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Is this Professor right?

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All and especially 100 and Vern - GOT IT!! Thanks.

While I do get it I do have to say I will remain confused by the wording of the regulation at 13 CFR 125.6. It says the “concern will”…”perform 50% of the cost incurred for personnel”. “Personnel” is then defined by the regulation as employees of the concern. Seems the regulation could be worded better.

In the end a concern is the one holding the bag on this and should be aware that they are subject to running the gauntlet on a responsibility determination and if they do their method of calculating for their certification of 52.219-14 would most likely be reviewed. Vern has stated two calculations and I agree his alternative would be the one I would use as a CO in reviewing a concern for compliance/responsibility with the clause.

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In determining compliance with the limit on service contracts the numerator should be the cost of contract performance incurred for personnel by the prime. The denominator should be the total cost of contract performance incurred for personnel by the prime and all subcontractors.

...Alternatively, it could be:

(the prime's direct labor cost + the prime's overhead on its direct labor) + (the total subcontractor direct labor cost + the total subcontractor overhead on direct labor + the total subcontractor G&A applied to direct labor and overhead) + the prime's G&A applicable to all of the foregoing.

I do not know which is correct. I can find no guidance. But it seems to me that the latter is more consistent with normal cost accumulation and that it is thus the more appropriate calculation.

As I stated above, I think that - simply by the wording of the requirement - the total cost of contract performance for labor in the denominator would include the prime's G&A on those costs, including both prime and subcontracted labor. If one were negotiating the cost of the contract or any mod involving subcontracted labor, the contractor would apply some form of it's G&A rate to the other costs to determine the total contract cost for labor. Although it might be nice to have a cookbook formula, I don't think it is necessary.

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Yes, you stated it above. I saw that. In fact, I think you stated it a couple of times.

I'm glad you don't need a cookbook formula Thanks for telling us. I'm not as smart as you and would like to have one.

It might be useful to you, too. You would not have to feel the need to repeat yourself.

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As I stated above, I think that - simply by the wording of the requirement - the total cost of contract performance for labor in the denominator would include the prime's G&A on those costs, including both prime and subcontracted labor. If one were negotiating the cost of the contract or any mod involving subcontracted labor, the contractor would apply some form of it's G&A rate to the other costs to determine the total contract cost for labor. Although it might be nice to have a cookbook formula, I don't think it is necessary - plus there may be exceptions (such as some contractors I dealt with on large service contracts that don't charge their G&A to subcontracts).

I agree that from an accounting perspective, the total cost of labor on the contract would be computed in accordance with Vern's option two. However, we are not necessarily looking at this from an accounting perspective, but from a regulatory interpretation perspective. In this regard, 125.6 says that cost of personnel means "Direct labor costs and any overhead which has only direct labor as its base, plus the concern's General and Administrative rate multiplied by the labor cost." If we apply that definition to costs of a subcontractor, it would appear that prime G&A would not be included in the definition of cost of personnel as applied to the subcontractor.

I do not know which application is correct, and agree that the SBA should clarify this regulation so that those affected by it would know the rules of the game.

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Retread:

What's interesting is that 125.6 has been around a very long time and has not appeared to be controversial. The issue of compliance has come up quite a bit, but I haven't found a single decision -- yet -- in which the calculation was explained so that you could see how they did it. This could mean just that it's obvious to everybody but us, or that it's being done differently by different people and no one realizes it. I have searched high and low and cannot find any explicit guidance about how to apply the rule or any detailed description of its actual application. Not even in SBA Standard Operating Procedures.

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Retread:

What's interesting is that 125.6 has been around a very long time and has not appeared to be controversial. The issue of compliance has come up quite a bit, but I haven't found a single decision -- yet -- in which the calculation was explained so that you could see how they did it. This could mean just that it's obvious to everybody but us, or that it's being done differently by different people and no one realizes it. I have searched high and low and cannot find any explicit guidance about how to apply the rule or any detailed description of its actual application. Not even in SBA Standard Operating Procedures.

One of the many mysteries in government contracting that have yet to be solved.

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This thread is very helpful but a few years old, and I'd like to determine whether there has been any clarification on exactly how to calculate the existing "cost of contract performance incurred for personnel" standard at 13 CFR 125.6, with regard to contracts for services.

I realize there is a proposed rule that will completely revise the way Limitations on Subcontracting is calculated, but it has not been made Final yet.

Vern Edwards stated at the time that he had reviewed 250+ cases as well as other materials, and found nothing that spelled out exactly how the calculation should be done. Is this still the case, for the current regulation?

I apologize in advance if a more recent thread already addressed this question, but I could not find it. Thank you!!

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