Services are particularly tricky to analyze…unless you’re using SpendLogic! In this video, we will show you how easy it is to conduct a price analysis of labor and markup rates using SpendLogic. We will walk through the process starting at the RFQ and finishing with a completed written report that will pass any Prime or DCMA/DCAA review.
All right. Welcome to today’s stream presented to you by SpendLogic. My name is Patrick Mathern. I am the President of SpendLogic. Today, I’m here to talk to you about conducting price analysis of services. So these are rate and factor-type proposals that many of you have gotten. We got a lot of people out in the audience today, and I’m excited for this session.
It’s something that we’ve been talking about doing for a long time, so I hope you enjoy it. At any point throughout this, if you’d like to reach out to us, you can use the chat button there in YouTube, or you can reach out to us at [email protected]. Any comments that I get in the chat box, I will answer after the end of the presentation.
So if I don’t answer it right away, don’t fret. I will get to it there at the end. All right, so let’s get started. So here’s a couple of things that we’re going to talk about today. I will get into SpendLogic and I will show you the tool. But before I do that, what I want to do is get into some of the back-end story of why this is actually even a problem.
You know, this is a specific type of price analysis that we hear for a lot of people is problematic. So we’re going to talk about that for just a few minutes. I’m going to give you a little bit of background on our company and then we’re going to get into what a SpendLogic report looks like. So, I’m going to show you, if you will, the dessert course first, I’ll show you the printout, and then I’ll get into the screens and show you actually how to do it.
At any point, you can go out to spendlogic.com and sign up for a free trial license, then you get the ability to see reports between users and throughout the organization. So, anyways, let’s get started here. First thing I’m going to do is talk to you a little bit about SpendLogic. Very high level, what we do is we provide software services and training. Today, we’re going to talk about the software aspect of it, but we also do cost and price analysis on behalf of our clients.
We provide training in those areas. We talk to clients about commercial item determinations, source justifications, we help them pass DCAA and DCMA audits. So really procurement compliance for federal contractors. We work with contractors that are mainly subject to CPSR. So they do over $50 million in business directly with the federal government. That’s who gets the most out of SpendLogic.
Having said that, we also have clients that are proposing through primes or to the government, and they want to provide price analysis reports with their proposals. Those are also some of our clients. So mainly we’re working with the over $50 million crowd, but we also work with smaller clients as well. Some common problems that we solve, these are just kind of the top three.
These are the big hitters. So when clients come to us, they often say, “We have, or we expect to have CPSR findings.” That’s kind of our specialty in price analysis, source justification, or commercial item determinations. That’s where we really hit it out of the park. Number two, we also hit it out of the park when things are not standardized, especially across geographic locations.
It’s very hard to use forms and tie people together, right? I’m sure that you all know that. And then getting people to share those and put them in one spot and to make sure that they’re all uniform. You get the point. Great area for SpendLogic to provide new value. And third, companies that are growing and need to get people trained up. That’s an obvious one for us.
SpendLogic basically is training folks as they go. You’re going to see that here in a minute. So, how we do it, think of us as TurboTax for price analysis, source justification, and commercial item determinations. We ask questions, you provide us answers, and we put it into a format, into a report that is then found acceptable by the DCMA and the CPSR teams.
That’s it in a nutshell. I’m going to go into much greater depth and detail and show you exactly what that means here in a minute. So moving on to the next point. Why are services hard in price analysis? Okay? I’m sure that most of you that are in this business or in this industry understand why that is. But a couple of points that we keep coming back to.
The first one’s a big one, and especially right now, apparently, the CPSR teams that are out there doing these live CPSRs are increasing the number of findings that they have with contractors related to GSA and the use of Calc. Calc is basically a GSA tool just under a different name and a different format. So it says right in the CPSR guidebook that you can’t use GSA but folks are still using it for their services because they don’t have any alternative.
I’m here to tell you that there is an alternative and I’m going to show you what it looks like. Second, no standardized titles or levels. So, a lot of times when you’re trying to do your price analysis, they may be saying that, “You know, this is a software engineer one, all right?” Well, is that a senior software engineer? Is that mid-level? You know, how many years of experience? What are we talking here?
So, not standardized across companies and throughout the industry, that’s a problem that people have a hard time overcoming. But, again, I’m going to show you how that’s solved in SpendLogic. And last but not least, if you’re trying to use public salary sites, salary.com, Glassdoor, some of these other sites, they just don’t have the detail that you need if you’re doing a CPSR compliant price analysis on services.
So those are the kind of the top reasons. There’s lots of reasons out there that this is difficult. But what SpendLogic does is it takes all of the tools, rolls it into one, so you’ve got a one-stop shop for a services analysis, and you’re going to see that it’s pretty slick. So kind of the first spot that I want to go to here is I want to show you an example of the output. What you see on the screen behind me here is a historical price analysis.
So this is actually for an item, not for a service. And you can see that it’s got some graphs and it’s got some calculations and stuff. Let me get into an actual services analysis. Where did it go here? There we go.
So here’s our example services analysis. This is an actual report that I’ll kind of take you through. Very high level. I’m going to quickly look at this, to begin with. You’ve got…it’s a Word document. So all of our reports are output in Word. Therefore, if you have certain things that you need to modify, you’re able to do that right on the screen after you complete it in SpendLogic.
It gives you a basic overview, a summary of what’s going on in this. You can have services and items in one price analysis report. We’re only going to talk about services, but you could very easily do multiple things in one. And then it gets into the details of the services that we’re analyzing. So, in this particular case, we had a mechanical engineer.
It looks like there were four years. And you can see here’s what they proposed, here’s the analysis, and then here’s the difference between the two. Now, that’s easy enough, right? But where SpendLogic really comes into play here is it provides the backup. So, when you’re talking about procurement documentation, especially in federal contracts, really what you’re doing is you’re trying to tell the story.
That’s what a CPSR team’s going to be looking for. Are they telling the story? Do I understand how they got there? All of the notes that are below are automatically put there by SpendLogic, okay? It explains exactly where each of the data sources are. And then it goes further.
As I keep scrolling down, I can see these calculations for each of those line items. So, what SpendLogic does is it uses, and I’ll show you this on the screen, but it uses BLS labor indices and Occupational Employment statistics. It matches that to a zip code. So it localizes everything.
So the rates that it uses are actually localized for the zip code of your supplier. And SpendLogic gives you all of the calculations on how each of these numbers, you know, were calculated. So, if an auditor wanted to go in and replicate your calculations, they could do that very easily. Again, this is all automated. You know, you’ll see that when you are creating your report, what you’re actually doing is pulling from dropdowns and inputting numbers, but you don’t have to write any of this.
That’s really the power of SpendLogic. It tells the story for you. Okay? So it keeps going. You can see we had four line items, there’s four sections. And it gives a little bit of information about each of those. So what I’d like to do, let me go back to my PowerPoint here, I want to give you a demo, okay?
And I’m going to show you exactly how this works in SpendLogic. Now, again, if you want to do this yourself on a single license, you know, a single-user license, you can do that anytime at spendlogic.com. If your company needs them and you want to share between people, which is really the power of SpendLogic, then you would need to purchase licenses through us. But you can go play with this anytime. So, in order to do a price analysis of services, again, rates and factors, however you want to talk about it, there’s a couple of things that you’re going to need to know first, okay?
You’re going to need to know kind of their area of expertise, their years of experience, and their education level. So, let me talk through each of these. Area of expertise. The way that BLS sets up its occupation codes, there’s, I forget how many, 1200 codes. So there’s a lot of codes in BLS, but it doesn’t cover everything. There’s going to be times that you don’t have something that matches, you know, what it is that you’re looking for.
And the way that BLS and you can read more online about this and how BLS does this, but really what they focus on is that the knowledge and experience that these individuals have. So, you know, if you can’t find that specific title, what is it that they are actually doing? So if you broadened it, is it actually an engineering-type function? Is it a software engineering?
So, like, for example, project managers, you’re not going to find project managers in the BLS output because there could be project managers in marketing, they could be in finance, they could be in engineering, and each of these is going to carry a different weight, right? So really, you need to understand what their area of expertise is so that you can appropriately use the software.
This typically isn’t an issue for most folks because they know what it is that their suppliers are doing. But I wanted to mention it nonetheless. The other two, years of experience and education level, you may or may not know those. You know that within your own company, you have leveling systems that talk about, you know, how many years of experience you have in the education, and then it typically aligns people with, okay, they’re a senior, they’re a junior, mid-level, or whatever it is.
Those become very important in SpendLogic. That’s how you compare different titles across companies. So if you’re looking for an engineer one over in company A and a junior engineer over in company B, the way that you align them, because their titles are not the same, is you look at how many years of experience and the education level.
So if they both carry a requirement for five years of experience and a bachelor’s degree, great, those are going to be comparable right off the bat. But let’s say that one of them, a junior engineer, is actually straight out of school and it has one or less years of experience, that’s going to be something that needs to be taken into consideration.
So that’s how we do it in SpendLogic. We figure out, or we have you input those years of experience and education, and that’s how you get a determination as to what the rate is and what their level is in the software. Best practice, request these in the RFQ, and I’m sure that many of you that are watching this already do that.
Most companies are very forthcoming with this information. This is a pretty standard practice throughout the industry. So even if you don’t use SpendLogic, go ahead and start doing that. That’ll help you make the case to the DCMA and it will strengthen your price analysis reports right off the bat. So, a little free tip there. All right, so next thing that I want to do is I want to show you actually SpendLogic itself. For those of you…
We have a lot of folks on the webinar here today. Many of you are actually part of the SpendLogic client base. So you’re already going to be familiar with a lot of this stuff. But what I want to do is run through it for the folks that are not familiar, and hopefully, everybody will pick up a little something along the way. So what you see on your screen behind me is the SpendLogic dashboard.
Okay? When you first log into the system, this is what you’re going to see. But that’s not exactly what you’re going to see. You can see that I have a column here on the left-hand side that is everything that is in work and everything that is completed or finalized on the right-hand side. So these are my files that I’ve done myself. You could find anything across your organization, anything that anybody’s done by going to the Search Reports button up here in the top.
So if I go to Search Reports, I’m going to be able to see, and I click on Anyone, I’ll be able to see anything that anybody in my organization has created. In this particular case, I’m the only one in the organization because this is just for video tutorials. But if I had other coworkers, I could see all of their reports as well. I can also copy and edit those reports.
So if I wanted to reuse something that somebody else has already done, I can do that in as little as like two minutes. So that’s the basic overview of how this works. So in my dashboard, I can see that I have already created… Oops, I forgot to show you something. So I need to know the area of expertise, experience level, and education level. So, what I’ve done is I’ve already requested that and I’m going to show you this example.
My example here is that I have a lead engineer that is quoted at $240 an hour, and I have a senior software engineer that is $210 per hour. So my supplier has already provided me with a little bit of background information on what they do and their years of experience in education.
So a lead is 20 years and a bachelor’s, a senior software engineer is 10 years and a bachelor’s. So that’s the basic information that we’re going to need in order to do our price analysis. So I’m going to go over to SpendLogic and for simplicity’s sake, I’ve already created a report that we’re going to use. So if I go into Engineers R Us, that’s our supplier, I can see here’s my SpendLogic screen.
I’ve already told it I’m writing a non-competitive report. I’m not going to write a source justification memo at this point. We do source justifications in the same way, you know, as price analysis. I’m not going to get into that today. But this will be a cost reimbursable.
So this is going to be a labor-hour contract. It’s I set up my program name, tell it what my PO is, and give it a little bit of information. I’ve already indicated that this is through my supplier, Engineers R Us. And the important part of that is that SpendLogic knows because of that, that my zip code is 90720. That’s going to come back in just a minute, and it’s going to be very important.
But what we do with all of our clients is we preload all of the supplier data so that when engineers or buyers are using SpendLogic, they can type in their supplier and the information will automatically come up. And as you’ll see, this will automate the determination of the metropolitan statistical area where the rates are going to be pulled from in BLS, which is a mouthful, by the way.
When I click Next, I moved across the top. I’m now moving across and I’m getting into the steps of my analysis report. I went from my PO screen, now I’m in my Parts, okay? On this screen, I can add as many parts as I want. I can also add services. So what I’ve done is I’ve already added a line here for services.
I clicked the Add Service button and you can add multiple service lines. You can add multiple parts, you know, whatever you need to do. I’m going to go in and I’m going to edit this so that we can start adding some services here. So I click the green Edit pencil and what I get, since I already did this, it went to the second step, but what I get is my supplier details table.
The first thing that you see is my zip code is already there. So 90720, that’s Seal Beach, California. And this is we do a merge between zip codes and the MSA tables that are provided by BLS to determine what the local labor categories should be.
So everything that you’re going to see on these screens is already been localized for this particular area. If I needed to, if these engineers were actually doing work somewhere else, you know, we were hiring them for a long-term assignment in North Carolina or something, I could go ahead and override the zip code that’s being used.
So then SpendLogic would say, “Okay, I’ll use the localized data. I’m not going to change the supplier location because the supplier isn’t changing, but where their work is being done is being changed.” So I can go ahead and hit the Override button and I can put whatever zip code makes sense. Okay? As I go down, it asks me for the NAICS category, okay? The NAICS category.
This is going to be where our overheads are pulled from. So our labor rate analysis or our services analysis module also includes overheads. It’s wholly dependent on the NAICS code. And what we do is we use a mix of census data, IRS data, and we put it together and come out with some benchmark overhead markup rates that we use.
You can see that there’s lots of different markup rates and NAICS codes that we can use in here, we are going to rely on professional, scientific, and technical for this, we’re doing an engineering services report here. So that’s what we’re going to use the 50 for. It then asked for profit, you need to determine what profit is reasonable.
In this particular case, I ran away to guidelines and came up with a 5.5% profit. This is the labor hour contract. And that’s what it came up with. You may have your own tools. If you don’t, you can go ahead and click the Run a profit analysis button, and it’ll bring up SpendLogic’s weighted guidelines tool. And then you can go ahead and upload that.
I’ve done that here. You can upload the results of that and give it a little bit of explanation in this box. By the way, you don’t have to be a SpendLogic subscriber to get to that. If you go to the SpendLogic website, I believe it’s under Resources, you’ll find our weighted guidelines tool. There’s also an escalation tool and a couple other things. So check that out if you get a chance. All right, so then when I click Next, you’re going to see that right now I’m on the Supplier Details step.
I’m going to move down to my actual Rate Analysis. So here we go. We’re going to click next. All right. Now I get a Rate Analysis screen and it’s basically a spreadsheet and it’s blank. All right? So I need to go in and I need to start filling this out.
I’m going to start in the upper left. And you can see across the top, I’ve got something about service, you know, what year is this happening in, proposed analysis hours, proposed analysis dollar, seniority level. So we’re going to walk through this, and I’m going to show you how to do it. So my example was as I start typing here, I get a box that pops up that says, “Okay, what’s the title?” Well, my supplier’s title was Lead Engineer, okay?
Recall that they required 20 years of experience, all right, and a bachelor’s degree. Now, SpendLogic is saying, “Okay, this seniority level is in the 90th percentile. This is a very highly senior person.” And that makes sense, right?
If they’ve got 20 years of experience, then they’re going to be one of the most senior folks in the company. This is going to come into play later. One of the things that people fall down on is they have a price analysis full of senior folks and very high rates, but they don’t actually explain, are those senior folks really required, or were they just trying to get high rates? So this is a finding that you’ll see sometimes in CPSRs.
So I’ll show you in a minute, we take some steps to try to avoid this. Now, these folks are going to be…they’re like a software development firm, these engineers. So if I start typing in software, then what it’s going to do is go through the BLS and look for things that match that title, software.
Now, if I don’t have any clue what these guys are doing, then I can go ahead and drop down the entire list. Oops, excuse me. And it’ll show me everything that I have available to choose from. There’s a lot. Okay? So we’ve recently simplified this so that you can, you know, filter it out. So I’m going to go back, I’m going to type in software, and these folks are going to be application software developers.
It shows up, I click Next, or I click Save. And now I have a line, but I’ve got a lot of red. Anytime I have red means I’ve got something to do. And that makes sense because I haven’t put anything else into the tool. So I know that this is going to all happen in 2020. Just so I can show you the effect of analyzing rates, I’m just going to use one hour proposed and one hour analysis.
If you have a technical evaluation that actually looks at hours, there’s an opportunity at the bottom of this screen right here. You could upload that analysis and you could put the actual numbers in there. But for today, using one hour is probably going to be just fine. So they proposed $240 an hour. You see that my seniority level is red.
Okay, interesting. When I click it, it says, and this is what I was talking about before, this gives you an opportunity to explain why it is that you’ve used a senior person and it could be many, many reasons that you’ve done this. In this particular case, this was specified within the RFP. My escalation index.
So you can indicate which escalation index you want to use. SpendLogic comes preloaded with some of our own indices. You’ll recognize these. These are from the BLS. And I will use full-time workers in production occupations. And I will say that I know that their work location is actually at their own site, their supplier site. So now, if I look to the right, I can see that I have an analysis total.
I’ve got an escalated rate and I’ve got markup, and it compares it to proposed. So my analysis is $222 compared to $240. So that seems like a reasonable comparison, and it gives you something that you can actually go and talk to your supplier about. Now, I’ve got one more.
I’ve got a senior software engineer. But let’s say, let me go here, so I’m going to do this a little bit different. And this is kind of a cool trick that we’ve built into the system. So if I highlight lead engineer, and I do my Ctrl + C to copy and my Ctrl + V to paste, what I can do…and I can do that with the rest of these as well, what I can do is… Oops, there we go.
What I can do is I can actually copy everything that I just did into another row. All right, well, what value is that? Well, for instance, let’s say that you had multiple years of effort. So this lead engineer, let’s say that they were also doing something in 2021, right?
You can do that for as many years as you want, and that makes it a lot quicker, okay? You don’t have to go back and retype everything in. But in this case, let’s say that we wanted this to be our senior software engineer. And you’ll recall that they had 10 years of experience and a bachelor’s degree. I don’t have to search again because I’ve already used that.
Previously I used the software developers. I can go ahead and save, and it’ll update that for the labor category and education and experience that I just chose. So I also have an issue here because it was a upper mid-level. But I’m going to also say here the RFQ specified. Whatever it might be, do as I say, not as I do, right?
But here you go. So we’ve now completed this particular one. Again, if you had multiple years, you could very easily copy and paste those and just change the year and it would take right away. So once your table is complete, you click Continue.
And again, if you watch the top, we’ve now moved over to the Report tab. And I can either Finalize or Download my report. What Finalize does is it freezes all the data in the report so that it doesn’t continue to update while BLS updates. We update BLS on a monthly basis. So it’s always kept up to date.
And as long as you finalize it, then that won’t continue to happen with your report. So if I download it, then what you’ll see is that’s going to be behind my shoulder. There we go. So what happens is it downloads the Word report and you literally saw everything that we just went through to get to the report.
Wait a minute, it’s on the wrong screen. Here we go. It’s coming. Okay. So this is our total inability to drive YouTube, is what this is.
No. So here we go. Okay. This is Engineers R Us. This is the report that we just created. So what you can see here is as I walk through this, here we go, so I’ve got my lead engineer, I’ve got my senior software engineer.
This is that same table that we saw on the screen a minute ago. Now as noted previously, I didn’t have to include any of these notes on any of the columns. This is already there. So SpendLogic has explained how it is that we got to the results that we got to. Here’s a note on the indirect rate, talking about how that was calculated, and what factors we used.
Here’s profit, 5.5% rate was applied. And as we go down, you’ll see it talks about, okay, it used software developers for applications, recall, from this zip code. And then it talks about the 20 years of experience and the 90th percentile, right? When we talk about escalation, it actually gives the escalation index that was used so that anybody can go and look it up and see how that was actually calculated and apply those calculations themselves.
So it’s pretty cool. All of this is automatically done and it gives you a signature page, and you can go ahead and sign that off and you’re good to go. So that’s the basic story, okay? And I’m sticking to it. I’ll go ahead and look at the chat over here.
For time and material… It looks like Jacqueline has included a question. It says, “For time and material, can you do a combination for goods and services?” Absolutely. So let me just show you what the screen would look like. Let me get back to where I was. So if I was to look at my Part screen, okay, I’ve already got my services and if I wanted to add a part, right?
So if I select a part number, I don’t know what parts are in the demo system, 123, there we go. I need to add a backplane. And I need to do 10 of those, okay? So I would add that, and then what would happen, it shows up in my screen and I can go ahead and create analysis on that. All of that will be combined into one analysis report. And what you’ll see is when you get to the final report at the end, instead of having one line just for services on this, you’ll also have a line for an item.
And if you have multiple line items, then you’ll have multiple lines there for each of those. But it works in the same way. You’ll just have multiple reports within this “PO wrapper” if you will. Good question. John. What type of support is supplied to DCMA/DCAA to support indirect rates? Has it been found adequate?
How are indirect rates structured? Great. That’s a great question. And what I’ll tell you is that the DCMA CIG actually uses a very, very similar methodology to do their price analysis and to analyze their rates and factors. So is it acceptable by the DCMA? Absolutely. And what can we provide to support those indirect rates?
I can show you. Let me go back to the report. So as I go down here, I should be able to see… There we go. As I go down, I can see my indirect rates and there is a writeup right in the report that talks about where these rates come from.
So it talks about IRS and census data. It shows the equation and exactly how this is done. As for additional information, if the DCMA or the CPSR team wants to see exactly where this data comes from, we’re absolutely able to support that. It’s as requested and it’s through the DCMA though. So that would have to be a request from them and we’d be happy to provide.
Good question. Does anybody else have any other questions before we sign off here? Okay. Well, thank you for watching.
I appreciate it and look forward to doing more of these. We’re going to do them every week or every two weeks. So if you’d like to be notified, be sure to subscribe. You can also go to our website and you’ll see a popup that says, “Hey, do you want to be notified?” Check out our website if you want to see past webinars. So some of them are…actually, most of them are less heavy on the SpendLogic specific content.
We have a lot of information on just price analysis and commercial items in general up there. So check it out. You can also get a free trial license up there. If you or your company needs some assistance in price analysis, cost analysis, commercial item determinations, we do this for companies day in and day out. So be sure to reach out to us, especially in, like, a support capacity for cost analysis.
That’s something that seems to be really popular right now. If you have any questions, reach out at [email protected] and I look forward to seeing you on a future webinar soon. Take care.