CEMP-E/CECW-E
EI 01D010
1 September 1997
increases the weighting should be increased up to a
CHAPTER 11
maximum of 0.12. Lump sum items will have,
PROFIT
generally, a higher weighted value than unit price
items for which quantities are provided. Other things
11-1. General
to consider include the portion of the work to be done
by subcontractors; the nature of work; where the work
Profit is defined as a return on investment. It is what
is to be performed; the reasonableness of negotiated
provides the contractor with an incentive to perform
costs; the amount of labor included in the costs; and
the work as efficiently as possible. A uniform profit
whether the negotiation occurs before or after the
rate should be avoided.
period of performance of work.
11-2. Weighted Guidelines Method
(2) Relative difficulty of work. If the work
is difficult and complex, the weighting should be 0.12
a. Reference is made to FAR and EFAR Sub-
and should be proportionately reduced to 0.03 on the
parts 15.9 concerning the use of weighted guidelines
simplest of jobs. This factor is tied in to some extent
method for determining profit. EFAR directs the use
with the degree of risk. Some things to consider
of the weighted guideline method when price is
include technical nature of the work; by whom work
negotiated. The determination of profit, as
is to be done; location of work; and time schedule.
appropriate for each procurement action, may be
determined and submitted on the sample worksheet
(3) Size of the job. Work not in excess of
identified as figure 11-1. Explanation of the factors
0,000 will be weighted at 0.12. Work estimated
to be used in calculating profit, are described below,
between 0,000 and ,000,000 will be
and shown in table 11-1.
proportionately weighted from 0.12 to 0.05. Work
from ,000,000 to ,000,000 shall be weighted at
b. The weighted guidelines method yields a
0.04 and work in excess of ,000,000 at 0.03.
reasonable profit value and should be used to
determine profit for all contracts that include profit.
(4) Period of performance. Jobs in excess
The methodology is also to be used wherever a
of 24 months are to be weighted at 0.12. Jobs of
detailed direct costing method is used for baseline and
lesser duration are to be proportionately weighted to a
control estimates. A rate of profit may be used based
minimum of 0.03 for jobs not to exceed 30 days. No
on historical experience for early stage estimates
weight is given when additional performance time is
prepared for programming, reconnaissance, or
not required.
concept design.
(5) Contractor's investment. Jobs are to be
c. Based on the circumstances of each
weighted from 0.03 to 0.12 on the basis of below
procurement action, each of the factors listed in table
average, average to above average of contractor
11-1 will be weighted from 0.03 to 0.12 as discussed
investment. Things to consider include amount of
in the following text and provided in table 11-1.
subcontracting; mobilization payment item; Govern-
Statements in sufficient detail to explain the reasons
ment-furnished property; method of making progress
for assigning the specific weights shall be included on
payments; and front end requirements of the job.
the profit computation sheet. The value will then be
obtained by multiplying the rate column by the weight
(6) Assistance by Government. Jobs are to
column. The value column when totaled indicates the
be weighted from 0.12 to 0.03 on the basis of below
fair and reasonable profit percentage.
average to above average. Things to consider include
use of Government-owned property; equipment and
(1) Degree of risk. Where the work
facilities; and expediting assistance.
involves no risk or the degree of risk is very small,
the weighting should be 0.03; as the degree of risk
11-1
Previous Page
