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mrsbadexample

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Posts posted by mrsbadexample

  1. Navy - I assume you are objecting to HHS's interpretation in the policy memo Q&A referenced above and not to my interpretation of their response to Question 11. I personally find the clause somewhat ambiguous; I was merely interpreting HHS's Q&A.

    Michael - Yes, applying the limitation on an annual basis requires more tracking of hours/costs charged to the contract by highly paid employees.

    I have also seen this clause interpreted differently by some contractors and COs. Many are not aware of this HHS policy memo.

  2. The Q&A on the site you referenced is somewhat convoluted, but I think the response to Question 11 is pretty clear. It is an annual limit, so in your scenario charging direct labor costs of $144k to the HHS contract should be allowable (as long as it meets all the other criteria for an allowable cost).

    This clause should not be included in a FFP prime contract. Per HHSAR 331.101-70, this clause is required "when a cost-reimbursement, fixed-price level-of-effort, time-and-materials, or labor-hour contract is contemplated." In a fixed-price level-of-effort, time-and-materials, or labor-hour contract the employee would be required to record the number of hours spent working on the contract, so you could calculate the percentage of his salary that is allocable to the contract. However, since the clause does not restrict the salary that a company pays employees out of its own funds, I agree that it would be difficult to show whether the contract funds were actually used to pay for that portion of the employee's salary. If you have provided details on how the price for each hour of service was derived (direct labor plus fringe plus overhead, etc.), then I suppose one could use the direct labor amount per hour of service from that calculation and multiply by the number of hours incurred during the year to derive the total annual salary paid out of contract funds.

  3. Does anyone have any experience with applying the following HHSAR clause to a firm fixed price commercial item subcontract? We are being told by an HHS agency CO that this salary rate limitation applies to subcontracts for fixed price commercial items as well as non-commercial item subcontracts. They are requesting documentation to prove that subcontractors who will be providing firm fixed price commercial items (services) are not using contract funds to pay the salary of anyone involved in the contract in excess of this rate limitation. As the commercial item services are based on market pricing, and as the individuals performing work will not be invoicing for their direct labor, I am having trouble understanding how this limitation could/should be applied and documented. Note that the clause does not prohibit a contractor from paying its employees a salary in excess of this rate; it only limits the portion of their salary that may be paid with Federal funds. On a fixed price subcontract, how can one determine what portion of an employee's salary is being paid with Federal funds?

    The CO is asking for the quoted prices for the subcontracted services to be broken out by labor, fringe, materials, overhead, etc. As commercial for-profit entities providing market priced services, subcontractors may not have a method for doing this, and it may be in conflict with their company policies.

    Per 331.101-70, the clause is only required to be included in prime contracts "when a cost-reimbursement, fixed-price level-of-effort, time-and-materials, or labor-hour contract is contemplated". The clause itself states that the salary rate limitation also applies to individuals under subcontracts, but it does not limit that flowdown to the same contract types. Can an argument be made that it should only apply to cost-reimbursement, fixed-price level-of-effort, time-and-materials, or labor-hour subcontracts as well, even though this isn't stated in the clause?

    352.231-70 Salary rate limitation.

    As prescribed in 331.101-70, the Contracting Officer shall insert the following clause in extramural solicitations and contracts:

    SALARY RATE LIMITATION (MAR 2012)

    (a) Pursuant to the current and applicable prior HHS appropriations acts, the Contractor shall not use contract funds to pay the direct salary of an individual at a rate in excess of the Federal Executive Schedule Level II in effect on the date an expense is incurred.

    (B) For purposes of the salary rate limitation, the terms "direct salary," "salary", and "institutional base salary", have the same meaning and are collectively referred to as "direct salary", in this clause. An individual's direct salary is the annual compensation that the Contractor pays for an individual's direct effort (costs) under the contract. Direct salary excludes any income that an individual may be permitted to earn outside of duties to the Contractor. Direct salary also excludes fringe benefits, overhead, and general and administrative expenses (also referred to as indirect costs or facilities and administrative [F&A] costs).

    Note: The salary rate limitation does not restrict the salary that an organization may pay an individual working under an HHS contract or order; it merely limits the portion of that salary that may be paid with Federal funds.

    ( c) The salary rate limitation also applies to individuals under subcontracts. If this is a multiple-year contract or order, it may be subject to unilateral modification by the Contracting Officer to ensure that an individual is not paid at a rate that exceeds the salary rate limitation provision established in the HHS appropriations act in effect when the expense is incurred regardless of the rate initially used to establish contract or order funding.

    (d) See the salaries and wages pay tables on the U.S. Office of Personnel Management Web site for Federal Executive Schedule salary levels that apply to the current and prior periods.

    (End of clause)

  4. A "true" FFP LOE contract requires the contractor to deliver a level of effort in the performance of specified work. The contractor's obligation is fulfilled by doing the specified work and delivering the level of effort, which can be stated in terms of hours or other units of "effort," within the period of performance. (A level of effort can be stipulated in terms of FTEs.)

    Here's another question: If the LOE is stipulated in terms of FTEs, is there a standard or generally accepted definition of an FTE? The number of hours each employee will actually perform direct work on the contract, even if they are full-time and only working on that contract, will vary based on how much sick/vacation time they take. If one of the employees is out on medical leave for a couple of weeks, and assuming the Government does not want the Contractor to replace him with another employee for that period, would that mean that the LOE had not been satisfied? Contractor100's example above used 2080 hours per year per employee, but I have to assume that those employees had some holiday/sick/vacation time. I have a feeling that I'm going to need a definition of an FTE in my contract as well...

  5. Yes, exactly.

    If they lock you out, maybe it is interference with contractor's performance?

    These FFP (Fake Fix Price) contracts really are a mess.

    All the ones I've seen (15 maybe?) have a CR line item for ODCs, BTW, but none was commercial.

    I would think that they would have to issue a bilateral mod to the contract to change the LOE, or else terminate the contract for convenience. I'm not sure why your CO would be reluctant to do that.

    By the way, I edited my earlier post. I meant to say contract mod, not change order (per 52.243-1).

    We've asked the question about non-labor costs. I'll be curious to see the response.

  6. Sorry I wasn't clear. What I am saying is the the CO is constructively issuing a change order, or possible a partial termination, and I would like to issue a claim on either theory.

    COs: Yes, your LOE in your cost proposal was 20800 hours. But, we don't need that many hours. Bill us and pay for 15000. [numbers illustrative only]

    C100: But, it is FPLOE, you have to order the whole amount unless you issue a change order.

    CO's: We suppose if we issue a change order, though, you may make a claim.

    C100: I might.

    CO's: Well you can't unless we issue a change order.

    C100: I say you have issued a change order if you won't pay my invoice for the full 20800 hours &tc, &tc

    Well, you can't invoice them for the full 20800 hours unless you deliver the full 20800 hours. My question is, without a change order, contract modification, can you just keep providing the hours even if they don't want them? I suppose if you are working at a government facility, or if you have no work that you could be doing, that might be difficult... That's a problem with using this contract type as a substitute for T&M rather than for it's real purpose as Vern has stated.

    mrsbadexample,

    If you bid and win, please make sure the LOE is in the contract or that your cost proposal is incorporated into the contract...

    Absolutely.
  7. mrsbadexample:

    You are confusing regulation writing with systematics. The contract types are the products of 200+ years of experimentation and experience, not intelligent design. The people who wrote FAR Part 16 did not develop a set of contract types and variations. They merely described the arrangements that they found and grouped them based on certain similarities. Don and I are trying to refine the groupings in a way that makes sense.

    Understood. Your and Don's way does make more sense. I was suggesting a different grouping if that was the intention, that's all. There's nothing to say that the Part (or the whole FAR) couldn't be revised to be more logical and eliminate ambiguity and conflicting passages. I wish that you and Don could rewrite it...

  8. A "true" FFP LOE contract requires the contractor to deliver a level of effort in the performance of specified work. The contractor's obligation is fulfilled by doing the specified work and delivering the level of effort, which can be stated in terms of hours or other units of "effort," within the period of performance. (A level of effort can be stipulated in terms of FTEs.) The level of effort and the nature of the work to be done establish the scope of the contract. The work is non-severalbe. The contractor is not paid by the hour. The contractor is paid a lump sum for delivering the level of effort. The contract can provide for progress payments based on cost or performance-based payments. Hours are not separately deliverable and acceptable units of performance.

    For example, the task might be to deliver a level of effort of 1,000 hours of scientific and/or engineering labor in the investigation of a natural or man-made phenomenon and to find out as much about it as possible and deliver a report of the findings by a specified date. The contractor is obligated to deliver the level of effort and submit the report by the due date. Failure to deliver the level of effort and/or submit a report by the due date would be a breach of contract. Payment of the fixed-price is due upon timely completion.

    An FFP LOE contract can stipulate hourly labor rates, but only for purposes of price adjustment, not payment.

    Contracts that provide for payment by the hour are not "true" level of effort contracts.

    It sounds like the problem is that some agencies/COs seem to be executing FFP-LOE contracts as a substitute for the now-out-of-favor T&M contracts, and they seem to be trying to structure them so that they are more or less the same (billing by the hour). As you suggest, this is not a "true" level of effort contract. I'm not sure what would be the advantage to the government of this contract type vs. a T&M contract, other than that it doesn't seem to violate the agencies' ban on T&M contracts.

    Thanks for the link to the article, Vern. I look forward to reading it when I'm not working 13 hour days.

    Does anyone have any insight into how non-labor costs would properly be invoiced in a FP-LOE contract for commercial items, assuming that they cannot be accurately estimated at the time of contract award and built into the firm fixed price?

  9. mrsbadexample, I think you are reading too much into the structure of the FAR Subpart 16.2. I read it like Vern. Fixed-price is the family, firm-fixed-price is the genus, and FFP/LOE is the species.

    Thanks for both of your perspectives on this. That may well have been their intention when drafting FAR Subpart 16.2. If I were writing it with that intention, I wouldn't have structured it in this manner. But there are many parts of the FAR that I would have written differently...

  10. Think of it this way: FFP is a class of which FFP-LOE is a species. Since FAR permits use of the class, and since the class includes all of its species, it follows that FAR permits use of FFP-LOE in the acquisition of commercial items.

    I understand your logic, but I'm not sure I agree that FFP is the "class" in this case. FAR permits use of "firm-fixed-price contracts or fixed-price contracts with economic price adjustment" for commercial items. These both fall under "Subpart 16.2—Fixed-Price Contracts" (specifically in 16.202 and 16.203), and "Firm-fixed-price, level-of-effort term contracts" also fall under "Subpart 16.2—Fixed-Price Contracts" (specifically in 16.207). But note that Subpart 16.2 (what I was considering the "class") is "Fixed-Price Contracts", not "Firm-Fixed-Price Contracts". In this Part, "Firm-Fixed-Price contracts" seem to be a species under "Fixed-Price Contracts".

    Subpart 16.2—Fixed-Price Contracts

    16.201 General.

    (a) Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. The contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial items, except as provided in 12.207(B).

  11. Got me! I knew that, but I am guilty of using this word in accordance with the general definitions from Merriam Webster, rather than in accordance with the definition in 2.101.

    1
    :
    a group of words containing a subject and predicate and functioning as a member of a complex or compound sentence

    2
    :
    a separate section of a discourse or writing;
    specifically
    :
    a distinct article in a formal document

    I know I should refrain from this usage when discussing the FAR, but it is a hard habit to break.

  12. Yes. Sure. Why not? It's a firm-fixed-price contract, isn't it? I don't see how the "level-of-effort" makes a difference. Anyway, what are you going to do -- complain to the CO that he's using an illegal contract type? Protest that it's not legal?

    Why not just make a bid/no bid decision and then go for it or don't. Would you be happier if they went for an FFP-LOE noncommercial item contract?

    Yes, it is a fixed price contract, but as 12.207 specifically references two types of fixed-price contracts (i.e., those described in 16.202 and 16.203), I assumed that other types of fixed-price contracts (i.e., those described in 16.204, 16.205, 16.206, and 16.207) would not be allowed.

    I would be happier if they went for a commercial item T&M contract. But you're right, I'm not going to file a protest, and I'm hoping that nobody else does after we win the contract. :) Even if I do nothing with regards to this solicitation with the information, I still like to try to understand the FAR and its application (including when it is being applied incorrectly) as much as possible. Surely you won't fault a contractor for trying to be well-informed? So few of us make the effort...

  13. Answer: Apparently so.

    Perhaps I should rephrase:

    Is it possible to have a firm-fixed-price, level-of-effort contract for a commercial item that is in compliance with FAR Part 12?

    Of course, it is possible to have all kinds of contracts that are not in compliance with the FAR, so I"m not sure if your response was alluding to that or suggesting that my interpretation was incorrect.

    Thanks for your response to #2. That's what I figured, but I was just curious. The $150K limit seems very low if exceptions are going to regularly be made for multi-million dollar contracts.

  14. We are considering bidding on a solicitation that was just released as an RFQ. The presolicitation indicated that a cost-reimbursement type contract was anticipated. The posting in FBO for the solicitation, however, states "Upon further review and market research, it is determined that it is in the Government's best interest to release the solicitation under FAR 12, Commercial Items."

    The solicitation document states, under the "Structure of Contract" section "This Level-of-Effort contract will consist of two parts:" and then goes on to describe the number of employees that are "currently needed to maintain all essential functions" within the program. No total number of hours was provided, but the number of full time personnel is listed. The solicitation includes 52.212-1, 52.212-2, 52.212-3, 52.212-4, and 52.212-5 (curiously, with no applicable clauses marked).

    When we called the CO for clarification of the contract type, she stated that they were issuing it as a firm-fixed-price, level-of-effort contract because the agency is no longer issuing T&M contracts.

    I have a couple of questions regarding this contract type (and many more that we need to ask the CO).

    1. Is it possible to have a firm-fixed-price, level-of-effort contract for a commercial item? Per FAR Part 12:

    12.207 Contract type.

    (a) Except as provided in paragraph (

    B) of this section, agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items.

    (

    B)

    (1) A time-and-materials contract or labor-hour contract (see

    Subpart 16.6) may be used for the acquisition of commercial services when—...

    Even though FFP-LOE is a type of fixed-price contract, I was under the impression that it was not allowed under Part 12, since this clause does specifically list two types of FFP contracts described in FAR 16.2, but it does not include FFP-LOE.

    2. FAR 16.207-3 states that this contract type may only be used when "The contract price is $150,000 or less, unless approved by the chief of the contracting office." This contract will be for several million dollars. I know it is possible that this has been approved by the chief of the contracting office, but I'm wondering if this is a common occurrence. Is anyone aware of the frequency of exceptions being made to this clause?

    3. This contact will also include numerous different types of non-labor costs that would be billed as materials if this were a T&M contract. Not all of them could be accurately estimated and included in the fixed price. I don't have any experience with FFP-LOE contracts, so I'm wondering how those costs would typically be handled. A separate cost reimbursement line item might make sense, except that this is being done under FAR Part 12. A separate T&M line item seems like a ridiculous thing to suggest, since they are trying to avoid a T&M contract in the first place. This may be a moot point, depending on the answer to Question 1.


  15. My company is negotiating a subcontract to provide a commercial item in support of our client's prime contract. Our client is asking us for a Small Business Subcontracting Plan, which they say is required as part of their prime contract. Are there any circumstances in which a subcontractor providing a commercial item should be required to submit a Small Business Subcontracting Plan? 52.219-9 includes the following exclusion:

    (j) Subcontracting plans are not required from subcontractors when the prime contract contains the clause at

    52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders—Commercial Items, or when the subcontractor provides a commercial item subject to the clause at 52.244-6, Subcontracts for Commercial Items, under a prime contract.

    It seems to me that a prime contract should always contain the clause at 52.212-5 or 52.244-6, so wouldn't subcontracts for commercial items always be excluded from the requirements of 52.219-9? Am I missing something, or is the prime contractor asking for something they do not really need under the terms of their contract?

  16. Two thumbs up! Our legal team won't even consider a teaming agreement if there is an exclusivity clause buried in it. I've only seen one or two in our entire corporation that have been able to get legal to even *consider* the request with mucho, mucho, mucho rationale and dire circumstances.

    Yikes! Hope you keep your proposal teams and tech guys firewalled away from each other for the individual proposal responses. If I were the prime, I'd be concerned you know my inside info and turn around and make your proposal better...

    Hmm. Maybe it's just me, but I consider these to be curiously conflicting perspectives...

  17. Mrs Bad - I think we can agree that we don't understand each other's logic. You want to apply a clause in one contract to other unrelated contracts. I say that as long as the future RFP is not an order under an existing vehicle, then there is no relation between the future RFP and the pre-existing contract and therefore the clauses in the contract don't apply. The FAR applies to the Government, not to vendors, unless and until the pertinent language in incorporated into a contract that the vendor has accepted.

    We may have to agree to disagree. While I agree that FAR clauses only apply once they are incorporated into executed contracts, I disagree that FAR clauses never apply to a contractor's conduct outside the performance of that contract. For example, under 52.222-50 Combating Trafficking in Persons, a contractor is prohibited from engaging "in severe forms of trafficking in persons during the period of performance of the contract". Note, the restriction is not solely in the performance of the contract itself, but during the period of performance of the contract. I believe 52.203-6, once incorporated into a contract, also applies to a contractor's actions outside the performance of the contract. After all, if this clause only applied to potential direct sales by the subcontractor to the government under that particular contract, when would it ever apply? A subcontractor cannot sell directly to the government under a different party's (the prime's) contract.

    However, you may be onto something. Perhaps the intent of this clause is only to prohibit the prime from placing such restrictions on a sub as a condition of subcontracting work to that sub under the applicable contract. If that is the case, then an exclusive teaming agreement for a new contract would be acceptable as long as it wasn't a precondition of awarding the subcontractor work under the preexisting contract...

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