Independent Estimates
Independent estimates are cost or price benchmarks developed by the buyer or a third party to serve as a check against seller-proposed pricing during procurement.
Explanation
Independent estimates provide the buyer with a baseline for evaluating whether seller proposals are reasonable. The buying organization or an external consultant develops an estimate of expected costs before receiving seller proposals. This estimate is then compared against actual proposals to identify significant variances that may indicate misunderstandings in scope, unrealistic pricing, or an uncompetitive marketplace.
The independent estimate should be developed using the same scope of work and assumptions that will be provided to sellers. Sources for developing the estimate include historical data from similar procurements, published pricing guides, expert judgment, and parametric estimation techniques.
If there is a significant difference between the independent estimate and seller proposals, the buyer should investigate the cause. A seller price substantially below the estimate may indicate that the seller misunderstood the scope or is "buying in" with an unsustainably low price. A price substantially above may suggest the SOW is unclear, the market is uncompetitive, or the seller has priced in excessive risk.
Key Points
- •Developed by the buyer or a third party before receiving proposals
- •Serves as a benchmark for evaluating proposal pricing
- •Significant variances warrant investigation
- •Used as a tool/technique in Conduct Procurements
Exam Tip
Independent estimates are prepared before proposals are received to provide an unbiased benchmark. If a seller's price is significantly different from the independent estimate, investigate the gap before awarding.
Frequently Asked Questions
Related Topics
Conduct Procurements
Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract.
Make-or-Buy Analysis
Make-or-buy analysis is a technique used to determine whether a particular product or service should be produced internally by the project team or purchased from an external source.
Source Selection Criteria
Source selection criteria are the standards and factors used to evaluate and rank seller proposals during the procurement process.
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