here_2_help

You might want to check out the promulgating comments found in FAC 2005-038. In my view, the rule is ambiguous. That said, one way to measure the value of the unallowable air fare would be to compare the actual fare paid to the cost of the lowest-cost ticket available to the contractor, assuming reasonable routing during normal business hours. The difference would seem to be unallowable. There are some mitigating circumstances that might be argued. One is to show avoidable labor cost if the traveller was a direct-charging employee and travel over night resulted in less hours charged to a contract. Another might be to compare the contractor's actual travel policies for upgrades to premium fares against what's permitted in the FTR/JTR (e.g., 301-10.125) to determine reasonableness. Hope this helps.

Jacques, Thanks for that "random thought." That's great except for the fact that the customer would rather have all the other customers pay for the cost of pricing out the multiple specification changes related to the UCA, so there's zero chance of getting an advance agreement. But your input was helpful and I'll remember that citation for the future. H2H

Vern, when the CO asks the contractor for a quote or offer and negotiates a supplemental agreement under the parties' general power to change their contract "by mutual agreement," is the contractor required by a provision of the contract to prepare and submit that quote or offer? That's the crux of my dilemma. Thanks H2H

Fair enough. For what it's worth, we need to decide how to charge the proposal prep costs, either to the customer as direct costs (if we determine the proposal is required) or as B&P. Based on your response, I'm going with required. Thanks.

Recently I have learned about customer requests to price out potential scope changes to an awarded UCA. These requests have caused some consternation on the contractor's side of the house. Assume the contractor submits a proposal and, while fact-finding is proceeding, the customer decides to award a UCA with a scope of work equal to what the contractor proposed. The contract will be definitized later, and the contractor is pretty sure (based on prior experience) that it will be required to submit a definitization proposal based on actual costs incurred. Almost immediately, the customer requests the contractor to prepare a priced proposal for a scope change--a technical enhancement to an in-scope widget. Contractor assumes the price delta will be against the price it initially proposed. But the customer's request does not reference the Changes clause and there is some confusion as to whether the new effort represents a change of the original scope or new work, because the customer says that it will only authorize the new effort if it likes the proposed price. And it may do so via a new contract vehicle vs. a mod to the existing contract. It's not clear if the contractor is actually required to submit the proposal since the customer's request never actually says that's the case (though of course the contractor would be foolish not to submit a proposal when its customer requests one). Meanwhile another, similar, request for scope change proposal comes in. And another. But the original UCA has never been definitized and that original proposal has pretty much lost its relevance by this time as a baseline. Oh yeah, and fact-finding on the original proposal continues .... Following are my questions. 1. By what means does the government normally request changes to an existing scope of work when the contract vehicle is a UCA? In the situation described above, can the contractor safely assume the changes are via the Changes clause? 2. Does the fact that the customer will authorize changed scope only if it likes the proposed price affect the situation? 3. What is the impact on the analysis if the customer issues a new contract vehicle for the changed scope vs. modifying the existing UCA? 4. For purposes of calculating the price delta, should the contractor assume that all previously submitted scope change proposals will be accepted? Or should it still hold to the original UCA scope of work? I'm sure there are other issues worth noting, but at this point my head is hurting. So feel free to go beyond the questions above in your response. Thanks in advance. Here_2_Help

Green, I think you are leaving a number of important facts out of your question. But as best I can understand, you are concerned because you awarded a cost-reimbursement contract and the contractor is underrunning the estimated cost. Speaking as a taxpayer, I'm fine with that. H2H

What if all WIFCON users added him to their ignore lists?

You know, X DCAA, if there was an "ignore" feature on this forum, I would put you on my list. You are wrong and, what's worse, you are obviously wrong. First, CAS and GAAP are two different things and most contractors have different allocation metholdogies for financial reporting than they use for Government contract accounting. I could cite legal cases to support that assertion, but just look at FAR 31.201-2(a)(3) which clearly shows a difference. Second, a contractor can't be found to be in noncompliance with a Standard with which it is not required to be in compliance (e.g., 403, 410, 418 are Standards that become effective only with full coverage). So modified vs. full coverage absolutely does matter. For example, if a contractor not subject to CAS 410 wants to allocate its G&A expense pool on a revenue or cost of sales base, then it can--because CAS 410 (which would prohibit those two allocation bases) simply doesn't apply. I remember the time when some ex-DCAA auditors working for the EPA IG asserted my company was in noncompliance with CAS 403 with respect to a contract that was only modified ... it was quite fun rebutting that audit report. And quite easy, too. Third, if CAS doesn't matter, why did the 1995 revisions to CAS 412 and 413 spark "an explosion of litigation" in the words of former OFPP Administrator Angela Styles? Why do companies subject to CAS 403 requirements for the first time get to submit a Request for Equitable Adjustment for any increased contract costs that result? Why is DOD freaking out over the upcoming changes to CAS 412 and 413 that will result from the legislatively mandated "harmonization" with the Pension Protection Act, which are going to increase some big contractor's pension costs ~ 60% over the next five years? It may not be apparent to you but Vern and Joel and Don and others demand a pretty dang high level of quality out of those who have the guts to post answers here. We don't always meet those high standards but it gives us something to shoot for. Bottom line: If you can't bring the same level of quality to your posts as you would for an expert report to a court of law, then I would suggest you not bother. Seriously. H2H

Whynot, the thing is that the contract is currently undefinitized and will definitize to an FFP-LOE, if I read the posts correctly. Because of the UCA situation, the contractor is obliged to treat it as, essentially, a cost-reimbursable type until definitization (since the government will need to know actual costs incurred in order to definitize). Thus, the CEO needs a salary and a hourly rate to generate direct labor dollars that are accumulated for contract costing purposes. (Yes, in theory the government may choose not to have the contractor report actual costs incurred as part of contract definitization. My experience, however, tells me otherwise.) H2H

One of my clients is an S-Corp where the CFO is also a direct-charging employee. We divide his annual salary by 2080 hours to derive an hourly rate. The CFO tracks his time on a weekly timesheet. Each project has a charge number. There is also a charge number for indirect/admin work (CFO stuff). We charge his direct hours at his hourly rate to the contracts. We charge his indirect hours at the same hourly rate to the G&A expense pool. So far, all is well. (Fingers crossed.) H2H

Retreadfed, Yeah, I thought through that point before I posted. What I was looking for was a quick resolution to the issue. My thinking was that the contractor had a commercial profit baked into its commercial pricing, so the loss of the fixed fee would not significantly impact the bottom line. You say the impact is "substantial" and I take you at your word -- which means to me that the training materials comprise a large part of the contract price as negotiated. I guess you can ask the CO to mod the contract to delete training materials from the existing CLIN and add them back as a new CLIN, with a D&F that the materials are commercial items as per FAR 2.1. But I wonder what consideration you could offer the CO? Maybe the promise not to pursue a claim as Joel mentioned? Bottom line: It's a difficult situation and one that needs to be resolved before somebody gets accused of defective pricing and/or submission of false claims. Not that the allegation would lead to a conviction, especially since you say the commerical item nature was "clearly identified and discussed" but that never stopped any DCAA auditor from dropping dime. I myself would consider most any out-of-the-box solution in order to avoid litigation defense costs and potential settlement expenses, even if it meant giving up some fixed fee I felt I had coming to me. H2H

Well this is a nice question and one that I've mulled over for a while. I think Jacques is close to the right answer. Because the training material is produced in-house the costs must be allocated to the contract to avoid pyramiding profit. If the material was purchased, no problem. In hindsight, the contractor should have created two business segments, one to create the material and sell it at commercial prices and the other to provide training services. That would permit the contractor to use the exception at 31.205-26(e). Oh well, hindsight is 20/20. To address the issue at hand, consider invoicing the training materials at the commercial price, without application of any additional fixed fee. Sorry I couldn't be more helpful.

Insufficient information to meaningfully respond to the question. You don't provide information regarding contract clauses included/excluded, whether DFARS supplemental cost principles apply, the dollar value of the item, your company's capitalization thresholds, how you treat similar items in similar circumstances, etc. Whynot, my advice is to consider investing in an expert-level government contract cost accountant and/or attorney. Yes, such folks are expensive. In this situation, I think such an investment is warranted. Plus you can use the "relied on expert advice" defense to try to avoid culpability in the litigation that may well result from getting this one wrong. Hope this helps.

Hi all, Sorry to come late to the party. Anyway, my take on this is that the small business prime contractor wants to stop burdening its subcontract costs with G&A for this particular contract and no others. They can certainly do that and, as Joel pointed out, the result will be to reduce the amount of G&A charged to the government customer--so long as the overall G&A rate does not increase. Mathematically, the G&A expense pool is the numerator and the G&A allocation base is the denominator. If you reduce the denominator by eliminating subcontract dollars--if only for this contract--then the overall rate goes up. If I were the KO I would be wary of the current 11% rate going up to, say, 15% as a result of the change. Also, the rationale makes no sense to me, unless the prime is saying that its allocation of G&A to subcontractors makes it noncompetitive in the marketplace. That raises the question of excessive pass-through costs, of course. I hope the KO has a nice file on the percentage of subcontracting dollars being awarded and justification from the contractor on why it adds value to the overall contract effort. Finally, let me say that, as a small business, the prime contractor is exempt from CAS. All the CAS stuff about consistency and appropriate G&A allocation bases is irrelevant to this situation. The only regulatory guidance here is FAR, applicable agency supplements, and whatever the contract says. Hope this helps.

Jacques, Between FAR and CAS, there are fairly specific definitions of what is a direct cost, what is "overhead" and what is "G&A expense". You correctly cited to 31.201-4 for the general allocability requirements. 31.201-4(a) establishes the basis for charging costs directly to a contract, 31.204( establishes the class of indirect costs commonly known as "overhead", and 31.204© defines what is commonly known as "G&A expense." In addition, 31.203 discusses indirect costs. Also see the definition of indirect cost pools at 31.001. Essentially, an indirect cost benefits more than one "cost objective" or "final cost objective" in a cost accounting system. If any cost benefits only one specific final cost objective, the bias is that it should be a direct cost. (There is a series of not-so-great cases on this issue, including Caldera v. Northrop Worldwide Aircraft Svcs, 192 F.3d 962 (Fed.Cir. 1999) and Boeing North American (ASBCA No. 49994, 283 F.3d 1320 (Fed. Cir. 2002), 298 F.3d 1274 (Fed. Cir. 2002)) If any cost benefits more than one final cost objective or an intermediate cost objective then the bias is that it is an indirect cost. Only those indirect costs that benefit the business (or segment) as a whole are properly classified as G&A expenses. The posts by heretalearn indicated to me some confusion on those concepts.

I'm not going to debate with you. But I will note that your response raises further problems, including potential issues with cost allocability. I don't know if you're technical, contracts, accounting, or whatever. I don't know if your company is a DOD contractor or GSA contractor or Part 12 contractor. But it seems to me that (a) your understanding of the accounting used by your company is flawed, or ( your company is skating on thin ice if it is subject to FAR Part 31 requirements. If you do have a strong grasp of your company's accounting practices, and you have accurately recited them here, and your company is required to comply with FAR Part 31, then I urge you to find a really strong government cost accountant to evaluate your practices in light of your contractual requirements.

Hi Heretalearn! I'm sorry, but I can't agree with your point(s) above, because I think your logic is flawed. Using your logic, no contract would ever have any costs if the personnel were salaried, because the company already incurs salary costs. In fact, salary costs are distributed based on hours recorded by the employee. Employees typically work a number of tasks, from executing projects to attending training, to filling out annual performance reviews, to working on new business proposals. The cost of each of those tasks is calculated by first distributing salary based on hours incurred, and then burdening the distributed labor costs in accorance with the contractor's standard practices. Now if you had a situation where no employee ever charged direct to a contract, and thus you never had any direct labor costs whatsoever, then you point(s) would have some validity. But I don't know of any contractor where that is the case; indeed, the majority look to make as many folks direct-charging as possible. In a related note, "back office support" may or may not be built into the G&A rate, depending on which employees charge direct and which are solely indirect. Note that there is a fundamental difference between pricing REAs pursuant to an existing contract's Changes clause, and pricing new business proposals in pursuit of new contracts. Hope this helps.

If the contractor's normal business practice is to charge such travel to the benefiting contract, then yes, the government should expect to pay for the contractor to travel to its subKs in order to provide oversight and ensure high quality performance. If you ever find a contractor who doesn't want to oversee its subKs, then you will know that you already have a performance problem before work commences. Hope this helps.

Retreadfred, I would assert that it doesn't matter which particular DCAA office issued the finding(s). It could--and has--come from any of them. As I posted, it's a fairly typical finding, one that is generated by auditors strictly comparing two dates rather than thinking through what is really happening. H2H

This is a fairly typical DCAA audit finding, along with the one that says invoice funding doesn't match MOCAS. Anyway, Vern is correct that the way to approach this is to look at when the work was performed, not when it was recorded on the contractor's books. Most experienced people understand that there is a lag, especially when subcontractors are involved. The work was performed within the PoP, even if the lagging costs were outside of it. So long as the contractor was within funding limits, I would expect such allowable costs to be reimbursed by the customer. Fundamentally, applying DCAA's logic would mean you could never determine final price once the PoP had expired. Any accounting transaction outside the strict PoP couldnt' be recognized. For example, you could't adjust final billing rates after the PoP had expired. Even more bizarre, you could never give the customer a credit it was entitled to, since the credit would be outside the PoP. So DCAA's position cannot be correct, since we all know the absurd results I note would be contrary to just about everything. Hope this helps.

I have two answers. 1. If none of the conditions apply, then what rationale would the CO use? 2. Under proposed (not final) DFARS rule-making, not only would the CO have the authority to suspend progress payments, the CO would be required to reduce progress payments if contractor business systems were found to have significant deficiences.

If I was given the power to fix only one thing in the world of government contracting, it would be the Anti-Deficiency Act. I would eliminate it.

Bob, Thanks as always for creating this extremely useful resource for us all. Section 806 is kind of a mind-blower, isn't it? Also the Section on DCAA audits of contractor business systems creates some interesting issues for DCAA to deal with, in my view... I'm looking forward (NOT!) to seeing how the agency handles the legislative direction.

Vern, I see nothing in your words to disagree with. Too many CM articles are too clearly sales jobs. Not sure if your final sentence was directed at me, or not. In case it was, let me say that I've contributed more than a handful of articles to CM in the past decade--one in the past 12 months. (Not under the name "Here_2_Help" obviously.) I hope I got the details correct. When I write for CM I try to keep in the back of my mind that not all readers are FAR/DFARS experts. That's why my articles usually have extensive footnotes. The footnotes are for those (few) who want the details and the exact citations. Again, Don is correct. Brian and Mark should have done better. Happy New Year to all.

I am not in favor of mis-educating people who need to know the details and get them correct. The thing is, I don't believe Contract Management is the place to get the details correct. (Maybe it should be.) The magazine has a wide circulation that includes commercial contract managers, subcontract managers, and many others. Perhaps the authors have provided sufficient education for those others? Maybe there is some learning to be had, even though some of the details are not correct? Don't get me wrong, I'm not defending them. (And yes, I know both authors personally.) Wrong is wrong. When you hold yourself out as an expert, you need to get the details correct. And clearly they didn't. But, seriously. What did you expect? It's Contract Management.