here_2_help

I had another thought yesterday on the subtopic of spare part pricing. If the contractor produces the spares at the time of production it will obtain the economies of scale and learning-curve efficiencies and, presumably, would produce at the lowest cost. But it if does so without any contractual authorization and thus retains those spare parts on its balance sheet as "inventory" without charging the production costs to any contract ... then, if the government subsequently should want to acquire those spares at a later date, how should they be priced? This would seem to be the key question: should the contractor use a cost-basis to price the parts (low price, low margin) or market-pricing (higher price, higher margins)? Another factor is that the contractor is presumably sole source. This suggests cost analysis will be used. But there are other factors in play. Certainly, the contractor expects to be paid for its carrying costs and the risk it took producing spares without guarantee they would be sold. Is this really the issue that Jamaal was addressing? H2H

Jamaal, Indeed. Boeing is (in)famous for using an accounting approach called "program accounting" where the final profit/loss is tied to the overall program and not to any particular contract/project. That approach permits Boeing to lose money on individual contracts/projects but make it up in the long run. http://www.boeing.com/investors/accounting-considerations.page/ H2H

Jamaal, It's all a development program at this point, isn't it? From my Google search -- $300 - $400 million for Boeing's 40% share of FPIF cost-growth (reported in summer 2011) $425 million "wiring problems" (reported in 2014) $536 million from problems with the integrated fuel system (reported in 2015) Hope this helps.

In my experience, when the government orders spares along with the production, the customer gets the benefits of economies of scale, and margins for the spares are in line with the margins of the production program. But when the government lets the production program shut-down and then orders spares months or years (or sometimes decades) later, then there are no economies of scale and costs skyrocket. There are additional risks, such as rehabilitating tooling and production aids, configuration management concerns, and even finding the learning-curve-gained production expertise/efficiencies. Other risks are supply chain risks, such as learning whether the original source can still provide the same parts/components, or if they've been made obsolete in the meantime. Because of those risks, the contractor generally expects to earn a higher rate of profit on the production of spares. So yes, spare parts do have a tendency to have higher margins associated with them. But the primary reason is the timing of the orders and not any rapacious greed on the contractor's part. My two cents, for what they're worth. H2H

Joel, My understanding is that Boeing has "written-off" (i.e., recorded loss reserves) on the Tanker program that have cumulatively exceeded $1 Billion to date. How fortunate for the DoD that Boeing's shareholders have the resources to take such profit reductions. Not many defense contractors have those resources. My point was that in the Tanker competition (one of them, anyway) it was USA versus Europe. There were some very overt tugs at the heartstrings of nationalism. In this latest competition, it is ULA versus SpaceX or USA versus USA. Nationalism doesn't seem to play as large a role. Accordingly, what worked (in strategic terms) in the KC-46 competition may not work in the current space launch competition. But I guess we'll know in a few months .... H2H

Joel, Your point is a good one ... the primary difference between this competition and the tanker competition being that it was Boeing versus EADS then -- i.e., USA versus Europe. There were significant political overtones involved. Now, not as much. H2H

Hi brian, So it is your position that ULA can withdraw from competition and then rejoin it at a later date, after NASA has capitulated to its demands? Among other things, ULA would be demanding that NASA change its Section M evaluation criteria to de-emphasize the importance of price. Brian, do you really believe that's a feasible strategy, a feasible "negotiating tactic"? H2H

According to the Washington Post (https://www.washingtonpost.com/business/economy/ula-bows-out-of-pentagon-launch-competition-paving-way-for-spacex/2015/11/16/2aae2aa4-8c99-11e5-ae1f-af46b7df8483_story.html), ULA announced it was withdrawing from the competition for the next space launch contract. Reportedly, ULA cited concerns with limitations on use of Russian rockets and an undue emphasis on price. ULA used to have a monopoly on these launches .... H2H

Moreover, it's not like agency IG's haven't seen this coming and been warning about the situation. Both DOE OIG and NASA OIG have issued reports expressing alarm and recommending changes to move away from reliance on DCAA. H2H

Boof, The point is that DCAA has limited resources. It is logical to expect DCAA to prioritize the use of its limited resources. Doing work for non-DoD agencies when DoD-required audits are not being performed is not logical. I agree this direction is disruptive; but it is logical. H2H

The OP drew a distinction between upgrades within the same fare class (e.g., coach to premium coach) and "significant upgrades" to a different fare class (e.g., coach to business or coach to first class). The FAR cost principle at 31.205-46 does not make that distinction. But should it? After all, the upcharge for moving to a better seat in the fare class is a relatively new phenomenon. I don't think it's any more than 2 years old. Is it time for the FAR Councils to address this new trend in the cost principle? If they do, I assume they'll make it unallowable for the same rationale Joel used -- i.e., if government employees don't get reimbursed, why should contractors? I tend to resist that apples-to-oranges comparison, myself. But I acknowledge it's a common comparison and it is usually the winning argument, especially when travel is discussed. So ... is this something the FAR Councils should tackle? H2H

SLK Contractor, The $29 fee was charged, not simply for an aisle seat, but for an upgrade to a "premium" coach seat that happened to be on the aisle. Your company's travel policies should specify whether or not an employee will be reimbursed for upgrades to "premium" coach seating. Regardless of whether or not you reimburse the employee, it is not an allowable cost unless it meets one of the allowability criteria found in 31.205-46( . Hope this helps.

From one news source, pasted without verification -- "Boeing and Lockheed Martin concluded the selection process for the Long Range Strike Bomber was fundamentally flawed," read a statement from the two U.S. defense giants. "The cost evaluation performed by the government did not properly reward the contractors’ proposals to break the upward-spiraling historical cost curves of defense acquisitions, or properly evaluate the relative or comparative risk of the competitors’ ability to perform, as required by the solicitation." It's believed that Northrop won the contract because its aircraft per unit came in at $511 million, far below the Pentagon's cap of $550 million per unit, according to a Defense News report. Boeing and Lockheed claim that this price will increase significantly as Northrop overruns on the contract's budget.

Vern and I are not in any disagreement whatsoever. This is not a question of regulatory interpretation, because Vern has very clearly shown the correct interpretation. Rather, it is a question of customer relationship management. "Keep the customer happy" has a long, time-honored tradition that cannot be overlooked, even if the customer is flat-out wrong. H2H

If I were the subcontractor in this scenario, I would prepare the consent packages and submit them. I would segregate the costs of preparing those packages. Then I would submit an REA to the prime for the cost of preparing them plus any schedule impacts associated with the process. But then, I don't have a lot of patience for nonsense foisted on FFP subs by their primes. That probably colors my thinking a bit. H2H

Retreadfed, You are asserting a legal position without any support for that position. Moreover, the ASBCA decision you link to contains the following statement: "The rule is well established that a CO abuses his discretion under the LOC clause to refuse to fund an overrun, when the contractor, through no fault or inadequacy on its part (including his accounting procedures), has no reason to believe, during performance, that a cost overrun will occur and the CO’s sole ground for refusal is the contractor’s failure to give proper notice of the overrun." There are facts not in evidence here that may sway the CO's decision one way or the other. Neither one of us knows those facts, so making strong assertions and legal conclusions seems to me to be ... less than optimal. If I'm right and the Government waived its right to assert further defenses when it accepted the contractor's check, then following your advice would be a mistake. I'm not saying you are wrong in your position. I'm saying you are wrong to be so certain that you understand the facts of the matter and thus are applying the legal doctrine(s) correctly. *Shrug* Free advice: worth every penny paid. H2H

Retreadfed, Yes, that's true in general but I suspect not in this specific case, where the government agreed to accept payment via check. On the other hand, now we're veering into legal stuff, including the doctrine of full accord and satisfaction. So you may be right. I would think that government acceptance of payment PLUS a subsequent (i.e., after then deal was made) refusal to pay a final invoice based on a failure to submit LoC/LoF notification would not be perceived as being entirely above board, since to me it would look a bit duplicitious. But I'm no lawyer. *Shrug* I still stand by my answer. The government was made whole for ALL affected contracts when it accepted the check from the contractor. To complete the deal, the government must now come up with the funding to pay the final invoice for each contract. H2H

Wow, that is a mess. And yet, if the contractor wrote a check to the U.S. Treasury to settle the matter, then its final billing rates are now binding and you have to find the funds from somewhere. The lesson here, for others who may be interested, is that a final billing rate proposal must be submitted and the government must hold the contractor accountable for compliance with 52.216-7 requirements. On the other hand, when DCAA claims a final billing rate proposal is "inadequate" (as happens with depressing frequency) then the CO must step in to mediate the dispute and decide, on behalf of the government, whether the inadequacies can be overlooked for the sake of determining obligation needs and (ultimately) moving the contract close-out process forward. Remember it is the CO and NOT DCAA that has the authority and responsibility for determining whether a contractor's proposal to establish final biling rates is or is not adequate -- and the FAR gives far more leeway than DCAA does in that determination. Hope this helps

If the government receives a valid invoice the contractor gets paid; I'm pretty sure it gets paid with current year appropriations. More to the point, why wasn't sufficient funding obligated to cover the rate adjustment invoice? One purpose of the Schedule I is to put the government on notice of funding needs so that sufficient funds can be obligated. In addition, 52.216-7 requires notification of necessary billing rate adjustments so as to prevent a significant over or under-billing situation. The FAR permits the provisional billing rates to be adjusted to the submitted, certified rates (less a decrement for historical unallowable costs found during audit). Why did this not take place? Bottom line (in my view) -- the lack of obligated funding is not an impediment to paying a final invoice and proceeding to contract close-out. Hope this helps.

Don, If your (implied) point was: if the BBP drafters were lax in word choice, perhaps they were also similarly lax in strategy and tactics and implementation of same then I agree whole-heartedly.

Several companies have created a business model that uses recently retired long-time aerospace/defense managers & above as SME consultants. My consulting business uses such people as sub-consultants when specific expertise is called for. In fact, this month we are sending our 252.215-7002 (Cost Estimating System) guru to a client for a few days to make recommendations towards building a standardized proposal process/system. He comes with 35 years of estimating system management including successful development of a major DoD contractor's Estimating System Manual. I'm not trying to plug my own business here -- just trying to offer advice that there are consulting businesses out there that specialize in using retired folks as SMEs. Many consulting firms offer heads but there are only a few that offer SME heads with deep expertise. Even so, some SMEs make lousy consultants. Obviously you have to vet the quals and interview the individual, and make sure you're getting the right person for your need(s). But such firms and such individuals do exist -- and they tend to be cheaper than the bigger consulting firms. Hope this helps.

If I were a CPA, I would have AICPA professional consulting standards with which to comply, but I'm not a CPA so the performance standards for my work are due care and reasonable person actions. In my view, this is consistent with my contract, which is very explicit that the customer is responsible for outcomes, not me. I'm just there to provide advice and assistance, and if I don't add value then the customer can decide my services are no longer required. In other words, the other side of the coin for me not being responsible for customer outcomes is that I have no guarantee of continued work. There is no quantity of hours being procured and no period of performance. The customer hires me to support a particular project or to meet a specific need, and either we complete the project or the customer gets rid of me and finds somebody else who will add the necessary value. I bill only for hours worked and the customer reviews those bills in light of value-added or not. I have no right to expect to receive additional work if I'm not adding value in the customer's view. Naturally, my desired outcome is to keep on billing and keep on getting my bills paid. That's a great motivator. It's also nice when customers recommend me to other potential customers because of the value I added. To that end, a lot of my customers perform reference checks before signing a contract for my services. Obviously I'm in the commercial world not the Federal acquisition environment, but fundamentally I don't see why "advisory and assistance" contracts in the Federal environment should focus on outcomes when it is the quality of the advice and assistance that matters. Is quality and value-add tough to measure? I thought that's what CPARS and FAPIIS were for. H2H

Where I come from "Advice" and "Assistance" are explicitly divorced from responsibility for an outcome. For example, I may provide advice and I may assist the customer, but the customer is always responsibile for the outcome and for determining the sufficiency of my advice/assistance. This agreement acknowledges that while I may advise and assist, the customer is free to ignore my advice and assistance--because the customer is the one with both authority and responsibility for achieving any outcomes/objectives. I have neither authority nor responsibility: I'm just there to offer advice and assistance to the process of achieving those customer outcomes/objectives. Seems things may be different in the Federal government arena. H2H

So apparently you can order armored personnel carriers off a GSA schedule as if they were commercial items? Who knew? H2H P.S. -- I hope the personnel being carried don't ever learn they were awarded to the lowest bidder.

JMG, I believe you quoted the FAR and not any solicitation provision or contract clause. Regardless, 52.237-10 is a solicitation provision and not a contract clause. It would not apply to labor hours recorded after award. H2H