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Consultant Fees


sjanke

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No.

There are requirements for a cost to be allowable, but the 31.205-33 Cost Principle has no cost limits associated with it. FAR 31.201-3 speaks to the reasonableness of a cost (amount), but does not specifically address consultant costs.

Hope this helps.

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Looking for advice on whether there is any FAR that defines maximum hourly rates to pay consultants. As a prime contractor, we proposed to use consultants in support of work being done on a CPFF line item and were told the FAR's do not allow the hourly rates which the consultant quoted.

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As H2H said, the only FAR limitation on consultant fees is that they must be reasonable, i.e., not exceed what a prudent business person would spend for a consultant in a competitive environment. There is no dollar cap for such fees as there is for compensation paid to contractor employees. Find out where the person who told you that thinks the limitation is stated in the FAR.

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Just received a message from the CO on our contract referring to The Office of Federal Procurement Policy (OFPP) publishing a notice in the Federal Register announcing it has raised the cap for government reimbursement of certain contractor executive and employee compensation and the hourly rate which our consultant has proposed is too high.

I found a document on the internet dated Dec. 4, 2013 which seems to be what the CO is referring to, "Determination of Benchmark Compensation Amount for Certain Executives and Employees", but am unable to attach it or include a link to it for this post.

Any further comments on this are appreciated.

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I think you can pay your consultant whatever you want to, but that you can only charge an amount up to the published amount in your cost-reimbursement contracts or overhead rates. Think of the excess pay in the same was as you would booze for the company picnic -- the booze costs aren't allowable, but you can still buy it for the picnic -- you just can't charge the costs to your Government contracts directly or indirectly.

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I understood the cap to apply to contractors and subcontractors.

From Sec. 702 of the Act: "Costs of compensation of contractor and subcontractor employees for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds..."

I also understood the cost principles in FAR Subpart 31.2 apply to contracts and subcontracts. FAR 31.103( a ) brings in Subpart 31.2 into contracts with commercial organizations, and 31.103 applies to contracts and subcontracts, per 3.100.

Maybe this is the old problem of differrentiating between subcontractors under prime contractors versus suppliers (or vendors) under prime contractors. Maybe it depends on whether the consultant is ( a ) or ( b ). It may also depend on whether the priime contract or the subcontract (or consulting arrangement) is subject to cost analysis, as the cost principles in FAR Subpart 31.2 only apply if the acquisition is subject to cost analysis (see FAR 31.103).

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sjanke,

Are you saying that your consultant pays him/herself more than an annual salary of $763,209, before overhead and profit are added on? Wow. Must be a top-notch consultant.

I don't know. It seems to me your CO is negotiating with you. I can think of several means of pushing back, but that's your job.

H2H

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The Federal Register says

This memorandum sets forth the benchmark compensation amount for employees of Federal Government contractors as required by Section 39 of the Office of Federal Procurement Policy (OFPP) Act, as amended (41 U.S.C. § 1127) for the purposes of section 4304(a)(16) of title 41 and section 2324(e)(1)(P) of title 10. The statutory benchmark amount (the “cap”) limits the allowability of compensation costs under Federal Government contracts as implemented at Federal Acquisition Regulation (FAR) 31.205-6(p). In less technical terms, the statute places a cap on the total annual compensation amount the Federal Government will reimburse a contractor for the compensation the contractor provides to each of its employees for work done pursuant to certain Federal Government contracts.

It specifically refers to the cost principle at 31.205-6, not to the principle at 31.205-33 for consultants. I do not see how this limits what can be paid to consultants.

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The benchmark cap for exec comp, which applies to all contractor employees now on certain contracts awarded by specified agencies, applies only to employees of the contractor. As I mentioned earlier, FAR 31.205-33 specifically states that consultants cannot be employees of the contractor.

As the FAR is currently written, the cap does not apply to subcontractors. That is not to say that the prime cannot apply it to subs, but the language of the cost principle only applies the cap to the prime.

As for the cost principles applying to subcontractors, there is no standard FAR clause that requires a subcontractor to claim only costs that are allowable in accordance with the cost principles. The way DCAA usually gets at this issue is to question any cost that the prime reimburses to a sub if the cost incurred by the sub is an unallowable cost and for which the prime seeks reimbursement from the government. In my experience, contracting officers have no problem with agreeing to this approach.

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Some more background info. The total potential value of the support that might be provided by several consultants working for the large company we are attempting to contract with in support of our US gov't contract is ~$385K. The CO is challenging the hourly rate of one individual who, if we used him to the maximum hours projected for his support, would total ~$70K of that amount. The CO wants a reduction on his rate that would reduce the overall total by $3,500. It's not a significant amount and we will resolve the issue, but it just seems strange.

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sjanke,

Price negotiations work in mysterious ways, their beauty to behold.

Demand a higher fee/profit because your technical risk just increased stemming from the morale impact of the consultant's pay reduction.

Hope this helps.

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