here_2_help

Management of Unclassified Controlled Information (UCI) is an evolving topic. Bob Metzger of Rogers Joseph O'Donnell has made several of his presentations on the topic available on LinkedIn. There are other sources of information on the topic but, as I stated, it's an evolving area.

Google "Unclassified Controlled Information" and see what you get.

Hope this helps.

Bob,

Thanks for the recovery of the "lost posts".

Whynot,

That's a clear explanation and rationale.

So what I'm seeing is that the prime should (a) create a CTA, ( show how the subcontractor labor corresponds to its GSA labor rates, or © bill the subcontractor labor as an ODC (subject to open market limit restrictions).

Thanks

H2H

"do u still think it makes sense to include the sub hours under direct labor with the sub designation for the category[?]"

No I don't think it makes sense but making sense is not what the RFP/RFQ/Q&A calls for. If it were me, I would ask the CO to clarify the statement, since mapping job titles and mapping labor rates and mapping fully burdened labor rates and mapping fully burdened labor rates with profit are all reasonable interpretations of the direction. I would ask what the intent of the direction was, so I could comply.

But that might just be me.

H2H

First of all, I think the requirement is patently ambiguous. What does the term "rates" mean? Does it mean hourly billing rates for each labor category (i.e., as would be the case in a T&M contract), direct labor rates, burdened labor rates before fee (possibly applicable to interorganizational transfers as per 31.205-26(e)), or just the indirect cost rates (which might be relevant in a cost-type contract)?

Also "mapping" is a poor word choice because it omits discussion of accounting and billing requirements. If you "map" the subcontractors to the prime for a proposal, must you also follow the same "mapping" for billing? What if that "mapping" conflicts with the contract's payment clause?

Further, does "mapping" mean "averaging" -- as in, you have to blend all the rates together to arrive at a single contract hourly billing rate per labor category? If that's what it means, why doesn't the RFP say so in clear terms?

Putting all that aside, this seems to be a godsend because, if your interpretation is correct and the mapping supersedes the payment clause requirements and billing instructions, and mapping doesn't mean "averaging" or "blending" then you get to bill subcontractors using the same hourly billing rates as the prime contractor. If this is a T&M contract then you can bill the subcontractors at your rates (the "T") and you don't have to bill them at your actual cost plus applied indirect cost rates (the "M"). All you have to do is identify which subcontractor employees "map" or "equate" or "qualify for" each labor category. Nice.

To sum up, I don't know how to "map" and what "rates" to map, but it looks like this may be a great opportunity to interpret the Q&A to your advantage and make some profit by billing your subcontractors at your hourly rates.

Or you could follow-up with some more questions to the Contracting Officer, because s/he may not have thought that off-the-cuff Q&A answer all the way through.

Hope this helps.

Are you the prime?

Does the RFP actually state, word for word, that you must "map subcontractor rates and titles to the prime"? I bet not. What does it actually say, word for word?

H2H

I'm guessing Michael700 would tell me that a negative CPARS rating wouldn't accomplish what he wants to accomplish. I'd like to know why that would be the case. Why does Michael700 want to go above and beyond past performance reporting and obtain for the government monetary "consideration" for contractor breaches that don't rise to the level of warranting a termination?

I mean, if a negative past performance report doesn't work as a "negative incentive" then I think it's time we looked at the past performance system and figure out why it's not working as intended.

H2H

Maybe the offeror's price is so low because it has an innovative solution that nobody (including the government) has figured out yet?

Back in the day, this small business started under-cutting all the established contractors in the environmental remediation business. Turns out that all the established players were using large, fixed wastewater monitoring stations. Multiple sites meant multiple stations. The small upstart put wheels on their equipment and moved it from site to site. Everybody else bid multiple stations; the little guy just bid one or two. Huge cost savings to the customer.

Just something to consider.

H2H

Doesn't the FAR permit contractors to submit prices lower than expected cost? If so, why are you penalizing the contractor for doing so?

H2H

In the early days of establishing my consultancy, I was contacted by another consulting firm to act as a "subject matter expert" to help that firm address some government contract-related issues that were rather arcane for GAAP accountants. As discussions continued, the "prime" consulting firm told me that I was going to be required to use the prime's email address (and server), as if I was a consultant of the prime. I would be unable to identify myself as a sub-consultant in any fashion whatsoever.

I didn't ask why and I didn't argue. I just said "no".

It was very easy to walk away from that business relationship.

H2H

Eager2Learn,

1. 52.216-7 goes with cost-reimbursement contract types (also T&M I think but that's not what you're asking about). If you have a FFP contract then you don't worry about reimbursement of unallowable costs, since you pay the firm, fixed, price regardless of costs incurred (allowable or unallowable).

2. You insist on having travel as a cost-reimburseable SLIN. That means you need to incorporate 52.216-7 in order to invoke the Part 31 Cost Principles (specifically 31.205-46). You skip the indirect rate calculation part but you still have an audit-determined final cost.

3. Because we are talking about prime and subcontractor, the prime could conceivably tailor a clause to invoke the Cost Principles without requiring submission of a final billing rate proposal. That would be a good step, I think. And you could also state that the travel cost audit will be performed by prime contractor personnel (and not government auditors), and that the findings of the prime's review would be used for purposes of determining final contract costs and for contract close-out. That would work.

4. Or you could fixed-price travel.

Hope this helps.

Vern,

That's a great answer. If applicable to this situation, then the new T&M rates would be lower (less profit in each labor hour rate) and there would be incentive fee available for billing fewer hours and thus a cost savings to the customer. That makes sense. Or should I say, it makes sense if you first grant that T&M would be the correct contract type rather than cost reimbursement.

Thanks

I would be interested to know what the incentive is based on. It is based on costs? (I.e., if you offer lower labor rates you get a higher incentive fee.) How does that work with FFP labor rates?

Is the incentive based on achieving quality or service level agreements?

Is it based on timely completion of schedule milestones?

Thanks

H2H

JMG,

Those were not facetious questions. I'm willing to bet that Dr. Carter is not the individual who will hold people accountable for complying with the BBP principles (as opposed to the actual initiatives).

A lot of people, myself included. don't hold out much hope for BBP. I don't think you fix processes by adding more processes.

I hope I'm wrong.

H2H

Eager2Learn,

What? No.

Let's break it down:

1. Travel will be reimbursable and 52.216-7 will be in the subcontract. (These decisions will haunt you later, but we'll get to that.)

2. Subcontractor has approved accounting system.

3. Subcontractor's standard accounting practice is to apply indirect burdens to travel costs. (I assume that's G&A but it need not be limited to only G&A.)

4. Therefore, subcontractor MUST apply its applicable indirect burdens to travel costs.

5. However, whether or not subcontractor can BILL the indirect burdens applied to travel costs is controlled by contract terms, not the accounting system description. It is perfectly cromulent for the subcontractor to apply those burdens but not be able to bill them, though of course that will eat into its profit margin.

6. Whether or not the subcontractor must submit travel receipts with its invoices to the prime is controlled by contract terms, not the accounting system description. If you want receipts you should get them. However, be advised that you should also be prepared to pay for any additional costs incurred by the subcontractor in complying with your request.

7. Now here's the kicker. You have chosen to include 52.216-7 in the subcontract. That means the subcontractor must submit a proposal to establish final billing rates and that proposal must be reviewed and the final billing rates must be negotiated and then a final voucher must be prepared and submitted. That takes time (think years). So your goal of wanting to keep the close-out process consistent among all the subcontractors was DOA the moment you decided to include 52.216-7 in the subcontract. It is irrelevant whether the subcontractor can BILL its indirect rates; it must still comply with clause requirements.

8. You could avoid all this mess by making the travel SLIN FFP and removing 52.216-7 from the subcontract.

Hope this helps.

Those principles are nice.

I wonder who came up with them?

I wonder who will enforce accountability for compliance with them?

As for me, after a long time doing this I have come up with only one principle. It's over there on my profile picture.

H2H

Big Data is real and it's powerful. But bad analysis is also real and it's even more powerful.

http://www.tylervigen.com/spurious-correlations

"In times long past, this agency was the home of a mighty, noble race of beings who called themselves the 1102s. Ethically and technologically they were a million years ahead of humankind, for in unlocking the mysteries of nature they had conquered even their baser selves, and when in the course of eons they had abolished sickness and insanity, crime and all injustice, they turned, still in high benevolence, upwards towards space. Then, having reached the heights, this all-but-divine race perished in a single night, and nothing was preserved above ground."

Neurotic,

Your scenario #1, where a contractor has both a material handling pool and a TCI-based G&A expense rate is correct. Your scenario #2, where a contractor has both a material handling pool and a Value-Added Base G&A expense rate, is also correct. Your scenario #3, where a contractor has both a material handling pool and a TCI-based G&A expense rate, is wrong.

Look at it this way:

1. The contractor can choose any cost allocation structure that is CAS-compliant. For example, the contractor can choose whether or not to have a material handling pool. The contractor can also choose which G&A allocation base it can use, so long as the allocation base is one of the three permitted by CAS 410 (assuming CAS is applicable). Yes, the allocation bases chosen have to comply with the requirement to have a logical beneficial or causal relationship between pool and base -- but aside from that, the contractor has lattitude to choose its structure and allocation practices.

2. In your scenario #1, the contractor has both a material handling pool and a G&A expense pool. That is fine. There is nothing noncompliant and such a choice is fully permissible.

3. The contractor has chosen a TCI base for G&A expense allocation. Also fine. That is one of the three permissible G&A allocation bases, per CAS 410.

4. CAS 410 defines the TCI allocation base. It is simple: all cost input before G&A. "All" means all. No exclusions. In particular, neither the material handling pool nor the direct material can be excluded. If the contractor were to exclude any costs, it would be "fragmenting" the base and would be in noncompliance with CAS 410. Thus, scenario #1 is fine and scenario #3 is wrong.

5. Similarly, in your scenario #2, the contractor has a material handling pool and a Value-Added Base (VAB) for allocating G&A expense. CAS 410 defines the VAB and it is a mathematical formula: TCI minus Direct Material dollars minus Subcontractor Dollars. So the direct material is excluded but not the material handling pool -- because the CAS 410 VAB formula does not prescribe it to be excluded. (I dealt with a CAS 410 noncompliance matter back in the late 80's where the contractor excluded the material handling pool in its VAB calculations, which increased the G&A expense rate. No bueno.)

To sum up, you seem to be under the impression that a contractor must use a VAB when it has a material handling pool. That is not the case.

Hope this helps.

My thoughts, in no particular coherent order:

It's not terribly unusual for a prime to buy materials and other direct cost items (e.g., equipment) for a subcontractor, especially a subcontractor that does not have an approved purchasing system. It is a bit more unusual for a prime to have subcontractor employees submit travel expense reports and receive payment, as if the subcontractor employees were employees of the prime.

It's a fact that the larger primes have negotiated sweet deals with airlines and hotels and car rental companies, often approaching what the Federal government negotiates. Primes often have sophisticated travel systems that facilitate compliance with the complex FTR/JTR rules. So I can see why the prime might want the subcontractor to use its systems.

Is there a prohibition per se? I don't know of one. But to this non-attorney, it seems to cloud the independent contractor relationship between the two firms.

From a practical compliance perspective, the prime is asking subcontractor employees to travel in accordance with its (the prime's) travel and reimbursement policies and procedures; I wonder how the subcontractor employees are supposed to become familar with those policies and procedures? Will they receive training? Will the time spent being trained be billable direct labor from the subcontractor to the prime?

Other thoughts: what happens if the prime doesn't reimburse the subcontractor employees for their submitted expense reports? What recourse do they have? How long does the prime have to issue a travel reimbursement check? How does the prime even know where to mail that reimbursement check? Do the subcontractor employees have to disclose their home addresses, or perhaps their bank account numbers (for direct deposit)? That sounds ... risky.

Those questions are just off the top of my head. There may well be others. The answers to those questions need to be written down as part of the subcontract, to avoid confusion and potential disputes. If the prime won't address them in the subcontract, I would be very reluctant to agree to the request.

Hope this helps.

With all due respect to jeff4757, it feels as if his company is splitting hairs and being a bit disingenuous. Companies selling commercial items don't worry about fee on materials or FAR payment clauses. They offer their products (or services) to the market and if the government wants to buy those products (or services), then it pays the customary price without worrying overmuch about what's included in the cost build-up.

On the other hand, government contractors selling their products (or services) to the DoD, to other primes, and/or to other governments, worry very much about cost build-up and application of indirect rates. They are experts (or should be) in FAR payment clauses.

Just my observation; I could well be wrong.

H2H

jeff4757,

Are you SURE -- and I mean POSITIVELY CERTAIN -- that the government will accept your "product" as a commercial item "service". If so, then the notion of fee on any particular cost element is irrelevant, because you won't be billing costs or fee -- you will be billing a price. Right?

You just put your price on the bottom-line and everything that looks like a cost build-up is not disclosed.

Unless -- and this is the kicker -- the government doesn't accept the notion that your product is a commercial item service. In which case, you are back where you started.

H2H

Not only do I agree with Vern, I think this points out a common challenge in contractor pricing. Too many contractors get hung up on their preferred pricing strategy and they ignore the impacts to the bottom-line. They don't approach pricing with a flexible mindset and as a result they see problems where there are none and fail to see easily obtainable solutions.

In this case, the government doesn't want to pay fee on material. Of course not. The RFP is for SERVICES not products.

How much material is going to be acquired to support the SERVICES being provided? Is it a lot? If so, why? If not, who cares?

If you must make margin on materials, then boost the proposed fee on the labor dollars to cover your "lost" fee on the materials. The bottom line project margin will still be the same.

Hope this helps.

jeff4757,

The government has broad lattitude to see whatever they want to see, especially when you are asking for a contract price adjustment. Even if you are within your contractual rights to deny access, somebody can call the IG and get a subpoena, and then you'll have to hire attorneys and you will STILL have to give the CO what s/he wants to see.

Payroll records are actually one of the easiest things to audit and there is very little risk to your company, especially if you have passed DCAA audits in the past. The only issue would be if you somehow manipulated hourly/salary rates, which (if you've passed prior DCAA audits) seems like a very remote possibility.

Finally: You are a government contractor; you will be audited from time to time. There is no sense complaining about it.

Or: what Vern said.

H2H

The section of 52.216-7 Vern quoted in #42 concerns submission of final invoices after settlement of indirect cost rates ("billing rates"). It acknowledges that final billing rates will likely be agreed-upon/determined literally years after physical completion of the contract. Once those final billing rates are agreed-upon or determined, the contractor has 120 days to submit the contract's final invoice. That's all it says.

It does not address routine submission of vouchers for interim payments.

H2H