[Code of Federal Regulations]
[Title 48, Volume 6]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR1615.905]

[Page 131-132]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
  CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH 
                     BENEFITS ACQUISITION REGULATION
 
PART 1615--CONTRACTING BY NEGOTIATION--Table of Contents
 
                         Subpart 1615.9--Profit
 
Sec. 1615.905  Profit analysis factors.

    (a) OPM contracting officers will apply a weighted guidelines method 
in developing the service charge prenegotiation objective for FEHBP 
contracts. The following factors as defined in FAR 15.905-1 will be 
applied to projected incurred claims and allowable administrative 
expenses:
    (1) Contractor performance. OPM will consider such elements as the 
accurate and timely processing of benefit claims and the volume and 
validity of disputed claims as measures of economical and efficient 
contract performance. This factor will be judged apart from the 
contractor's basic responsibility for

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contract performance and will be a measure of the extent and nature of 
the contractor's contribution to the FEHBP through the application of 
managerial expertise and effort. Evidence of effective contract 
performance will receive a plus weight, and poor performance or failure 
to comply with contract terms and conditions a negative weight. 
Innovations of benefit to the FEHBP generally a plus weight, documented 
inattention or indifference to cost control a negative weight.
    (2) Contract cost risk. OPM will consider such underwriting elements 
as the availability of margins, group size, enrollment demographics and 
fluctuation, and the probability of conversion and adverse selection, as 
well as the extent of financial assistance the carrier renders to the 
contract, in assessing the degree of cost responsibility and associated 
risk assumed by the contractor as a factor in negotiating profit. It 
should be noted that the ``loss carry forward basis'' of experience 
rated group insurance practices limits this factor in an overall 
determination of profit. This factor is intended to provide profit 
opportunities commensurate with the contractor's share of cost risks 
only, taking into account such elements as the adequacy and reliability 
of data for estimating costs, etc., offset by the ``loss carry forward 
basis'' of experience rating.
    (3) Federal socioeconomic programs. OPM will consider documented 
evidence of successful, contractor-initiated efforts to support such 
Federal socioeconomic programs as drug and substance abuse deterrents, 
and other concerns of the type enumerated in FAR 15.905-1(c) as a factor 
in negotiating profit. This factor will be related to the quality of the 
contractor's policies and procedures and the extent of unusual effort or 
achievement demonstrated. Evidence of effective support of Federal 
socioeconomic programs will receive a plus weight; poor support will 
receive a negative weight.
    (4) Capital investments. This factor is generally not applicable to 
FEHBP contracts because facilities capital cost of money may be an 
allowable administrative expense. Generally, this factor shall be given 
a weight of zero. However, special purpose facilities or investments 
costs of direct benefit to the FEHBP that are not recoverable as 
allowable or allocable administrative expenses may be taken into account 
in assigning a plus weight.
    (5) Cost control. OPM will consider contractor-initiated efforts 
such as improved benefit design, cost-sharing features, innovative peer 
review, or other professional cost containment efforts as a factor in 
negotiating profit. This factor shall be used to reward contractors with 
additional profit opportunities for self-initiated efforts to control 
contract costs.
    (6) Independent development. OPM will consider any profit 
opportunities that may be directly related to relevant independent 
efforts such as the development of a unique and enhanced customer 
support system that is of demonstrated value to the FEHBP and for which 
developmental costs have not been recovered directly or indirectly 
through allowable administrative expenses. This factor will be used to 
provide additional profit opportunities based upon an assessment of the 
contractor's investment and risk in developing techniques, methods, 
practices, etc., having viability to the program at large. Improvements 
and innovations recognized and rewarded under any of the other profit 
factors cannot be considered.
    (b) The weight ranges for each factor to be used in the weighted 
guidelines approach are set forth below:

------------------------------------------------------------------------
               Profit factor                   Weight ranges (percent)
------------------------------------------------------------------------
1. Contractor performance.................  -.2 to +.45.
2. Contract cost risk*....................  +.02 to +.2.
3. Federal socioeconomic programs.........  -.05 to +.05.
4. Capital investments....................  0 to +.02.
5. Cost control...........................  0 to +.35.
6. Independent development................  0 to +.03.
------------------------------------------------------------------------
*The contract cost risk factor is subdivided into two parts: group size
  (.02 to .10) and other risk elements (0 to .10). With respect to the
  group size element, subweights should be assigned as follows:



                Enrollment                        Weight (percent)

  10,000 or less..........................  .06 to .10.
  10,001-50,000...........................  .05 to .09.
  50,001-200,000..........................  .04 to .07.
  200,001-500,000.........................  .03 to .06.
  500,001 and over........................  .02 to .04.



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