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G&A Prohibited on Travel

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I am a contractor looking at a solicitation for professional services under a GSA FSS. The Government intends to establish a single BPA and issue FFP TOs. The solicitation states that invoices submitted under any resulting contract will reflect actual travel costs incurred (flights, lodging, POV travel, etc.). The solicitation also states that G&A will not be authorized on travel. I have a few questions:

1. Our Accounting system, like any established consulting firm I would think, defines how we allocate G&A, and that procedure is routinely scrutinized by DCAA and others. So, how can a particular solicitation dictate how we do things?

2. Why doesn't the agency just ask competitors how they load travel, and use that in the evaluation, rather than dictating accounting practices?

3. If we agree to waive G&A for travel cost on this contract, then our other reiumbursable contracts are going to get a larger allocation and pay a higher rate. That doesn't seem fair, although I don't thing the dollar amount will be noticable.

4. Any thought on how I might respond to the agency?

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1. Our Accounting system, like any established consulting firm I would think, defines how we allocate G&A, and that procedure is routinely scrutinized by DCAA and others. So, how can a particular solicitation dictate how we do things?

Yes, they can do that. They are not telling you how to keep your books. They are staking out a non-negotiable negotiation position: We won't pay G&A on travel. Take it or leave it. If you take it, you would have to treat the allocable G&A as an unallowable cost. See FAR 31.201-6.

2. Why doesn't the agency just ask competitors how they load travel, and use that in the evaluation, rather than dictating accounting practices?

Probably because they don't care how competitors load their travel. They simply won't pay for G&A on travel.

3. If we agree to waive G&A for travel cost on this contract, then our other reiumbursable contracts are going to get a larger allocation and pay a higher rate. That doesn't seem fair, although I don't thing the dollar amount will be noticable.

What's fair got to do with it? You're whining. Don't do that.

4. Any thought on how I might respond to the agency?

Yes. (1) Do not compete for the BPA. (2) Submit a proposal that rejects their terms and that includes G&A on travel. (3) Agree not to put G&A on travel and cover the cost of G&A on travel in your hourly rates. (4) Agree not to put G&A on travel and leave the G&A out of your rates.

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Yes, they can do that. They are not telling you how to keep your books. They are staking out a non-negotiable negotiation position: We won't pay G&A on travel. Take it or leave it. If you take it, you would have to treat the allocable G&A as an unallowable cost. See FAR 31.201-6.

Probably because they don't care how competitors load their travel. They simply won't pay for G&A on travel.

What's fair got to do with it? You're whining. Don't do that.

Yes. (1) Do not compete for the BPA. (2) Submit a proposal that rejects their terms and that includes G&A on travel. (3) Agree not to put G&A on travel and cover the cost of G&A on travel in your hourly rates. (4) Agree not to put G&A on travel and leave the G&A out of your rates.

Vern,

I agree with your answers, except for one small nitpick - you didn't take issue with contractor2589's alternative approach (in his question 3) of allocating his unallowable G&A expenses against other reimbursable contracts. Wouldn't such a practice be a violation of CAS (if CAS applied) or, at a minimum, in conflict with GAAP?

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Navy,

I belive contract2589 would be fine with respect to CAS and GAAP. His practice is to alloacte G&A to travel. However if this case, his client contract agreement prohibits that. Therefore the accounting takes that into consideration. He's right though that this would drive up his G&A rate ever so slightly.

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1. They are indeed telling us how to keep our books. To my knowledge, there is no CAS G&A allocation strategy that allows us to be inconsistent in which costs get a G&A allocation.

CAS 410-50(d) [48 CFR 9904.410]:

The cost input base used to allocate the G&A expense pool shall include all significant elements of that cost input which represent the total activity of the business unit. The cost input base selected to represent the total activity of a business unit during a cost accounting period may be: total cost input; value-added cost input; or single element cost input. The determination of which cost input base best represents the total activity of a business unit must be judged on the basis of the circumstances of each business unit.

(1) A total cost input base is generally acceptable as an appropriate measure of the total activity of a business unit.

(2) Value-added cost input shall be used as an allocation base where inclusion of material and subcontract costs would significantly distort the allocation of the G&A expense pool in relation to the benefits received, and where costs other than direct labor are significant measures of total activity. A value-added cost input base is total cost input less material and subcontract costs.

(3) A single element cost input base; e.g., direct labor hours or direct labor dollars, which represents the total activity of a business unit may be used to allocate the G&A expense pool where it produces equitable results. A single element base may not produce equitable results where other measures of activity are also significant in relation to total activity. A single element base is inappropriate where it is an insignificant part of the total cost of some of the final cost objectives.

We have used Total Cost Input base for 10 years and we've been audited on it. If DCAA comes in here and finds that we are allocating our G&A pool inconsistently (not allocating to some costs), then there will be trouble.

So, how is this scenario not dictating accounting practices?

2. I'm missing something I think. G&A on travel IS a loading, so they seem to care deeply about it. If they asked each firm what loading they would be placing on travel under the BPA, they could make comparisons and chose the best value, rather than just prohibiting it.

3. Sorry, I didn't mean "...not fair to us," I meant "...not fair to other client agencies" (who will then pay for those G&A dollars when they get allocated to them). (I've been in Federal contracting for about 19 years; I'm with you on whining.)

4. Right. You're (1) and (2) are certainly our options (both with the same result). I still say that that your (3) and (4) represent an inconsistent cost accounting approach that could get us in hot water with audit agencies.

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contractor2589,

How is that different from contracts capping indirect rates? If your actuals exceed the cap, you can't bill for the overage. That affects the indirect pool the same way.

Actually it's a very common practice for agencies to not pay for G&A on travel. I'm not sure why.

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That's a good point. Any cap on indirect rates exerts control over accounting practices.

I can tell you that internally, we would adhere to our established accounting practices, make the allocations, reduce profits, and cover the G&A out of profit. That's really the only way we could possibly do it. I guess we could increase proposed profit to cover this.

From my perspective, when it comes to FFP work, it feels like meddling in how a private company comes up with its costs. What if we used a completely unorthodox system (our own terminology and some alternative cost tracking system)? What difference does it really make to any client other than the total cost (for FFP anyway). I understand the negotiating strategy of digging into the costs and picking them apart I suppose, but it seems that open competition handles that nicely for fixed price work.

There is something else, though, which I didn't bring up. Aren't travel and other ODCs considered "open market items" under GSA FSSs? As I recall, GSA didn't resolve loading on ODCs very well in issuing FSS, but I'm certainly not up to speed on that.

Here is an on-topic previous discussion.

http://www.wifcon.com/discus/messages/8787/8669.html

(After reading this previous discussion, I would just like to note that we are seeking to compete for this work and let the Government make a selection. I'm not "asking" for anything. In our case, we would probably not apply a fee/profit to the travel costs because I don't think our competitors do - we would allocate allowable G&A costs (like insurance, accounting, etc.) to all ODCs, including travel costs.)

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The more I think about this, it really seems like the philosophy, negotiating methods, and contracting language of cost reimbursable contracting (or maybe single award IDIQs) spilling over into FFP contracting. It only becomes an issue when competition is curtailed.

I would rather see more multiple award contracts, so the Government doesn't have to worry about how companies determine the amount of money it will accept for a particular job.

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Vern,

I agree with your answers, except for one small nitpick - you didn't take issue with contractor2589's alternative approach (in his question 3) of allocating his unallowable G&A expenses against other reimbursable contracts. Wouldn't such a practice be a violation of CAS (if CAS applied) or, at a minimum, in conflict with GAAP?

Navy:

I agree that the contractor cannot allocate those unallowable costs to other government contracts, and I should have made that clear. Thanks for pointing that out. But I know of nothing that would prohibit the contractor from allocating those costs to its non-government contracts.

The GAAP do not address such internal, management accounting issues. The GAAP address accounting for external reporting purposes--annual reports, etc.

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I hope that contractor2589 now understands that the agency is not telling him to change the way he allocates G&A, but only not to charge the government for the G&A that it allocates to the government.

This kind of thing is why some companies separate commercial and government work in separate divisions.

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I suppose I do understand, then: The Government requires (through DCAA audits triggered by other agencies) that we adhere to proper accounting practices and allocate G&A costs evenly to ODCs (including all travel costs) across all clients and contract, BUT this particular agency insists on controlling how we calculate our proposed costs by requiring that we eat the G&A costs associated with this work.

I think we are simply seeing an attitude of either A) "G&A isn't a real cost" or B) "its a real cost and everyone EXCEPT ME should pay it."

I can tell you that (at least at my small business) G&A sure feels like a real cost when I write checks for insurance, accounting software systems, website hosting, phone systems, accounting staff payroll, outside CPA and legal support, travel to Government trade shows, payroll for staff writing proposals, rent for our corporate office, corporate staff health insurance and annual leave, etc.

(Please excuse the sarcasm here, but to illustrate...) Maybe instead of capping G&A, the agency could consider saying that "labor rates may not include overhead costs associated with office rent" (or copier charges, or electricity, or staff training, or employee health insurance).

I think I'm done with this topic, and I sincerely appreciate all the input. I think we'll just increase our profit on labor to make up for the G&A loss in this case, but I really believe that the Government should try to find ways to promote open competition and stay out of trying to control internal cost-calculation methods.

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I suppose I do understand, then: The Government requires (through DCAA audits triggered by other agencies) that we adhere to proper accounting practices and allocate G&A costs evenly to ODCs (including all travel costs) across all clients and contract, BUT this particular agency insists on controlling how we calculate our proposed costs by requiring that we eat the G&A costs associated with this work.

I think we are simply seeing an attitude of either A) "G&A isn't a real cost" or B) "its a real cost and everyone EXCEPT ME should pay it."

I can tell you that (at least at my small business) G&A sure feels like a real cost when I write checks for insurance, accounting software systems, website hosting, phone systems, accounting staff payroll, outside CPA and legal support, travel to Government trade shows, payroll for staff writing proposals, rent for our corporate office, corporate staff health insurance and annual leave, etc.

(Please excuse the sarcasm here, but to illustrate...) Maybe instead of capping G&A, the agency could consider saying that "labor rates may not include overhead costs associated with office rent" (or copier charges, or electricity, or staff training, or employee health insurance).

I think I'm done with this topic, and I sincerely appreciate all the input. I think we'll just increase our profit on labor to make up for the G&A loss in this case, but I really believe that the Government should try to find ways to promote open competition and stay out of trying to control internal cost-calculation methods.

Just in case you're not quite done -- a couple of points.

1. If you are truly a small business, then you are exempt from CAS.

2. Depending on the size of the award, consider changing your G&A allocation methodology so as not to allocate G&A on a Total Cost Input (TCI) base. CAS 410 permits several allocation methods, including use of a single cost element, such as direct labor dollars, when appropriate.

Hope this helps.

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BUT this particular agency insists on controlling how we calculate our proposed costs by requiring that we eat the G&A costs associated with this work.

You still don't understand. The agency does not want to control how you calculate your costs. I doubt that it cares how you calculate your costs. It simply does not want to reimburse you for one of your costs -- the G&A allocable to travel. Why doesn't it want to do so? I don't know. For years now, government agencies have sought to avoid paying G&A on things like travel. Perhaps money is short and they think that G&A on travel doesn't add any value to what they buy. But there is no reason for you to continue to be confused or upset about what the agency is doing.

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Here_2_help: Yeah, I didn't mean I was done, so much as I didn't want to drag this out for others. Your points are good. We are small, but the CAS represents solid accounting strategies, we need to accurately calculate our costs (so we know how cheaply we can do a job), and we don't see the point in operating outside CAS just because we can. You also right about allocation strategies, and we are looking hard at switching our practice to "value added" allocations (for purposes other than described here). Alas, even under Value Add, though, we would allocate indirect costs to all ODCs (including travel). But, I think we all agree that if we make a change to our allocation strategy, it has to be company wide and consistent across the board. So when a particular client wants us to do it differently for them, it poses some challenges. I guess if all of our indirects were allocated only to labor (built into labor rates), that would resolve this, but then another agency would do it's cost comparisons only on labor rates and that would hurt us.

Vern: I'm a huge fan of yours, and I think I fully understand your point on all this. It's a rather straightforward issue; I am primarily expressing why I don't like it. I'm neither confused or upset, but I may well have overstated a couple of points. Anyway, let me take another crack at a summary, based on what you point out. I'll try to be more careful.

"The Government requires that we allocate G&A costs consistently across the company so that no cost reimbursable contract is paying more than its share. Our published and audited accounting practices state that we will use a Total Cost Input allocation method, which will allocate indirect costs to all ODCs, including travel. One prospective client, although not planning a cost reimbursable contract, doesn't want us to include indirect costs on travel in our FFP bids, so our options are to A) refuse to work for this client, B) take exception to this restriction in our proposal, C) change our allocation method across the company, D) allocate those costs, but write them off internally as a project loss, or E) allocate those costs, but instead of showing them in proposal/invoices, add those costs to labor or profit."

If I've missed or misstated something there, I would like to know and would appreciate any input.

I understand the client doesn't care if we allocate G&A or not, just that they not pay it. But for a company to actually accomodate this restriction ultimately means moving these (very real, hard dollar) costs to labor rates instead of spreading them over ODCs.

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My general contracting commentary...

When using noncost-reimbursable BPAs or IDIQs, we (the people) should be using multiple awards and competing each FFP task order whenever possible. These MATOC-type contracts eliminate the need for the Government to worry itself with how cost are calculated. We hold single-award IDIQ contracts, and it's great, but I would trade them and slug it out with my competitors in best value competitions rather than have to defend how we figure out how much a particular job will cost us.

Competition among contractors is far more brutal than anything the agencies will ever come up with, and when managed, I really believe these free market forces effectively serves the public interest.

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Guest carl r culham

Just thought I would add info from GSA-FSS regarding MOBIS orders. Providing as I believe it is appropriate to use as reference the requirements GSA regarding ordering under FSS as well as the specific FSS contract language. Using the MOBIS as example only with the thought that 2589 should be referring to their specific GSA contract on the matter as well the appropriate ordering instructions an agency must use for whatever GSA-FSS is being used.

Specifics from MOBIS contract clause C-FSS-370

(B) Travel: The Contractor may be required to travel in performance of orders issued under this

contract. Allowable travel and per diem charges are governed by Pub .L. 99-234 and FAR Part 31, and

are reimbursable by the ordering agency or can be priced as a fixed price item on orders placed under

the Multiple Award Schedule. Travel in performance of a task order will only be reimbursable to the

extent authorized by the ordering agency. The Industrial Funding Fee does NOT apply to travel and per

diem charges.

And

From the MOBIS Ordering FAQ found on GSA's website. http://www.gsa.gov/Portal/gsa/ep/contentVi...GSA_OVERVIEW#11

14. How do I handle Other Direct Costs (ODC) at the Task Order level?

For administrative convenience, non-contract items may be added to the BPA or the individual task order if the items are clearly labeled as such, applicable acquisition regulations have been followed, and price reasonableness has been determined for the items. The MOBIS solicitation offers specific instruction as relates to transportation and per diem costs billed by the contractor: Costs incurred for transportation and per diem (lodging, meals and incidental expenses) will be billed in accordance with the regulatory implementation of Public Law 99-234, FAR 31.205-46 Travel Costs, and the contractor's cost accounting system. These costs are directly reimbursable by the ordering agency. (a) The contractor shall notify the ordering agency, in writing, of the requirement for reimbursement of transportation and per diem expenses, prior to acceptance of the order. This notification shall include a "not to exceed" estimate of these proposed costs. Any applicable indirect costs associated with the transportation and per diem expenses will be charged at a rate negotiated prior to the using agency's delivery order. Contractors shall be reimbursed only for incurred costs at or below the "not to exceed." (B) Costs for transportation, lodging, meals, and incidental expenses incurred by contractor personnel on official company business are allowable subject to the limitations contained in FAR 31.205-46, Travel Costs. © Reimbursements for costs that are not specified in this solicitation, or in any contract or task order resulting from this solicitation, are not allowed. It is GSA policy NOT to allow a charge of profit or fee on reimbursable items. Travel in performance of a task order will only be reimbursable to the extent authorized by the ordering agency.

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Here_2_help: Yeah, I didn't mean I was done, so much as I didn't want to drag this out for others. Your points are good. We are small, but the CAS represents solid accounting strategies, we need to accurately calculate our costs (so we know how cheaply we can do a job), and we don't see the point in operating outside CAS just because we can. You also right about allocation strategies, and we are looking hard at switching our practice to "value added" allocations (for purposes other than described here). Alas, even under Value Add, though, we would allocate indirect costs to all ODCs (including travel). But, I think we all agree that if we make a change to our allocation strategy, it has to be company wide and consistent across the board. So when a particular client wants us to do it differently for them, it poses some challenges. I guess if all of our indirects were allocated only to labor (built into labor rates), that would resolve this, but then another agency would do it's cost comparisons only on labor rates and that would hurt us.

Contractor 2589,

Believe me, I'm a big fan of CAS. It provides a good set of "rules of the game" and protects the contractor as much as the government. That said, small businesses are exempt from CAS for a reason. The reason is that CAS is a burdensome set of rules that causes untold headaches between accountants, contract administrators, and management. If you are not required to comply with CAS 410, why volunteer? Seriously, you are handicapping your company when you don't need to. Now, if you are a year away from full CAS-coverage, then of course complying now is the easier course ... but if not, then please erase the thought that "CAS represents solid accounting strategies." No, it doesn't. It represents compromises between lawyers and accountants, driven by DOD politics and interpreted by judges who have never made a journal entry in their lives. CAS is Rickover's revenge on GD and NNS.

Now that I've roiled the waters, I will also advise you to look at your G&A pool to make sure that what you are calling G&A is truly the cost of managing the business "as a whole." If not, consider moving the costs out of G&A and into an overhead pool. As a small business, you are not bound by the CAS limits on changes to cost accounting practices either ... but watch out for TINA.

Hope this helps.

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Carl: Thanks. I like how all of that reads. ODCs must be authorized by the ordering agency, not subject to IFF, profit/fee frowned upon, subject to the contractor's accounting system, etc. That's all seems like a reasonable approach, and it makes sense to me.

here_2_help: We're not subject to CAS yet, and I appreciate (and found interesting) your commentary on what the CAS is really about. We don't meet all of the requirements of CAS, because it's not worth it until we have to, BUT, we are held to the core practices because we hold Federal cost reimbursable contracts. Based on those contracts, we undergo audits from both DCAA and Financial Management Reviews (FMRs) from client agencies. These audits address all of our accounting practices, not just cost accounting associated with those reimbursable contracts. They do this, in part, to be sure we are making allocations evenly across all cost objectives (to be sure the cost reimbursable contract doesn't get more indirect loading than it should). They dig deeply into our indirect cost calculations, written allocation procedures, etc.

To your other point, we push everything practical to overhead, and our G&A is competitive in our industry based on the surveys we have and what we see of our competitors. It's a good point, though, thanks.

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here_2_help: We're not subject to CAS yet, and I appreciate (and found interesting) your commentary on what the CAS is really about. We don't meet all of the requirements of CAS, because it's not worth it until we have to, BUT, we are held to the core practices because we hold Federal cost reimbursable contracts.

Okay, I'm getting off the soapbox now. I will just add a final thought: Your company is "held" to the agreement it strikes with its customers. Your agreement (contract) contains clauses and your company must comply with the requirements of those clauses. I would assert that your company does NOT need to comply with clauses that are excluded by statute and/or regulation from your contract.

In particular, the idea that CAS-compliant practices represent "best" or "core" practices that apply to ALL Federal cost-type contracts is an assertion that is not supported, nor is it supportable. In fact, it's demonstrably false.

I'm guessing EPA is a customer based on your comment about FMRs. I would advise you to not let them push your company down the road of CAS compliant cost accounting practices before you are required to go there. But I also note that you're not paying me for this advice, so it's probably not worth too much.

Hope this helps.

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You're advice is worth a lot, actually. I really appreciate the input that CAS does not represent "best" or "core" practices. That probably reflects a misunderstanding on my part, and certainly tells me that more investigation is warranted. I guess I viewed the situation as "we'll eventually have to meet all of CAS, so I might as well accept it when we get pulled that way on various fronts."

I will tell you that our "audits" seem to be rather qualitative on many points, with a lot of loose references to requirements. Even when we ask for specific references to requirements, we get vague answers relating to our ability to demonstrate various types of costs or allocations. We are reluctant to enlist our $185/hr outside accountants for every little thing, or to be viewed as non-cooperative, so we generally play along.

Thanks everyone!

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