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Hi everyone, I am new here and hope that someone can help me out with this issue.

Background: I help run a small software development firm that does work for the government. We currently have 2 separate contracts with an Agency. All of the code we write for this Agency is put in the public domain, and can be used by anyone.

We have a piece of software that was developed under Contract A that we are using also for Contract B. To which contract do we charge the labor used to improve the piece of software? Here are a few scenarios:

Say John puts in 8 hours improving the efficiency of the software (fits the scope of both Contract A & B ). Does he split his time between the two?

Or say John puts in 8 hours for a function/feature intended for Contract A, but it has applicability under Contract B, and the function is placed in for both. Do we still split the time? Or do we invoice by which contract uses the function/feature the most?

The main reason I am asking about this, is we do not want to be accidentally charging A and/or B when we should be billing the other.

To make matters more complex, what if we have John (primary employee on Contract A) and Suzy (primary employee on Contract B ) both working together on the software?

Sorry if this was a bit long. I am open to any suggestions or comments, and I will be glad to clarify anything that is needed. Thank you.

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Guest Vern Edwards

You allocate the cost to the contract that requires you to do the work of improving the software. If Contract B requires that work, then allocate the cost to that contract, even if Contract A will benefit incidentally. If both require you to do the same work (Can that be?), then you should distribute the charge to both in some reasonable way. In that case, to avoid a misunderstanding, discuss the matter with the contracting officer(s) and maintain a record of the outcome of the discussion. I presume your accounting system is adequate to show the basis for the allocation. Time cards?

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You allocate the cost to the contract that requires you to do the work of improving the software. If Contract B requires that work, then allocate the cost to that contract, even if Contract A will benefit incidentally. If both require you to do the same work (Can that be?), then you should distribute the charge to both in some reasonable way. In that case, to avoid a misunderstanding, discuss the matter with the contracting officer(s) and maintain a record of the outcome of the discussion. I presume your accounting system is adequate to show the basis for the allocation. Time cards?

You did not say what type of contracts your have, i.e., fixed price, cost reimbursement, etc. While you asked about allocation, remember, allocation only addresses to which contract(s) a cost should be assigned. It does not necessarily mean the cost will be recoverable. For example, if you have a firm fixed price contract, a cost may be allocated to that contract but not recoverable because the contract is in an overrun situation. Further, in your example, if neither contract requires you to do the work, you could not allocate the cost as a direct cost to either contract. If it is to be allocated at all, it would have to be as an indirect cost. But even then, you will have to determine the allowability of the cost and whether it can be recovered under either contract.

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Thanks, I should take a breather and relax.

I tend to agree with Cajuncharlie and Vern. We don't know what is specifically in each contract or who or what caused you to improve on the software. I think that the best thing to do is discuss with the appropriate authorized government representative(s) how to allocate between the two contracts, and if that is appropriate. As has been said herein, do document the discussions. Recommend confirming the discussions in writing by correspondence or with the invoice(s).

It would seem to me that those in the government who wrote the contracts "should" know how such work should be charged. Collaberation with the appropriate government persons should probably resolve your questions. Good luck.

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