here_2_help

Stop your timelines just before the 737-MAX tragedy/debacle/fiasco and rerun your numbers. I think you'll reach a different conclusion.

It's not buying-in when there is no intention of getting well through change orders. Instead, the company (obviously) plans to recoup its initial losses through follow-on work. It's a great strategy and it destroys most competitors, because only the very biggest contractors can absorb the initial losses.

This story shows me that Boeing's people were the smartest people in the room, despite what DoD and USAF leadership said at the time about their team(s). Boeing's strategy of "investing" in new programs by intentionally submitting a price that it knows is less than the expected cost of performance, and then riding out the initial losses--expecting to make its investment back plus a return on that investment in the long-term, continues to work for the company. The company apparently has outstanding financial strategists. Kudos to them.

Okay. I'll let others more well-versed in fiscal law answer your question.

For those of us who might remember the long and arduous road the Air Force took to get the contract awarded, and the promises made by Air Force and DoD leadership at the time. USAF Releases Boeing From Future Cost-Growth Liability On KC-46A Tanker. Inside Defense (1/28, Sherman) reports behind a paywall that the US Air Force has “released Boeing from future cost-growth liability on the KC-46A tanker, altering the fundamental terms of a 2011 contract that capped government costs at $4.9 billion and forced the defense contractor to pay out-of-hide for remedial work that so far totals $5.5 billion – a move that comes as Boeing saddles the Air Force with a new major milestone delay.” According to Inside Defense, “federal auditors revealed these and other new developments in a report on the $43.8 billion KC-46A program.”

I believe Vern once wrote an article calling such contractors "Person[s] Without a Clue" - PWACs. You don't say how many years have passed. More than six?

Interesting position. I would suspect that the writing of the COFD would be easier than surviving an appeal of it, but litigation is always a dicey proposition.

Sure. As I acknowledged could be done. You'd have to point to a specific contract clause to overcome your burden of proof, though. Hopefully it wouldn't go to court.

No. Different circumstances. For example, some costs of travel may be direct contract costs while other costs of travel may be charged indirect. The circumstances drive the accounting treatment.

I'd like to add that the cost does NOT need to be an indirect cost. The notion that there must be a specific contract requirement to create a direct nexus is misinformed. Such a position confuses the concept of a "beneficial or causal relationship." (Emphasis added.) See FAR 31.201-4. CAS 402 (48 CFR 9904.402-30) defines a direct cost as follows-- For example, a vaccination incentive associated with an employee who is assigned on a full-time basis to one and only one contract could conceivably be a direct cost of that contract. It is the contractor's choice. The government contracting officer can decide whether they believe the cost to be allowable; but if they believe it is not allowable, they have the burden of proof to point to the regulation making it unallowable.

Bingo! If the contractor has one single employee in the facility, then it is not an idle facility. There may be excess capacity, but that's a different concept, the allowability of which is determined differently. Generally speaking, I would expect the more specific cost principle at 31.205-17 to trump the general principle at 31.201-3. (See 31.204(d).) But it seems various judges have the own approach to cost allowability analyses, so who knows?

You didn't specify the socioeconomic status of the entity that has the 70% share of the new business. You didn't specify the relationship between the WOSB and the new business.

This is the single most important concept that so many people get wrong. Both government and contractor. Vern's sentence should be put on T-Shirts and handed out to Cost/Price Analysts and contract auditors everywhere.

Thank you, as always

Hey all, just wondering who the current OFPP Administrator is right now? How's that going for us?

Sticking this here but if Bob believes it's a better fit elsewhere, feel free to move it. Link to article.

Fraud requires intent, which is a matter for a judge or jury to decide. A practitioner should never use that term. I'm just saying that I agree with Joel's advice. Second, check out Kearfott Guidance, ASBCA No. 55626, June, 2011. Less on point (but interesting) is Information Systems & Networks Corp., US Court of Federal Claims, May, 2020. After you've looked at them, then obtain competent legal advice.

OTAs are terrible and OTAs via consortia are worse than that. I finished dealing with a recent OTA that required the contractor to have an adequate accounting system as a condition of award. The pricing was evaluated via cost analysis (FAR Table 15-2 format was required). DCAA was called in to evaluate the contractor's proposed costs. The awarded contract included multiple FAR clauses, including 52.216-7. It was an OTA in name only, and I'm sure the CO was proud that they could be so innovative.

First point is that I don't know your costs well enough to form an opinion regarding the appropriate G&A allocation base. Second point is that the Ford Aeronutronics decision established that the contractor has an affirmative responsibility to choose the correct G&A allocation base that best represents the activity being managed. Further, if the contract mix is such that a TCI base is distortive, then the TCI base should not be used. What is the correct allocation base for your company? See my first point. Third point is that you can't have two sets of bid rates, one using the single element G&A base and the other using the TCI G&A base. You have to have one bid rate. HOWEVER, the contracts you won will have the current G&A base used to calculate the G&A rate to be applied to those contracts; the bid rate is now irrelevant. Further, since you have changed your G&A base (and resulting rate) from the one used to price those contracts, you may be entitled to an equitable adjustment in contract price (assuming that the DCAA required you to change your base). I could go on and on. Bottom line is that you need to hire some good government accounting folks, or consultants, ASAP to help you with your issue(s). This is a very complex accounting topic involving CAS and FAR and you won't be able to logic your way through it, in my opinion. Hope this helps.

The BLS escalation rate is (unsurprisingly) associated with labor (salary & wages), right? Does the Green Book cover the same thing or does it cover something else? What costs are you applying the escalation factors to--labor only, or labor plus something else? Regardless, it seems to me that whatever escalation factor you get will be the result of whatever you negotiate. As with all negotiations, I would start with the higher value (6.8%) and see what you can obtain. What would your bottom-line break-even price be (regardless of how you get there)? At what point would you decline the option because the price was too low? My two cents.

The CO doesn't get to approve the contractor's cost accounting practices; however, the CO gets to determine what costs will be accepted in the contract price (or reimbursed). The contractor has appeal rights. If the contractor performs multiple contracts, the logic breaks down. A cost that benefits multiple cost objectives is likely to be an indirect cost, not a direct cost. Also, if a particular CO insists that facilities cost must be indirect when the contractor had elected direct allocation treatment, then the contractor should execute 52.230-7 in Section K of its proposal.

There is no problem for a non-CAS-covered contractor to change its accounting practices (well, other than compliance with Truthful Cost or Pricing Data requirements). The former practice was to charge the cost of facilities as an indirect charge; the changed practice is to allocate facility costs to benefiting cost objectives (contracts) based on occupied square footage, assuming that certain employees charge only one contract for the majority of their time. This can be done.

Is the contractor subject to Cost Accounting Standards?

From DCAA Contract Audit Manual (CAM) Chapter 12. (Emphasis added.)

There's that pesky word again.