Jump to content

Difficult situation to provide detailed cost information


Recommended Posts

Prime contractor is attempting to get consent (required by the contract) to add a new subcontractor with a T&M subk to perform engineering support services. Prime contract is CPFF.

The KO has requested detailed cost information demonstrating how the subcontractor's hourly rate was built (direct labor, overhead, G&A, profit), which seems to me like an unnecessary exercise that is not a useful way to determine fairness/reasonableness for the following reasons:

- subk will be less than $1M total and less than 7% of the total cost of the contract

- subcontractor is a self-employed independent consultant who sets his rate according to the market for similarly qualified independent consultants

- as a self-employed individual there is no distinction between direct labor and profit, and the rate, as a market rate, was not burdened with indirect rates and profit amounts

- subcontractor's rate is demonstrably lower (by almost 50%) than other similar independent consultants that are approved on this contract and for other contracts with similar labor quals

I believe a price analysis should be sufficient, whereas the KO seems to be requesting details to perform a cost analysis. My understanding of Part 15 is that in this case cost or pricing data is not required, thus, a cost analysis is not required.

I would like to convince the KO that this is not a useful way to spend our time. I will be making many more similar requests and would like to avoid repeating this process.

I will appreciate any corrections of my tenuous grasp of Part 15 and any advice on how to address this issue with the KO in a respectful and non-obnoxious way.

Link to comment
Share on other sites

There are others more qualified than I am to address your question. But I'll step out on the limb and write that you've confused several related topics, including (but not limited to): the requirement to perform cost/price analysis in order to determine that the price paid is fair and reasonable, the requirement to obtain certified cost or pricing data, and the contracting officer's responsibility to determine that your contract price is reasonable (which expressly includes an analysis of subcontractor costs).

I would also suggest that the most important need here is to convince your contracting officer why your proposed subcontractor's rates are fair and reasonable. If the detailed cost data is not available, can your subcontractor provide information other than cost or pricing data, including the prices at which is provided similar services in a comparable context?

All that being said, I shall now await the definitive answer(s) from the subject matter experts.

H2H

Link to comment
Share on other sites

Thanks H2H. Unfortunately, this is the first time this individual has stepped out on his own to work as an independent consultant, so he cannot produce any invoices or other documentation showing that his rate was paid on other contracts.

The rate he is asking is more than $120/hr lower than other individuals that are approved in his labor category. These consultants just pick big round numbers as their hourly rates, and they are quite high, but when the customer is looking for one of the world's leading experts in photovoltaic-hydro-dynamic-mathy-something-bee-boop-bopology there are only a handful of people with the skills and they command hefty compensation. So when a guy comes along that meets the qualifications, is desired by the customer for his specific expertise, and is significantly cheaper than other similar consultants on the program, I am at a loss as to why we need to go through this drill when it was not required for those other more highly compensated consultants.

Link to comment
Share on other sites

One way to determine if the rate is fair and reasonabile is to comare it to your own company's salary structure. Lets say that you would hire the same type of person for $52,000 per year. That equals $25 per hour. If his rate is at $25/hour or less, there is justification that hs rate is fair and reasonable. If his rate is higher, why? If it is 30% higher, that can account for vacation time, a bit for health insurance, use of his house as office space, etc.

The main idea is to compare his rate with a known rate. If you have a CPFF contract, the direct salaries that you pay your people have been considered to be fair and reasonable. Try to leverage off this.

Link to comment
Share on other sites

We have provided a more than satisfactory justification of the proposed price. Our price analysis demonstrated that the rate this individual is charging is nearly half of what is being charged by similar consultants.

At issue is an inquiry into the cost elements that comprise the rate of a self-employed individual. These costs are honestly not known, so I see no utility in estimating (guessing) what they are when a price analysis seems to support the fairness reasonableness of the rate.

Link to comment
Share on other sites

gboyle - you are reading FAR Part 15 wrong and seem to be confusing cost and pricing data with certified cost/pricing data. While certified cost/pricing data may not be required, the Contracting Officer is directed to find data other than certified cost/pricing data "as necessary to establish a fair and reasonable price" per FAR 15.402(a)(2) and 15.403-3(a)(1)(ii).

Specifcally, I'd review 15.403-3 to see why the CO may be asking you for the data. Have you told the CO that such data does not exist, or have you been adament on telling the CO that the price is sufficient based on other Consultant prices? Perhaps fully explaining the situation may help your cause.

Link to comment
Share on other sites

Guest Vern Edwards

There is a different problem. The CO appears to assume that the consultant took a cost-based approach to establishing his hourly rate. However, he probably took a market-based approach that considered what others are charging for the same service and then priced his rate competitively. I would simply explain that to the CO and say that a cost analysis of the hourly rate is not appropriate for that reason and would be pointless.

Link to comment
Share on other sites

Several times I have emphasized the fact the sub uses a market based approach to determining his rate. The CO refuses to listen to me. When I made this point last, the response from the CO was that he "had to use some basis of chargeable costs associated with his services (Overhead/GA/FEE at least) that he provides. Without it a review for fair and reasonableness to complete this effort cannot be performed. As such, that information shall be disclosed for further review by the Government."

At this point I feel like I'm talking to a wall. I think any further attempts will become adversarial.

Link to comment
Share on other sites

Guest Vern Edwards

You're dealing with an incompetent.

You could have the contractor make an estimate of the distribution of costs within the rate. If I were the contractor I would not do it, unless I really, really needed the money. If an estimate is produced, it should be sent to the CO with a strong disclaimer that the breakout is a guess and not based on actual costs or detailed cost information.

Link to comment
Share on other sites

I suggested to our sub that he estimate his total costs to determine his "overhead" and the rest would be his "technical labor." This would paint a reasonably accurate picture of his costs and yearly income.

Do you see any pitfalls to this approach?

Link to comment
Share on other sites

gboyle,

Have the subK estimate his salary based on what he reports (or expects to report) on his W-2. Have him come up with a percentage of time spent working on the contract and time spent managing the business. Multiply the percentage of time spent working on the contract by the W-2 estimate -- that will be direct labor dollars. The rest is overhead, G&A or whatever he wants to call it (single indirect cost pool). The ratio of indirect costs to direct labor dollars is the indirect cost rate.

Then make sure he accounts for the costs that way.

Done.

(Normally, I charge for this type of advice. You get it for free, this one time.)

Link to comment
Share on other sites

What did the prime submit as supporting data to demonstrate whether he performed adequate cost or price analysis or price comparisions? According to FAR 44.202-2, the CO reviews and considers the contractor's submission (request and supporting data) in deciding to give consent. FAR 44.202-2(a)(8) says " Has the Contractor performed adequate cost and price analysis or price comparisons..." The CO should be reviewing those and not doing his own. Your suggestion is probably exactly how the prime should have documented his request and, after showing that the proposed sub's pricing is 50% lower than similar consultants, objected to any request for further breakdown.

If that fact (50% lower pricing) is documented, I would agree with Vern that the CO is incompetent.

I suppose if a CO wanted to do his or her own cost and price analysis for comfort, he or she could, but it would be wasted time if the prime has done what he is supposed to do and adequately and thoroughly documented his effort.

If the prime does not do what he is supposed to, then he should not be surprised to have consent withheld. The CO in that case could required the prime to go back and do due diligence. 44.202-2 (a) gives a list of items the CO should consider at minimum in reviewing the request for consent. Subpara ( B ) says particularly careful and thorough consideration is necessary when, among other things, subcontracts are proposed on a T&M basis. But I don't think doing your own cost and price analysis is necessary to be particularly careful and thorough.

To circle back and sum up, if your assertion that the subs pricing is 50% less than similar consultants is accurate and your CO has been presented with this fact, and the request passes the other 13 considerations listed in FAR 44.202-2(a), then Vern is right, your CO is incompetent. Or, at least he is acting incompetent.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...