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Labor Charging on US Gov FAR regulated business


cmoore812

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It does not sound proper under cost reimbursement contracts, but I can't say that with certainty.

That's what I said in my only opinion post. I didn't mention firm fixed-price contracts but it may or may not be relevant to that type. If the FFP rates or costs were competitively bid or if they were competitively negotiated without detailed representation of the basis of pricing, then I'd generally agree that the issue isn't relevant

However, if the FFP unit rates or costs are negotiated on the representation that the contractor would use the higher cost, in-house labor and if the contractor never intends to use the in-house labor or if the contractor intends to use a mixed labor force without disclosing it , then it might well be relevant. But it depends upon the circumstances.

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H2H

And I could create a scenario where what you describe takes place, and the difference between actual labor costs and labor category "costing" is treated as a credit to an indirect rate pool, and I could probably pull it off with DCAA as being a compliant practice. There would be some hard scrutiny and some hand-waving involved, but I think I could successfully get through an audit so long as I had a credit to offset the preceived "profit".

Maybe the labor is coming from a transferring organization and it is the established practice to price interorganizational transfers at other than cost (maybe a single transfer rate) and the price is not unreasonable - I don't see a need to credit an indirect pool with the difference between cost and transfer rate.

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Maybe the labor is coming from a transferring organization and it is the established practice to price interorganizational transfers at other than cost (maybe a single transfer rate) and the price is not unreasonable - I don't see a need to credit an indirect pool with the difference between cost and transfer rate.

Whynot,

You are replying to something I didn't post. I never posted that a credit needed to be created to account for the difference between IOT cost and a transfer at price. Indeed, the original post inquired about "contract labor" not IOT labor.

H2H

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When you click "reply" the post you want to reply to is automatically added to the beginning of your post. It is bracketed by the word --quote name . . . .-- at the beginning and --quote-- at the end. You have at least 3 ways to respond to another's post.

1. Delete the bracketed information entirely, add your response, and your reply will come out by itself.

2. Begin your reply after the bracket that looks like --/quote--. When you do that, the item you reply to will be highlighted in a blue and your response will be below it.

3. You may add your reply first by placing it before the bracket that begins with --quote name . . . .--

The important thing to remember is not to add your reply inside the brackets. If you include your reply within the brackets, you are including your reply to the post you want to reply to and that makes it difficult to understand who is saying what.

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In addition to Bob's point, this thread really belongs under the "Contract Pricing" Discussion Area, not under the "Contracting Workforce" Area. I do understand that cmoore is new to this Forum.

However, to clarify - I believe that the Contracting Workforce Area is intended to cover discussion concerning government contracting personnel, not contractors' pricing practices for their "contractor personnel".

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H2H

I don't think that contract labor and IOT are mutually exclusive terms - they can be one and the same

Whynot,

I understand what you are saying. Unfortunately for you, you would be wrong.

H2H

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I don't think that contract labor and IOT are mutually exclusive terms - they can be one and the same

As far as I know, interorganizational transfers of labor aren't accounted for the same as contracted labor, plus that isn't the issue in the situation described in this thread.

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H2H

I don't follow. Doesn't 52.232-7, 52.216-29 and 52.216-30 all allow for contract labor to be based on IOT and that IOT can be charged in certain situations on a basis other cost? Is that where I am wrong on is it something else?

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H2H

I don't follow. Doesn't 52.232-7, 52.216-29 and 52.216-30 all allow for contract labor to be based on IOT and that IOT can be charged in certain situations on a basis other cost? Is that where I am wrong on is it something else?

Whynot,

Here we are once again, on one of the now infamous WIFCON thread tangents were two or more posters argue passionately about some minor point that has nothing much (if anything) to do with the original poster's question. To your question, no. None of the contract clauses/solicitation provisions you cite "allow for contract labor to be based on IOT". In fact, each of those clauses quite clearly distinguishes between (a) labor performed by the contractor/offeror, (B) labor performed by subcontractors, and ? labor performed by other "divisions, subsidiaries, or affiliates" of the contractor/offeror under common control.

If they were all the same thing, then there would be no need to differentiate them within the clauses/provisions.

Let's bottom-line this. I'm not going to perpetuate this tangent any further. Either you accept my position or you don't; but if you don't accept what I'm saying then you need to better explain/support your position.

Hope this helps.

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  • 2 weeks later...

I think I may have confused the issue by making it sound that I was trying to make an argument to treat subcontracts and IOT as the same ? I wasn?t. I too agree not to want to engage in that discussion. All I was trying to communicate, albeit too cryptically, was that the transferring organization could have purchased labor and transferred that purchased labor at an established transfer price. I thought the idea was germane because I got the impression from the original poster that they had an issue with charging purchased labor at a rate not commensurate with its cost. An IOT charged at price as opposed to cost was addressed in the cited clauses. The clauses apply to T&M. For purposes of charging, in the accounting sense, to a cost reimbursable or any contract subject to the cost principles the original poster can see the same issue addressed in 31.205-26(e)(1). For FP price and its cost is not an issue for the most part.

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As Joel said

As far as I know, interorganizational transfers of labor aren't accounted for the same as contracted labor, plus that isn't the issue in the situation described in this thread.

What is the purpose of bringing up OIT again?

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For FP price and its cost is not an issue for the most part.

I wish people would refrain from making broad assertions that how a fixed price contract is priced isn't an issue. Probably true in the case of a bid contract or a source selection, when pricing wasn't established through negotiation at the time of contract formation.

But when unit prices are developed through cost or price negotiations, how the unit price is represented and negotiated is usually important and pertinent. It could involve issues of false statements, false claims, fraud or defective pricing, if misrepresented at the time of negotiations.

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Who said that it does not matter how the prices are established ("represented") under a fixed-price contract?

Vern, nobody "said that it does not matter how the prices are established ("represented") under a fixed-price contract". I never said that anyone said that. I said "I wish people would refrain from making broad assertions that how a fixed price contract is priced isn't an issue."

The issue, as I understand it is that a firm is apparently charging the same price for much less expensive contract labor as it charges for in-house labor "on all sorts of contracts", including cost, fixed price, T&M, etc.

Whynot said this in post 336 on Jul 28 2011, 12:17 PM' : "For FP price and its cost is not an issue for the most part."

Vern said this in post #25 on July 18th: "The issue is irrelevant under fixed-price contracts. "

All I am saying is that it COULD very well be an issue on a fixed price contract under certain circumstances with specifically negotiated prices or rates.

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Guest Vern Edwards
The issue, as I understand it is that a firm is apparently charging the same price for much less expensive contract labor as it charges for in-house labor "on all sorts of contracts", including cost, fixed price, T&M, etc.

Whynot said this in post 336 on Jul 28 2011, 12:17 PM' : "For FP price and its cost is not an issue for the most part."

Vern said this in post #25 on July 18th: "The issue is irrelevant under fixed-price contracts. "

All I am saying is that it COULD very well be an issue on a fixed price contract under certain circumstances with specifically negotiated prices or rates.

Under a fixed-price contract there is no relationship between the price charged and the actual cost incurred. The cost incurred is irrelevant to the price charged. Now, if you're saying that misrepresentation, fraud, or defective pricing during price negotiations could affect the legitimacy of the price, that's true, but not relevant to the issue raised as you described it and has no bearing on my comment.

I don't mind you correcting an error or making an added point, but I do mind you complaining that I have said something that is not true when, in fact, it is true. And don't mix me in with Whynot. If you think somebody said something that was incorrect, say who it was and why it was incorrect. Don't make lump everybody under a broad generalization.

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Under a fixed-price contract there is no relationship between the price charged and the actual cost incurred. The cost incurred is irrelevant to the price charged. Now, if you're saying that misrepresentation, fraud, or defective pricing during price negotiations could affect the legitimacy of the price, that's true, but not relevant to the issue raised as you described it and has no bearing on my comment.

I don't mind you correcting an error or making an added point, but I do mind you complaining that I have said something that is not true when, in fact, it is true. And don't mix me in with Whynot. If you think somebody said something that was incorrect, say who it was and why it was incorrect. Don't make lump everybody under a broad generalization.

Vern, I was referring to the situation on a FFP where, if a contractor misrepresents the cost to the company of subcontracted labor, during negotiations to establish the rates or price, in an attempt to convince the owner that subcontracted labor costs the same as in-house labor, there could be a problem. Or, if the contractor misrepresents that it will use in-house labor during negotiations, but instead uses less expensive contract labor that it had really planned to use at the time, there could be a problem. If you were referring to something else, I apologize.

In response to your post #25 on July 18, in which you stated: "The issue is irrelevant under fixed-price contracts. " I responded to you in post #26 on the same day, stating "...If the FFP rates or costs were competitively bid or if they were competitively negotiated without detailed representation of the basis of pricing, then I'd generally agree that the issue isn't relevant.

However, if the FFP unit rates or costs are negotiated on the representation that the contractor would use the higher cost, in-house labor and if the contractor never intends to use the in-house labor or if the contractor intends to use a mixed labor force without disclosing it , then it might well be relevant. But it depends upon the circumstances."

I thought that was fairly clear and you didn't challenge my statement until after I responded in post #38 on July 28 to whynot's post #36 of July 28. Whynot indicated that the labor cost on FFP contracts are not relevant, for the most part, without any explanation. I believe that my second response was pretty consistent with my July 18 response to your post #25.

Regarding the instant situation in this thread, a company employee stated that two government agencies apparently don't agree with this person's company billing rates or its accounting methods shown in its Disclosure Statement. The employee also claims that the company is using these rates for all sorts of contracts, including FFP contracts. I'm not accusing them of misrepresentation and never did. But there could be a problem.

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Guest Vern Edwards

I summarized the issue as follows in Post # 23:

The prime contractor has a time-and-materials contract which stipulates an hourly labor rate for work done by its own employees. The rate includes the prime's indirect cost and profit (making it "fully burdened"). The rate is $150/hour. But the prime has been hiring supplemental labor (what you call "contract labor") through another firm to do some of the contract work and pays for it at $90/hour. When the prime bills the government for work done by the supplemental laborers, it charges the $150 labor rate that was established for its own workers. It then pockets the $60 dollar difference. You question the propriety of that kind of billing. You think that the government should only reimburse the contractor for the supplemental labor at cost, rather than at the rate it charges the government for its own workers. You want to know if what the contractor is doing is proper.

cmoore confirmed my understanding of the issue in the next post, but said that the same thing was being done under fixed-price contracts. I said that "the issue" is irrelevant under fixed-price contracts, and it is, for reasons that ought to be obvious. Your point is different -- it is not right for a contractor to be deceptive or to submit defective data during contract negotiations, and it is not right for the contractor to bill for for something that it did not deliver. That is true, but does not contradict what I said. I not read cmoore as accusing the contractor of deception or misrepresentation. Did he make such an accusation?

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Vern, cmoore appears to be an employee of the company. From my reading of his various explanations, he feels that his company is trying to pass off contract labor as costing the company the same as in-house labor, using its Disclosure Statement as justification. Apparently 2 government agencies aren't agreeing, because they are not "approving", as he put it, the company's rates or the Disclosure Statement.

I think you and I agree in principle. We don't know what is going on on "all contracts". I was just trying to clarify that if there is misrepresentation involved in negotiated pricing for fixed price contracts, there could indeed be a problem. Then 'whynot' later jumped in, making a generalized statement about labor cost not being relevant on fixed price contracts, for the most part. Then I responded to his post, again trying to make the point that there could be problems with labor cost on FP contracts, if misrepresentation was involved in the pricing of the labor.

For the record, I agree with you that what and how the contractor charges for labor on a competitively negotiated or competitively bid fixed price contract generally isn't an issue. But labor cost may become an issue on such contracts, such as in a claim or a negotiated change involving cost considerations, if misrepresentation is involved. It may be an issue on a negotiated contract, if misrepresentation is involved.

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Guest Vern Edwards

The issue at hand is not a new one. The ASBCA recently decided a case with somewhat similar facts. See Serco, Inc. v. Pension Benefit Guaranty Corp., CBCA 1695, 11-1 BCA ? 34662. The contractor hired temp labor to do part of the work and charged the rates established for the government employees. The CO insisted on reimbursing the contractor at cost instead of paying the hourly rates. The board held that the temp workers were subcontractor employees (a dubious holding) and denied the appeal.

I don't know what a CAS disclosure statement would have to do with any of this. The answer to cmoore's question depends on the language of the contract.

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The issue at hand is not a new one. The ASBCA recently decided a case with somewhat similar facts. See Serco, Inc. v. Pension Benefit Guaranty Corp., CBCA 1695, 11-1 BCA ? 34662. The contractor hired temp labor to do part of the work and charged the rates established for the government employees. The CO insisted on reimbursing the contractor at cost instead of paying the hourly rates. The board held that the temp workers were subcontractor employees (a dubious holding) and denied the appeal.

I don't know what a CAS disclosure statement would have to do with any of this. The answer to cmoore's question depends on the language of the contract.

I would agree that the answer to cmoore's question depends on the language of the various contracts.

The 2000 version of the T&M Payments clause was in the contract in the Serco case that you cited above. It wasn't clear to me whether the Board only referred to the language in the contract clause or if there was other language in the contract in addition to the language of the older clause which clearly established that the hourly labor rates didn't cover subcontracted labor.

Not to stray too far off the subject, but didn't the current version (Feb 2007) of the FAR Clause 52.232-7 -- Payments Under Time-and-Materials and Labor-Hour Contracts result from a rather spirited discussion thread here on the WIFCON Forum? I recall that it was debated whether the contract T&M or Labor Hour unit rates covered work performed by either the prime or by subcontractors. The Materials paragraph of the previous version of the clause appeared to require that any subcontracted work be reimbursed at cost. Seems like somebody here raised the subject to the DAR or FAR Council and they revised the clause to eliminate that ambiguity.

The new clause provides that the hourly unit rates cover "payment for labor that meets the labor category qualifications of a labor category specified in the contract that are —

(i) Performed by the Contractor;

(ii) Performed by the Subcontractors; or

(iii) Transferred between divisions, subsidiaries, or affiliated of the Contractor under a common control."

I assume that if the government now wants to distinguish between the three types of labor, it would have to establish separate labor hour rate CLINS for each source.

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