Time-and-Materials Payments

[Guest Seeker]

T-M contract contains the payment clause for time and materials and labor hour contracts 52.232-7 (Feb 2007).

Prime contractor's salaried employee works on contract task for 48 hours. Prime records every hour worked. Prime invoices for the 48 hours at the hourly labor rate.

Contracting officer says that according to the payment clause the prime contractor is entitled to payment for only the 40 hours for which the employee was paid and that the 8 hours of uncompensated overtime are not billable/payable.

Is that true?

[here_2_help]

T-M contract contains the payment clause for time and materials and labor hour contracts 52.232-7 (Feb 2007).

Prime contractor's salaried employee works on contract task for 48 hours. Prime records every hour worked. Prime invoices for the 48 hours at the hourly labor rate.

Contracting officer says that according to the payment clause the prime contractor is entitled to payment for only the 40 hours for which the employee was paid and that the 8 hours of uncompensated overtime are not billable/payable.

Is that true?

Seeker,

There are many different ways to handle uncompensated overtime (UCOT). There is no one right way. (See the DCAA Contract Audit Manual for confirmation.) The contractor's responsibility is to elect its UCOT practices, to disclose those practices (if required to do so), and to follow them consistently. "To follow them consistently" includes preparing cost estimates using the same practices that will be used for accounting and billing.

It is certainly possible -- and permissible -- for a contractor to bill the government for all direct hours worked by salaried, exempt, employees, even if some of them are UCOT hours that don't drive additional salary costs. If that's the contractor's practice and it is consistently applying that practice, then there should be no problem

From a cost accounting perspective, the contractor is treating those direct UCOT hours as a direct labor cost and that direct labor is absorbing indirect costs, driving down indirect rates. Moreover, I would expect there to be a credit somewhere in the accounting system (which would be the difference between the labor costs generated by the total labor hours worked and the true salary costs), which would also act to reduce allocable costs.

Hope this helps.

[Guest Seeker]

It does not help. The payment clause says that the contractor gets paid at the hourly rate for every direct labor hour. The hours worked were indisputably direct and we documented each hour. The contracting officer has not said that the hours were not direct labor, and acknowledges that we documented the hours. So those are not issues. She is saying that we can't be paid for the OT hours because we did not pay the employee by the hour and did not compensate him for the OT hours. It's not clear to me what cost accounting has to do with this. I just want to know if the contracting officer's interpretation of the payment clause is correct. Is there something that I don't know?

[govtacct02]

It does not help. The payment clause says that the contractor gets paid at the hourly rate for every direct labor hour. The hours worked were indisputably direct and we documented each hour. The contracting officer has not said that the hours were not direct labor, and acknowledges that we documented the hours. So those are not issues. She is saying that we can't be paid for the OT hours because we did not pay the employee by the hour and did not compensate him for the OT hours. It's not clear to me what cost accounting has to do with this. I just want to know if the contracting officer's interpretation of the payment clause is correct. Is there something that I don't know?

Please see the Wifcon Thread at the URL below. This should help.

http://www.wifcon.com/arc/forum410.htm

In this thread, Vern said:

"The T&M payment clause, FAR ? 52.232-7, paragraph (a), is very clear that if the contractor devoted a direct labor hour to the performance of the contract work, then it is entitled to payment at the hourly rate stipulated in the contract schedule. The clause does not condition payment on what the contractor paid or did not pay the employee who did the work. Under a T&M contract, payment for labor is not based upon incurred cost."

[formerfed]

Contracting officer says that according to the payment clause the prime contractor is entitled to payment for only the 40 hours for which the employee was paid and that the 8 hours of uncompensated overtime are not billable/payable.

What I would do is ask the Contracting Officer to point out that wording in the clause. Walk into the Contracting Officer's office with a printed version of the clause and say "show me".

[here_2_help]

It does not help. ... She is saying that we can't be paid for the OT hours because we did not pay the employee by the hour and did not compensate him for the OT hours. It's not clear to me what cost accounting has to do with this. I just want to know if the contracting officer's interpretation of the payment clause is correct. Is there something that I don't know?

Your CO is wrong and cost accounting has EVERYTHING to do with it.

Salaried employees get paid a salary. Labor distribution via time sheet is how the salary gets distributed to cost objectives such as contracts. If your CO were correct, then no contractor could ever bill a direct labor hour incurred by a salaried employee.

As has already been pointed out, the interpretation of the clause is not correct. UCOT hours can be billed.

File a request for a COFD. File a CDA claim. You will likely win.

H2H

[Guest Seeker]

Formerfed, We did that, and the contracting officer pointed to paragraph (a)(5), which says that the contractor "shall substantiate vouchers by evidence of actual payment." She interprets that to mean that we must have actually paid the employee for those 8 hours.

[Guest Seeker]

H2H, Thanks. Do you know of any cases that would be helpful in persuading the contracting officer? We'd rather not litigate or threaten to litigate.

[Retreadfed]

Formerfed, We did that, and the contracting officer pointed to paragraph (a)(5), which says that the contractor "shall substantiate vouchers by evidence of actual payment." She interprets that to mean that we must have actually paid the employee for those 8 hours.

When the T&M Payments clause was revised in 2007, the drafters made several mistakes, some of which they are correcting now such as syncing up the timing of submission of vouchers under the payments clause and 52.216-7 which applies to the material portion of a T&M contract. In my view, the wording of (a)(5) is another one. To understand this, you have to go back in history about ten years. At that time, 52.232-7 had what was called the paid cost rule, which only permitted contractors to bill for subcontract costs that they had actually paid. The paid cost rule was substantially eliminated from the clause in 2001, but still applied if a contractor did not have an approved purchasing system. When the clause was rewritten in 2007, the language from the paid cost rule was brought forward into (a)(5). I have pointed out to personnel at DoD and GSA who were involved in the rewrite that (a)(5) can be interpreted as requiring the contractor to have paid costs being claimed, including subcontractor costs, before the contractor can bill the govenrment. They all deny that the clause reinstated the paid cost rule although I pointed out the specific language to them. Hopefully, the policy writers will recognize that this language is problematic and clarify it.

[Guest Vern Edwards]

It appears that the CO in Seeker's case is taking the language in FAR 52.232-7 (a)(5) to mean that the contractor is not entitled to payment for uncompensated overtime hours because the contractor has not paid the employees for working those extra hours. He is saying that the contractor must have actually paid for the hours in order to be entitled to payment for them. I think that is a gross misreading of the clause. Paragraph (a)(5) merely describes some of the kinds of evidence that a contractor must provide to show ("substantiate") that it has actually delivered the hours for which it wants to be paid.

[here_2_help]

H2H, Thanks. Do you know of any cases that would be helpful in persuading the contracting officer? We'd rather not litigate or threaten to litigate.

Seeker, if you are not prepared to exercise your rights under the CDA, then you might as well pack up your tent and go home. You have no leverage at all.

See Vern's excellent blog post entitled, "Tips for the Clueless Would-be Contractor," which you can find at--

http://www.wifcon.com/discussion/index.php...;showentry=1346

That is one of my favorite posts ever and I frequently refer people to it.

H2H

Edited to add that requesting a COFD and filing a CDA claim are two different things. Often, requesting a COFD is enough to get a CO to consult with Legal, who can hopefully give a better interpretation of the clause and move you toward a resolution. If nothing else, it tells the CO you are serious and he/she had better have a better justification for the non-payment other than, "because".

[Guest Seeker]

Thanks to everyone for the input. I do not have the authority to submit a claim and request a final decision. That kind of decision is made by higher level managers and lawyers. I'm sure they will do what they think best.

[Guest Vern Edwards]

H2H:

You said something that I don't quite understand:

[R]equesting a COFD and filing a CDA claim are two different things. Often, requesting a COFD is enough to get a CO to consult with Legal, who can hopefully give a better interpretation of the clause and move you toward a resolution. If nothing else, it tells the CO you are serious and he/she had better have a better justification for the non-payment other than, "because".

I suppose that a contractor can request a CO's final decision without submitting a claim, but a CO is not required to render a final decision unless he or she receives a claim. See FAR 32.211 and the Disputes clause, FAR 52.233-1. As a CO, if I received a request for a final decision I would determine whether the contractor had submitted a claim. If unsure, I would ask. If I determined that the contractor had not submitted a claim, I would respond to the request by saying that I would not render a final decision without a claim. Moreover, if I did render a final decision, and the contractor appealed to a board or court, the government's lawyers would almost certainly argue that the board or court did not have jurisdiction because the contractor had not submitted a claim.

[here_2_help]

H2H:

You said something that I don't quite understand:

I suppose that a contractor can request a CO's final decision without submitting a claim, but a CO is not required to render a final decision unless he or she receives a claim. See FAR 32.211 and the Disputes clause, FAR 52.233-1. As a CO, if I received a request for a final decision I would determine whether the contractor had submitted a claim. If unsure, I would ask. If I determined that the contractor had not submitted a claim, I would respond to the request by saying that I would not render a final decision without a claim. Moreover, if I did render a final decision, and the contractor appealed to a board or court, the government's lawyers would almost certainly argue that the board or court did not have jurisdiction because the contractor had not submitted a claim.

Well, it's like this Vern. There's what the regs say -- and what YOU would do, knowing what the regs say -- and then there's what most COs and ACOs know and do. I mean no disrespect to anybody, especially those COs who read WIFCON posts. But the sad fact is that the DCMA of today is not the DCMA of yesterday. GAO said much the same thing in a recent report (the link was on the WIFCON main page). My experience (and I have a fair amount of experience in cost disputes) is that the magic words "COFD" turn off the rubber-stamp mentality and get the CO/ACO thinking hard about the issue and what Legal is going to say. It moves the issue from the bottom of the in-box to the top.

I've had good luck in moving DCMA towards a resolution by submitting an uncertified request for COFD. I typically point out the policy at 33.204(a) and state that if a resolution cannot be had, then a claim (certified if necessary) will be forthcoming. The request for a COFD puts the CO/ACO on notice that I'm serious and that this issue, if left unresolved, is going to have legs. More often than not (about 90% of the time, actually) that gets a meaningful dialog started, and we end up with a fairly quick resolution. I freely admit that my strategy is not strictly IAW FAR requirements, but I've seen it work time after time.

Which is why I posted as I did.

H2H

[Retreadfed]

Well, it's like this Vern. There's what the regs say -- and what YOU would do, knowing what the regs say -- and then there's what most COs and ACOs know and do. I mean no disrespect to anybody, especially those COs who read WIFCON posts. But the sad fact is that the DCMA of today is not the DCMA of yesterday. GAO said much the same thing in a recent report (the link was on the WIFCON main page). My experience (and I have a fair amount of experience in cost disputes) is that the magic words "COFD" turn off the rubber-stamp mentality and get the CO/ACO thinking hard about the issue and what Legal is going to say. It moves the issue from the bottom of the in-box to the top.

I've had good luck in moving DCMA towards a resolution by submitting an uncertified request for COFD. I typically point out the policy at 33.204(a) and state that if a resolution cannot be had, then a claim (certified if necessary) will be forthcoming. The request for a COFD puts the CO/ACO on notice that I'm serious and that this issue, if left unresolved, is going to have legs. More often than not (about 90% of the time, actually) that gets a meaningful dialog started, and we end up with a fairly quick resolution. I freely admit that my strategy is not strictly IAW FAR requirements, but I've seen it work time after time.

Which is why I posted as I did.

H2H

What are you requesting an COFD on if it is not a claim? Have you ever received a decision after such a request? Is it in the form of a decision described in the FAR, including appeal rights?

I have filed protective claims, not intending to really pursue the claim, but to force review by someone other than the contracting officer. These have generally been succesful in achieving the intended objective.

[Guest Vern Edwards]

So what you're saying is to ask for a CO's final decision as a mild threat to make them get off the dime, knowing that you cannot make a CO issue one without a claim, and that if they do issue a final decision you cannot appeal without a claim. And you're saying that this has worked for you because "most" COs and ACOs respond by taking the matter more seriously once they know that you are serious.

Do you worry that a request for a final decision may have cost allowability implications with respect to FAR 31.205-47(f), even though the request is uncertified?

[here_2_help]

retreadfed--

I don't know your experience with DCMA ACOs. I have lots and lots of recent experience with cost disputes, especially of the CAS variety. More than I would want to have, quite frankly. In my experience, ACOs are quick to fire out demand letters and final determinations and final decisions, almost before receipt of a DCAA memo. The recent DOD "Cost Recovery Initiative" has created a situation where many ACOs will do anything to get Fort Lee off their backs.

It's all a matter of timing; ACOs need to show HQ how much progress they're making on the CRI, or else get an earful. They will cut corners and do most anything to create a sense of rapid progress. For example, a couple of months ago I saw a demand for payment issued before a final decision. Then I saw a final decision issued before receipt of a DCAA audit report quantifying the matter. The CRI is making DCMA crazy, is what I think.

So, yes. I had a final determination of CAS noncompliance withdrawn using the strategy I suggested. It had been stuck in the bottom of the in-box for quite some time, even though DCAA had withdrawn all findings and there was no reason to keep the noncompliance alive. An uncertified request for COFD with the threat of a certified claim to come had the matter cleared-up within 30 days.

Vern--

Not really. Until a claim is actually filed under the auspices of the CDA, I figure we're still negotiating. If the ACO/CO doesn't respond, then I figure we're at an impasse and it's time to recommend a move to the next level. And in any case, the dollars involved in drafting the non-claim demand for COFD are trivial.

H2H

[Guest Vern Edwards]

Well, whatever works, I guess.