cmoore812

Yes you have it right except that it is not being applied to a specific contract. It's applied to all contracts which would include T&M, FFP and Cost type contracts.

This is the post that opened this thread:

Maybe I'm becoming senile, but I do not understand that post, or any of cmoore812's subsequent posts. While I could speculate on what they mean, or try to interpret them as if they were written in a foreign language in which I am not fluent, why should I? And why should anyone else? I know that the people who responded were trying to be helpful, but were they? Or did they possibly cause more confusion in an already confused mind? And in other confused minds? I frankly cannot understand the impulse to respond to something like that.

We don't know the terms of the prime contract, Moreover, if we assume that the prime contract is T&M, we don't know if its a commercial item T&M contract or a noncommercial item T&M contract, and the proper response to the post might turn on that fact.

My friends, no attempt at a good deed goes unpunished. I saw that post early on, before anyone responded, and I decided to not to respond, because I could not figure it out and did not want to spend my time trying to figure out such a poorly written communication. But, like I said, maybe I'm just getting senile, or maybe I'm just stupid. I acknowledge that it's possible at my age.

Guess I can't quite figure out why what I posted id so difficult to understand.

Company A fully burdens contract labor and pays for contract labor at a lesser amount.

All Contracts, T&M, FFP, Cost Type, Foriegn, Commercial.

Chuck,

It is possible, just barely, that Company A has a practice that labor which qualifies for a particular job category is both costed and billed at that job category's established rate, regardless of where that labor is sourced. Were I their advisor, I would caution against such a practice because it creates a pretty unsavory perception.

And I could create a scenario where what you describe takes place, and the difference between actual labor costs and labor category "costing" is treated as a credit to an indirect rate pool, and I could probably pull it off with DCAA as being a compliant practice. There would be some hard scrutiny and some hand-waving involved, but I think I could successfully get through an audit so long as I had a credit to offset the preceived "profit".

The thing is, by your own admission you lack a lot of the necessary facts, as well as the education and experience, to form a solid opinion as to whether Company A is doing an acceptable thing, or not. I would encourage you to discuss your concerns with your Ethics Department and try to learn why Company A thinks what it's doing is okay. You may be surprised. And if you don't get satisfaction, then you can drop a dime to the IG Hotline with the confidence that you tried as hard as you could to get answers from Company A.

H2H

Excellent advice - Thanks H2H

As I previously posted, the contractor -- any contractor! -- needs to comply with the payment terms of its individual contracts. You haven't told us what the contract requires, so we cannot tell you whether Company A's billing practices are compliant with contract requirements. You want to know if Company A's disclosed cost accounting practice can "violate FAR provisions" but you haven't told us what FAR clauses you think the company is violating.

Let me answer your concern(s) this way:

1. A company's CASB Disclosure Statement establishes/discloses its cost accounting practices and NOT its billing practices. Nowhere in any Disclosure Statement will you find a discussion about billing practices, since billing practices vary by contract clause.

2. A company must consistently follow its disclosed, or established, cost accounting practices. That same thing cannot be said of billing practices, since they vary by the requirements associated with indivdual contract clauses.

3. When DCAA reviews a contractor's CASB Disclosure Statement, it looks for two things. (1) Does the Disclosure Statement adequately describe the contractor's cost accounting practices? (2) Are those cost accounting practices compliant with applicable CAS requirements? FAR doesn't usually enter into the discussion, unless a specific FAR Cost Principle conditions cost allowabilty upon compliance with a Cost Accounting Standard (e.g., 31.205-18).

Does this help you?

Yes, your comments are helpfull. I believe I'm a bit under educated when compared to this forum's participants.

The practice that I am refering to here is consistant over all contracts. We have T&M, FFP, Cost type, all sorts of fee arrangements, Interdivisional, commercial and more.

I don't have access to the Disclosure Statement so can't see how it's worded.

I'm assuming that paying for labor at a lower rate than is being charged to the Govt is improper.

I don't know which FAR para may be in violation.

I look at a contract as being similar to an escrow account. Money comes in (payments from US Govt) and money goes out, Labor charges, mat'l, S/C, ODC, O/H and so forth. In the case of Company A the Govt is billed for Contract labor at a higher rate than it cost the Contract. I'm having great difficulty explaining that concept. I view this as improper and was attempting to get an agreement that yes it is not proper or no problem.

I've talked to our estimating manager, who is the auditing agencies interface, and asked how does the company get away with and justify, this practice and I'm told it's in the disclosure statement.

I appreciate all of you patience and comments.

It's difficult to get at your point, but let me try to interpret.

1. Company A bills the U.S. Government for "contract labor" (i.e., labor incurred by 3rd party suppliers) at its cost plus 26% plus fee.

2. Company A bills its own employee direct labor at its cost plus 280% plus (maybe) fee.

These practices have been disclosed to the government in the company's Disclosure Statement. So, presumably, Company A is CAS-covered and has received CAS-covered contract awards valued at more than $50 million in a single fiscal year. Meaning Company A is not a small business and is likely to be of decent size.

Your concern is ... what?

That Company A's labor is too expensive and Company A should fire all its employees and just hire contract labor from 3rd parties?

That Company A won its contracts based on a price determined via use of its disclosed practices, but the Contracting Officer could NEVER have concluded that the contract price was fair and reasonable, so Company A won its contracts unfairly?

That Company A employees who receive fringe benefits and training and management support should not be more expensive than job shoppers who are paid statutory minimums (in terms of benefits, and told simply to show up at a company to report for work?

Clearly, I'm not getting your concern. Could you articulate it more clearly, please?

As you described the situation, it seems perfectly fine and normal and within Defense Industry SOP to me.

Hope this helps.

I guess the real question is can a company, by virtue of it's disclosure statement wording, violate FAR provisions?

Is this a proposal? Existing contract? Cost reimbursement? T&M?

All of the above.

Prior to CY 2003 Contract labor was bid as ODC, paid for as ODC and billed to the Govt as ODC.

In 2003 there was a didclosure statement change that allowed the company to bid outside purchased labor at inhouse rates.

Since 2003 the company has paid for contract labor as if it were ODC but bills the Govt as if it were inhouse labor and still does so.

This division is the highest profit center of the corporation and I believe in part to this charging/billing practice.

What I am trying to determine are Company A's billing the US Govt more for Contract labor than they are intitled to charge.

Assume Company A to have $1B annual sales.

Rates are not an issue.

Joel's comment: "Are you saying that the company charges the government the same rate for subcontracted labor as for in-house labor?" is correct.

The Company pays for Contract labor at rate, say $70 and bills the Govt $190.

Company A's position that this practice is spelled out in the Disclosure Statement and is therefore OK.

I see it as an overcharging scheme.

The extra $120 gos to profit

You said that this is a defense contractor. Please clarify your terminology. Inasmuch as I could interpret "100 percent" labor burden as doubling the direct labor rate, are you saying that a 280% labor burden makes the effective labor rate 3.8 times the direct rate for in-house labor?

Does the firm have recent DCAA audit reports to support the rates?

Contractor "A" is a division of company that does a majority of it's business with the US Govt in the Defense industry.

Rates are perodically submitted for approval by DCAA, at the moment they are not approved.

The disclosure statement is reviewed by DACO, the current one was submitted 10/28/2010 and not yet approved.

The direct labor dollars paid to a Contractor "A" employee gets burdens (O/H, Fringe, BOSC, ITSC, G&A, COM and Fee) which compounds to approximatly 3.8 time the direct rate as a charge to the Govt. If an employee is paid $50/hour the Govt is billed at approximately $190.

Contract labor employees are employed by another company which Company "A" contracts with for that persons service.

If the Contract labor person makes $50/hour then the cost to Company "A" is $50 plus the Contract labor company's fee plus G&A, COM and Fee are a multiplier of roughly 1.4 (not 1.26) or about $70/hour.

Company "A" realizes a gain of about $120/hour ($190 minus $70) for each hour worked by the Contract labor person.

Just a clarification. Company "A" bills the Govt at the $190 rate and pays for that service at $70/hour

Company A is a Defense Contractor and conducts business as follows:

Contract labor is paid for as Other Direct Cost out of contract monies and cost the contract the hourly amount (plus contracting company rate) plus G&A and Fee.

The US Govt is billed at a fully burdened rate for this same Contract labor.

Burdens for ODC are about 26% and about 280% for company labor.

This seems to me like an overcharge to the US Govt.

Compliance people at Company A justify this charging by having it in ths "Disclosure Statement"

Comments please.