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Proposal Prep Follow on Contract


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#1 Steward_of_the_Taxpayer

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Posted 19 November 2013 - 04:53 PM

Here's the situation: I am working on a very large system development program with one of the top defense contractors. Because this is sole source the contractor has been direct charging proposal prep on all new contracts. I do not like this and the size of both the program and the contractor means that these costs really add up.

 

I've looked into proposal prep/B&P indirects as much as I can. I've looked at FAR 31.205-18(a), CAS 9904.420 and it's qualifier CAS 9904.402-61, I've read and re-read the Shay Assad Memo from 2011  on Direct and Indirect Charging of Contractor Proposal and Negotiation Support Costs. I've reviewed some GAO cases and I've reviewed the contractor's disclosure agreement.

 

My understanding from the Shay Assad Memo and CAS 9904.402-61 is that unless a contract exists then the Bid and Proposal Prep must be charged to a pool. The contractor's disclosure statement agrees with this. However, I run into a problem because it is a follow on acquisition. My understanding does not agree with the auditor from DCAA who tells me, direct charging on new contracts under this program is allowable because they are all follow on. I requested a reference where follow on was defined in terms of CAS and his explanation was essentially that since the system acquisition is in phases, the existence of a contract for one phase requires proposals for the next phase.

 

I know of only the one concrete definition of follow on that someone else referenced in one of the other discussions by GAO at http://www.gao.gov/a.../150/144237.pdf  (page 26 the footnote): “Follow-on contract” means a new, noncompetitive procurement placed with an incumbent contractor, either by a separate new contract or by a supplemental agreement, to continue or augment a specific military program, where such placement was necessitated by prior procurement decisions.  An example is a contract award for production of a major weapon system to the contractor that developed the system when award to any other source would result in substantial duplication of cost to the government that is not expected to be recovered through competition.

 

This agrees with what the auditor is saying but I don't think this agrees with the actual text of the Memo and CAS 9904.402-61. And if the existence of one contract requires the proposal for another contract then why doesn't the first contract allow for the proposal prep for the second contract?

 

Anyway, does anyone know if this interpretation, I'm getting from DCAA is standard across the board? Should I give up the fight for proposal prep to be charged indirectly and focus my attention to keeping down their direct charges instead?

 



#2 Navy_Contracting_4

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Posted 19 November 2013 - 06:02 PM

Do not give up, but ask the person who told you that the existing contract "requires proposals for the next phase" to show you where in the current contract it says that the contractor is "required" to submit a proposal for the next phase.  if they can show you, that's good, because now you'll know the proper place to charge those costs, i.e. to the existing contract.  If there is no such requirement, then you should feel comfortable enforcing compliance with the contractor's disclosure statement.  The Assad memo addresses this situation directly and explicitly.

 

The mere fact that the contract you're negotiating is a "follow-on" has no bearing on whether proposal prep should be charged direct or indirect.  This determination is made by reading the contract(s).

 

NOTE:  The above comments presume that the follow-on contract is not a "long-lead" contract, i.e. an undefinitized contract action (UCA) issued on a NTE basis, which authorizes the company to purchase long-lead material and requires it to submit a proposal to definitize the complete contract for which the long-lead material is intended.



#3 Retreadfed

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Posted 19 November 2013 - 08:01 PM

I agree with Navy.  Also, why are you giving so much deference to a DCAA auditor?  They only provide advice and have no authority to make final decisions on allowability and allocability of costs or CAS compliance.  You do that as contracting officer.  If you do not agree with the auditor, merely tell him/her thank you for your advice which I consider to be erroneous then cite the contractor for a CAS non-compliance.  Don't worry about the auditor supporting the contractor if the matter goes to litigation.  The opinions of DCAA auditors are not given any particular defference by the appeals boards or Court of Federal Claims.  The auditor's statements will only be given the credit they deserve in light of the appropriate regulations.



#4 Guest_Infoseeker_*

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Posted 19 November 2013 - 09:38 PM

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#5 Steward_of_the_Taxpayer

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Posted 20 November 2013 - 09:50 AM

Do not give up, but ask the person who told you that the existing contract "requires proposals for the next phase" to show you where in the current contract it says that the contractor is "required" to submit a proposal for the next phase.  if they can show you, that's good, because now you'll know the proper place to charge those costs, i.e. to the existing contract.  If there is no such requirement, then you should feel comfortable enforcing compliance with the contractor's disclosure statement.  The Assad memo addresses this situation directly and explicitly.

 

The mere fact that the contract you're negotiating is a "follow-on" has no bearing on whether proposal prep should be charged direct or indirect.  This determination is made by reading the contract(s).

 

NOTE:  The above comments presume that the follow-on contract is not a "long-lead" contract, i.e. an undefinitized contract action (UCA) issued on a NTE basis, which authorizes the company to purchase long-lead material and requires it to submit a proposal to definitize the complete contract for which the long-lead material is intended.

 

 

There is no where in the previous contract that requires proposal for a follow on. And you are correct in assuming this is not a long-lead.

 

I agree with Navy.  Also, why are you giving so much deference to a DCAA auditor?  They only provide advice and have no authority to make final decisions on allowability and allocability of costs or CAS compliance.  You do that as contracting officer.  If you do not agree with the auditor, merely tell him/her thank you for your advice which I consider to be erroneous then cite the contractor for a CAS non-compliance.  Don't worry about the auditor supporting the contractor if the matter goes to litigation.  The opinions of DCAA auditors are not given any particular defference by the appeals boards or Court of Federal Claims.  The auditor's statements will only be given the credit they deserve in light of the appropriate regulations.

 

I'm giving deference to the DCAA auditor at this time because I am not the KO on this action. I have to convince my KO to go against what DCAA says, this will not be easy since there are multiple KOs on multiple parts of this program and others in our organization that have been allowing direct charging on new contracts because it is a follow on.

 

I should probably also clarify that this is an IDIQ. The first task order has already been issued and we have paid excessive proposal costs associated with the base on the first TO. I was not part of those negotiations. But I do not want to continue paying proposal costs on the following task orders for a contractor that does not respond to Government requests in a timely manner. I know they're going to try to charge us on the following task orders but my FAR definition of a contract includes task/delivery orders and as long as those task order contracts do not exist yet, I see no reason for us to pay proposal costs.



#6 Steward_of_the_Taxpayer

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Posted 20 November 2013 - 10:06 AM

. . . . 

 

You charge them direct as the DCAA auditor said.     These follow on costs are related to this effort and should not have to be shared by the company's customers. 

 

There are references around on the CAS 402 interpretation of this --  "The interpretation explains that proposal preparation costs may be treated as direct or indirect depending on the circumstances under which the costs are incurred. Proposal preparation costs which arise as a result of a specific contract requirement may be treated as direct costs, while ordinary B&P effort (i.e., effort that is not required by a contract) is treated as indirect."

 

 

"These follow on costs are related to this effort and should not have to be shared by the company's customers."

 

This is a valid point, I hadn't thought considered in that way before but as I mentioned before this is one of the top defense contractors. They have a segment which is devoted entirely to defense purchases of this nature. The name of the segment includes the type of systems we purchase in its name. Considering this, I don't think it's unfair to have these costs charged indirectly to a pool. Negotiating proposal prep and the fee associated with it, takes additional time and results in additional costs to the Government.

 

I am new to the program and, with out ideas of excessive grandeur, I would like to start turning this around. I'm trying to work out if maybe instead of fighting the battle against the amount we're being charged directly, we should be fighting against being charged directly at all.



#7 Don Mansfield

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Posted 20 November 2013 - 10:58 AM

Infoseeker,

 

I think your comment about Shay Assad is out of line.  There are rules to posting in this forum.  They are posted under "Terms of Use."  One of the rules is:

 

2. No attacks on a private entity that could be construed as "defamation." No attacks on any individual person, whether in a private or public position, that could be construed as "defamation." These posts will be removed as soon as they are seen.

 

You agreed to the terms of use when you registered.  I think that you need to delete that comment from your post.  

 

-----------------------------------------

 

I deleted the offending language.

 

Bob Antonio, Owner Wifcon.com LLC



#8 Don Mansfield

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Posted 20 November 2013 - 11:03 AM

Steward,

 

I think the fact that you are talking about task orders under an IDIQ matters greatly.  Pursuant to the contract, is the contractor required to prepare proposals for task orders?



#9 Navy_Contracting_4

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Posted 20 November 2013 - 11:57 AM

There is no where in the previous contract that requires proposal for a follow on. And you are correct in assuming this is not a long-lead.

...

I should probably also clarify that this is an IDIQ. The first task order has already been issued and we have paid excessive proposal costs associated with the base on the first TO. I was not part of those negotiations. But I do not want to continue paying proposal costs on the following task orders for a contractor that does not respond to Government requests in a timely manner. I know they're going to try to charge us on the following task orders but my FAR definition of a contract includes task/delivery orders and as long as those task order contracts do not exist yet, I see no reason for us to pay proposal costs.

Yes, you should have mentioned that you're talking about task orders under an IDIQ contract, because the terms of the IDIQ contract apply to task orders.  What does the contract say about pricing of orders?



#10 ji20874

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Posted 20 November 2013 - 12:22 PM

If a parent IDIQ contract obligates no money, but merely authorizes the issuance of funded orders (this is an assumption on my part, based on a paucity of information in the original posting and subsequent clarifications)...

 

If a multiple-award IDIQ contractor incurs costs in preparing an offer, and is not selected, then there is no contract (or order) to which the B&P costs can be direct charged -- accordingly, it seems to reason that they must be charged to an indirect pool.  It wouldn't make sense for a disclosure statement to say something like, "If we win, B&P is a direct charge to the order; but if we lose, it will be an indirect charge to a pool" -- there is supposed to be some consistency in a disclosure statement. 

 

What does the existing contract say?  Does it explicitly require that the contractor participate in good faith in the follow-on acquisition?  And does it explicitly say that B&P costs for the follow-on acquisition may be direct-charged to the existing contract?

 

If the proposal-writing effort is required by the existing contract, then those costs are not bid and proposal (B&P) costs.  According to FAR 31.205-18( a ), the B&P term "does not include the costs of effort . . . required in the performance of a contract" (my underline).  Accordingly,

- if the costs we're talking about are B&P costs, then CAS 9904.420 applies and FAR 31.205-18( c ) allows them only as indirect expenses. 

- If they are not B&P costs because the proposal-writing work is required and paid for by the existing contract, then we never reach to FAR 31.205-18 at all or to CAS 9904.420, and these costs are costs that should have been contemplated at the time the existing contract was awarded.



#11 here_2_help

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Posted 20 November 2013 - 01:59 PM

A long time ago Don Acquisition posted a blog entry about the difficulties of applying FAR and CAS rules to ID/IQ contracts. This is another of those difficult areas. Remember, we are talking about applying CAS (402.61) to an ID/IQ contract, an area in which (as Don previously pointed out) the FAR Councils have had some difficulty and, in my view, have gotten it wrong.

 

There is no bright line here for ID/IQ contracts.

 

1. We got off on the wrong track because the contractor is proposing task orders in response to sole-source RFPs. Joel is correct that we have to look at the ID/IQ contract terms to see what the parties contemplated. If the contract requires the contractor to prepare proposals in response to the RFPs, then it has no choice and, as Joel stated, we are NOT discussing treatment of B&P but instead the charging of the preparation of a contact-required deliverable. If the contractor is able to "no bid" the TO RFPs without being in breach then we are discussing B&P. But that's not the end of the discussion; it's just the beginning.

 

2. If you interpret each TO as being a separate contract (which the FAR Councils have stated you DON'T DO for CAS purposes) then you can't charge the proposal prep costs to the TO that is to be awarded in the future. Instead, you need to charge the proposal prep costs to an existing TO such as the one for Program Management. If there is no TO for Program Management or similar tasks, then I guess the contractor has no place to charge the costs -- and if I were the contractor I would submit an REA for required but not funded tasking.

 

3. If you interprent the ID/IQ contract as the cost objective (which the FAR Coucils have stated you MUST DO for CAS purposes) then the contractor probably can't charge proposal prep costs as direct costs because TOs are not strictly follow-on awards. However, if the contractor's Disclosure Statement tells its government customers that it DOES charge TO proposal prep costs as direct costs, then it has to follow its disclosed practices.

 

4. As has been stated above, it's probably not reasonable to expect the contractor's other customers to pay for proposal prep costs of the TOs.

 

Not a bright line and any answer that says so is wrong.

 

Hope this helps.



#12 Steward_of_the_Taxpayer

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Posted 20 November 2013 - 04:17 PM

Thank you all for the great input, you helped fill in a few gaps and have given me some things to consider for the future.

 

I found my answer, not in the ordering procedures, but in the PWS for the base: "The Contractor shall provide a Proposal Plan to the Procurement Contracting Officer...."

 

Looks like I'll be focusing my attention to lowering the price for direct proposal prep on the task orders.



#13 here_2_help

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Posted 21 November 2013 - 12:20 AM

Steward,

 

One thing you may be able to do that would lead to lower proposal prep costs is to lock-in pricing (with appropriate escalation) for activity that is common to all Task orders. In other words, have the contractor submit a proposal for pricing for those tasks, audit/negotiate it once, and then apply it to all Task Order proposals for a certain period. (It won't relieve the contractor from complying with TINA, but it may help speed things along.)

 

Another thought is to have the contractor develop cost estimating relationships -- e.g., so much support hours for each hour of non-support activity, so much ODC for each $100 of labor costs, etc. Fact-find the relationships and come to an agreement, then have the contractor apply them to its proposals.

 

Another thought is to keep DCAA far away from the proposals. Fact-find them yourself and negotiate them yourself. Unfortunately (based on my experience) DCAA is not really capable of performing audits of contractor proposals in a timely (or helpful) fashion these days. Why that's so is grist for another discussion. But I expect many readers here would accept my opinion as truth. You want to streamline the process and reduce the contractor's costs? Then cut out the middleman and get to the negotiating table ASAP.

 

Hope this helps.






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