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I encountered a unique situation today when my CO sent me a letter asking that I (the contractor) pay the Gov't $500 to cover the "administrative costs for modification processing". The background of this request was due to the contractor processing a credit voucher which resulted in residual funds being on contract which now need to be de-obligated. I spoke with the CO after receiving the letter and he stated that the costs associated with processing a mod are actually much higher, implying that I was getting a bargain and I should just pay the $500.

Th CO went on to say that if the Contractor's actions caused the Gov't to incur costs (which wouldn't have been incurred if it weren't for us) that the Gov't is entitled to reimbursement of those expenses. This is new to me and I'm wondering if their is a basis for this claim against us.

Has anyone encountered this before and should my company be pushing back or should we just pay it?

Thanks!

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Guest Vern Edwards

The CO wants you to pay administrative costs for giving the government a credit?

I know what I would do, but since you had to come here to ask what to do I won't bother telling you, because you wouldn't do it. If you have to ask here you probably don't have the weight to push back.

Pay up.

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I think that this would be considered an unlawful augmentation of the agency's appropriations. I'm curious what authority the CO is citing. This, much like some of your other posts, seems like you are dealing with an incompetent contracting office. I hope Vern reconsiders, I'd love to see that response.

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I can see the next step. This government agency will set up roadblocks at various intersections, manned by DCAA auditors. The auditors will audit the contents of any vehicle that attempts to cross the intersection, and will demand a percentage of the estimated value of the contents, in order to make the government whole from "questioned costs." Anybody who refuses to pay up will have their vehicle impounded and sold at auction.

For the record, I agree with Vern's (unpublished) response to this particular CO.

H2H

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Thanks everybody for their input regarding this topic. Yes, Velhammer, this is the same CO that I have posted other topics about. He is quite a handful. I, too, would love to hear/read Vern's proposed response regarding this matter.

Just more background regarding this subject.

The mod (that the USG wants us to pay for) is related to identified labor costs which are associated with contractor personnel who were (previously) charged in T&M labor categories that they did not qualify for. As a result of DCAA findings, the Gov't questioned non-conforming labor costs and requested a credit from us (the contractor). We did an analysis and was able to demonstrate that if we were to re-classify personnel (downward) the reduction in cost was much less.

Based on my phone call with the CO on Friday, he believes that the contractor's actions (of billing unqualified personnel) warrants an additional (penalty) fee since the Gov't must now complete a mod de-obligating the residual funds due to the re-classification.

I like Velhammer's point about asking the CO under what authority can a CO require the contractor pay the Gov't for their administrative costs. I have discussed with my mgmt and they do not want to pay the $500 and we're preparing a letter stating such.

Thanks!

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Thanks for the new info. It's always nice to get all the facts. Based on your new facts, I would pay the mod and thank my lucky stars that there was no Form 2000 referral to the Department of Justice.

You do realize that many law enforcement personnel would describe your "non-conforming labor costs" as a false claim, right?

H2H
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Question, being very general on the issue; trying to see if the $500 can be justified.

The contractor’s offer was not correct but it was accepted by the government. Now the government has to correct the offer through a contract modification (more work) to make it correct. Isn’t the government just asking for consideration for its acceptance (cost of the modification)?

Asking to learn.

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Postaward,

I think that the issue is not whether the contractor's offer was accepted, but rather whether the contractor's invoices complied with contract terms. They did not. However, the contract mod will allow the contractor to bill employees at T&M rates appropriate to the employees' qualifications. This reduces the value of the "non-conforming" hours that were billed, but not as much as if the government rejected all non-conforming labor hours (a decision which was likely within its rights).

The mod acknowledges that the government received value for the services provided, just not as much as the contractor had originally billed.

In my view, the government's request for an additional $500 has little to do with consideration, and more to do with sending a little message regarding the contractor's misbehavior. It's a very small penalty--almost a gnat's bite--but it does communicate to the contractor that its misbehavior was wrong.

There's really no need for the little sting, but if that's the only price the contractor pays, it's well worth it. (I wonder what the CPAR report will say...)

Hope this helps.

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So other than the augmentation of funds issue, can the solicitation and resultant contract state that the contractor shall pay all government administrative costs? An agency is looking at issuing a solicitation for work beyond their regular program of work and they want the contractor to pay for the administration of the contract so there is no impact to their regular program of work.

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I should not have been so obscure. The Forest Service has issued a request for information on FedBizOpps. They are trying to do a project to promote jobs in Eastern Washington. The project is cradle to grave - the contractor does everything. This project is in addition to their regular program of work. So their work force is already busy doing other work which they received appropriations to perform. And the project is not to impact them. In order to achieve no impact, they are considering charging the contractor for all the contract administration which would then free up the funds for the regular program of work to fund a contractor to perform that work. All inherently governmental functions will remain with the government. Here is a link to the RFI. It is an interesting project!

https://www.fbo.gov/...b=core&_cview=0

So, other than the self appropriations issue, do you think it is allowable to charge the contractor these administrative costs if we tell them right up front?

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In the spirit of the RFI just thoughts for consideration that are not supported by any research....

It sure seems the augmentation issue is a major hurdle I wonder how the Forest Service will jump it?

Sounds almost like pre-charging the contractor for "liquidated damages." So what happens if the contractor fails to perform or provides the work after the required performance period what would be the damages be for say T4D (whole or partial)?

But, an alternative might be for the Forest Service to fit the need into commercial item and then use a 100% literal application of FAR 52.214-4(a) and wholly depend on the contractor to deliver the required outcome and use post acceptance rights for any issues.

The brief info on the NEPA effort raises the issue of inherently governmental matters.

Noting the unique authorities of the Forest Service regarding “Stewardship contracting” does make me wonder why this is not headed a cooperative agreement direction rather than a FAR contracted effort?

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"In order to achieve no impact, they are considering charging the contractor for all the contract administration which would then free up the funds for the regular program of work to fund a contractor to perform that work. All inherently governmental functions will remain with the government."

Would it be fair to characterize this situation as "pay to play"?

H2H

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A couple of comments regarding Carl's response.

1. Stewardship authority allows the Forest Service to collect monies from a contractor and retain those funds at the project site or another project site. While those funds come from the forest products that are being sold, we may be able to push the envelope and say that stewardship authority allows us to augment our appropriations.

2. We aren't trying to charge liquidated damages in advance. The FS wants the contractor to pay for the admin so the FS can continue to perform their regular work with the appropriations they received.

3. We don't want to go commercial item because we want some of the protection clauses and we may have some construction down the line. While construction is not prohibited in a commercial item acquisition. again we want many of those protection clauses.

4. All inherently governmental work will be performed by the Forest Service. We don't see that as a problem.

In response to here_2_help - yes, this is a pay to play type acquisition. Do you see a problem with that?

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Interesting concept on the augmentation issue. Has the Forest Service considered asking GAO what their thought is of the idea under the current legislation.

I probably approached the commercial item idea with the term "fit" inappropriately. With regard to the "protections" isn't the question in fact - If the work does meet the definition of commercial item would not, per FAR, the Forest Service have to procure following Part 12 with allowance to use protections that would be found in other FAR Parts? Probably too far into the weeds with regard to the question but a further thought is how do the owners of private, state and international forest lands get the same kind of work accomplished, with their own forces or by contract and if all parts are done by contact would that not equal commercial item? The idea of construction does throw a curve but seems it could be overcome.

And now to a new issue that might need to be addressed - "bundling" per FAR Part 19.

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The Forest plans to have a complete GAO review of the project once the market research is complete. As for the bundling issue, we have a class waiver signed by the HCAD to bundle stewardship projects.

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I am new to the forum, so accept my apologies if I have a procedural or other faux pas in this response, but I have a couple of questions.

1. Assuming it gets a contractor to agree, does the Forest Service have the authority to accept the funds and deposit them in Forest Service accounts rather than as Miscellaneous Receipts?

2. Will the amount of administrative costs be identified up front, or does the Forest Service expect the contractor to agree to whatever bill is presented?

3. What happens if the costs are identified up front and then turn out to be inaccurate, whether too high or too low? Will the Forest Service demand payment of the deficiency or reimburse the excess?

4. Does the Forest Service really expect the contractor to absorb these costs rather than build them into the price? What will the Forest Service gain in the end other than transferring the costs from the account that should be paying them to the account that pays the contractor?

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Here are my responses in red text:

1. Assuming it gets a contractor to agree, does the Forest Service have the authority to accept the funds and deposit them in Forest Service accounts rather than as Miscellaneous Receipts? The Forest Service may have authority to collect the funds under our stewardship authority. We are still looking into this.

2. Will the amount of administrative costs be identified up front, or does the Forest Service expect the contractor to agree to whatever bill is presented? We plan to identify the hourly rates for the people and provide an estimate of the administrative time. Obviously, if the contract requires additional administration, the cost to the contractor will increase

3. What happens if the costs are identified up front and then turn out to be inaccurate, whether too high or too low? Will the Forest Service demand payment of the deficiency or reimburse the excess? We will provide an estimate, but the contractor will be required to pay actual costs incurred.

4. Does the Forest Service really expect the contractor to absorb these costs rather than build them into the price? Yes, the Forest Services wants the money to be paid, so we can have additional people available to do the administration. Remember, this project is beyond their regular program of work for which they are budgeted. What will the Forest Service gain in the end other than transferring the costs from the account that should be paying them to the account that pays the contractor? The Forest Service will gain by having additional people available to perform contract administration BEYOND their regular work load.

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1. Your finance gurus can decide if stewardship is a valid authority to keep the funds collected. I expect that, absent something more specific in your enabling legislation, it will not work. After all, yours is as classic an augmentation of funds situation as can be imagined -- you want a contractor to provide you funds to perform a function for which Congress did not adequately fund you.

2/3/4. Good luck getting a contractor to assume a virtually unlimited liability (to include funding the Forest Service efforts to resist a contractor claim or to assert a Government claim against the contractor). I would not expect a contractor to give a "normal" price, i.e., one with a reasonable profit based on a reasonable estimate of costs (that do not include the administrative costs you are seeking) in your situation. Maybe I am wrong, but there is a huge likelihood that the contractor will include the administrative costs somewhere in the price of the contact effort, and all you will be doing is shifting the administration costs from the administration account to the contracting account.

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Yes, our financial personnel will need to determine if we can collect these funds. Currently, the stewardship authority allows us to collect funds for forest products and retain those funds to perform other work. Clearly this is augmentation. How far can we take this will require financial and legal advice. And yes, I agree that the Contractor will include the admin costs that they pay into the price they will charge us for services to be performed. Or in this case, they would reduce the price they will pay for forest products.

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