What is cost realism analysis, and how does it impact my proposed price on a cost-type contract?

A cost realism analysis is an evaluation by the government to determine if your proposed costs on a cost-reimbursement contract are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with your technical proposal. For federal contracts, this process is outlined in FAR 15.404-1(d). While your county project is not federal, state and local procurements often adopt similar principles to ensure a fair and reasonable price.

To pass a cost realism analysis, your price proposal needs to provide detailed documentation and justification for all proposed costs. This includes labor rates for each labor category, direct costs, indirect rates (overhead, G&A), and any other costs associated with the project. You must show how you arrived at these numbers and demonstrate that they are appropriate for the specific tasks outlined in the performance work statement or statement of objectives. The county will likely compare your proposed costs against historical data, market research, and independent government estimates. Your goal is to provide enough detail and explanation that the county can verify your costs are sound and achievable, not understated to win the bid.