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Background: Below is a clause that we are finding in various CPFF (LOE) solicitations.

"Of the total staff-hours of direct labor set forth above, it is estimated that __ staff-hours are competitive time (uncompensated overtime). Competitive time (uncompensated overtime) is defined as hours provided by personnel in excess of 40 hours per week without additional compensation for such excess work. All other effort is defined as compensated effort. If no amount is indicated in the first sentence of this paragraph, competitive time (uncompensated overtime) effort performed by the contractor shall not be counted in fulfillment of the level of effort obligations under this contract."

Hypothetical Scenario: RFP (CPFF) directs offerors to identify Uncompensated Overtime (UCOT) hours IAW FAR 52.237-10, describe the use of UCOT, and cautions against unrealistic rates.

Contractor A does not intend to require their employees to work UCOT on a consistent or required basis; therefore, no UCOT hours are proposed. Consequently, the above LOE clause in the resultant contract states ??no UCOT hours performed will be counted in fulfilling the LOE.? During execution, an exempt employee works 50 hours in a particular week to meet a schedule. The clause as written would not allow the extra 10 hours to be counted toward total LOE, even though the Government receives the benefit of 50 hours of work for 40 hours pay. Contractor B proposes no UCOT.

Question: Why is Contractor A prohibited from counting the UCOT hours in their LOE? Contractor A did not state that they will NOT work UCOT hours; they merely did not propose it formally which would then be binding.

Based on my research, the Government?s concern with UCOT is to ensure contractors properly account for UCOT, and that the use of UCOT does not unduly introduce performance risk. If a contractor proposes UCOT of 50-hour workweeks and is awarded a contract, the Government would want to ensure that contractor deliver on those UCOT hours which presumably gave them a competitive edge and partly or largely formed the basis of their winning price.

The fact that Contractor A chose not to propose any UCOT should not preclude the incidental performance of UCOT, and should not penalize the contractor. Would greatly appreciate expert opinion on this issue.

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Looks like another case of the law of unintended consequences, where a clause intended to fix a perceived problem creates a new problem.

Unfortunately it also looks like the only way to deal with something like this is to game it by throwing a few hours in the pot so you can get credit later for the occasional few hours of UCOT.

It does not sit well to have to game a situation just to receive credit for work performed.

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Wouldn't UCOT in a particular week also drop the hourly cost for an exempt salaried employee so that the net result is that total cost (hourly cost times hours) comes out the same with or without UCOT.

Whynot, your question implicitly assumes that the contractor adjusts the calculated hourly salary cost for its employees by the total hours worked in the pay period. That is not a mandatory adjustment and many contractors do not make it.

For example, if a salaried exempt engineer works a standard 80-hour two-week pay period and receives $3,200 in gross salary during that period, we would calculate the hourly rate at $40 ($3,200/80 = $40). You assume that if that same engineer worked 100 hours in that same two-week pay period (80 plus 20 hours of UCOT) his calculated hourly rate should be $32 ($3,200/100 = $32).

That's how it works at some contractors, but by no means all of them. There are various ways of accounting for UCOT -- including ignoring it altogether if immaterial in amount -- and your method is just one of them.

Hope this helps.

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In this scenario, the contractor's accounting system accounts for UCOT so that the Government would pay 40 hrs' pay for 50 hours delivered. The issue taken with the clause is that as written, it does not allow the contractor to count the extra 10 hours of work, which potentially affecting their ability to earn fee. This not only penalizes the contractor, but rather infringes on private industy on how the contractor chooses to manage its workforce to get the job done.

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Not sure I understand the question, so please bear with me. In my humble opinion, the contractor did not agree to never work UCOT in execution; proposing UCOT would mean that the contractor is making a commitment upfront to deliver the proposed UCOT hours at a diluted rate. I'm having a difficult time understanding why the Government would care whether the contractor executes a task with or without UCOT if that contractor did not make a firm commitment by proposing it upfront (provided performance does not suffer)? As in my first post, if the salaried employee chooses to work 50 hours in a week to fulfill an unanticipated requirement, and the Gov't is charged for 40 hours, why shouldn't those extra 10 hours count toward the LOE? (When the LOE is tied to fee, this becomes particularly important.) Thank you.

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Guest Vern Edwards

I cannot explain the terms of the contract in question. However, I can say that uncompensated overtime, while legal, has long been viewed with concern for many reasons. Here is a quote from a 2003 publication about business ethics in government contracting:

The use of uncompensated overtime raises several ethical concerns. First, Congress takes the view that it is contrary to general notions of fairness to permit contractors to profit from the uncompensated labor of their employees. It has also expressed considerable doubts as to whether the Government obtains the best value for its money when it accepts a lowerpriced offer based on the use of uncompensated overtime, since quality normally suffers when employees must work more than 40 hours per week.

As a result of these concerns, Congress imposed restrictions on the use of uncompensated overtime on defense contracts for services. It required the DOD to adopt regulations ?to establish criteria to ensure that proposals for contracts for technical and professional services are evaluated on a basis which does not encourage contractors to propose uncompensated overtime.? Government-wide rules have now been adopted in the FAR explicitly stating that the ?se of uncompensated overtime is not encouraged.? In addition, among other things, the FAR requires that to the maximum extent practicable, services be acquired using performance-based *5 contracting methods. For contracts over the simplified acquisition threshold ($100,000) when professional or technical services are to be acquired on the basis of the number of hours to be provided, rather than on the task to be performed, offerors must (a) identify uncompensated overtime hours and rates included in a proposal, including those in indirect cost pools, (B) use accounting practices for estimation of uncompensated overtime consistent with their accumulating and reporting practices, and ? include in their proposal a copy of their policy addressing uncompensated overtime. COs must conduct a risk assessment and evaluate for award on that basis any proposals that contain (1) unrealistically low labor rates or other costs that may result in quality or service shortfalls and (2) unbalanced distribution of uncompensated overtime among skill levels and its use in key technical positions.

Footnotes omitted.

Here is a quote from a 1995 case review:

In one important 1994 case, the GSBCA upheld an agency's downgrading of a proposal for use of uncompensated overtime. Lockheed Engrg. & Sciences Co. v. NASA, GSBCA 12702-P, 1994 BPD ? 89, 94-2 BCA ? 26885. The board found that the agency reasonably concluded that the uncompensated overtime would create considerable employee resentment and have an adverse impact on morale.

Here is a quote from a 1994 paper about professional services:

One of the more disturbing developments in recent years related to professional services contracting is the increased use of uncompensated overtime in proposal pricing. As competition has increased, more and more contractors are compelled to find ways to reduce their proposal prices. However, where the number of hours to be worked (for evaluation purposes) are expressly stated, one of the few competitive advantages left to be gained is through a reduction in labor rates. If a reduction cannot be gained directly through a reduction in salaries, it can be done indirectly by requiring salaried employees to work overtime without additional compensation. Properly accounted for, this reduces the effective labor rates that can be bid...

The Government has vacillated in its approach to uncompensated overtime. Proponents of the use of uncompensated overtime stress that it reduces the cost of services (at least nominally) to the Government through lowered labor rates. Critics point out that unbridled use of uncompensated overtime leads to dissatisfied workers, high employee turnover, and a general reduction in quality. As might be expected, solicitation terms related to uncompensated overtime mirror this vacillation. On the one hand, applicable regulations and solicitation terms normally make it clear that the use of uncompensated overtime is not prohibited. On the other hand, its use is regulated and offerors are usually warned that proposing uncompensated overtime may result in an offer being downgraded technically or otherwise in the evaluation process.

Footnotes omitted.

I could provide quite a few more such quotes. Otherwise, I cannot help you with respect to your concerns. You should talk it over with the CO in question.

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Vern, as always, thank you for the substantive response. I agree that the CO for the contract(s) would be the ones to speak to the particular situation, but was curious to hear your insights from a broader perspective.

On the ethical concerns raised by Congress, I would submit to that writer that earning profit on UCOT is not unfair in that there are other ways to compensate employees, through various benefits and bonuses for example. How each employer decides to motivate its workforce to satisfy its employees' needs as well as the customers' is indeed the challenge on private industry, who is not benefitted from the Government's insertion of itself into these types of matters. Rather, the competitive marketplace will do its part to weed out the contractor that overworks its employees, as they will lose those employees, which will impair their ability to compete and survive in the marketplace. If the work suffers because it "overworks" its employees, the government has avenues by which it can penalize the contractor, through low CPARs ratings or refusing to exercise an option for example, which are two of the most significant ways to affect a contractor's well-being and would theoretically cause self-correction.

With that said, the quotes provided rather underscores my assertion that the concern of the Government (and therefore the clause with which I struggle in my original post) has to do with what the contractor proposes - when the contractor proposes UCOT, it is committing its workforce to UCOT, and its execution of the effort will be based on working its workforce X amount of UCOT hours. In such a case, it would be appropriate for the Government to evaluate the performance risk posed by that contractor, as opposed to the next competitor who did not propose UCOT (meaning, if the contract is awarded to them, execution will not require that their workforce work XX extra hours. But they "can" work extra hours should they elect to do so). When the contractor does not propose UCOT, but then performs some UCOT in execution, there should be no reason why the contractor should not get credit for those extra hours.

I presume that there are a fair number of exempt civil service and military workers who work over 40 hrs/wk. It is actually what exempt people do to get a job done as professionals who do not necessarily clock out after 40 hours as non-exempt employees do. I do believe this clause was intended to address only those contractors who propose UCOT with the corresponding diluted rates to gain that competitive edge. Otherwise, the ramifications of this clause seem counter to what a professional is, tying that workforce to define in advance exactly how many hours will be worked and then penalizing initiative and motivation by the threat of a fee reduction if more hours are worked (at no additional cost to boot).

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Guest Vern Edwards

First, you cannot generalize and say that when an offeror proposes uncompensated overtime it is necessarily promising and binding itself to do so. One must read the proposal to see exactly what it says. An offeror may be doing no more than stating its present intention, without binding itself to do anything.

As for your disagreement with the government's concerns, you are not the first to feel that way, but it doesn't make any difference what you or I think, does it? What matters is what the customer thinks, and the law is on the government's side in this regard. If you don't like proposed contract provisions you should take them up with the CO before submitting a proposal. If you can't change the government's mind, then you have to decide whether to submit a proposal or not. Once you commit to the government's terms, the game is over.

I can tell you this much: A steady diet of uncompensated overtime can undermine the morale of a professional organization. I have seen it happen. And it can make government work less attractive. Having said that, as a professional I have happily worked many hours of uncompensated overtime without objection when I liked what I was doing, but it was usually voluntary. I'm not sure how I would feel about working for a company that bid on contracts counting on me to do so routinely and hoping to profit from it.

I don't know why the government has taken the position that it has in your case. On the surface it does not make a lot of sense to me. But I'll be they don't care what I think.

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Thank you Vern. The example that I have posed is when there is incidental UCOT, not necessarily continuous to where it is excessive, and in the case of the clause in my post, the contract(s) do bind the contractor to those hours; your comments are noted that this is not always the case. Can't thank you enough for providing your insights. Having researched this topic pretty extensively, the information you have provided helps me greatly.

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