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It is a CPFF task order. The task order expires on a date. The contractor says he will have sub-contract close out costs after that date and they plan to direct charge us. DCAA says while they did not find a company policy, the company has direct charged these type of costs in the past. I have always thought that you could not invoice for actions taken after task order expiration. Have I always thought wrong? If I agree with the need to wait until expiration to close the subcontracts, would it be better for me to extend the task order limiting it to just close out cost or is that just unnecesary work? Everytime I think I might know something, I find don't know much.

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Often it takes a while for an incurred cost to wend its way through a company's books.

In theory it could take twice as long if it starts at the subcontractor company, goes through that maze to the piece of cheese at the end that's the invoice to the prime, then has to go through a similar maze at the prime before it's billed to the Government.

When did the prime incur the cost? Most likely it was indeed within the period of performance.

Is it billable under the prime? Depends on when it was truly incurred.

Modify the prime to extend the period of performance just to allow payment of a trailing cost? I hope not.

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Modify the prime to extend the period of performance just to allow payment of a trailing cost? I hope not.

Yet, that is EXACTLY what DCAA expects Contracting Officers to do.

H2H

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Yes I am not referring to a cost incurred during performance but one they plan to incur after expiration.

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Guest Vern Edwards
It is a CPFF task order. The task order expires on a date... I have always thought that you could not invoice for actions taken after task order expiration. Have I always thought wrong?

Here is what the DCAA Contract Audit Manual says:

6-202.2 Procedure Where Term of Contract Performance Period is Explicit

A contract may provide that it expires on a specified date, unless terminated before that date, and obligates the contractor to devote a specified level of effort for a stated time period [see FAR 16.306(d)(2) and FAR 52.249-6(a)]. The auditor shall not ap?prove for reimbursement any costs incurred by the contractor subsequent to the expira?tion date stated in the contract, or in excess of contract limitations.

You said that your task order "expires on a date." I don't know if DCAA will review requests for reimbursement for your task order, but if it does, it appears that a DCAA auditor would not approve the request for reimbursement if the cost was incurred after the expiration date. That is not necessarily the end of the discussion, but it is certainly cause for pause.

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Since it takes most companies 2-5 years tog et their final audited rates from DCAA these days, why wouldn't they just plan on these being overhead or G&A charges anyway? Unless the subs are on FFP or T&M subcontracts, it could be years before they are ready to incur these costs.

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I don't know if DCAA will review requests for reimbursement for your task order, but if it does, it appears that a DCAA auditor would not approve the request for reimbursement if the cost was incurred after the expiration date. That is not necessarily the end of the discussion, but it is certainly cause for pause.

When is a cost actually incurred? Is it when a subcontractor performs a required task under an existing sub contract within the required period of performance? Or is it when the sub subsequently invoices the prime for that work?

So as not to over complicate the scenario, I'm assuming that the sub's actual costs to account for its costs and to invoice the prime after completion of the direct effort would be included as overhead/G&A on the cost of the direct efforts rather than as additional direct costs incurred after the PoP.

It doesn't seem practical or right for the government to require subs to invoice primes prior to final completion. As an example of what can happen with early billing, our organization requires that we submit early time sheets for the last 2 full fiscal year pay periods plus any partial pay period that falls at the end of September. Not only do we have to account for all time but we have to charge exact hours to the correct fiscal work item. That invites all sorts of inaccuracies that usually have to be corrected after the fact. So, if the corrections are made after the fact, they are still charged back to the appropriate program. Why would that be a "newly incurred cost" any more than on a contract?

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Guest Vern Edwards
When is a cost actually incurred?

According to Cibinic and Nash in Cost Reimbursement Contracting, 3d, 693 - 694:

The most common forms of cost for contractors are the payment of money or the incurrence of an obligation to make payments for services or materials. The time at which these costs are recognized depends upon whether the contractor utilizes an accrual or a cash basis of accounting...

Under the accrual method of accounting, costs are recognized when an obligation to make payment arises. Under accounting principles, an obligation is considered to exist if there is relative certainty that payment will be made. For example, a contractor's issuance of a purchase order or signing of a subcontract is not recognized as the incurrence of a cost under accounting principles. It is not until goods are delivered or the services performed that, according to the accounting principles, thre parties may be sufficiently certain that a payment will be made. Until delivery or performance occurs, the obligation to pay is considered too uncertain to support the incurrence of a cost...

The definition of "obligation" differs from the legal usage that holds that a person is under an obligation when a contract is made.

It strikes me that Joel's question has no simple answer and must be answered on a case-by-case basis depending on specific facts.

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It strikes me that Joel's question has no simple answer and must be answered on a case-by-case basis depending on specific facts.

Thanks, Vern.

I recognize that my scenario differs from the original question. That scenario assumed incurring and charging direct costs to close out a contract or subcontracts after the period of performance, which seems to definitely be problematic.

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The prime needs the labor of 3 personnel to fly to Dubai and work for as long as it takes to close out the sub-contracts for our task order. The sub-contracts must run to the expiration date of the task order. DCAA at the company says it is company practice to direct charge these costs versus placing them in overhead. It may be anal but I am going to extend the task order for the time period necessary with the approved labor cost and travel idenitified.

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The prime needs the labor of 3 personnel to fly to Dubai and work for as long as it takes to close out the sub-contracts for our task order... It may be anal but I am going to extend the task order for the time period necessary with the approved [direct]labor cost and travel idenitified.

Sounds reasonable and then should not be problematic! I have one question. Do they need any help in Dubai? I used to travel there during Desert Shield/Storm. It is a neat place!

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Guest Vern Edwards

Why do they have to send two people to Dubai to close out some subcontracts? It does not sound reasonable to me.

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Why do they have to send two people to Dubai to close out some subcontracts? It does not sound reasonable to me.

Actually, it's three people!

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Lots more to it than just the Dubai trip that I was using as an example. Don't worry, we have several people who challenge all thier costs before we authorize them to do the work on the contract so it will be well vetted before authorized.

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It's hard to negotiate with arabs unless you're face to face. This after 20+ years in the Middle East.

Having said that, the cost of closing out subcontracts after the prime period of performance would usually be considered indirect.

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Having said that, the cost of closing out subcontracts after the prime period of performance would usually be considered indirect.

Cajuncharlie,

Why would you make that statement? What support do you have for your position?

If subcontract close-out during prime contract performance would be charged as a direct cost, why would that exact same activity be charged as an indirect cost simply because the period of performance ended? How is that consistent, or even compliant with the requirements of CAS 402? Why should all other customers pay for an activity that benefits only a single, individual, contract?

The plain fact is that each contractor will have its own business practices. Some with charge close-out direct and others will charge close-out indirect. That's why a Disclosure Statement is a useful tool for figuring out what a particular contractor actually does; or (in the absence of a DS-1) a contractor's written policy.

I'm concerned that your direction may mislead CO's or buying commands such that they don't think they have to fund such activities, when in many cases they may have to.

H2H

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Plus Boof said

DCAA at the company says it is company practice to direct charge these costs versus placing them in overhead

This has been another intersting thread and I learned things. I had no idea DCAA might question or not approve costs for reimbursement like this after the expiration date. But here_to_help's comment and Vern citing the DCAA audit manual provided different perspectives.

So is the answer making a distinction between period of performance and contract/task expiration date in the contract language?

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Plus Boof said

This has been another intersting thread and I learned things. I had no idea DCAA might question or not approve costs for reimbursement like this after the expiration date. But here_to_help's comment and Vern citing the DCAA audit manual.

So is the answer making a distinction between period of performance and contract/task expiration date in the contract language?

Yes. Assume contract close-out will be direct charged (it need not be).

1. The contract SOW should specify contract close-out activities and other post-delivery activities ("ramp-down"). The WBS should address this in the PMO function if nowhere else.

2. Contract funding should be provided for them. (The contractor should have bid them.)

3. The contract PoP should encompass all post-delivery activities.

H2H

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