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Given a conflict between the FAR and OMB Circular A-21, which one controls? Both are codified in the CFR.

FAR 42.705-3(b.)(6) states that “predetermined indirect cost rates shall be applicable for a period of not more than four years. The agency shall obtain the contractor’s proposal for new predetermined rates sufficiently in advance so that the new rates, based on current data, may be promptly negotiated near the beginning of the new fiscal year or other period agreed to by the parties”. However, OMB Circular A-21(G)(7) states that “Federal agencies shall use the negotiated rates for F&A costs in effect at the time of the initial award throughout the life of the sponsored agreement. "Life" for the purpose of this subsection means each competitive segment of a project. A competitive segment is a period of years approved by the Federal funding agency at the time of the award. If negotiated rate agreements do not extend through the life of the sponsored agreement at the time of the initial award, then the negotiated rate for the last year of the sponsored agreement shall be extended through the end of the life of the sponsored agreement. Award levels for sponsored agreements may not be adjusted in future years as a result of changes in negotiated rates.”.

Given a five year (one year base and four one year options) contract, at the end of four years, should the government then apply the newly negotiated indirect cost rates to the fifth year, as suggested by the FAR, or does the rate for the fourth year carry through the fifth, as suggested in A-21, here “If negotiated rate agreements do not extend through the life of the sponsored agreement at the time of the initial award, then the negotiated rate for the last year of the sponsored agreement shall be extended through the end of the life of the sponsored agreement.”. Reading the FAR, the predetermined rate agreement can’t extend through the life of a sponsored contract that lasts more than four years.

Further, FAR Clause 52.216-15 (referenced by FAR 42.705-3(b.)(6)) states in part under paragraph (d), “Predetermined rate agreements in effect on the date of this contract shall be incorporated into the contract Schedule. The Contracting Officer (or cognizant Federal agency official) and Contractor shall negotiate rates for subsequent periods and execute a written indirect cost rate agreement setting forth the results.” And under paragraph (e), “Pending establishment of predetermined indirect cost rates for any fiscal year (or other period agreed to by the parties), the Contractor shall be reimbursed either at the rates fixed for the previous fiscal year (or other period) or at billing rates acceptable to the Contracting Officer (or cognizant Federal agency official), subject to appropriate adjustment when the final rates for that period are established.” The implication of this clause being that new indirect rates are negotiated each contractor fiscal year and subsequently applied to the contract. 52.216-15 also references FAR 31.3, which states that “Contracts that refer to this Subpart 31.3 for determining allowable costs under contracts with educational institutions shall be deemed to refer to, and shall have the allowability of costs determined by the contracting officer in accordance with, the revision of OMB Circular A-21 in effect on the date of the contract”.

The question is, in light of seemingly conflicting guidance from the FAR and A-21, what happens to the predetermined final indirect cost rates in that fifth year (and potentially beyond)?

Any advice would be appreciated.

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I see the conflict. I would interpret the specific rule as taking precedence over the general rule. In other words, the language of A-21 is the general rule applying to "sponsored agreements." However, when it comes to the specific case of cost-reimbursement procurement contracts containing the clause at FAR 52.216-15, the general rule does not apply. So, to answer your question, a new agreement that was effective in the fifth year of performance would apply to the fifth year of a contract containing FAR 52.216-15.

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An alternative interpretation, in which there is no conflict, is that the FAR language deals with the establishment of the indirect cost rates FOR the educational institutions and the OMB circular details their applicability within the contract itself. However, when asked, Wifcon, OGC and ASI all agree that there is a conflict. Is there any merit to this interpretation?

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An alternative interpretation, in which there is no conflict, is that the FAR language deals with the establishment of the indirect cost rates FOR the educational institutions and the OMB circular details their applicability within the contract itself. However, when asked, Wifcon, OGC and ASI all agree that there is a conflict. Is there any merit to this interpretation?

Given that there's a specific FAR clause that goes in individual contracts, that interpretation does not make sense. FAR 52.216-15 clearly describes how rate agreements are to be applied to the contract.

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Good luck ever getting this sorted out. COs should put a special provision in their contracts with Educational Institutions saying that in the event of a conflict between OMB A-21 and the FAR clauses in the contract, the FAR clauses shall prevail. If you don't like that, do it the other way around. The main thing is for the parties to agree on what they are going to do.

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