The Government Contractor’s Guide to Basis of Estimate

Basis of Estimate (BoE) is an essential process when trying to win a contract, and there’s a lot that goes into it. Learn the basics of a BoE from the experts at BOOST.

What Is a Basis of Estimate and Why Does It Matter?

A Basis of Estimate is a detailed document that contextualizes a cost estimate for a given project. These documents play a core role in proposal evaluation and contract management for GovCons. With this reasoning for the cost estimate, all decision-makers involved in a proposal can understand the cost estimate and ultimately trust it.

The main goal of a BoE is to be thorough enough that any outside party can understand the context of the estimate. While this understanding is important for building a strong relationship with contractees, it’s also become essential to compliance. Federal contractors are undergoing much more thorough reviews in light of the larger push to reduce government spending.

BoEs are a must when justifying the costs of your services, and government auditors will be paying attention. Any metric or detail in a BoE is subject to review, and if things look out of place, GovCons can end up with hefty penalties. These penalties could result in a damaged reputation that makes it harder to win contracts. Some penalties may even exclude contractors from contract awards in the future.

The good news? There are clear requirements for a BoE, and technology developments can support more streamlined and accurate analytics during the estimation process.

Key Elements of a Strong BoE

A strong BoE covers several core areas:

• Purpose and scope: These introductory areas describe the reason for preparing the estimate and the kind of work that will go into the project. Typically, the scope is used to define the project’s objectives or deliverables.
• Methodology: In this portion, you need to cover your means of estimation. There are several ways to go about these estimations, whether you simply use expert judgment or assess historical data to make these decisions. Make your process clear.
• Pricing basis: Your pricing basis is the foundational costs for your calculations. Think hourly wage for laborers, quotes from vendors and equipment costs.
• Assumptions: During the estimation process, you’ll likely make assumptions about time constraints, labor costs and more. Define these assumptions to showcase how some parts of the estimate are subject to change.
• Exclusions: If you exclude anything from the estimate, list these and why.
• Benchmarking: Use benchmarking to compare your estimated ratios, metrics and calculations to similar projects you’ve completed, historical data or industry data.
• Risk analysis: A BoE risk analysis identifies contingencies and risks for the project and how they could affect the estimate.

Common BoE Pitfalls and How to Avoid Them

Drafting a BoE comes with its challenges, such as:

• Time constraints: As a government contractor, you’re busy. Carving out time to create a BoE for a given contract can feel challenging with your limited time. Ultimately, BoE creation should be on your priority list. It can be helpful to have a dedicated point person or small team to lead this process and ensure it doesn’t slip through the cracks.
• Limited data: When planning out the cost of a project, there’s a lot of data to consider. A common pitfall in the BoE process is failing to collect all of the necessary data for your estimate. When this happens, your estimates are vague and lack credibility. Gaps in data can also lead to compliance issues, making it harder to pass audits. Conduct a thorough review of your BoE after drafting and ask yourself, “Can anyone understand the cost estimate with this information?”
• Lack of standardization: Many GovCons lack standardization in the BoE process, making it easier to miss data points and create gaps in your final document. Every contracting job is unique, but your BoE process shouldn’t be. Creating a template and standard process for your BoEs eases that strain and makes it easier to comply.
• Document mismanagement: Traceability is a key part of managing your Basis of Estimates. If your document management processes leave a lot to be desired, you might find yourself scrambling when meeting with decision-makers and undergoing an audit. Invest in a document management system if needed, and create clear naming and storage conventions for every Basis of Estimate to stay on track.

How BOOST Helps GovCons Build Winning BoEs

BOOST offers back-office management solutions designed specifically for GovCons. With our software-agnostic approach, our technologies integrate easily into your workflow, making it easier to handle BoEs and the compliance requirements that come with them. Plus, you gain access to a team of professionals who understand accounting and the contracts cycle, helping you make more informed decisions.

With BOOST, you can stay compliant, make your BoE process more efficient and win contracts.

Ready to Strengthen Your BoE?

You don’t have to manage the BoE process alone. Reach out to our team today to learn how we support you.