Jump to content
The Wifcon Forums and Blogs

Sign in to follow this  
WolfmaN365

G&A and Profit to Travel Costs

Recommended Posts

I am new to this forum, I have a Firm fixed price Constrcution Modification and one of the sub-contractors is applying G&A and profit to their travel Costs (costs include Rental Vehicle, Lodging, Meals, and Airfare). i am at my wits end trying to see if this is allowable. The sub-contractor has stated they are basing their lodging and meal costs on the FTR and from what have seen and been taguth those rates are established and I have never seen or found where G&A or Profit has been applied. Is this allowable, any assistance is greatly appreciated.

Share this post


Link to post
Share on other sites

So you have a cost proposal related to pricing a modification to a FFP construction contract and, in that proposal, the contractor (or subcontractor in this case) priced in G&A and profit on travel. You find this unusual because "from what I have seen and been taught those [FTR] rates are established and I have never seen or found where G&A or Profit has been applied."

Well, let me answer your question directly. If the (sub)contractor's established practice is to apply G&A to its other direct costs (e.g., travel), then that G&A is perfectly 100% allowable when used in proposal pricing.

With respect to profit, if you would allow profit on the changed work, you must explain why you would or would not permit the (sub)contractor to price profit on that [travel + applied G&A] value. Did you agree to profit on similar costs when arriving at the FFP contract value? You don't have to reach the same conclusions when negotiating pricing on changed work but it would seem only fair to explain your rationale. And in my view the rationale I quoted from your original question is weak. Very weak. I would expect you to base your rationale on the regulations and not on what you have seen and been taught. (Because who knows? Your teachers may well have been idiots or you may have misremembered what you were taught.)

Also, for your information, the FTRs are NOT FIXED with respect to contractors and subcontractors. They form a ceiling for certain travel expenses but there is considerable variation between how they are applied for Government employee travel and how they are applied to determine allowable contractor/subcontractor travel.

Hope this helps.

Share this post


Link to post
Share on other sites

Adding to what H2H said, there is no prohibition in the FAR against a (sub)contractor allocating G&A on a base including travel or using travel costs as an element of its profit determination. However, some agencies use contracting clauses that prohibit this. Look at the terms of your contract and the subcontract and see if this issue is addressed in either. If it is not, why would the subcontractor not be permitted to include travel in the base for allocating G&A and for determining profit?

Share this post


Link to post
Share on other sites

If the travel cost is included in an FFP CLIN, markup is allowed . I think that you are confusing this with a CLIN for reimbursement of an indeterminent amount of travel, which is in essence a cost reimbursement line item.

The general practice is to avoid establishing a pricing arrangement for reimbursable travel expenses that appears to be or that does constitute a cost plus percentage of cost method.

However, if the parties can reasonably estimate or determine estimated cost for travel associated with a construction modification, then it may generally be included in the sub's total direct costs in its proposal for for the modification, to which markups for overhead, profit and bond can be applied.

Share this post


Link to post
Share on other sites

This question, or another like it, must have come up at least twenty times at Wifcon Forum: Is G&A (or profit) allowed "on" this or that cost. The answer is ultimately a matter of cost accounting (or managerial accounting, as I think it's currently called in college courses) and contract negotiation.

A manager needs to know how well her enterprise is working and so she wants to know where her costs are coming from (or where they're going, depending on your point of view), so she can make decisions. The accountants have come up with ways of measuring that. So we have direct costs and indirect costs, and G&A is a kind of indirect cost. It's a conglomeration of miscellaneous indirect costs that have to be assigned somewhere, and so its usually assigned to subtotal cost. It's not a problem, really, until you get involved with the Government.

The Government prices many contracts on a cost build up basis -- the price is the cost plus an amount for profit. So how do you measure "cost"? Well, let's use cost accounting. Okay. But, wait a minute -- you get different numbers depending on how you do it.

That realization led to the development of what we now call "the cost principles" in FAR Subpart 31.2 and the Cost Accounting Standards, in FAR Ch. 99, which are attempts to (1) standardize cost accounting so we won't argue (too much) about how to measure costs later on and (2) establish rules about what the Government will and will not pay. The development of the cost principles began after World War I, and the main part of the work was done by 1959, but development and change continues to this day. For the history of the cost principles and the cost accounting standards see Manos, Government Contract Costs and Pricing, Ch. 2.

The development of the cost principles revealed to the government the kinds of costs that companies incurred, which led to arguments about what the government would and would not pay for. G&A is especially troublesome, because companies put all kinds of costs in there that the Government does not like, like "goodwill" and the costs of alcoholic beverages. (For moral reasons, I suppose, the government won't pay for the costs of alcoholic beverages. See FAR 31.205-51, which is quite old and may be the shortest rule in FAR. Too bad, because you need a drink now and then if you do government contracting.)

In recent decades, the government has tried to squeeze various costs out of government contracts, especially some in G&A pools, either by making them "unallowable" by statute or regulation, or by trying to negotiate them out of costs, or by writing RFPs and contracts to dictate them out. The government seems to hate the allocation of G&A to travel, and so this question comes up again and again. As here_2_help, Retreadfed, and Joel have pointed out, there is no statutory or regulatory prohibition that I know of against the allocation of G&A to direct travel costs.

So what am I adding to this discussion? Just this: This kind of question is one that is ultimately answerable by looking first at the regulations and then at the contract. If the contract (or, in this case, subcontract) -- including the cost principles and cost accounting standards, if applicable and incorporated therein -- does not say that the seller (contractor or subcontract) cannot "apply" G&A and profit to travel or to any other cost, then they can "apply" them. However, the buyer (the Government, or the prime contractor, or a higher-tier subcontractor) can still argue that it does not want to pay for that application, in which case the result will come down to hard bargaining.

Whenever a question like this comes up, the way to the answer can be found by checking the contract. If you're negotiating and you want to “apply” G&A (or profit) to some cost, and if the other party does not want you to, tell that party to show you the contract clause that prohibits it. If they can't, then tell them you won't discuss it further and that you refuse to negotiate on a cost element basis. Then offer and counteroffer or request an equitable adjustment or submit a claim as you see fit.

I'm assuming that you're good enough at the negotiating table to pull that off. If you aren't, then you'll just have to do what you can do. Good luck.

Share this post


Link to post
Share on other sites

To add to h2h's and Retread's comments regarding profit. Remember to a reference on why profit may not be allowed may be a specific clause of the contract that has created the need for the equitable adjustment by modification. By example the government delay of work clause for construction contracts (52.242-17) which provides that profit is to be excluded.

Carl, clause 52.242-17 is for supply contracts. 52.242-14 SUSPENSION OF WORK is used for construction contracts. That clause does not provide for profit or fee. Clauses which provide an equitable adjustment allow profit. Other clauses allow a cost adjustment but no profit.

Share this post


Link to post
Share on other sites

In reading the original post, I think that WolfmaN365 is thinking of how travel is often handled on various contracts using a separate CLIN for reimbursement of travel costs when the amount of travel or costs are unknown ahead of time. For this modification, is that what you are referring to, WolfmaN? If so, then we need to discuss how to treat markups in that scenario. Please clarify how the travel costs are being handled. Are they fixed as to amount or are they to be separately reimbursable?

Also, please advise what clause or clauses apply to the subcontractors costs for this mod?

Share this post


Link to post
Share on other sites

I think that WolfmaN365 is thinking of how travel is often handled on various contracts using a separate CLIN for reimbursement of travel costs when the amount of travel or costs are unknown ahead of time.

I see nothing in the original post to indicate that it is about travel as a separate CLIN. That may be what the poster was thinking, I suppose, but I see no evidence of it. There was a contract modification and it appears that the subcontractor is seeking a price adjustment in which travel is one of the direct costs and is included in the cost subtotal to which G&A is being allocated ("applied").

It seems to me that here_2_help and Retreadfed have answered the poster's question. Retread was very succinct and entirely correct:

[T]here is no prohibition in the FAR against a (sub)contractor allocating G&A on a base including travel or using travel costs as an element of its profit determination. However, some agencies use contracting clauses that prohibit this.

Even if travel were a separate CLIN, it would not change that answer. The poster should read his or her contract. If a change affected travel costs, then whether G&A is allocable to a travel CLIN and whether profit can be added would depend on the terms of the contract. I assume that the original poster can read the language in which the contract is written.

Share this post


Link to post
Share on other sites

I am new to this forum, I have a Firm fixed price Constrcution Modification and one of the sub-contractors is applying G&A and profit to their travel Costs (costs include Rental Vehicle...i am at my wits end trying to see if this is allowable. The sub-contractor has stated they are basing their lodging and meal costs on the FTR and from what have seen and been taguth those rates are established and I have never seen or found where G&A or Profit has been applied. Is this allowable, any assistance is greatly appreciated.

I am curious about where Wolfman has "seen" and has 'been taught' about handling travel costs. He says he has "never seen or found where G&A or profit has been applied" (to travel costs). Wolfman, I am available off-line if you wish to discuss any further, if you are reluctant to respond here.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.
Sign in to follow this  

×