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The problem: we (company) have a T&M contract. The agency is close to the employees and wants them to get salary raises. We’ve given raises to all employees at a minimum 2% up to 5% each year but the agency wants ‘significant increases in their salaries since we’re making so much money!!’.

We’ve submitted our certified cost buildup for each rate prior to award; they have our cost buildup for each rate and they know the employee's salary (they should know I'm losing money).

I’ve requested several meetings with the CO to discuss economic adjustment for the rate or to put the employees in different labor categories IF they want raises for the employees. The email response I got was “you pay them $Xhr and charge us $Xhr, how about sharing some of that ‘profit’ with the employees! You charge us almost double what you pay the employees and put the rest in your pocket!!” (yes, in an email).

This is a contract won from an incumbent (same employees surviving multiple contract holders); I paid the employees exactly what they made the prior year +2-3% increase while bidding a rate a bit lower than the incumbent. I’m already stretched – but that’s my problem - I'm not asking for more money, they want me to give the employees raises without changing the rate.

In my mind, the statements from the CO are absurd. I tried contacting a contracting department head but this CO is apparently the ‘senior CO’ (whatever that means) and the other CO’s aren’t helping out in finding this CO's 'boss'.

What are my options?

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Guest Vern Edwards

I assume that this is not a matter of your compliance with law, regulation, or contract terms. If that assumption is sound, then this is a classic story. I have seen this happen many times. For government personnel to involve themselves in this way is unprofessional, but it really is quite common.

I know some business managers who finesse their response to the CO and/or COR and manage to hang on and still make a profit. Those who fight the interference usually end up wrecking their relationship with whatever officials are the source of the problem. I know of companies that have lost the contract during the next recompete because they didn't heed the "suggestions" of the government officials.

It is important for you to know that what you are experiencing is an integral part of the business of competing for and running the kinds of onsite service contracts. Under such contracts a change in contractors is usually nothing more than a change of management and stationary. Most working level employees continue in the positions that they may have held for many years under several difference employers. They are considered members of the agency "family."

What can you do?

(1) You can do what the CO or COR ask you to do.

(2) You can informally tell the CO to mind his or her own business. You can finesse it or you can be direct and pointed.

(3) You can go further and write to the CO telling him or her that their communications with you about your earnings and employee salaries are out of bounds and to mind his or her own business and restrict communications with you to matters of compliance with law and regulation and contractual performance.

(4) You can go still further and tell the CO that you will consider any direct communications between government personnel and your employees about their salaries and your earnings to be interference with your performance, a violation of ordinary standards of business confidentiality, and a violation of the spirit of the contract if not its express terms.

(5) You can choose the nuclear option and send a copy of your letter to the CO to the chief of the contracting office and, if you really want to get your point across, to the head of the contracting activity, the agency senior procurement executive, and the agency chief acquisition officer.

(6) In the spirit of Mutually Assured Destruction you can complain to the agency inspector general. Even if the CO has not violated a law or regulation, the complaint will get his or her attention. But you'll be persona non grata.

(7) You can have your lawyer write the letter. You'll sleep with the fishes.

You can do any of those things, and many things in between, but you probably won't do any of (3) through (7) or variations thereof, because if you do you probably won't keep the contract the next time it’s recompeted.

There is yet another option, but it requires the very highest level of knowledge and skill and very few can pull it off. Assuming that your company's performance is absolutely brilliant, you can develop your own relationship with the contracting officer's superiors. For instance, if you are performing on a military installation you can develop a relationship with the chief of the contracting office and the base commander based entirely upon the quality of your performance, such that they won't countenance any treatment of you by the CO or the COR that will put your performance at risk. This is especially effective if the CO or COR is not held in high esteem. It really helps if the company's onsite manager is a well-known former government employee of high repute. The main problem with that strategy is that if the bosses are military they turn over about every two years. So if you take that approach you must try to ensure that the current base commander praises you to his or her replacement and tells them that keeping you is absolutely essential to his or her success. This strategy is available only to the most brilliant managers of sterling performers and it must be absolutely above board. I say again, this approach is only for those of the very highest skill. People who can do it – and I know some – are usually called things like Prince of Darkness or Queen of the Dead. If you try it and fail it will be a disaster of Titanic proportions.

I'm sure that other Wifconers will weigh in on this, and I will be interested in seeing what they have to say.

I'd say good luck, but if you are writing here for help you probably won't have any, and if you were a prince of darkness or queen of the dead you wouldn't even consider writing here for help.

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Agree with all Vern said. Been in your shoes and there's no good solution. Of course, since T&M is out of favor these days, you can always hope that the next contract will be CPFF and then the Govt will directly feel the impact each time they push for a raise to the staff.

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You might try to make it an opportunity to build a better relationship with the CO. You might get snubbed, but it probably wouldn't be a disaster of Titanic proportions. You might start by agreeing that the employees are exemplary and of unmeasurable value. Then remind her/him diplomatically, that the financials he/she has for reference demonstrate that, alas, the company just isn't able to give significant raises right now (maybe slide in something about the Federal pay freezes and shared sacrafice). Possibly add that the CO's concerns for the employees have awoken you to the need to recognize the enormous contribution made by the employees to your company and to the project mission, and ask for the CO's guidance and input in developing a recognition program. Of course if you ask for the CO's guidance and input you should be prepared to accept it. If you get the tone just right and are genuinely willing to entertain constructive suggestions, you might give the CO a place to park his/her partisanship for the employees. If it doesn't work, you're no worse off than you were.

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As a Chief of the Contracting Office, I know it is incumbent upon you to document any attempts to the Contracting Officer this incident. The CO's response to you is unacceptable. Vern is correct, in that, this is what we refer to as personal services, and the Government has no right to dictate what you should pay your employees. If you are paying what is obligated by law (under DOL), or appropriate exempt salaries that were determined to be reasonable at the time of award, the Government should not be involved. If the Contracting Officer does not respond in a responsible manner and/or threatens your livelihood, then take it up to the next level. If the CO is the highest in that particular office, find the organizational chart for the agency, and report an incident of personal services to the next person in charge. If more Contractors pursued this, the Government abuse would slow down. I will remain optimistic! Make sure your documentation is organized and captures the essence of the entire incident. Good luck.

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I think Vern and kitty answered the mail. But I wanted to add one more thought to the mix.

The last time I encountered a contractor who (a) acquired an incumbent workforce, ( B) where the employees were "close" to government personnel, and © where the government advocated on behalf of employees (effectively acting as manager of contractor personnel) ... several people (both government and contractor) ended-up spending a LOT of time being interviewed by DOJ and CID. At one point we had a team of 11 assigned full-time to figuring out how deep the hole was--and it was very deep indeed.

One government official ended-up in jail. The contractor ended-up paying mega-level legal costs and making a mega-settlement with DOJ.

I'm serious and "FAR Fetched" needs to be on the look-out for illegal collusion between the governmental "advocates" and contractor employees.

I would check employee records thoroughly and look for connections between the employees and the government personnel -- i.e., is somebody related (perhaps by marriage)? Do they live next to one another? I would also check expense reports and see if there were any tell-tale patterns. If I found some anomalies I would image hard drives and review email and IM records.

In short, while I only have one data point (which is never a good basis for drawing conclusions), that one data point is enough that I would advise "FAR Fetched" to treat this situation as a symptom of something that is potentially a huge, huge, problem.

I hope I'm wrong, but this situation, as described, is ringing my warning bell.

Hope this helps.

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Thanks all and yes I agree there are few ways to escalate this without hurting feelings and ruining my company name. It's only a few employees and it's pretty far from our offices so our company has very little visibility in the chain of command there.

I have a Prince of Darkness but for an agency where most of our work is. It's really not worth pulling him away from our main customer, putting him on a plane to try and smooth over things at a new agency for a handfull of billable FTEs.

To H2H’s point, it’s been made very clear to us that the contractor employees and some of the gov employees go to the same church – not saying that in itself is wrong but we know they’re close outside of work too. It’s a new area for us and we looked at it as a way in the door but obviously things are rough right now. I’m even considering trying a contract novation to a company that has more visibility (and ‘well liked’) at that location just to avoid 'sleeping with the fishes'.

It's really a lesson learned, we basically jumped into a new market without spending enough time to learn the lay of the land.

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In a related note, another relevant circumstance to my one data point was that the contractor workforce was far from corporate offices. The "controls" the company had put into place had little effect that far away. Because the workforce was far from home and in close proximity to local "friends" in the government, they tended to see the government personnel as their true bosses.

"FAR Fetched" go kick the tires at this location. It may be just a few employees but that's enough to create a whopping big liability for your company if they are doing things they shouldn't be doing. If necessary, go hire an outside firm (legal or accounting) and have them spend a week at the site, reviewing actual practices for compliance with company policies. It's cheap insurance. Trust me on this.

H2H

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Vern's various paths are on point with a personal singular experience in being a part of the ramifications of making an issue of such demands from a contractor’s point of view. However to H2H's "data point" I have also been personally witness and involved in a tip of the iceberg matter as well. With both these experiences in hand and with acknowledgement of the unstable facts that exist in this forum, at face value, I agree with the advice offered by H2H.

In dealing with similar matters in my career I am always reminded of some FAR references...

FAR 1.102(B)(3), FAR 1.102-2 c), 3.101-1 and 2. Connected, and as options are considered, another possible direct contact to consider is the Agency's Ethics Official.

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Guest Vern Edwards

It's possible that something illegal is going on, but in my experience this kind of thing is mainly just human. People work together for a time, maybe for years, and they naturally become friendly. The distinction between government employee and contractor employee gets lost in the mix. The contractor employee receptionist, security guard, or programmer is very nice and a member of the agency "family." How can you have an office party and not invite Joe just because he works for a contractor? The contractor, on the other hand, is seen as remote, shifty, money-grubbing, and anti-labor.

I've heard CORs refer to contractor employees as "my employees." They want things for the workers because they think the workers do a good job and they want to keep them happy and motivated. I think this is more often a matter of a lack of professionalism on the part of COs and, especially, CORs than it is criminal conduct. While I acknowledge that there could be something less innocent going on, something outright unethical or illegal, that would not be my first thought.

In large measure, this is the inevitable consequence of long term reliance by the government on service contractors for the performance of routine work. The failure is ultimately one of organizational leadership and management.

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The problem: we (company) have a T&M contract. The agency is close to the employees and wants them to get salary raises. We’ve given raises to all employees at a minimum 2% up to 5% each year but the agency wants ‘significant increases in their salaries since we’re making so much money!!’.

We’ve submitted our certified cost buildup for each rate prior to award; they have our cost buildup for each rate and they know the employee's salary (they should know I'm losing money).

I’ve requested several meetings with the CO to discuss economic adjustment for the rate or to put the employees in different labor categories IF they want raises for the employees. The email response I got was “you pay them $Xhr and charge us $Xhr, how about sharing some of that ‘profit’ with the employees! You charge us almost double what you pay the employees and put the rest in your pocket!!” (yes, in an email).

This is a contract won from an incumbent (same employees surviving multiple contract holders); I paid the employees exactly what they made the prior year +2-3% increase while bidding a rate a bit lower than the incumbent. I’m already stretched – but that’s my problem - I'm not asking for more money, they want me to give the employees raises without changing the rate.

In my mind, the statements from the CO are absurd. I tried contacting a contracting department head but this CO is apparently the ‘senior CO’ (whatever that means) and the other CO’s aren’t helping out in finding this CO's 'boss'.

What are my options?

You did not say whether the employees are subject to the SCA and whether options are being exercised on the contract. If they are, are you getting price adjustments to the hourly rates?

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I am sorry that you are in that situation. In a prior position, my exclusive responsibility was being CO for two on-site support service contracts in a relatively small field office of a MAJOR civilian agency. The contractor component made up more than half of all the personnel in the office and there was a long tradition of the Government trying to interefere with the compensation, promotion, hiring, etc. of contractor staff. What was unfortunate in this case was that it was director-level personnel (including the HCA) that were actually the ones pressuring the contractor. That HCA was investigated by the OIG and, last I heard, in the midst of being terminated. The agency was also almost party to a joint-liability EEO lawsuit resulting from inappropriate treatment of one contractor employee from a couple of years before.

I think in this situation just not even responding to the request might be one of the most prudent responses.

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My first thought was that I'd posted enough on this thread. As stated in my first post, Vern and kitty did a fine job of answering the original question with respect to external interaction. I wanted to suggest that some internal investigation might be warranted--and so I did.

But let me add these comments--

1. Vern, in my one experience "data point," it was the COR who ended up in Federal prison. He was indicted about 2 years before his planned retirement. The CO, who had the let the COR take over and had, as a result, become a "rubber stamp" for the COR's decisions, did not fare well either.

2. Retreadfed, in my one experience "data point," SCA was involved. As just one of the many problematic issues that the contractor had to deal with, when the SCA rates were to be increased based on receipt of a new Determination, the COR directed the contractor to demote/reassign the affected employees to a new labor category instead of giving them the required raises.

My final thought on this is that I agree that the probability of actual illegal activity is low. But the consequences associated with any illegal activity are very high. From a risk management perspective, that would normally tell me that some mitigation activity would be warranted--which was why I suggested that "FAR Fetched" initiate some internal reviews, regardless of what is done externally with the customer.

H2H

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With regard to the comments in this thread regarding the probability of "illegal" activity I would just offer, again from a general view, that it is not a giant stretch from the facts presented in the initial post that not only a violation of regulation but a violation of statute/law might already be present. The conclusion, or not, that illegal activity has not already taken place is better left to the proper investigative and enforcement authorities and again would be why I would take an approach that shadows H2H.

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Far Fetched:

Prepare a folder in your e-mailer and place the CO's name on that folder. Place the Co's e-mail in this folder and be sure you can find it on a "rainy" day. There are venues where that e-mail would be helpful to your cause.

When the time comes, print the e-mail out and place it in an obvious place so the person you want to find it can find it. That CO stepped in it. Some day you might be able to quietly place what the CO stepped in around the CO's head.

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Guest Vern Edwards

Question: Suppose that a contractor's performance was not terrible, but subpar, and that the CO and COR believed it was due to high turnover caused by the departure of experienced employees seeking better wages and working conditions. Would it be improper for the CO to suggest to the contractor that it consider increasing employee wages and improving their working conditions at no additional cost to the government?

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Vern - No answer from me. There are many variables that need to be provided to zero in on what the CO/COR might/should do in such a situation. For example your example is it a service contract, if Service Contract Act applies, if there is a collective bargaining agreement, if the economic adjustment clause is in contract, are the employees currently paid at the required wage/benefit, if there are option years, is the contract a fixed priced or cost reimbursement contract, and are the working conditions at issue in violation of any local, state or Federal law? Probably more too. I would suggest any answer would be based on the variables of the facts not stated.

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Guest Vern Edwards

My question is straightforward, but I'll give you more information:

The contract is FFP, T&M, or L-H; the SCA applies; there is no collective bargaining agreement; there is no EPA clause; there are options; and the contractor is in compliance with all laws and regulations.

The situation is that despite all those things workers are leaving because other companies will pay more for their services. That is destabilizing the contractor's workforce. My question whether it would be improper for the CO to suggest an increase in wages and an improvement in working conditions, without an increase in price or labor rates, as a way to stabilize its workforce and improve performance. You were quick to suspect a violation of law and regulation in FAR Fetched's case on the basis of no more information, so I will be interested to see if you continue to be unwilling to offer an opinion in response to my question. It's a simple question and not as situation dependent as you would make it out to be. You didn't ask FAR Fetched about the SCA, an EPA clause, or options. You could at least say whether you think the suggestion would violate law or regulation.

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Question: Suppose that a contractor's performance was not terrible, but subpar, and that the CO and COR believed it was due to high turnover caused by the departure of experienced employees seeking better wages and working conditions. Would it be improper for the CO to suggest to the contractor that it consider increasing employee wages and improving their working conditions at no additional cost to the government?

It may if the contractor and its employees are involved with a dispute concerning wages and working conditions. FAR 22.101-1 says "Agencies shall remain impartial concerning any dispute between labor and contractor management and not undertake the conciliation, mediation, or arbitration of a labor dispute."

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Vern - First, with regard to the thread prior to your post with current expanded example in it, it seems you want to make issue of my response to FAR Fetched. So to clarify FAR Fetched did provide one piece of information which you have not in your example, that being, and I quote, that the CO stated in an "email response" that “you pay them $Xhr and charge us $Xhr, how about sharing some of that ‘profit’ with the employees! You charge us almost double what you pay the employees and put the rest in your pocket!!” Such a statement is risky and carries with it lots of innuendo at its face with regard to the appearance of or actual violation of regulation or law. Examples include, the prohibition of solicitation of a gift and general code of conduct regarding integrity, fairness, openness, impartiality and with preferential treatment for none as expressed in the FAR (Parts 1 and 3). Like many, including you, I did not ask for any further clarification but offered my suggestion based on this specific stated fact that FAR Fetched provided. I know I do not know your intention for your specific detailed first response to FAR Fetched, quite honestly a very good one, and simply note that in fact I borrowed from your stated assumptions as clarification to my general response and those I made that followed.

Now to your example and armed with the basics you have provided if I were the CO I would step very carefully with regard to any suggestion to the contractor that he/she pay more and/or improve working conditions as such a suggestion, while not a violation of law or regulation could be interpreted as a verbal change order or constructive change. I would have discussions with the contractor regarding performance as it related to their bid or proposal and current performance. I would explore possible alternatives that would help improve performance with the contractor and be explicit that any of the discussions are simply exploration of ideas and that it was completely in the hands of the contractor to form strategy of his/her choice to bring performance up to par. In part such a exchange with the contractor may take a formal route of a cure notice.

As a CO I would also be performing a determination of exercise of option at the required anniversary of option (ref: FAR 17.207) and if I became convinced in preparing this determination that the local pay structure has changed to such a degree as you suggest in the example I would most likely not exercise the next option period. Further I would probably have discussions with the USDOL regarding the wage issue with hopes that they would consider the matter with regard to issuance of a future wage determination.

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Guest Vern Edwards

Carl:

Forgive me for being blunt, but if you are not going to answer my question, why respond at all? It wastes your time and mine.

I don't want to make an issue of anything you said. I don't really care what you said.

I didn't ask you to comment, yet again, about FAR Fetched's case. You have already said what you think.

I didn't ask what you would do as CO. I don't care what you would do.

I asked whether a particular course of action by a CO under particular circumstances would be improper.

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Vern –

Come on what is it? You state “if you are not going to answer my question” and then in turn state “I did not ask what you would do as a CO”. So what is it question or not?

Really? To your further blunt outburst of "I do not really care", "didn't ask", "don't want" and "wastes time" I suggest you re-read your own posts. You did respond to me - "You were quick to suspect" and “you continue to be unwilling to offer an opinion” - and in plain meaning of your words you must of cared, you did ask me, you did want an answer and wanted me to apparently waste your time. If I thought it was wasting mine I would not have posted as I did not know I was being set up for a typical Vernism of deflection and brow beating rather than valuable (in my view but apparently not in yours) discussion.

Finally, re-read my last post as it said - "while not a violation of law or regulation".

PS – When you find the forum rule that provides that I cannot post responses to posts, yours or otherwise, please send the reference my way.

Thanks

Carl

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