The first is when a contractor fails to do a cost-benefit analysis before implementing an elaborate parametric estimating model. Contractors should be satisfied that implementation and monitoring costs do not outweigh the benefit of reduced estimating costs. Moreover, it is critical that the environment is appropriate for the use of parametrics. It would not be prudent to rely exclusively on parametric techniques to estimate costs when directly applicable historical cost data are available. Such is the case of follow-on production for the same or similar hardware.
Contractors manufacturing mature weapon systems already have a record of the actual costs.
The use of parametric estimating may be appropriate for certain aspects of follow-on production, however, the contractor should disclose any data that may have a significant impact on cost. The exclusive use of parametrics is generally not appropriate for economic forecasting of such elements as labor and indirect cost rates. For parametric estimates, the contractor must ensure that any changes in accounting practices are accounted for in the estimate and that labor and indirect cost rates are appropriately applied. Another problem encountered is contractors failing to properly disclose their parametric estimating practices. Auditors have experienced instances where the first time a parametric model is disclosed is during the evaluation of the proposal.