2-34.11 Cost Realism

Cost realism means that the costs in a supplier’s proposal:

• Are realistic for the work to be performed.
• Reflect a clear understanding of the requirements.
• Are consistent with the various elements of the supplier’s technical proposal.

The emphasis of a cost-realism analysis is to determine whether costs may be overstated or understated. Cost realism helps to ascertain the potential risk to the Postal Service as a result of the supplier being unable to meet contract requirements.

Cost-realism analysis is an objective process of identifying the specific elements of a cost estimate or a proposed price and comparing those elements against reliable and independent means of cost measurement, and is particularly useful in the evaluation of cost reimbursement contracts. This analysis determines whether the estimates under analysis are verifiable, complete, and accurate. It also shows whether the supplier’s estimating methodology is logical, appropriate, and adequately explained. As a result, the analysis helps ensure that the cost or prices proposed fairly represent the costs likely to be incurred for the proposed services, given the supplier’s technical and management approach.