Jump to content
The Wifcon Forums and Blogs

Recommended Posts

On 10/10/2022 at 10:16 PM, here_2_help said:

Good luck. Even if I'm wrong about you and your role, good luck.

Thanks Help.

So, against my better judgement, I am going to suggest there is  more meat left on this thread. Mainly looking to draw on experiences from other posters in this similar situation. So, without putting words in anyone's mouth, we have established that, absent an advance agreement, or specific language that the government inserted into a contract (preaward) that addresses the issue, and assuming it does not result in an increase to the overall cost of the contract, nothing in a customary negotiated cost reimbursement contract prohibits charging $50 per hour for someone that was bid in your proposal, initially, at $30 per hour. Except -- reasonableness. Which, for the non-layperson is a principle not to be trifled with.

I am interested in knowing: has a Contracting Officer ever disallowed your direct labor charges because they were much, much higher than initially bid (like more than 50% higher, as in this example.) If so, what happened? Were you successful in demonstrating reasonableness, or was it escalated to a higher court? As a Contracting Officer, have you ever disallowed direct labor charges because you felt they were too high? If so, what was your rationale in doing so? Were you successful in inhibiting such direct labor cost increase, or did you compromise with the contractor? Or, to industry, is this just commonplace, to charge the government at the hourly rate the market will bear, regardless of the rates used in the cost proposal? 

Link to comment
Share on other sites

Need, Vern has already pointed out that the concept of reasonableness is a complicated issue.  This is particularly so in regard to compensation.   The reasonableness of compensation is subject to the reasonableness cost principle at FAR 31.201-3.  In addition, FAR 31.205-6(a)(2)-(4) reads:

(2) The total compensation for individual employees or job classes of employees must be reasonable for the work performed; however, specific restrictions on individual compensation elements apply when prescribed.

  (3) The compensation must be based upon and conform to the terms and conditions of the contractor’s established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment.

 (4) No presumption of allowability will exist where the contractor introduces major revisions of existing compensation plans or new plans and the contractor has not provided the cognizant ACO, either before implementation or within a reasonable period after it, an opportunity to review the allowability of the changes.

Finally, FAR 31.205-6(b)(2) states:

Compensation not covered by labor-management agreements. Compensation for each employee or job class of employees must be reasonable for the work performed. Compensation is reasonable if the aggregate of each measurable and allowable element sums to a reasonable total. In determining the reasonableness of total compensation, consider only allowable individual elements of compensation. In addition to the provisions of 31.201-3, in testing the reasonableness of compensation for particular employees or job classes of employees, consider factors determined to be relevant by the contracting officer. Factors that may be relevant include, but are not limited to, conformity with compensation practices of other firms-

                (i) Of the same size;

                (ii) In the same industry;

                (iii) In the same geographic area; and

                (iv) Engaged in similar non-Government work under comparable circumstances.

Unfortunately, based on 41 years working for and against DCAA, when DCAA conducts an audit of compensation, the auditor only applies the four tests listed in 31.205-6(b)(2). In this regard, the auditor will use national surveys instead of local surveys when evaluating executive compensation. Auditors generally do not apply 31.201-3 when evaluating compensation.

If you are interested in how these cost principles have been applied, I suggest you read Techplan Corp., ASBCA No. 41470 et al., 96-2 BCA , 28,426; Information Systems & Networks Corp., ASBCA No. 47849, 97-2 BCA, 29,132.  J.F. Taylor, Inc., ASBCA Nos. 56105, 56322, 12-1 BCA, 34,920 and Metron, Inc. ASBCA Nos. 56624, 56751,  56752 (4 June 2012).

Link to comment
Share on other sites

It's important to understand that most contractors don't have closets full of Engineers with price tags attached to their foreheads waiting to be deployed, who are then chosen based on how well their price tags fit the contract. Even when I worked for IBM, we assumed there was going to be targeted hiring taking place for a big contract even though we had 100,000 staff to choose from.  The Rule of Thumb at the time was to sub out any position <$100/hr, so there are also issues of rate floors below which a firm is losing money (IBM literally used smiley faces on P&L reports regarding individual rate margins on specific personnel: frowny faces were the money-losers).   Sometimes the contractor just has to take that $300 rate for the internationally-recognized PE with 20 years of experience out of their margin, which is still cheaper than failing to deliver.

So as Vern says, it's a very complicated issue and goes straight to the risk assumed by both parties - how to balance the need to provide qualified personnel while also remaining "fair and reasonable" pricing in the proper context.  Neither contracting party has an interest in using substandard personnel just because they are cheap, and no one can be forced to work for a particular wage (something many COs seem to forget after decades as Feds) so it's a delicate balance of risk and reward.

Now that I'm wearing my CO hat again, If I was still with DoD I would be engaging with DCAA, but because I'm not with DoD anymore, it's definitely a problem when you don't have someone who can look at a vendor's books and make a reasonable judgement based on experience and recognized benchmarks.  

In short, it's an art as much as a science, and a lot of judgement is involved. For the CPFF SA 16.505 Order I just awarded I was lucky enough to have audited base year rates (such as they were...) as a basis for reviewing escalations, which somehow averaged only 5% since September 2021(!).  Considering the Federal Reserve is showing 7% wage growth year-over-year, that analysis was fairly straightforward.   As a contractor, I liked to think about the process as akin to drawing a best-fit line through your aggregate personnel cost/rate projections and then managing the contract so as to beat those projections. 

Link to comment
Share on other sites

28 minutes ago, REA&#x27;n Maker said:

Now that I'm wearing my CO hat again, If I was still with DoD I would be engaging with DCAA, but because I'm not with DoD anymore, it's definitely a problem when you don't have someone who can look at a vendor's books and make a reasonable judgement based on experience and recognized benchmarks. 

The thing is that DCAA auditors do not have the training, experience, or judgment to evaluate the reasonableness of contractors' compensation levels. See, for example, the appeal of J.F. Taylor at the ASBCA. Or the appeal of Metron. The auditors try but they (generally) cannot put together supportable positions.

Which puts the responsibility back on the CO's shoulders--rightly or wrongly.

Link to comment
Share on other sites

Thank you help, retread and rea’n for the added context and experiences. Even having read the sections Retread quoted a couple times already I’m realizing there are more protections afforded to the government than I first convinced myself. I agree as everyone has stated these are complicated, complex issues. I don’t know that it has to be. If we can imagine a contracting industry without fraudsters where not every contractor is out to squeeze every penny from the government, aren’t the evaluations of the contractors themselves and their policies and procedures, and the work solicited, designed to burden the contractor with the risk and assumption they are doing the right thing. For example, if I filed my income taxes and claimed some big credit for a donation to charity that was never made, I know that is fraud, and the IRS will find me and penalize me monetarily or criminally. A government contractor should know similarly that if they charge for something unreasonable as defined in this thread, there is a risk they get caught. By accepting the contract they know as discussed here the burden of proof is on them. Isn’t that..good enough? Going back to Vern’s point that a CO had better be clued in on such a rate change, to Maker’s example, individuals put on a project aren’t walking around with a margin on their forehead. Is surveilling a contractor’s direct labor so closely post award really a job of the CO and is it a good use of their time to do it to such a micro level? If we can’t trust the contractor to do the right thing, why are they getting a cost reimbursement contract award in the first place?

Link to comment
Share on other sites

10 minutes ago, Needforspeed said:

Is surveilling a contractor’s direct labor so closely post award really a job of the CO and is it a good use of their time to do it to such a micro level? If we can’t trust the contractor to do the right thing, why are they getting a cost reimbursement contract award in the first place?

Interesting question. Most larger contractors have one or more ACOs, DACOs, and perhaps even a CACO. You'd like to think that compensation, likely being cross-cutting across multiple contracts, would be something addressed at a level higher than a PCO. On the other hand, see this DoD IG audit report, or perhaps this DCMA Manual at 3.7.d.

Link to comment
Share on other sites

47 minutes ago, here_2_help said:

On the other hand, see this DoD IG audit report, or perhaps this DCMA Manual at 3.7.d.

Thanks Help I will review that when I get some time.

Without going into an elaborate proposal, I’m sure someday soon if not already, there is an artificial intelligence program out there that could pick up on these “unreasonable” irregularities incurred during performance of a cost reimbursement contract. Maybe an audit software is out there already. Following completion of a contract, the contractor agrees to let DCAA drop their contract in their software, and the software generates a bill to the contractor for anything they charged that was out of bounds. If the contractor takes exception, they decide if it is worth the effort to defend and if not they cut a check to the government. I think that is ultimately what the system is designed to do. But, it takes years and millions of dollars to do it…badly…the government is bad at this. Is this so far fetched? That would seem like real accountability to me. And efficiency. If it takes everyone 30 years of their career to get good at this the system is doomed. Focus on the pre award evaluation of the contractor and their price. Emphasize that if they mischarge the government, they will be caught, and quickly. Not five, ten, or twenty years later, enough time for any bad actors to move on to the next govcon down the road or have taken their golden parachute. If the general public knew the IRS wouldn’t get around to their tax return for a decade they may find it more tempting to play fast and loose. The acquisition system all but advertises to contractors that they will not get around to holding them accountable for a while. 

Link to comment
Share on other sites

10 minutes ago, Needforspeed said:

Following completion of a contract, the contractor agrees to let DCAA drop their contract in their software, and the software generates a bill to the contractor for anything they charged that was out of bounds.

DCAA already does a lot of data analytics. Or at least the agency tries to. Results have been ... mixed. To my knowledge, nobody has tried to use data analytics on an individual contract (kind of defeats the notion of "big data"). On the other hand, as I noted, compensation is likely to be a cross-cutting issue well suited for ACO or DACO/CACO adjudication.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share

×
×
  • Create New...