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here_2_help

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Posts posted by here_2_help

  1. jcb2k,

    I'm answering your original post, which said that there was ONE contract that benefiting from the leased equipment, and then it was determined that 2 other contracts also needed to use it. When there was only one, it was a legitimate direct cost of the contract. When there was more than one, you either apportion it between the benefiting contracts -- i.e., split up the invoice based on usage -- or charge to overhead. The problem with overhead is that, if you have more than three contracts, you are allocating the cost to the contracts that don't benefit from usage. Is that a problem for you? I don't know because I don't know the relative dollars involved. If the cost of the leased equipment is less than 1 percent of your total overhead, you're probably just fine charging to overhead. Why 1 percent? I just made up that number. Materiality is a tricky concept.

    Now you ask about "usage that benefits the company and not a government contract"? That's an entirely different animal. How can usage benefit the company and not the contracts? Why would you lease equipment if there is no benefit to your ongoing work? If you are talking about IR&D efforts, then perhaps you should apportion to the IR&D efforts. You really need to figure out why you are leasing the equipment and charge accordingly.

    Also there's a concern if you pay more through equipment leases than you would have, had you just purchased the equipment. If there's any question about the total lease expense versus outright purchase, be advised you can purchase the equipment and charge to the balance sheet as a capital asset, and then depreciate into the appropriate indirect cost pool.

    Hope this helps.

  2. frank,

    It seems to me that your subcontractor has awarded a lower-tier subcontract to the staffing agency it is using for temp-to-perm employees. I would expect your subcontractor to count that award in its socioeconomic reporting. I would expect that you would count your award to your subcontractor in your socioeconomic reporting.

    As for your question about delineation, there are rules against "excessive pass-through costs" which state that the delineation occurs at 70%. If 70% or more of the total cost of the awarded contract is being performed by subcontractors then additional work needs to be performed to justify why there is a middle-man. See FAR 52.215-22 and 52.215-23.

    Hope this helps.

  3. This first a question of direct versus indirect. If the only benefiting effort was the government CPFF contract, then it's a direct cost of that contract. But if there is more than one contract that will use the equipment it should be apportioned or (better yet) charged to overhead. Now, with 20/20 hindsight, you see that there is more than one benefiting contract--but too late--because you already charged it to the one contract. You can fix this by crediting the CPFF contract and doing what you should have done in the first place.

    What you should have done was follow GAAP and charge the pre-paid lease expense to the balance sheet, and recognize the expense over time as the leased equipment was used. If you had done this, you would have charged the CPFF contract for the initial use, and then charged the other two contracts as they started to use it, likely via pro-ration (apportionment).

    So go credit the initial contract for any lease cost in excess of its actual usage, charge the other two contracts based on their actual usage, and put the remainder on the balance sheet where it belongs. Relieve the pre-paid balance sheet item over time and charge the using contracts based on how much they use.

    At least, that's what I would do.

    Also, when you charged the entire pre-paid amount to the contract, I would have classified it as an Advance Payment to a subcontractor. We can quibble about whether or not it was such, but doing so would have avoided the inevitable DCAA argument that you created an out-of-period expense (which I think is the concept your attorney was trying to articulate, poorly).

    Hope this helps.

  4. c_krizek,

    Application of a material handling indirect expense (overhead) -- or, really, application of any indirect expense -- is never fee. The appropriate overhead burdens to apply to a specific transaction are described in the entity's Disclosure Statement. If there is no Disclosure Statement, then there should be an Accounting System Description that shows what cost elements/transaction comprise the allocation base of each indirect cost pool. Transactions shown as being in the allocation base receive the appropriate indirect expense allocation; whereas those not in the allocation base do not.

    If the entity in question applies material handling to IOTs, then that is the way it's done and it should be done that way consistently. Only people who don't understand how indirect costs work would mistakenly consider that to be a fee.

    The next question is whether material handling SHOULD BE applied to IOTs. That is, does the inclusion of IOTs into the material handling overhead base comply with applicable regulatory guidance (e.g., FAR 31.203 or CAS 418, if applicable). Those regulations require that there must be a logical nexus between functions/activities in the pool and the allocation base chosen. Consequently, there is no way to answer that question without knowing what functions/activities are included in the material handling indirect cost pool.

    If the entity mistakenly thinks IOTs are "buy" then it may have the tendency to apply material handling to them, because Procurement is handling the transaction. Be advised that IOTs are "make" not "buy" unless the transfer is for a commercial item, or priced at "commercial prices" -- See FAR 15.407-2, 15.401, and 31.205-26(e) for more details.

    Hope this helps.

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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( B).

    Hope this helps.

  13. 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.

  14. 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

  15. 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

  16. The fact that the government asked for and received a check for overbillings is irrelevant in determining the contractor's right to receive payment for overrun costs.

    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

  17. 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

  18. 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

  19. 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.

  20. 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.

  21. H2H:

    Understanding the differentiation of an advisory and assistance role, what would your performance standards and desired outcomes look like in that situation? Not the responsible official's, but yours as the advisory.

    I think that's the rub for me. I haven't settled on what sound standards and outcomes could be. MICHIGANKO's post was in-line with my original thinking, but I'm hesitant to let it validate my belief simply because it supports my original thinking.

    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

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