Navy_Contracting_4

57 minutes ago, Matthew Fleharty said:

I see that - I was incorrect in stating "all effort (hour) risk;" however, I'm still of the position that no effort (hour) impacts should be taken into consideration even if it is just a portion of those impacts multiplied by the actual wage differences.  Seems we'll just have to agree to disagree.

What you're saying is that even though the application of the new WD causes the contractor to pay out $1,100 more than he otherwise would have to, you want to adjust the price by only $1,000 -- is that right?  If so, then we definitely disagree.

2 hours ago, SubK said:

Yes, we received 2 orders during the ordering period.  The end of the IDIQ contract was Feb of 2016.  Our orders still have 2 options, which the Government just informed us that they will not extend because if the GAO protest.

Do I infer correctly that you are not currently performing on either of the two orders you received?  And that you competed performance on both of them in February 2016 (or earlier)?

When do the 2 remaining options expire?

On 7/29/2016 at 11:45 PM, Matthew Fleharty said:

Your adjustment method based on hours is inappropriate because pricing in year to year adjustments to hours would remove all effort (hour) risk from the contractor - that's certainly not what the parties sign up to when they execute FFP service contracts.

The adjustment is not designed to maintain profit/loss positions year to year, but rather to remove Government mandated wage minimums (to the extent that they actual impact the contract) from the risk equation.  

You fail to understand that that's precisely what this method does.  It dopes merely "remove the Government mandated wage minimums (to the extent that they actually impact the contract) from the risk equation."  It definitely does NOT "remove all effort (hour) risk from the contractor."  It does NOT price in year to year adjustments to hours.  In my example, pricing in a year to year adjustment to hours would result in adjusting the price to $23,100, but the method I describe results in an adjustment to only $21,100.

On 7/26/2016 at 5:58 PM, SubK said:

I am not able to find the protest on the GAO website, I will see if my boss has it. My guess is that the clause also states  Any order issued during the effective period of this contract and not completed within that period shall be completed by the Contractor within the time specified in the order.   Which would allow us to continue work beyond the base contract ordering period, but that clause is not in our contract so we do not have that ability?

You received the two orders within the ordering period of the contract, right?   Oh, I forgot, the contract doesn't include FAR 52.216-18.  Well, what does the contract say about time of performance?  Are you currently performing under the two orders with remaining options?

Paragraph (d) would establish an outer limit, beyond which the government may not require you to furnish services.  In the absence of this limit, what does the contract say that restricts the government from exercising the options?

By the way, are you sure you're not confusing the "period of performance" with the "ordering period," which is set forth in paragraph (a) of FAR 52.216-18 (you do have that clause in your contract, don't you?)  In my experience, the "period of performance" is usually set forth in individual task orders.

How can you have an Indefinite Delivery, Indefinite Quantity contract without the clause "Indefinite Quantity"?

Does the Government not need the services anymore, or is there an ongoing requirement?

1 hour ago, Vern Edwards said:

 

Withhold judgment, Grasshopper, indeed, withhold comment, until you know what went on.

If people withheld comment in this forum until they knew what went on, there would be hardly any comments posted.

Vern,

If you want to take issue with my use of the word "foolish," fine. Point taken.  Nevertheless, I think it unlikely that the government would add a manpower reporting requirement and simultaneously make the costs of doing the reporting unallowable.  My point, which I obviously didn't communicate well, was that "at no additional cost" probably didn't mean that the costs would be unallowable, and I suggested an alternative possible meaning that made more sense to me.

Vern,

Of course, compared to yours, everyone's experience is limited, but, in my limited experience, negotiating an advance agreement capping indirect rates does not add any work to a contract.  Further, in my experience, limited as it may be, caps on indirect rates do not necessarily make expected costs unallowable.  They have been used as protective devices to motivate the contractor to pay close attention to his indirect expenses, and to prevent the government from getting stuck with a huge bill for indirect rates that unexpectedly grow.  In the instant case, we're talking about adding some direct work to a contract and then specifically saying the direct costs of doing that work are unallowable.  Now, you may disagree, but that makes no sense to me, and I question whether that was the intention in the OP's case.

1 hour ago, Vern Edwards said:

Sometimes it makes perfect sense. Government contracts have long included advance agreements that make some otherwise allowable costs of performance unallowable under the contract. Such is the case when the parties agree to caps on indirect cost rates, which is not uncommon. Another reason to agree that some costs will be unallowable is to restrict the use of certain practices.

It could be that the clause (presumably, one of the ones prescribed at FAR 4.1705 or an older DOD clause) was improperly omitted from the contract and that the mod was made in reliance on the Christian Doctrine. If so, and assuming that the reliance on Christian was justifiable, no consideration is necessary, but the cost of compliance will be allowable.

An advance agreement capping indirect rates is not an example of adding a requirement to a contract and then making the cost of doing the work unallowable.

In my opinion, it's foolish to think that addition of the contractor manpower reporting requirement could be incorporated into the contract with no additional cost.  Likewise, it makes no sense to add a requirement to a cost-reimbursement contract and then make the costs of doing that added work unallowable.  Could the mod be saying that the requirement is being added at no increase to the estimated cost of the contract?

3 hours ago, REA'n Maker said:

So if the contractor used less hours, on a FFP, he would happily refund his additional margin to the government, right? 

Sometimes the absurdity inherent in a given scenario is best illustrated by the absurdity apparent in its inverse scenario.

Absolutely not.  No one has suggested that the contractor should refund any of his additional margin, however, I think it would be improper to adjust the price for hours that the contractor is not expected to incur.

H2H and Retreadfed,

I'm good with everything you're saying, but I was trying to make sense of the OP's situation, where the company was "issuing POs for direct charge parts and materials where multiple contracts are charged to one PO. However, rather than noting the allocated amount being charged to each contract's project number, we are assigning a percentage value of the cost of each line item that is to be charged."

There may have been some valid reasons for the allocation scheme in the example, and my only point was that there had better be a good explanation for why the percentages are what they are.

On 7/13/2016 at 4:31 PM, Don Mansfield said:

Navy,

I get what you're saying--you would use the most current estimates of labor hours instead of the original proposal estimates. However, I still think you believe that the adjustment should preserve the contractor's profit/loss position. If this is what you believe, why do you believe this (other than because you think it yields a fair result)?

Don,

Maintaining the contractor's profit/loss position is not a principle I espouse.  It was merely an observation I made to counter people's possible objection that my adjustment method might somehow help the contractor get some kind of windfall.

1 hour ago, Don Mansfield said:

Navy,

Yes, I acknowledge that you are not pricing an equitable adjustment in your example. However, you seem to believe that certain principles that apply to the pricing of equitable adjustments apply to price adjustments under FAR 52.222-43. Specifically, you seem to believe that (1) actual labor hours in the prior period should be used to estimate the cost impact in future periods and (2) the adjustment should preserve the contractor's profit/loss position. If this is what you believe, why do you believe this (other than because you think it yields a fair result)?

As far as "fairness", keep in mind that a contractor who used less hours than estimated in the prior period would potentially earn additional profit if original estimates of labor hours, instead of actual labor hours, were used to estimate the cost impact in future periods. As such, I don't see any fairness issue.

 

DON-

I don't necessarily believe you have to use the actual labor hours in the prior period to estimate the cost impact in future periods; if you have reason to believe that the contractor encountered a one-time snag in the first year that he'll avoid in year 2, then, by all means only adjust for the hours you believe the contractor will actually incur in year 2.  My point is that you should make an adjustment for the hours that you expect will be incurred, regardless of what may have been proposed at some earlier point in time.  Say, for example, the contractor needed 1100 hours to complete the work in year 1, but in the process, discovers some great innovation that will allow him to complete the year 2 work in 800 hours.  In that case, I'd argue that "the Contractor's actual increase.... in wages and fringe benefits...made to comply with" the new WD would be $800. In my example, for the sake of simplicity, I assumed that the contractor would need the same number of hours for year 2 as he incurred in year 1, but that's not always the case..

On 7/8/2016 at 6:21 PM, Don Mansfield said:

I think that in your example you are pricing the adjustment as if it were an equitable adjustment, where the contractor's profit/loss position should not be affected by the adjustment. In that case, we would consider the total cost impact on the contractor and allow for profit/fee. However, the scope of an adjustment due to a new WD is limited to additional costs made to comply with the new WD. As such, I think it would be unusual that the contractor would be in the same profit/loss position after such an adjustment.

When you made the adjustment in your example, you adjusted the proposed hours upward by 100 for year 2. Those 100 additional hours are not attributable to an increase in the required wages. They are attributable to labor inefficiency experienced in Year 1, underestimation, or both. I agree with Retreadfed's rationale in his June 17 post.

Lastly, under your proposed method, the size of the adjustment is inversely proportional to the profit/loss in the earlier period. That is, the contractor is rewarded with a bigger adjustment in Year 2 for expending more labor hours in Year 1 and punished with a smaller adjustment in Year 2 for expending fewer labor hours in Year 1. 

DON-

My example is definitely NOT an equitable adjustment, in which the contractor would get an adjustment to account for overhead, G&A and profit.  My example deals only with the labor related costs.  In my example, I consider the impact of the WD on the contractor's labor-related costs.  I compare his projected costs without the new WD-required wage rate ($22,000) with his costs with the new WD-required wage rate ($23,100) and the result ($1,100) is "the Contractor's actual increase.... in wages and fringe benefits...made to comply with" the new WD.  I don't understand why you think it's fair to reduce his profit even more than it's already being reduced by his inefficiency or poor estimating.

On 6/17/2016 at 1:24 PM, Don Mansfield said:

Navy,

Your adjustment includes more than the actual cost increase necessary to comply with the new WD. It includes increased cost due to inefficiency, underestimation, or a combination of both. That cost is not attributable to the new WD.

Don,

I don't understand.  Please explain. The contractor is still going to lose the same $2,000 in Year 2 as he did in Year 1.

Int he absence of a new WD, the contractor would expend $22,000, losing $2,000 again, but now the new WD causes the contractor to have to expend $23,100.  I think he should still lose the same $2,000 he would have, but not the additional $100 that is due not to his inefficiencies or poor estimating, but due solely to the new wage requirement.

Read your OTA agreement and find out what your responsibilities are.

OTAs should address the issues you're asking about, if they were contemplated during the negotiations.  If it isn't addressed in the OTA agreement, does your company have procedures in place for subcontracting?  

Above all, be smart and use good business judgment.  There are reasons for using OTAs and they frequently revolve around some of the issues you mention, so those issues are usually addressed in the agreement.

H2H,

I understand that that's how they generally are seen, although it doesn't say as much, but how about 31.201-4 (which applies to (a), (b) and (c))?

Quote

A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. [Emphasis added.]

All I'm saying is that for the costs to be allowable, they must be distributed in a way that reflects the relative benefits received by each contract.

I don't think that it could have possibly constituted a valid contract between the US Government and Mrs. Ross because there was no US Government at the time. :-)

The evaluation adjustment contemplated by FAR 45.201(c) is not for the purpose of comparing apples-to-apples, it's for the purpose of removing any unfair competitive advantage one offeror may have over others due to their being in possession of government property that other offerors may not have access to.  If all offerors have equal access to the property, if they choose, then no one has an unfair competitive advantage, so no adjustment is called for.

H2H,

Where does it say that FAR 31.201-4 applies only to indirect costs?

1 minute ago, LucyQ said:

It's possible, but I promise not on purpose. 

 

The passage I quoted is within an IDIQ contract in Section H. The authority of them to put it there is something I guessed at but feel free to correct me. 

You  presented the situation as being similar to yours, so there was an implication that some money was being furnished through some means other than normal financing terms, whereas, as I read it, the government would fund the public partner separately, and furnish the work product to the prime as GFS/S.  No money goes to or through the prime for the public partner efforts.