Posts posted by here_2_help
15% = $3M
40% of $3M = $1.2M
If you are concerned that you cannot meet the required amount, don't bid.
Don't hope you can make it--know you can. Have a solid plan in place. Or don't bid.
I have no insight into your other questions.
On 3/22/2023 at 12:19 PM, general_correspondence said:
Is there a rule of thumb, or an accounting standard that the prime should use to negotiate the costs being claimed by the subcontractor?
Yes, there is such a rule of thumb and it's very straight-forward.
Make the subcontractor provide detailed support for each of the costs being claimed. Make the subcontractor show you how those costs were incurred solely because of the delay, and not for any other reason. Make the subcontractor show you how the costs could not have been avoided with respect to your subcontract.
There. That's it. Everything else in this thread is, in my opinion, not responsive to your question.
18 hours ago, general_correspondence said:
We are the prime contractor on a CPFF with our DoD customer. We have a FFP subcontract for construction work. Permit delays, neither party liable for damages, considered an excusable delay. The subcontractor gave us Notice of these delay impacts when required and in conformance of the contract. However the most recent Notice is a claim for carrying costs. Is there a rule of thumb, or an accounting standard that the prime should use to negotiate the costs being claimed by the subcontractor?
The delay has been well beyond 6 months, The subcontractor has told me they have "diverted" most of the field labor during this delay so the costs are FE, likely OH and G&A type mostly, including Fee. (Fee may be prohibited?) Is there a process to use to baseline negotiations,
I'm excited to learn what "carrying costs" means in this context. I Googled the phrase, and it seems to have something to do with the cost of maintaining inventory. If you can, please let me know how the subcontractor calculated its additional incremental costs related to an inability to start work as anticipated. I'm also interested to learn what "FE" stands for -- Field Engineers?
As Joel noted in his response, there is no way to answer your question without more facts.
- Was the contractor required to provide cost or pricing data? Was the data required to be certified?
- What are the contract types?
- How were offerors evaluated?
So ... your question needs to be refined & enhanced. Even then, nobody here will be able to address "legal/compliant under federal contract law" because legal advice is something you get from your own attorneys. At the very most, somebody might give you insight into what the applicable regulations say about the issue.
On 3/17/2023 at 4:48 PM, novice said:
Does anyone know if the requirement for MMAS is being used by agencies other than DoD such as Space Command or NASA , and how were the percentages determined?
1. Did you check for appropriate clauses?
2. What do you mean by the term "percentages"?On 3/17/2023 at 4:48 PM, novice said:
A bigger question is can MRP be accepted as a substitute - appears not. But with the impetus to consider commercial contracting practices especially use of voluntary consensus standards and leading commercial practices why not?
1. In the DFARS, an acceptable MMAS meets 10 adequacy criteria. Does your MRP system meet those 10 criteria? If not, then it's probably not acceptable.
2. "Why not?" Suggest you write your Congressperson or Senator. Perhaps you can get the regulations changed!
It's fairly well known that the MMAS clause is inserted into contracts for which it should be N/A, but it's a mandatory clause so there it is; you are expected to comply with the clause's requirements. If you want the work, I suggest your company invest in a compliant system of policies, procedures, and practices.
Have you reviewed the guidance at FAR 15.404-1(d)?
If the offeror's proposed price includes an estimated cost paid to a subcontractor for performing part of the SOW or PWS, then I would think that the subcontractor's estimated cost would be an item subject to analysis. Why wouldn't it be?
I just finished reading ... um ... skimming ... uh ... scrolling to the end of the decision. As far as I could tell, it was a stunning example of cut-n-paste skills from various documents. Take out the lengthy quotes and put references to them in footnotes, and the decision would have been about one-tenth of its length.
On 3/13/2023 at 12:52 PM, realquiet said:
When completing a Cost Analysis of a supplier's proposal (as the Prime), and the supplier maintains their rates and factors as proprietary and they have a current/active FPRA; would you recommend still requesting field pricing assistance from DCMA? FFP. This is non-commercial. Over TINA. Per FAR, needs a Cost Analysis, there are no existing exceptions. Can the Cost Analyst proceed under the assumption that the rates and factors are reasonable? Or, is it still best practice to request field pricing assistance, despite the long lead time?
How about having the supplier certify that the rates/factors used in its proposal are fully compliant with the FPRA they have executed with the government? Would that certification address your concern(s)?
On 2/15/2023 at 3:42 PM, Retreadfed said:
You did not quote the entire definition of "segment." Although the FAR has the definition formatted differently, the CAS state "Segment means one of two or more divisions, product departments, plants, or other subdivisions of an organization reporting directly to a home office, usually identified with responsibility for profit and/or producing a product or service. The terms include Government-owned contractor-operated (GOCO) facilities, and joint ventures and subsidiaries (domestic and foreign) in which the organization has a majority ownership. The term also includes those joint ventures and subsidiaries (domestic and foreign) in which the organization has less than a majority of ownership, but over which it exercises control." Thus, separate companies can be "segments" of an organization. In this regard, the CAS do not say that inter corporate orders are subcontracts. Instead, such orders are to be "treated as subcontracts."
Perfectly quoted.22 hours ago, Neil Roberts said:
@Retreadfed, the clause bothers me and seems ambiguous. And, it may also be more complex than it looks at first glance. I would not issue an inter-organizational order between subsidiaries or joint venture entities because my understanding is there are tax consequences to doing so instead of issuing a subcontract (inter-organizational "order" makes it seem like the parties are one entity). On the other hand, an inter-organizational "transfer" (which poster mentions, and also calls it an inter-organizational "order"), can be issued according to FAR 31.205-26 for commercial work transfer at cost. Commercial work may be "exempt" from CAS. But, poster facts excluded any CAS "exceptions."
Except for the business case(s) cited by 31.205-26(e), inter-organizational transfers are simply transfers between one organization. See 15.407-2(b):Quote
"Make item," as used in this subsection, means an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions.
Except as noted above, inter-organizational transfers are "make" not "buy" -- but (as Retreadfed correctly pointed out) the CAS requires them to be treated "as subcontracts" for purposes of CAS coverage.
1 hour ago, Retreadfed said:
Does the LOC or LOF clause require the contractor to complete the contract if the contractor exceeds the estimated cost or amount allotted to the contract but does not give the government prior notice of the overrun?
Hmm. I would say yes but I can't point to a case at the moment. How about let's just say the contractor is in material breach?
EDITED: I'm willing to concede that the failure to notify simply means that the government is not required to fund any overruns. A failure to notify does not carry with it an obligation to keep performing. Sorry about that.
37 minutes ago, joel hoffman said:
H2H, can you clarify this statement and this statement:
Both clauses state that the contractor is not obligated to continue performance beyond the LOF or LOC.
Joel, I'm sorry I wasn't clear. My statement: "…but the contractor is still expected to perform the contracted work" was in the context of a FAILURE to comply with the requirements of the clause(s).
1 hour ago, Retreadfed said:
H2H, I generally agree with what you have written. However, I do not understand this sentence. Can you explain what you meant by it?
If the contractor fails to comply with the LoC or LoF clause (as applicable) then the government is not obligated to provide additional funds but the contractor is still expected to perform the contracted work. In the event performance costs more than available contract funds, then the contractor will incur a loss on performance of the work. I'm talking about project gross margin erosion into negative territory.
21 hours ago, OuterSpace said:
We have a 5 year CPFF contract for approx $10m. As I understand it, the Fee is fixed, so if our rates increase during the life of the contract, this would eat in to our Fee. Or do we get a chance to bill at the new higher rates, and increase the fee as well (or would this only apply to a cost plus percentage of cost)?
At this point, you have a contract with both (1) an estimated cost and (2) a fixed fee amount. During performance, if your costs increase (because, say, your indirect rates were higher than you expected) you may still bill those costs (assuming they are allowable, reasonable, etc., as ji20874 wrote) up to either (a) the amount funded if incrementally funded or else (b) the full amount of your estimated costs.
HOWEVER, if your contract includes 52.232-20 or 52.232-22, then you must comply with those clauses. Normally (with a few exceptions for unforeseen situations) you must notify your customer before spending all the money. If you adhere to the notification requirements, the customer may choose to fund an overrun (regardless of cause); but it need not and then you stop work when you have no more funds or have reached the total estimated cost of the contract. In that manner, your fixed fee is preserved. Note that if your contract includes either or both of those clauses (and it should), then your failure to comply essentially converts your CPFF contract into a FFP contract and you must deliver and the customer has no obligation to fund any overrun/cost growth whatsoever.
Increasing indirect rates just burns the available contract funds faster than planned. Whether that situation impacts your expected profit largely depends on your ability to comply with those contract clauses I cited above.
KatzM -- You are asking a question of law and there are no lawyers here who have agreed to provide you or your company with legal advice/assistance. I urge you to obtain the answer to your question from competent legal counsel.
5 hours ago, Vern Edwards said:
But is it the same material cost? I buy something for $1000. Then I sell it to someone else for that amount. They use it to make something new, then sell it to me for $1,500. I then make some changes to the thing and sell it to someone else for $2,000. It seems to me that the buyer's only question should be whether $2,000 is fair and reasonable.
I suspect that I'm being simple-minded, but where am I going wrong?
Vern, the issue is that the first company is not selling the materiel to just anybody; they are selling it to a supplier who then sells it back. This is not necessarily a problem but it could be. And if you'll refer to my first response under this thread, I think you'll find that we are in agreement from the buyer's perspective. I was focusing on the accountant's perspective, as I tend to do.
2 hours ago, Vern Edwards said:
@here_2_helpWhy would you be "concerned"? Do you think those things violate a law, a regulation, or an accounting principle? How does the amount affect the propriety of the transaction?
I'm not challenging, just asking.
First, I only care if amounts are "material" as defined by FAR 30.602 (which directs a contracting office to 48 CFR 9903.305 in CAS-land). If the amounts are not material, then I am not concerned. (Note I will try to use "materiel" for goods to distinguish between goods and the concept of materiality.)
To your question: The goal of any indirect rate is to allocate costs across many "cost objects" (let's call them contracts) in reasonable proportion to the benefits received. (Ref. FAR 31.203(c).) The costs in the indirect pools are, generally, related to functions and activities. For example, a materiel burden pool may contain the costs of purchasing, quality control, and other activities related to acquiring and using materiel. In my view, when the materiel was originally acquired it was properly burdened with the costs of those functions/activities. Then the materiel was sold to a supplier. Then the supplier returned the materiel in the form of a finished good. Unless the contractor is careful, that same original materiel cost will be burdened again.
That's not a problem so much for the government, because all the contractor is doing is increasing the denominator of its indirect cost rate calculation, but it could result in excess indirect costs being allocated to the contract with this relatively infrequent transaction type while other contracts receive relatively less indirect cost allocations.
The issue with double-counting the revenue should be fairly obvious. A succinct summary with a good example is found here. There are other articles available.Quote
The error of double counting occurs when the value added by a certain activity in the production chain is added twice. For instance, the value of bread sold is inclusive of the value of the flour, the manufacturing, the packaging, and transport. If we added the cost of transport once again to the final value of bread, the error of double-counting has been committed.
You haven't made the case for why this is in the government customer's best interest. Why is this transaction being done? Who saves money? Who saves schedule?
My recommendation is to start by building the business case for why this makes sense. Perhaps then you will be able to refute the "perception problem" your former DCAA auditors are concerned about.
I will share that I have dealt with this situation a couple of times before. In each case, there was a business justification/rationale for the prime selling stuff to the subKtr, who then refined it and sold it back. In each case, we were able to show that the government customer was not paying any more for the end item deliverable than would have been the case if the subKtr had purchased the material input on its own--even with profit added. In fact, we were able to show significant schedule advantages to doing what we wanted to do. Since it was in our government customer's best interest, there were no concerns expressed.
This issue arises frequently because most larger contractors are both competitors and teammates on different contracts, often concurrently. For example, Raytheon may provide avionics to Lockheed Martin while competing against Boeing on a new missile procurement. Typically, the problem is solved by having DCAA audit the major subcontractor proposals rather than having the prime's people do it. This strategy is generally accepted by all the parties (including USG) at the larger contractor levels. Remember, these larger contractors already have cadres of DCAA auditors in their facilities on a daily basis. What's one more audit?
Any small contractor that wants to use this strategy is likely to be laughed at.
In my experience, the solution for smaller contractors is to execute a Non-Disclosure Agreement, allowing certain prime contractor personnel to review the full detailed proposal support in order to perform cost analysis, while providing assurance that the information will not be used to the future competitive disadvantage of the entity that submitted it.
I have seen a couple of civilian agency contracts (for A/E Services) that prohibit a "consultant" from billing fee/profit for its "subconsultants." However, the prohibition is express--i.e., it's right there from the time of contract formation. Nobody is relying on FAR or an Agency Supplement as the basis for the treatment; it's simply a contract term.
Unless the contract specifies otherwise, subcontractor profit is simply a cost to the prime (or higher-tier subcontractor). That said, of course Vern is right that "excessive pass-through" costs, which are defined in FAR clauses he references, are unallowable. (NB: It has always bothered me that the excessive pass-through clauses are found in Part 15 vice Part 31.)
Hope this helps.
6 hours ago, Patrick Mathern said:
One of our clients is providing material to their sub at cost. There is no business relationship between the two entities other than as Prime and Sub (this cannot be viewed as an intercompany transfer in any way). Here's a simplified version of what's going on:
- Prime purchases material from distributor for $1,000
- Prime sells to Sub for $1,000 cost
- Sub adds value of $500 (including labor and/or other materials, OH, G&A, and profit)
- Sub sells to Prime for $1,500
- Prime sells to end customer for $2,000 (including added labor, material, OH, G&A, and profit)
I'm being told by two "former DCAA auditors" that this is not in alignment with far and is also "unethical." Their view is that the Prime-Sub relationship counts as a "Related Entity" and therefore the sub must sell back to the Prime at cost. Their view is that the arrangement as outlined above is "double dipping."
Your two former DCAA auditors are wrong. A prime/sub relationship does not an "affiliated entity under common control" make.
Determining whether there is common control is fact-dependent and requires the exercise of judgment. That said, "Entities that are consolidated by the same parent—or that would be consolidated, if consolidated financial statements were required to be prepared by the parent or controlling party—are considered to be under common control." [Source: PricewaterhouseCoopers website.]
The way you describe the transaction, there is no double-dipping. If the subK purchased the material from the distributor on its own, it would pay $1,000 and add $500 in value, and then it would sell the finished good to the prime for $1,500. There is nothing unethical going on here that I can see.
However, you have skipped over any discussion of rate impacts, and revenue recognition. In the scenario you describe, the prime has counted the same material cost twice in its indirect rate allocation base--once when it purchases the material and then again when it accepts the subcontractor's finished goods. In my view, that's a problem if the amounts are significant. Also, the prime seems to have recorded revenue twice as well--once when it sells $1,000 of material to the subK and then again when it sells $2,000 worth of product to the end customer. I would be concerned about those impacts.
Hope this helps.
47 minutes ago, ji20874 said:
Government property may be divided into government-furnished property and contractor-acquired property. The equipment you are talking about is not CAP, and is not government property at all -- the FAR's Government Property clause does not apply.
Yes, the contractor keeps the property at contract end, but not because of anything in the Government Property clause. The contractor is free to sell or re-purpose the property at any time, before, during, or after contract performance.
Even if it were CAP, which it isn't, you would not need a separate CLIN for CAP.
You must not think of this property as CAP. It isn't.
Does the government want to take possession of this equipment?
Maybe, maybe not. What about when there are progress payments?
I don't think there is a definitive answer to the question, and I like ji20874's response. I also hear "wrap-rate" used frequently--though interpretations of that term vary.
I don't know a regulation or clause that gives a CO authority to direct the contract type between a Prime and SubK. However, the SubK may have to be submitted for consent in advance of award, right? So ... it seems to me that the Prime should be prepared to justify the contract type used.
Also, I wonder if the Prime understands WHY it wants to award a T&M SubK instead of a CPFF one. What is the big benefit?
Overhead versus G&A?
in For Beginners Only
Some hopefully helpful stuff:
48 CFR 9904.410-30:
48 CFR 9904.410.40:
48 CFR 99404.410-60(c):
In summary, CAS permits the treatment of selling costs as either a component of G&A expenses or a component of another indirect cost pool (i.e., "overhead" pool). As has been posted above, it is the contractor's decision, which then must be followed consistently thereafter.