ARRT Cost Estimation Version 2.1
Analogy [Estimating Technique]: Uses the cost of a similar program or contract to estimate the new contract. May include adjustments for known differences between the new program and the analogy program.
Communications [Cost Type]: The direct costs associated with forms of communication such as cell phones, telephones, teleconference accounts, etc.
Computers and Peripherals [Cost Type]: The direct costs associated with computers, laptops, printers, routers, and any other computer equipment that can be billed under the contract.
Cost Estimating Relationship (CER): A mathematical formula, algorithm, or factor in which a cost is expressed as a dependent variable of one or more independent cost drivers or technical characteristics.
Cost Type: A means of categorizing costs into commonly recognized categories to ensure comprehensiveness.
Engineering Buildup [Estimating Technique]: Develops the costs starting from the lowest level of the Work Breakdown Structure (WBS). Also called “bottoms-up” estimating.
Estimating Technique: The method used to predict the future cost of a product and/or service. Please note: a single estimate may use one or more techniques depending on product or service life cycle, the cost element being estimated, the level of detail required, and the data available.
Expert Opinion [Estimating Technique]: Relies on subject matter experts’ opinion of what something should cost (last resort technique).
Extrapolation [Estimating Technique]: Uses actual costs of a project in progress to predict the cost of future elements.
Facilities Capital Cost of Money (FCCM) Rate [Loading Factor]: Allowable under some contracts, this is the compensation the government pays to a company for any contractor loans on capital assets associated with doing business.
Factor [Estimating Technique]: A simple mathematical relationship between two cost elements. For example, installation is 10% of prime mission equipment cost is a factor.
Federal Acquisition Regulation (FAR): The Federal code which governs all procurement by the U.S. Government
Full Time Equivalent (FTE): The total number of hours on contract divided by the stated total available working hours per year. For example, 2080 hours (52 weeks at 40 hours a week) could be one full time person, two people working half time, or four people working quarter time, but is still considered one FTE.
General and Administrative (G&A) Rate [Loading Factor]: The indirect costs associated with operating the company, but which are not part of the cost of goods sold. G&A charges may include the cost of administrative personnel not assigned to a specific contract such as accounting and business development staff, executive compensation, subcontract management, etc.
Independent Government Cost Estimate (IGCE): An IGCE is developed by the contracting officer to determine the adequacy of the department’s budget for a specific contract effort, and may also be used to assess the reasonableness of a contractor’s bid.
Inflation: The general increase in prices over time (deflation if prices decrease with time).
Labor [Cost Type]: The direct cost of personnel assigned to a specific contract
Labor Type - Non-Service Contract Act (Non-SCA): Also referred to as exempt labor, Non-SCA labor is not governed by Service Contract Act. It is typically salaried positions which are governed by annual salaries rather than by hourly wages.
Labor Type - Service Contract Act (SCA): Any labor that is governed by the Service Contract Act, which defines labor categories and associated labor rates and benefits by wage determination.
Loading Factors: Additional costs of a contract beyond the cost of labor and materials.
Non-G&A ODCs [Cost Type]: The direct costs associated with inputs to the processes for which the contract is let. For example, materials for a landscaping contract could be seed, plants, fertilizer, weed killer, etc.
Other Direct Costs (ODCs): Costs which are reimbursable under a contract but may not be specified in the proposal. For example, if the contractor needs a specific item or supply to perform the task, the COR may give permission to charge it to the contract even though it was not priced in the original bid.
Other ODCs [Cost Type]: The direct costs associated with items that are reimbursable under a contract but may not be specified in the proposal.
Overhead Rate [Loading Factor]: The indirect factor by which labor is multiplied to account for rent, retirement, health care, vacation, holidays etc. Can be expressed as additive (percent on top of cost), or multiplicative (percent of total cost). Expressed as additive in this IGCE model.
Overtime (OT): A wage premium paid for work in excess of 40 hours per week. It may be direct time (more hours at the same rate), time and a half, or double time depending on the definitions in the contract and federal/state laws.
Parametric [Estimating Technique]: Relies on statistical analysis to establish a relationship between a technical characteristic (weight or power, for example) and the cost of the system.
Profit/Fee [Loading Factor]: The amount a company earns above its expenses on a specific contract. It can be expressed as a defined percentage in advance, or can be a result of the contract activities.
Prime Contractor: A company which has a direct contracting relationship with and receives payments directly from the Government.
Risk Adjusted Cost: A means of accounting for some of the unknowns in an IGCE, such as changes in labor rates over time, changes in ground rules and assumptions, changes in technology etc. Including a risk adjustment somewhat lessens the probability of an overrun.
Subcontractor [Cost Type]: The direct costs associated with a company which provides purchased services or materials to, and receives payments from, a prime contractor under a contract or purchase order.
Travel [Cost Type]: The direct costs associated with local (typically mileage and tolls) and long distance (airfare, hotels, taxis etc.) travel.
Uncompensated Overtime (UO): A policy where a non-SCA employee works more than 40 hours a week as their base schedule. For example, the policy may dictate that the normal schedule is 44 hours a week rather than 40, which results in a lower calculated hourly rate per FTE.