| pecialist |           |           |           |           |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Technical | 130       | 250       | 62        | 442       | PDQ 1001  |
| Writer    |           |           |           |           | -- PDQ    |
|           |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Sr.       | 230       | 490       | 131       | 851       | PDQ 1001  |
| Training  |           |           |           |           | -- PDQ    |
| S         |           |           |           |           | 1036      |
| pecialist |           |           |           |           |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| F         | 1,445     | 3,535     | 714       | 5,694     | PDQ 1001  |
| unctional |           |           |           |           | -- PDQ    |
| Analyst   |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Document  | 885       | 1,715     | 443       | 3,043     | PDQ 1001  |
| Processor |           |           |           |           | -- PDQ    |
|           |           |           |           |           | 1036      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| R         | 370       | 290       | 161       | 821       | PDQ 1001  |
| egulatory |           |           |           |           | -- PDQ    |
| S         |           |           |           |           | 1036      |
| pecialist |           |           |           |           |           |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Subject   | [         | [         | [50]{.u   | [         | PDQ 2151  |
| Matter    | 1,101]{.u | 3,025]{.u | nderline} | 4,176]{.u | -- PDQ    |
| Experts   | nderline} | nderline} |           | nderline} | 2187      |
+-----------+-----------+-----------+-----------+-----------+-----------+
| Total     | 8,943     | 16,000    | 5,059     | 30,002    |           |
+-----------+-----------+-----------+-----------+-----------+-----------+

[Labor Rates]{.underline}

We used the May 2017 GSA Freedom schedule average direct labor rates for
our independent government estimate, except for subject matter experts.
The companies listed in the GSA Freedom schedule are qualified to
design, build, and implement widget technology. We compared the GSA
Freedom schedule average rates to the FAA PDQ program rates used in June
2016, adjusted for 3 percent escalation.

In our judgment, a SME will cost 15 percent (\$125 per hour) more than
on the PDQ program (\$109 per hour) because of new widget technology.
Our judgment is based on a telephone survey of widget experts conducted
on May 30, 2017.

  ----------------- ----------------- ----------------- -----------------
  **Labor           **Avg. GSA        **PDQ Program     **Difference
  Categories**      Freedom Schedule  Rates for 2016    (PDQ-GSA)**
                    Rates**           (esc. 3%)**       

  Program manager   \$79.86           \$82.16           \$2.30

  IT specialist     \$53.50           \$55.33           \$1.83

  System safety     \$64.95           \$66.45           \$1.50
  specialist                                            

  Technical writer  \$49.63           \$50.78           \$1.15

  Sr. training      \$62.36           \$64.99           \$2.63
  specialist                                            

  Functional        \$51.20           \$54.21           \$3.01
  analyst                                               

  Document          \$26.04           \$25.02           (\$1.02)
  processor                                             

  Regulatory        \$59.30           \$63.25           \$3.95
  specialist                                            

  Subject matter    \$125.00\*        \$112.27          (\$12.73)
  expert                                                
  ----------------- ----------------- ----------------- -----------------

\* See preceding note.

[Fringe Rate]{.underline}

Our estimated 36 percent fringe rate is based on our market survey and
analysis conducted on dated April 10, 2017. The analysis determined the
average fringe rate for Oklahoma (where most of the work will be
performed) is 36 percent annually.

[Overhead Rate]{.underline}

Our estimated 36 percent fringe rate is based on our market survey and
analysis conducted on dated April 10, 2017. The analysis determined the
average corporate overhead rate for Oklahoma (where most of the work
will be performed) is 26.9 percent annually.

[General and Administrative (G&A) Rate]{.underline}

We estimate a 12 percent G&A rate based on a report by the Foundation
for G&A Excellence, dated March 31, 2017. The report gave the average
corporate G&A rate for the Middle West as 12 percent per annum. The
Foundation is recognized by the Dead End Street Journal as a leading
authority of analyzing G&A rates around the world. The G&A rate is
applied to all costs excluding ODC because travel costs are reimbursed
according to the Federal Travel Regulations, and material costs because
the contractor will be reimbursed for the direct cost of materials and
an appropriate material handling rate representing the contractor's
costs associated with ordering, inspecting, and delivering the
materials.

[Fee]{.underline}

We surveyed the top eight Oklahoma widget makers and found the average
profit per contract was 7 percent. Our survey and analysis was conducted
between February 12 and 22, 2017.

[Travel]{.underline}

In our judgment, the same level of travel for deploying the enhanced
supersonic widget as was used to deploy the original widget. This is
because each original widget must be tweaked by a specialized technician
to convert it to an enhanced supersonic widget. The PDQ program incurred
the following:

  ----------------- ----------------- ----------------- -----------------
  **PDQ Program**   **Number of       **Average Cost of **Total Incurred
                    Trips**           Trips**           Cost**

  Base Period       35                \$1,468           \$51,386

  Option 1 Period   51                \$1,510           \$77,033

  Option 2 Period   32                \$1,604           \$51,333
  ----------------- ----------------- ----------------- -----------------

We escalated the PDQ total incurred cost to arrive at our estimated cost
for the XYZ acquisition as follows:

  ----------------------------------- -----------------------------------
  **XYZ Acquisition Year**            **Estimated Cost**

  Base                                \$52,975

  Option 1                            \$79,252

  Option 2                            [\$52,975]{.underline}

  Total                               \$185,202
  ----------------------------------- -----------------------------------

[Materials]{.underline}

Our engineers estimate that 80 percent of the parts used in the PDQ
program have been identified as required for the XYZ acquisition
project. We identified those parts and associated costs in the PDQ
program bill of material of June 30, 2016; we used those costs and
escalated them for our estimate. The 20 percent balance of materials is
for new parts. We obtained written vendor quotes from three sources to
estimate the costs associated with the new parts.

[Material Handling Rate]{.underline}

We conducted a market survey of four widget factories in Oklahoma by
e-mail on March 10, 2017. We analyzed what costs were included in the
material handling rates and calculated an average rate of 3.9 percent
for the base years.

[Escalation]{.underline}

We estimate the escalation rate of 2.8 percent for the first option year
and 3.1 percent for the second option year. The estimates are from the
Bureau of Labor Statistics' Producer Price Index, Table 9, May 31, 2017.
Table 9 is for the Middle West and we selected the metropolitan area of
500,000 to 1.5 million inhabitants. In our judgment, this index best
represented the widget manufacturers in Oklahoma City.

[Final Note]{.underline}

We have maintained copies of our analyses, vendor quotes, reports, and
written records of our telephone surveys to substantiate the estimates
in the independent government cost estimate. These records are available
for review.

> **Guidance for Market Research and Selection of Contract Types**

Current market research and analysis refers to any method used to survey
industry and helps to determine the level of competition, capabilities
(including range of possible alternatives), and estimated costs. This
effort will help develop an appropriate procurement strategy and is
applicable for all contracts/programs with or without an Exhibit 300
submission requirement. Market research and analysis should be conducted
prior to selecting the contract type or combination of contract types.
(For more information, see AMS Procurement Guidance T3.2.1.2., Market
Research and Analysis and T3.2.2.4, Market Analysis Supporting Single
Source).

A rational basis for the selected contract type or combination of
contract types should be included in all CFO packages submitted for
approval. The selected contract type or combination of contract types
must give the Contractor the greatest motivation for efficient and
cost-effective performance. Contracts/CLINs may be any type except for
cost plus a percentage of cost. The type of contract selected should
allocate risk of performance between FAA and a contractor, based on
factors such as nature of the work and degree to which work can be
adequately described in advance. Use of fixed priced contracts and/or
CLINs provides the contractor the maximum incentive to control costs and
provide an acceptable deliverable. Use of time and materials (T&M) or
labor hour contracts and/or CLINs do not give the contractor any
incentive to control costs.

In all follow on contracts, particularly for services, where the work
was performed on a cost-reimbursement or time-and-materials basis, a
fixed price contract should be considered.

Following is a summary of contract types and suggestions for when a
particular type is most applicable. (For more information on types of
contracts, see AMS Procurement Guidance T3.2.4.)

**Fixed Price Contract/CLIN**

A fixed price contract/CLIN is a fixed amount, including profit, which
is not to be changed based on actual costs incurred. This type provides
the maximum incentive for the contractor to contain costs and perform
efficiently.

A fixed price contract/CLIN should be used when procuring commercial
items and other supplies and services that can be clearly defined in
advance and priced on the basis of adequate price competition or
detailed cost and pricing data. The statement of work must have
well-defined deliverables, milestone dates, and acceptance criteria for
the deliverables.

For example: Commercial items and production contracts.

Following are types of fixed price contracts/CLINs:

-   Firm-fixed price (FFP) (a fixed amount, including profit).

-   Fixed-price with economic price adjustment (FFP w/EPA) (a specific
    portion of the price, labor or indexes, limited to industry-wide
    contingencies outside of the contractor's control, may be subject to
    change and must be clearly defined).

-   Firm-fixed price plus incentive fee (FPIF) (additional fee based on
    performance and/or delivery incentives).

-   Firm-fixed price plus award fee (FPAF) (additional fee based on a
    judgmental evaluation by an FAA Evaluation Board).

-   Firm-fixed price/level of effort (FFP/LOE) (requires a contractor to
    provide a specified level of effort, over a stated period of time,
    for work that can be stated only in general terms, and the FAA pays
    the contractor a fixed dollar amount. Suitable for investigation or
    study in a specific research and development area. The output of the
    contract is usually a report showing the results achieved through
    application of the required level of effort. The required level of
    effort must be defined and in writing).

**Cost-Reimbursement Contract/CLIN:**

A cost-reimbursement contract/CLIN is a negotiated total estimated cost,
with or without an applicable negotiated fee. Cost-reimbursement
contracts/CLINs should be used only when appropriate surveillance of
performance can be accomplished throughout the life of the contract. In
addition, the Contractor must have a cost accounting system that allows
adequate tracking of costs to the particular contract/CLIN. The
statement of work must have well-defined deliverables, milestone dates,
and acceptance criteria for the deliverables.

For example: development, production and on-going services
contracts/CLINs when uncertainties in contract performance do not allow
costs to be estimated with enough accuracy to use any type of fixed
price contract.

Following are types of cost-reimbursement contracts/CLINs:

-   Cost contracts (no fee).

-   Cost sharing contracts (fee only on pre-negotiated portion of costs
    -- any additional costs are non-fee bearing).

-   Cost plus fixed fee (CPFF) (fee may not be changed unless the scope
    of work changes).

-   Cost plus incentive fee (CPIF) (adjusted fee based on relationship
    between total allowable costs and total targeted costs and/or
    performance/delivery incentives).

-   Cost plus award fee (CPAF) (a fixed base fee plus award fees made
    based on judgmental evaluation by a Government evaluation board).

**Indefinite-Delivery Contract/CLIN:**

An Indefinite-delivery contract/CLIN is used to procure supplies and/or
services when the precise quantities and/or delivery dates can not be
established at the time of contract award. Indefinite-delivery
contracts/CLINs allows for orders to be placed as requirements become
evident. The statement of work for each order must have well-defined
deliverables, milestone dates, and acceptance criteria for the
deliverables.

Following are the three types of indefinite-delivery contracts/CLINs:

-   Definite-quantity contracts (provides for ordering the delivery of a
    definite quantity of specific supplies and/or services for a fixed
    period at designated locations).

-   Requirements contracts (provides for ordering recurring supplies
    and/or services for a specified period of time).

-   Indefinite-quantity contracts (must contain minimum and maximum
    quantities and provides for ordering the delivery of specific
    supplies and/or services as requirements materialize).

**Time and Material and Labor Hour Contracts/CLINs**

Use of a T&M or Labor Hour contract/CLIN requires written justification
by the contracting officer and the statement of work must have
well-defined deliverables, milestone dates, and acceptance criteria for
the deliverables. T&M contracts/CLINs should only be used for work that
cannot be anticipated.

Time and Material (T&M) contracts provide for procuring supplies and/or
services on the basis of: (1) direct labor hours at predetermined fixed
hourly loaded rates including wages, overhead, G&A and profit; and, (2)
materials at cost including material handling overhead costs. All other
direct costs, including but not limited to materials, consultants and
travel shall be reimbursed at cost plus applicable G&A, with no fee
added. Labor-hour contracts differ from T&M contracts only in that
materials are not supplied by the contractor.

**Letter and Ceiling Contracts/CLINs**

Letter and ceiling priced contracts are only appropriate when the FAA's
interests demand an immediate binding contractual agreement that
authorizes the contractor to begin performance immediately. To avoid a
cost plus percentage of cost contract, it is advisable to negotiate the
profit or fee amount at the time of award. To the greatest extent
possible, these contracts must contain well-defined deliverables,
milestone dates, and acceptance criteria for the deliverables. In all
cases these contracts must include a clause requiring definitization
within 180 days after contract award or before completion of 40% of the
work, whichever occurs first.

A letter contract is a written contractual agreement that contains, at a
minimum: (1) a brief description of the work; (2) a total amount for
which the contractor shall be limited to expend and the FAA shall be
required to pay; (3) a period of performance; and, (4) termination and
disputes clauses.

A ceiling priced contract is a written contractual instrument that
contains all the required provisions of the FAA procurement system,
except for the final agreement on the contract price or cost.