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here_2_help

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  1. Retreadfed --

    From the original post --

    "... if we estimate 1920HRS per FTE, we would move that over and allow each employee 1920 hours on contract. However, for those employees who work a few extra hours here and there to get the job done, or those who are motivated to go the extra mile, they're likely going to exceed the 1920 hours. ... My understanding, it should not matter, as the labor rate is diluted. "

    The poster is decribing the impact of UCOT in a total time environment.

    H2H

  2. Lobbying is a far more complex topic than has been discussed in this thread -- though I agree with what's been posted.

    In order to fully understand lobbying you need to review the Internal Revenue Code, the Lobbying Disclosure Act of 1995, and the FAR. They are not congruent even in the sense of defining what is "lobbying".

    That said, the one thing that is congruent is the focus on U.S. officials and not foreign officials. That type of activity is covered by other statutes, not the least of which is the Foreign Corrupt Practices Act.

    Hope this helps.

  3. "I would like to understand what those pros and cons are so I can have additional information on the topic."

    Respectfully, you have gotten the best answer I have to give on a public forum. Others may offer additional information and that's their call to make. As for me, if you would like to engage me to provide consulting assistance and advice, please send me a private mesage. I have assisted several contractors (some quite large) with the issue of UCOT and I normally get paid for doing so.

    H2H

  4. CHILINVLN,

    Uncompensated Overtime (UCOT) is what happens when salaried exempt personnel record labor hours in excess of their standard workweek. (I.e., in excess of 8 hours per day or 40 hours per week, depending on what state they are in.) That's the root source of the issue here.

    You've used the term "bill" twice now; you have to understand that's not the right term. Employees do not "bill" their labor hours; they record their labor hours based on what they are working on, and then those labor hours are used to distribute their salary and/or wages to those cost objectives. We often use the term "charge" because the hours carry a cost, but we really mean "record"; the terms are fairly interchangeable in common usage -- but "bill" is not used.

    Employees should only record labor hours based on what they are doing. They should record direct labor hours (to a customer contract) when they are working on that contract; otherwise not. When they are not working on a customer contract, they should "charge" other cost objectives, including overhead if they are sitting around waiting for something to do. (This happens, for example, when employees are awaiting security clearances.) Whether the employees continue to charge the contract (and whether those charges are reimbursable), or charge overhead or fringe benefits or G&A, is up to the individual contractor to decide. There are pros and cons associated with that decision and there is no "one size fits all" answer.

    To your question, this is not an uncommon event -- e.g., government shutdown because of weather. Most contractors know how to handle the situation and there is some guidance out there on the internet for you to review in order to establish this company's policy position (and associated procedures) on the topic.

    Hope this helps.

  5. siwilliams,

    I mean this in the nicest possible way: do you not have access to legal counsel? These are really important questions and I think you really need the best expert answer you can get. I'm not thinking this is the place for such answers, even if you get them.

    In my experience, very very few senior contract folks would attempt you answer the questions you've asked; they would pick up the phone and call their attorney.That said, I have worked at different contractors and some have attorneys who are actively engaged and others do not. You may not be able to pick up a phone and WIFCON may be your best remaining option. If so, that's a shame, because you may have a lot of future revenue at stake. It would seem to be important to get the answers to these questions right.

    Hope this helps

  6. First, the work authorization system needs to be reprogrammed to account for the fact that certain employees work uncompensated overtime (UCOT), hours that the total time timekeeping system records. The "average" number of annual labor hours may be 1,920, but a weighting factor needs to be applied to account for the UCOT being worked.

    Second, when certain employees "overrun" their work authorization labor hour budgets, the only acceptable answer is to let them keep charging what they are working on. Anything else is just asking for trouble. The notion that there are "unbillable" labor hours on an FFP contract is basically nonsense, though I get there are some revenue recognition issues to be worked out. (That's what a rigorous periodic Estimate-to-Complete is for.) Charging the labor hours to overhead is just 100% wrong, unless you're looking for a subpoena in the near future.

    Basically, the company has a problem with UCOT and it needs to deal with it. The diluted labor rate is one method, but it isn't always the right method, as this situation shows. There are other approaches and those other approaches are identified in the DCAA Contract Audit Manual.

    Hope this helps

  7. Vern,

    Yes, you are correct. That's what the FAR says. I was wrong in that regard. I was assuming that the determination identified in 15.404-3 applied to prospective costs proposed by a contractor seeking a contract award. I now know that it applies to determinations made after award when the CO is considering whether or not to issue consent to subcontract.

    This is a good thing! If the CO determines that the subcontract price is fair and reasonable by consenting to the award, I now have a defense against downstream claims by DCAA and DCMA that the price was not reasonable in the cost allowability determination.

    Thank you.

    H2H

  8. "I say frank can determine fairness and reasonableness of subcontractor labor rates based on price analysis and comparison with the competitively determined prime contract rates. It appears that your position is to demand subcontractor cost data and to take a cost and profit analysis approach. I'm sticking to my position."

    Well, no. I never said that. I did say that a simple comparison of rate to rate created a opportunity for a windfall profit for the subcontractor, but there are ways to address that -- including comparison of the subK's proposed labor rates to rates previously found to be fair and reasonable for similar services offered by firms competing independently. I objected to the prime saying, "Hey, my rates were found to be fair and reasonable by the government in my competition last year, so if my subcontractor's rates are lower than my rates, then I can find them to be fair and reasonable today." And I've stated why I have a problem with that logic.

    My position is that the prime contractor is not the market and we don't know what the market rates are if we only look at the prime's rates as establishing market rates.

    You and others disagree and I can live with our divergent views.

    And I continue to object to your phrasing "Frank can determine fairness and reasonableness" because I continue to assert it is the prime's responsibility to make that determination and not the Government CO's responsibility. Unless you are arguing that the prime is acting as an agent for the Government? I didn't see you make that argument but, unless you are, then privity of contract has to mean something in this context.

    H2H

  9. H2H, in your post 22, you did not answer my question as to what difference does it make if there are other potential subcontractors who could do the work cheaper than the proposed sub? Why do we care? What requires a prime to get the cheapest sub available?

    Well, there is the requirement found in 52.244-5 that "The Contractor shall select subcontractors (including suppliers) on a competitive basis to the maximum practical extent consistent with the objectives and requirements of the contract."

    I grant you there are a number of ways around that agreement between contractor and government. But I was also thinking about the requirement found in 52.244-2 to submit a negotiation memo within the consent package. There are a number of required elements in the memo, including--

    (A) The principal elements of the subcontract price negotiations;

    ( B) The most significant considerations controlling establishment of initial or revised prices

    But I grant you those elements could be finessed in this scenario.

    I was also thinking about cost allowability and the requirement of 31.201-2 and the cost reasonableness requirements of 31.201-3, specifically --

    ( B) What is reasonable depends upon a variety of considerations and circumstances, including --

    (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance;

    (2) Generally accepted sound business practices, arm’s-length bargaining, and Federal and State laws and regulations;

    (3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and

    (4) Any significant deviations from the contractor’s established practices.

    And I also noted that, if challenged, the burden is on the contractor to prove its costs meet the reasonableness standard. But I grant you that the contractor could argue its way out of that, though probably only with the help of expensive attorneys.

    So I grant you all the above and I even concede that price reasonableness can be established by a number of methods other than competition. I give you all that.

    And I still feel that, in this case, the prime contractor has done a poor job of establishing price reasonableness when it simply compares the price offered by its sole-source subcontractor to its own costs for performing the same work. When I ran a contractor procurement shop, I would not have let my buyers use that rationale to justify subcontractor price reasonableness. My buyers would have needed to bring something better than that to me for approval.

    *Shrug*

    Maybe it's just me.

    H2H

  10. Jamaal,

    I posted this story before (I forget where) and it's a true story. Some details are changed to protect me from lawsuits.

    There was a long-time DoD contractor who supplied a widget to a particular military service. That service used source-controlled drawings to buid its MDAP-type stuff. So every time a big thingee was authorized to be built the service went to the same source: the contractor. The contractor responded the same way to every RFQ/RFP it received: last time we sold you this widget, you bought x amount and paid $y amount per each. That amount was determined to be fair and reasonable -- see contract no. 12345. It's been a year (or 2 or 3 years) since your last acquisition, and during that period the CPI went up p%. So all we are asking for is that same rate as escalated by p%. It was fair and reasonable last time, so you should find it to be fair and reasonable this time.

    And indeed, the contractor had no trouble whatsoever selling its sole sourced widgets via comparison to the prior acquisition, which had determined to be sold at a fair and reasonable price. And then that sale became the basis for the next sale, and so on and so forth for literally decades.

    But nobody ever asked the contractor about its costs, because why should they? Why should they care because if the price was previously found to be fair and reasonable, it was easy to see this current price was also fair and reasonable.

    But if anybody had ever asked, the contractor would have told them that they completely changed production methods over the past decade or two, and in fact had outsourced the work to a foreign country for the cheap labor. (FYI, the foreign country was not a problem; the contractor was compliant with applicable regulations in that regard.) But after making all the changes, it cost that contractor about 30% of what it used to cost to make that widget.

    PROFIT!!

    So that's why I'm sensitive to this topic.

    H2H

  11. Retreadfed --

    Your position seems to me that the prime contractor has adequately supported its determination that the subcontractor labor rates are fair and reasonable by comparison to its own labor rates. If so, we disagree. But that's okay.

    Joel --

    I was echoing Vern's question. Vern wanted me to play CO in a hypothetical scenario, and I recast the scenario to be more accurate (in my view). I'm happy to receive Retreadfed's response, or any response from anybody who cares.

    I decline to play the role of CO. I'm better suited to play the role of OIG reviewer. In that role, I don't like what I see in front of me. But opinions vary; I get that.

    H2H

  12. Vern,

    But that's not the conversation Frank is having. Here's the conversation Frank is having with his prime contractor:

    "We found a subcontractor who fits in the right socioeconomic category to help us both make our small business plan goals. We carved out some of the work we were going to perform so that we could make an award to this subcontractor. The subcontractor may or may not be qualifed -- we didn't look too hard at that aspect -- but we know the subcontractor is in the right category so that will solve our problem. As for pricing, we made sure the subcontractor's rates were lower than ours. So you (Frank) are getting a deal! You will see a cost savings because some of the work we were going to perform will be performed by this subcontractor at lower rates. Honestly, we didn't look at whether we could find other subcontractors who could do the work even cheaper, because that wasn't the point of the exercise. The point of the exercise was to find a subcontractor in the right socioeconomic category and give them some work so that we can claim we made our small business commitments. We found that subcontractor and we want to make a sole-source award.

    "So please approve this award and we can all claim victory when the SADBU looks at our program!"

    That's the conversation I think Frank is really having.

    What should Frank say?

    H2H

  13. "If the prime needs to convince the CO that those rates are fair and reasonable, then the prime must determine and make a case that the rates are fair and reasonable. The CO will have to assent to them if the sub's rates are to be inserted into the contract or will have to determine them to be allowable costs if the prime is to be reimbursed for them."

    I agree with everything in the sentences quoted above and I believe I've posted that same thing at least twice on this thread. As I posted in #15 (above), we seem to be talking past each other. Sorry about that.

    H2H

  14. "If the Government thinks that the prime's rate for certain kinds of labor is fair and reasonable, why would it think that a lower subcontractor rate for the kind of labor is not?"

    Vern, you keep talking about the Government and I keep talking about the Prime Contractor. I suspect we're talking past each other.

    From a prime contractor's point of view, competitions are to be avoided whenever possible, because they take too long and cost too much, and (generally) schedules and budgets aren't that generous to begin with. I know one contractor where they created a Sole/Single Source Justification Center of Excellence to make sure they could justify as few competitions as they could. Competitions are that despised.

    Competitions are avoided wherever possible not because the prime already knows what price is fair and reasonable; far too often the prime already knows the subcontractor who is going to win before the competition is held.

    Sometimes the known subcontractor is selected for quality or to fill a known technical gap. Sometimes the subcontractor is pre-selected because the prime knows the COR likes to do business with that particular company. And sometimes the subcontractor is pre-selected because it's a company owned by the PM's brother-in-law (or the COR's brother-in-law). You don't know what the real story is because the SSJ looks okay and the price was found to be fair & reasonable by comparison to .... something. In this case, by comparison to category labor rates negotiated sometime in the past between the prime and the government, using different direct labor rates, different overhead rates and different quantities of hours.

    H2H

  15. I think that it is up to the prime -- and not the government -- to establish why the proposed subcontractor's labor rates are fair and reasonable. There are a number of ways to do that. I don't think that comparing the proposed subcontractor's labor rates to the labor rates that the prime negotiated with the government is one of those ways.

    If the prime could establish price reasonableness by simply comparing subcontractor prices to its own prices, then no prime would ever hold another competition between possible subcontractors because why would it need to? Just pick a sub and then compare its price to your own price. If lower, then voila! the price is fair and reasonable. In point of fact, the prime is NOT competing independently against its own subcontractor, so price analysis is less than fully meaningful.

    In my view, the government's role here is to review the means by which the prime contractor established subcontractor price reasonableness, and to determine whether it accepts the prime's methodology, or not. The government should not seek to independently establish price reasonableness, because it is not awarding the work -- the prime is. Thus, the prime has the responsibility for establishing price reasonableness, and not the government.

    That's how I see it.

    H2H

  16. Vern,

    Yes and no. Comparisons are nice but in this case the prime was NOT comparing the subcontractor's LCAT rates to the market as a whole; it was comparing the subcontractor's prices to its own negotiated prime contract prices. That's a half-assed approach because if it were a valid approach, no prime would ever have competitions for potential subcontract awards.

    You also made an assumption that the award was less than that the TINA threshold. I made an assumption that a 24 month period of performance would tend to generate a price in excess of that threshold. We are both making assumptions without information -- and I like my assumption better than yours. (Naturally!)

    The sole source basis comment flowed out of Frank's post, which implied that the only reason for making the award was to satisfy small business plan goals. Thus, it seems entirely reasonable to assume that the prime picked out a potential subcontractor in the right socioeconomic category, and once that company was chosen, moved to make an award. The assumption was further supported by the comment that the only price comparison was between the subcontractor and the prime -- i.e., there was no competition and no price analysis between companies competing independently.

    I don't know. Maybe I'm reading too much into a simple question. But something smells fishy to me about this contract action--and I responded accordingly.

    H2H

  17. Frank,

    I think Vern's answer was a bit misleading. You can "claim" or "assert" anything you want. But the fact of the matter is that in the scenario you have described, there is no support for the assertion.

    In your scenario, Company XYZ is the prime and "they" want to add a small business subcontractor to meet the contractual commitments with respect to the small business plan. You would have Company XYZ compare the proposed prices of its subcontractor to its own prime contract prices to establish price reasonableness? Really? Is that how it works? I would suggest not.

    It is the prime contractor that needs to establish price reasonableness for its subcontractors. There is no role for the USG contracting officer in that effort, except to review the package and consent to the award, or not. In this case, I hope consent will not be given, because the prime has done a half-assed job (at best).

    Look at it this way. The small business may have proposed LCAT rates that are half of the prime's rates. But we don't know what the actual cost is to the small business. Rates that are 50% of the prime's LCAT rates may still give the small business a 100% profit rate. You don't know what the profit is and the prime isn't looking. The subcontractor's LCAT rates could be 50% of the prime's rates and still leave plenty of room to kick-back thousands of dollars to the prime in order to get the award without going through competition.

    Did the prime submit a Sole/Single Source Justification? What did it say?

    All the above leads me to this question: Does Company XYZ have an Approved Purchasing System? If so, how did they pull-off that feat?

    Finally, if I've misinterpreted the scenario and the small business is not the prime's subcontractor, but instead another prime agency contractor, then it is up to the Government to establish price reasonableness ... but the resulting award will not count toward Company XYZ's socioeconomic goals.

    Hope this helps.

  18. "Does Location 2 need to have a CAGE code?"

    Maybe. It depends.

    DOD uses CAGE codes to identify a specific facility at a specific geographic location. To the extent that Location 2 will have separate KO cognizance or separate DCAA audit or separate DCMA quality assurance folks, it would seem to need a unique CAGE code. On the other hand, if Location 2 is transferring the product to Location 1 via inter-org transfer, and is willing to make Location 1 the receiver of the USG contract, then it can likely piggy-back off Location 1's CAGE code.

    Hope this helps.

    Edited to add: Also this affects DFARS business systems administration, since withholds (if any) are typically implemented by CAGE code. Accordingly, not having a separate CAGE code increases risk in certain areas.

    H2H

  19. sme1102,

    I think you are conflating the notion of an adequate BUSINESS SYSTEM with the notion of adequate systems to administer contract financing payments.

    There are six Business Systems identified in DFARS. Each has its own contract clause that defines adequacy criteria. A contractor must have an "adequate" business system, as defined by the appropriate contract clause. If the clause is in the contract but the contractor does not comply with clause requirements, it could be found to be in breach of the contract.

    There is one Business Systems administration clause. It is put in contracts as directed by DFARS 242.7001. As you stated, it is only to be put into "covered" contracts, which is defined at 242.7000(a) as a CAS-covered contract. Indeed, the first sentence of the clause states that it only applies to CAS-covered contracts.

    When a contract has BOTH the 252.242-7005 clause AND one or more of the individual Business Systems adequacy clauses, then there is a specified (and mandatory) process and remedy for an inadequate business system.

    Separately, other clauses (e.g., the Progress Payment clause) require a rather non-specific and ambiguous set of processes and controls so as to assure compliance with the clause requirements. But what is being required is emphatically NOT a DFARS Business System, since none of the six DFARS Business System clauses are being referenced.

    Apologies for any pedantry. Hope this helps

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