here_2_help

The situation regarding indirect cost rates is more complex than has been described. And potentially more challenging, as well. See the June 4, 2010 audit guidance (MRD PSP-018) at the DCAA website (www.dcaa.mil). Essentially, DCAA has staked out the position that, if a Forward Pricing Rate Agreement (FPRA) is negotiated between the contractor and DCMA but DCAA did not perform a full audit of the rates prior to DCMA negotiation, then it will question all costs it has not yet audited, even those indirect cost rates that conform to an executed (and otherwise valid) FPRA. If DCAA did audit the submitted rates, but the authorized ACO negotiated FPRA rates that were significantly different than those DCAA recommended, then the auditors will ignore the FPRA rates and substitute their own rates in place of the negotiated FPRA rates. Any difference between the two sets of rates will result in questioned costs. The guidance directs auditors to perform a full-scope audit of indirect cost rates used in cost proposals, where such rates have not been previously audited. In my view, that's going to add to the already overlong period between the time a Contracting Officer requests a DCAA audit and the time that the audit report is received. Obviously I can't summarize every nuance in a single post. You will want to see the audit guidance for yourselves. And perhaps consider adding more time to your acquisition schedules, or consider moving away from DCAA audit results as a factor in determining price and/or cost reasonableness.

Sounds good to me, too -- and glad to help. But a little corrrection, just to keep everybody on the straight and narrow. The limit for PBPs is 90% of total contract (or CLIN) price, not total cost. I don't mean to be overly pedantic, but that extra fee makes a difference. H2H

Basically I think PBP liquidation works just like liquidation of cost-based progress payments. Here's a link to a previous WIFCON discussion on cost-based progress payment liquidations. http://www.wifcon.com/discussion/index.php?showtopic=481 Unless your agency specifies a different approach (and you indicated that yours does not), then I would expect that the liquidation rate would be equal to the total percentage of contract price covered by PBPs. For example, if the aggregate value of PBPs equals 88% of the contract price, then your liquidation rate would be 88%. But to my knowledge, very little about PBP liquidations has been put into writing, just like very little about PBP administration has been put into writing. Between 2002 and 2005 I collected every little thing I could find on PBPs ... I found very little. Hope this helps.

Good reply. My thought was that the Government could accept the late bid when it was in their interest to do so. I see that it must have been in the government's control in order to be entertained. According to the article, the proposal was delivered to the installation on time, but not to the exact building. The protester appears to be arguing that it was late because of governmental action -- i.e., misdirection as to how to find the right building. Thanks H2H

?The proposal was late and by law we are not allowed to consider it,? Morrell said in response to a query from AVIATION WEEK. ?We are considering two proposals and U.S. Aerospace is not one of those being considered.? Apparently the bid was received 5 minutes late. Apparently the US Air Force does not read the FAR at 15.208(, which permits consideration of late proposals. Now they have their first protest -- of this round. Here's a link to the story. http://pogo.ly/8dzziX My question is whether other 1102's would have accepted the late proposal for evaluation, or done what the USAF C.O. did and refuse to consider it?

Vern, You are looking only at the clause. You also need to look at the provision (below) and FAR 15.408(n)(1). 52.215-22 Limitations on Pass-Through Charges?Identification of Subcontract Effort. As prescribed in 15.408(n)(1), use the following provision: Limitations On Pass-Through Charges?Identification Of Subcontract Effort (Oct 2009) (a) Definitions. Added value, excessive pass-through charge, subcontract, and subcontractor, as used in this provision, are defined in the clause of this solicitation entitled ?Limitations on Pass-Through Charges? (FAR 52.215-23). ( General. The offeror?s proposal shall exclude excessive pass-through charges. © Performance of work by the Contractor or a subcontractor. (1) The offeror shall identify in its proposal the total cost of the work to be performed by the offeror, and the total cost of the work to be performed by each subcontractor, under the contract, task order, or delivery order. (2) If the offeror intends to subcontract more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order, the offeror shall identify in its proposal? (i) The amount of the offeror?s indirect costs and profit/fee applicable to the work to be performed by the subcontractor(s); and (ii) A description of the added value provided by the offeror as related to the work to be performed by the subcontractor(s). (3) If any subcontractor proposed under the contract, task order, or delivery order intends to subcontract to a lower-tier subcontractor more than 70 percent of the total cost of work to be performed under its subcontract, the offeror shall identify in its proposal? (i) The amount of the subcontractor?s indirect costs and profit/fee applicable to the work to be performed by the lower-tier subcontractor(s); and (ii) A description of the added value provided by the subcontractor as related to the work to be performed by the lower-tier subcontractor(s). (End of provision) The excessive pass-thru limitation applies only when the contractor / subcontractor intends to award more than 70% of the program cost in subcontracts. If there is no pre-award intent, but actual awards end up exceeding 70% post-award, then the contractor / subcontractor must report to the C.O. for a determination. That's how it works. H2H

I defer to Joel on construction and A/E type questions. But it seems to me that there is a difference between the formula used to calculate a pre-negotation objective for profit, and "allowing" or "prohibiting" subcontractor profit to be billed/included in contract prices. The original question was whether there was a clause that "prohibits the Government from allowing a prime contractor to earn a profit on its subcontractor's cost?" I stick with my original answer--NO, except for T&M contract types. I also want to add that the subcontractor's price is the prime contractor's allowable cost. The prime normally doesn't share in the subK's profit, and bears the risk of subcontractor non-performance. Thus, the focus on "profit on profit" seems much ado about very little, in my view. Finally, Vern correctly noted a limitation on subcontractor profit. He noted it only applies in very limited circumstances. Just to elaborate, the limitation only applies when (a) the prime subcontracts 70% or more of total program cost, and ( adds little or no value to the subcontracted work (as determined by the C.O.) If the prime doesn't subcontract at least 70% of the total program cost, the limitation is not applicable. H2H

1. No, except for T&M types. 2. There is no definition of "profit on profit" but profit on inter-organizational transfers between affiliated entities under common control is prohibited by 31.205-26(e), unless an exception applies. You may be thinking about that prohibition, which does not cover subcontractor costs. Fundamentally, a prime should be entitled to profit on subcontractor work, because it is responsible to the government for the subcontractor's compliance and performance. Any problems are addressed at the prime level. Because it has that risk, it should be entitled to a profit. But perhaps that's just an opinion and not directly responsive to your questions .... Hope this helps.

George, I don't think you've provided enough information to reach a conclusion one way or the other. You say, "the employee ... has been reimbursed for duplicate home owners costs," but then cite to a provision related to a limitation on a sale of a residence. I suspect there is more to the story. If not, and that's all there is, then I cannot answer your question. Perhaps others will venture in where I fear to tread. H2H

Don, I agree that it's a bit harsh to bash DPAP for what is essentially a typo. On the other hand, those Memos go through several levels of review, and it would be nice to think that somebody would have noticed the typo during one of the reviews. To your point that "a competent policy staff is sufficient," I need to disagree somewhat. DPAP is, for better or worse, the home of acquisition "thought leadership" at DOD. The Directorate navigates and, quite literally, directs the DOD acquisition workforce in the eternal quest for efficiency and effectiveness. I don't think anybody is served by having merely competent people at the helm of the ship. Personally, I've been disappointed with a number ofpolicy decisions over the past few years, as I feel they betrayed a lack of deep knowledge coupled with experience. My "favorite" example is the FAR Part 30 rewrite, but other examples could be named. You might even have a few of your own. My point is that we need the best and brightest at all levels, but especially at the policy-setting level. H2H

Vern, we agree. See my other posts. My point was, if DPAP or DCMA or DCAA have any evidence that they are paying more than the contractor is entitled to receive, then they should publish it. Better yet, they should take the contractor to court. Otherwise, the contractor's actual profit is irrelevant to the decision as to use T&M types, or not. Which is a statement you have previously posted. See--we agree! H2H

Now you are just speculating. Right? And if we're discussing "commercial items" and commercial services, then Cost-type contracts are prohibited, I believe. And if we are discussing commercial items, who cares what profit a contractor makes, since the market has already determined that the alleged excessive profit is fair & reasonable? By definition, commercial rates are fair and reasonable, regardless of what profit rate the provider makes. And in any case, how would the government be harmed, since it can only pay for "all labor performed on the contract that meets the labor qualifications specified in the contract"? (See 52.212-4(i)(1)(i)(A).) If you're telling me that Mr. Assad is upset because commercial entities are making a profit in excess of what his defense contractors have been beaten down over time into accepting as "reasonable," and thus would like to eliminate use of T&M contracts altogether so that commercial entities no longer obtain a market-derived profit rate, then I don't know what to say. What ever happened to the idea of a free market? Vern is right (as usual). The problem -- if there is a problem, and neither you nor Mr. Assad have provided any evidence to support that assertion -- has nothing to do with contractors making a profit on qualified services they provide to DOD. Nope. The problem lies elsewhere, right where Vern says it does. H2H

Hi napolik, Thanks for your response. My initial thought is that anybody can say anything, but it's nice to have some evidence to back up assertions. I say this to you and I would say it to Mr. Assad, if I ever met him. I know from first-hand experience that DCAA routinely questions costs that a Contracting Officer or ACO eventually determines to be fully allowable, and that DCAA routinely questions proposed costs that are eventually negotiated into a contract price. That's not to say that contractors are blameless--they are not--but in my view assertions based on nothing are worthless, and assertions based on DCAA audit findings aren't much better. The DOD has remedies available to it under the Truth-in-Negotiations Act as well as the False Statements Act. Until I see contractor settlements related to false or misleading statements in their Bases of Estimates related to proposed T&M rates, or contractor settlements under TINA (or even the False Claims Act) related to defective cost or pricing data (or false claims), then I'm going to ignore what DCAA and DPAP have to say on this matter. I suggest others way want to consider doing the same. Hope this helps

Hi napolik, I have not seen any reports or studies that show such large unanticipated contractor profits. Can you provide a link or a reference citation to any such, please? Thanks H2H

Vern, You would agree that one of the five tests for allowability includes compliance with contract terms & conditions, correct? You would agree that another one of the five tests for allowability is compliance with CAS, when applicable; otherwise compliance with GAAP, correct? You would agree that the contracting officer has the authority to disallow costs he/she believes to be unallowable pursuant any one of the five tests, correct? You would agree that the contractor has the ability, under the Disputes clause, to challenge a contracting officer cost disallowance that it believes was incorrectly determined, correct? Then we are in complete agreement. H2H

Among the information missing from the above scenario is a discussion of direct vs. indirect cost allocation. I have to assume that the contractor is charging labor (and perhaps travel) cost associated with certain employee training activities as a direct contract cost, and expects to get reimbursed. During contract performance the government customer decided that such costs were unallowable as direct contract costs and refused to pay for them as such. I also have to assume that if the costs were charged as indirect costs, the government customer would have no problem with paying the resulting indirect cost (overhead) rates. With respect to direct costs and your theory that the intent of the parties at the time of contract formation controls subsequent interpretations, I would ask whether the contractor included such direct costs in its original proposal? Did the parties negotiate estimated costs that included such costs as direct costs? Was the historical practice (or future intent) to charge such costs direct disclosed in the submission of cost or pricing data? With respect to direct vs. indirect, does the contractor have any policies or procedures that support its position? What are its established practices? Are training costs treated consistently amongst all contracts? What does its CASB Disclosure Statement say about treatment of labor and other costs associated with employee training? These are some of the questions I would be asking. In any case, I believe the CO has authority to disallow costs incurred during contract performance -- see 42.803. Hope this helps.

I don't have a problem with any of Vern's replies on this thread. To the latest one, quoted above, I would reword as follows-- Our contractor told one of its employees to stay home pending the outcome of an investigation. They continue to pay the employee's salary while he is at home. 1. Are those continuing labor costs allocable to my contract as a direct cost? 2. If so, are such costs allowable and should I approve the contractor's invoice for payment? Or should I disallow those costs? 3. Are those costs allocable to my contract as indirect costs? How can I find out if the contractor should treat the costs as direct or indirect? 4. If indirect, are such costs allowable? How would I find out? What should I be looking at to make the proper determination? 5. What is the role of my auditors in this issue? What is the role of my Administrative Contracting Officer? Am I on my own, or do I have resources who might be able to help me? Hope this helps.

Jacques, As you may know -- but others may not -- the Tecom case addressed the allowability of a contractor's settlement of a legal matter. It did not address the allowability of legal expenses per se, nor did it address the allowability of labor hours/employee compensation incurred and/or paid during an investigation. Just to clarify. Hope this helps.

I'm having a hard time understanding the situation. How does a contract employee get put on government paid admin leave? How does Part 31 come into play? Does it involve the employee's employer's contract? What else does that contract say? Based on your initial input, I would hazard a very speculative guess that the cost incurred by the contractor in paying the employee is allowable right now. But it may turn out that the investigation leads to a conclusion that some or all of the employee's labor charges are unallowable, because there is some sort of violation involved. But we don't know that yet. So I would guess you keep paying the contractor so long as its employee is on admin leave "pending the outcome of an investigation." Admin leave ... for a contractor employee? What am I missing here? Oh well, I'm sure somebody will set me straight soon enough. Until then, hope this helps.

Hi ktr1999, Consider this point of view: cost or pricing data includes all facts that would reasonably be expected to significantly affect price negotiations. "All facts" includes factual information such as vendor quotes, but is not limited to only vendor quotes. Cost or pricing data is certified and penalties exist for defective certifications. "Information other than cost or pricing data" includes "any type of information" that the Contracting Officer believes is necessary to determine price reasonableness or cost realism. "Any type of information" includes factual information such as vendor quotes, but is not limited to only vendor quotes. So there is obviously going to be some overlap. The critical distinction is that "information other than cost or pricing data" is not certified and therefore you cannot be penalized for a defective certification. (But note that the False Statements Act may apply ....) Basically, the C.O. is prohibited from requiring submission of cost or pricing data where there is adequate competition, but is encouraged to obtain sufficient information in order to determine price reasonableness. Just because there is competition does not automatically mean that the C.O. can conclude an offeror's price is reasonable. Note that FAR 15.305(a)(1) says "Normally, competition establishes price reasonableness [but] in limited situations, a cost analysis ... may be appropriate to establish reasonableness of the otherwise successful offeror?s price." From my point of view, you need to give the Contracting Officer whatever he/she says is necessary. So long as you're not certifying, your downside risk is limited. Moreover, you want the contract award, don't you? Hope this helps.

I sighed when I read this post. I bet others did as well. Let's break it down -- 1. Yes, most times DCAA uses the DRI/Global Insight values to establish its position(s) on the reasonableness of estimates of future costs. Generally, contracting officers use that position to establish pre-negotiation objectives. 2. If your company has a history of providing employees with raises larger than that used by Global Insight and -- more importantly -- if it has budgetary projections showing it intends to award those larger raises in the future, then those facts need to be given to the contracting officer during negotiations. At that point, it's simply a matter of negotiation. Let me reemphasize that: it is NOT a matter of index vs. index; it is a matter of negotiating skill. Period. 3. You say, "The Govt should have no say in what kinds of increases [my company] pays its employees." True, and so what? The Government has a say in the price it wants to pay its contractors. If you keep giving out raises in excess of the industry average, eventually you will price yourself out of the market. The bottom-line here (excuse the pun) is that you are negotiating a price, of which labor escalation is but one element. I'm willing to bet that your indirect rates affect the contract price as much as -- if not more -- than direct labor escalation. Moreover, if you don't like the Government's escalation value, then jack-up proposed fee/profit to cover the difference. Finally, if this is a cost-reimbursement contract, then you're not even negotiating a price; you're just negotiating an estimated cost value. The Government is going to pay actual, allowable, costs in any case. I feel your frustration, but you should understand how the process works, and be well-prepared to negotiate when you're at the table. Because that's where the rubber meets the road, not at the issuance of an audit report. Hope this helps.

I recall the FAR Councils had some tough words for contracting officers who put CAS clauses into contracts when they were not applicable, using the excuse that they were self-deleting. Somebody might want to look at the promulgating comments from the revisions to 30.6 from a few years ago. My recollection is that the Councils said such an approach was expressly prohibited with respect to CAS clauses. I'm thinking the logic would apply to other clauses as well. That said, the Councils were talking about Government contracting officers not prime contractor subcontract managers/administrators. I guess primes can do pretty much what they want (as ji20874 said). It would be nice to think somebody aspired to a higher standard, but I can't think of any express requirement that says primes cannot use self-deleting clauses.

(From Karen Manos' Government Contract Costs & Pricing 2d. Ed.)The point being, that (exceptions aside) tax payments are in fact costs and must be accounted for in order to calculate total contract costs. Disputes have arisen regarding allocabilty of such costs, but there have been very few disputes regarding the allowability of tax payments when properly allocated. Hope this helps.

Yes, that was the original question. To which I replied "No. No it is not." Because it isn't a bad debt. Hope this helps.

No. Not at all. FYI, any expense the contractor records (or has recorded) is unallowable because the employee "voluntarily" terminated within 12 months. See the cost principle on relocation. On a somewhat related note, this contractor sounds like a "sharp operator" to me, and I mean that in a pejorative sense. I have never in my career seen a voluntary termination conflated with a termination for cause. And I have never seen a relocation agreement packaged as a loan. It seems to me that the main reason for doing so would be to avoid recording an expense (which would be a charge against income) and instead record an asset on the balance sheet (employee receivable). Somebody ought to get DCAA to perform a financial capability audit on this company, stat. Hope this helps.