How does 'cost realism' analysis impact my cost-reimbursement proposal?

Cost realism analysis means the government will adjust your proposed costs up or down to determine the probable cost of performance for a cost-reimbursement contract. The government uses this to see if your proposed costs are realistic for the work, understand your approach, and assess whether your methods are efficient. They will evaluate specific elements of your proposed costs to determine if they are too low to perform the work, or if they are inflated for the services required. If your costs are adjusted up, that higher probable cost will be used in the evaluation, not your original proposed cost. This impacts your pricing strategy because you must propose costs that are both competitive and justifiable, reflecting what it will actually cost to deliver the services. A cost-reimbursement contract pays allowable incurred costs up to an estimated total cost, which acts as a ceiling that requires contracting officer approval to exceed (FAR 16.301-1).