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Corduroy Frog

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  1. Vern, my name is Ron Jordan - I live in Manchester Tennessee at 802 Parks St. Ask anyone in town and they can tell you where I live. I work for money as an accountant, not a contracts consultant. And of course, the example is not real. Hypothetical.
  2. Maybe an example can clear the water: Assume "Starving Tech" - a small contractor has been awarded a T&M contract, with CLIN001 for $600,000 to fund and accommodate T&M billings, and a Cost-plus CLIN002 for Travel for $20,000. The contract contains the infamous Alt I. Starving Tech is somehow aware of the perils of Alt I, and negotiates $2000 in indirect add-ons, leaving $18,000 in direct travel. If this were a G&A rate, it would be 11.11%. The contracting officer didn't really want to pay this, but it was negotiated. But after the option is over, the valid direct charges to CLIN002 Travel is only $2500. But according to the fixed price allowance for indirect, Starving Tech is entitled to $2000 as negotiated. Had the CO agreed to a G&A rate, $278 would be all the G&A that could be billed. Total for CLIN002 is $4500, instead of $2778. Has the Govt shot itself in the foot with this strategy?
  3. To clear up and define what my involvement is: I am an Accounting Consultant for small contractors. My involvement in contracts administration is limited to exposure only, and that's why I bring questions to this forum. My customers, whether knowledgeable or not, are having no luck when COs insist (rightly or wrongly) that they are not going to pay G&A on travel.
  4. Vern and Retread and others, thanks for your discussion. For virtually the entire Federal contracting environment, if indirects such as Overhead and G&A were not available to the contractors, they would go broke. In the commercial world (non-govt), contractors bid high enough to hopefully have some profit left over, and this is usually their expected cost plus 18-20%. Contrast to the govt world, Fee as high as 8-10% is considered exorbitant. And the administrative costs of running a govt contractor are almost always more than in the commercial world. So without indirect costs being added, a contractor would go broke. Adding G&A and Overhead or M/H simply raises the margin to the same level as that encountered in the commercial bidding.
  5. Vern, this is exactly what I expected from you - it was just a matter of time. Be that as it may, your links were good reading material. It would be different if contractors were cashing in big time by charging G&A. The sad truth, however, is the G&A doesn't even cover the additional time required to account for travel, with advances, repayments, IRS-approved expense reports, and per diem administration. Perhaps to insult contracting officers (some of who may be posting on this forum), I believe many of them don't understand the Alt I in the FAR clause. If contractors wise up and start proposing fixed dollar amounts as allowed, I believe some of them will just say "We're not going to pay it, period, and we don't care what's in Alt I". It seems to be a consensus opinion that the negotiating power of the contractor is a big factor. I have been asked whether my experience is with T&M, FFP, or CT contracts. My experience is that this abuse is going on everywhere, although personally the CT contracts seem to have dried up for small contractors that I have dealt with as an accounting consultant.
  6. Some time ago, I began a discussion regarding an epidemic-like position streaming across the country: Contracting officers not wanting to pay G&A on travel. If you remember the discussion and are wore out with it, please don't read further. The strategies in that conversation for available remedies have been largely ineffective. One strategy is to use the FAR Clause to insert a fixed-dollar amount instead of a G&A rate, and CO's hoping the contractor will not ignore a response, meaning zero is available. But even when a fixed-dollar amount is discussed, the CO's and COR's are like a deer-in-the-headlights. They didn't want a fixed dollar amount, they wanted absolutely zero, regardless of provisions in the FAR. Another strategy is to increase the G&A rate on everything else to compensate for the loss of G&A on travel. A few problems with this strategy, firstly very few things create administrative expense as does Travel, so this strategy does not reflect cause-and-effect. Secondly, solicitations ask for ceilings on G&A, hence the G&A rate cannot by raised. Thirdly, there are often single line-item CLINS dedicated to travel, so raising the G&A rate on the other CLINs makes the contractor non-competitive. I have not seen any relenting in the insistence on the part of COs (with or without the FAR clause). Formerly, I was advised to simply negotiate with the COs, but the sad fact is that small contractors (i.e. MOST contractors) do not have the negotiating power to deal with these avaricious COs. Comments? Tell me to quit whining, if you wish, but this is still an issue.
  7. Contractor is not disclosed anything with DCAA. No DS-1 or anything at all. Suppose an employee is awarded a $5000 bonus for performance on a particular contract. Emphasize this is not a company-wide bonus, seasonal bonus, or anything else other than a performance bonus. We wish to charge Direct Labor instead of Fringe for this $5000. In absence of anything disclosed to DCAA, is there a FAR Clause that allows charging to Direct Labor, or disallows such charging?? Thanks in advance for your help.
  8. Whoa! Accountants, perhaps more than any other profession, encounter things that are not right, and are dishonest. Some of us are even requested to alter the books. We are often requested to put lipstick on a pig and call it something else. If we blew the whistle on everything we saw, we would not be able to find a job. However, my response to anyone who requires me to change the financial reporting results, is that I'll hit the door. If you have someone who will lie for you, you also have someone who will lie to you. This has cost me at least one job in my career. You should be able to put a glass eye in a duck's butt and be able to see this.
  9. Part of the issue is geographical area. If this were to occur in New Jersey or somewhere in the unionized states, an employee could invoke the DOL in a heartbeat. Where I live, and in AL, GA, MS, AR, employees are not knowledgeable of the SCA, and even so will not blow the whistle on their employer for fear of being terminated. My client is not so obtuse as I have presented. I have dramatized this in order to paint the picture. Yet it is true that SCA is avoided, even though money is available to cover it. Some COs are not anxious to fund money, but none of them will refuse something they know to be legal.
  10. Thank you Mr. Culham. I agree with your comments. Maybe I could pose a question: Is there a wage so low that the SCA cannot be avoided? Like if an employee is paid only $20/hr. is it possible that he could be classified as something other than an SCA Labor Category. Vern, are you out there my friend???
  11. So many subcategories, it's hard to figure out where to post this question. It is rather basic, so I'll post here. As an accounting consultant (not an HRO specialist), I have a customer who would rather face the guillotine than to deal with SCA. They want to hire the cheapest person they can find, and then classify as an overglorified whatever to avoid paying benefits. Paying a guy $15 an hour to sweep the floor and then classifying him as a Cyber Engineer just so they won't have to pay him a lousy $4.50 an hour for benefits. Please comment on this gross misrepresentation, and discuss what can happen to a government contractor as a result.
  12. Good grief Vern - are idioms of speech not allowed? Specifically, two renewals are being parlayed with zero increase (not even escalation), and another is restructured with a little more money but an increased scope of work.
  13. Here_2_help I always enjoy your responses. When Reagan took office in 1980, the deficit was only $46B. I will agree that in the face of ever-rising deficits, Inflation and Interest Rates have not risen to meet expectations of conventional rationale. I am certainly not macroeconomic-minded to understand why it doesn't happen. But the dollar is tanking against other currencies, and I wonder if the economics of huge deficits respond when "enough is enough". Gov't customers are always price-conscious (in spite of claims of "best value"), but I seem to notice this year, money is very tight.
  14. With the deficit in the trillions, and the govt laying awake at nights figuring out how to giveaway more money, has anyone (other than me) noticed a shortage of available money for contract renewals? For the first time in awhile, the U S Dollar is tanking against other currencies, and printing money is assured to create more inflation. Am I the only one who has noticed this?
  15. No one seems to know my role in the above - so I'll clarify. I am an independent accountant - much more familiar with GAAP issues and IRS issues than contractural problems. My "customer" is a small govt contractor who has no contracts expert to turn to - so I end up with the issues. Hope this helps. Yes the same line of posts earlier about "padding" bids on fixed price contracts. In spite of all the padding, my customer is still turning in only a 4-5% profit margin on sales. More last year due to PPP loans. Risks have involved subcontractor overruns, facility shutdowns, unexercised opetions, declared holidays (where govt employees are paid but contractor employees are not), etc. I hope this brings the moral issue into focus.
  16. I have probably asked this question before, and if memory serves me right, there was a montage of conclusions. Does DCAA limit the Fee on a given contract? If so, I would think it varies whether the contract is cost-plus, T&M or fixed price. I have been accused of having sleazy customers doing such things as "padding" costs. This one proposed a fixed-price of $300,000, contractor cost of labor and travel $90,000, and a large subcontract for $140,000. Indirects are another $40,000 or thereabouts. Total cost $270,000. Profit of 10%, Fee based on cost is 11.11%. After the contract was negotiated, turns out the large subcontract is being whittled down to $50,000, and indirects attached to the effort are now $25,000. Expected total cost is now only $165,000. Profit is 45%, and Fee based on cost is 81.8%. Unofficial sources tell me DCAA mandates that if Fee exceeds 30% on a fixed-price contract, the excessive money has to be given back. Was not told whether the 30% was a profit margin or a Fee based on cost (These are two different numbers). What say ye?
  17. Is there a separate threshold depending on whether it is a new contract or a mod??
  18. Suppose an employee wants to make $100,000 per year. The contractor has three contracts, but because of the availability of money, he is paid $75 on one contract, $50 on another contract, and $48 on another contract. Because the company wants their indirect rates to be low, he is only paid $25 on Overhead and $25 on G&A. How is this elaborate scheme perceived by DCAA, DOL, a contracting officer who finds out about it, or anyone else?
  19. It's me again - appears a number of people don't know what I am presenting, and I may have given incomplete information. The Frog is a Mr. There is an intent to deceive. No one wants to propose a fee of 12% because the selection committee would throw the contractor out on his butt. So in order to get to the desired price, other costs have to be padded, and only a 6% fee is proposed. The padding of labor or materials may (or may not) be to cover risk, and it appears if risk is a significant factor, the proposal is quite a bit more palatable to those who know. Significant risk should be solved with a cost-plus contract, but for a small contractor, getting the customer to agree to a cost-plus contract is more difficult than hitting the moon with a pea-shooter. The only question was whether the above-described practice was an example of defective pricing. I read the response by Vern Edwards very intently, and it appears he is saying it is not deemed as defective pricing, unless cost and pricing information is requested. It could be considered dishonest, and it seems to me that it is. In the real world, however, putting the risk into an exorbitant fee is met with much more consternation than padding labor/material costs for risk.
  20. I'll give you examples: Bidder estimates 3 people to make $50/hr, but known to make only $35/hr. Materials estimated at $40,000, and expected to cost only $30,000. Fee is estimated at 6% but the expected profit is much more. If the costs were lower and the expected profit is 12%, then the awards people would choke on the amount of the fee. Bidder claims the extra padding is to cover possible risk.
  21. Does "padding" costs for a fixed price contract constitute Defective Pricing? Bear in mind that the customer has accepted the fixed price in the event of an award. Does the complexion change if the customer requests "cost and pricing information"?
  22. Yes, but - I'll reproduce the subsection (d) and focus on the word "properly"... (d) Once an appropriate base for allocating indirect costs has been accepted, the contractor shall not fragment the base by removing individual elements. All items properly includable in an indirect cost base shall bear a pro rata share of indirect costs irrespective of their acceptance as Government contract costs. For example, when a cost input base is used for the allocation of G&A costs, the contractor shall include in the base all items that would properly be part of the cost input base, whether allowable or unallowable, and these items shall bear their pro rata share of G&A costs. On the face of it, any PROPER unallowable cost should receive its share of G&A. It's like adding qualifiers to the discussion. Contracting officers have all been told from above that the PPP stuff should not affect rates. This justifies putting the labor into Unallowable. However, is it fair to dilute the G&A rate for something that should have not happened save the pandemic?
  23. The new stimulus signed just today has a provision for yet another PPP loan that will not have to be paid back. There will be people again getting paid without working. I believe the govt has made clear that they do not want this cost in their rates. My suggestion is to open up an account, which will be "Unallowable" for people to charge. My question: This payroll labor in Unallowable should draw their allocation of fringes. Should it also draw allocation of G&A??
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