FAR 52.216-7(e) Billing Rates Question

[GC_Cost_Accountant]

First – I apologize if this post is repeated from elsewhere in the forum. I performed several keyword searches and read a number of posts and did not see it addressed.

Background:

FAR 52.216-7(e) requires two conditions for billing indirect costs (anticipated final rates, and mutual agreement). In my case, the Company’s Cognizant Agency is behind in reviewing/approving billing rates by years (and even further behind on final rates – no surprise there to anybody, I’m sure). We have indirect rate swings (both ways) in prior years that – when netted against each other - are material to the Company and have a greater risk of being de-obligated and going unpaid with the passing of each additional day. Our FY 2013 agreements extended into June 30 of 2014 and just expired. While the company submitted provisional billing rate packaged in early January, we have no response or indication of reviews and/or impending agreement issuances.

The Company wants to bill true up invoices for prior years based upon our certified incurred cost submission rates. Many of our Federal clients will not pay the true-up invoices without an actual rate agreement. Overall, the cash shortfall for FY 2014 billings alone is in the millions.

Questions:

1. How does a contractor bill indirect cost on flexibly-priced contracts when there is no current, unexpired mutually negotiated indirect cost billing agreement upon as per FAR 52.216-7(e)(2)?
   1. E.g., is there another clause or provision or procedure of which I am not aware that allows a contractor to bill certified, submitted (and unaudited) final indirect rates (or course with the proviso that – should the audit find unallowable cost, the Company would repay for any amounts decremented)
2. I have been considering submitting both provisional rate submissions and billing true-up notifications with “expiration language”, such as:
   1. “As the enclosed indirect cost rates represent the [Company’s] anticipated final rates under FAR 52.216-7(e)(1), [Company] will consider a mutual billing rate agreement to exist with [Agency] under FAR 52.216-7(e) for billing these rate prospectively and retrospectively unless [Agency] provides written notice to the contrary by [insert Reasonable Date Here]”
   2. I realize that – in legal parlance – a non-response would constitute “implied consent” should the Agency not respond in writing by the stated date. I am also not a JD and especially am not a Government Contracting JD, so - to that end, is implied consent enforceable against the Federal Government? From a equitability in contracting perspective, it seems terribly inequitable to the contractor to float the Government’s cost because they are unable to execute their charged oversight functions (reviews and audits) on a timely basis.
   3. As an aside, I know that there’s always the potential to request a COFD on provisional or final indirect rates as submitted, which would accelerate the Agency’s requirement to address the matter to 60 days and, if not addressed, can become a CDA claim. While this is technically a solution, the company risks its client relationships in doing this and it is not a preferred choice.

Any thoughts or advice would be greatly appreciated.

[here_2_help]

GC_Cost_Accountant,

As you likely know, you have six years from the date you knew (or should have known) of an injury to file a claim under the Contract Disputes Act. You need to keep that timing in mind.

My aggressive nature tells me to advise you to push your cognizant ACO through correspondence or requests for a COFD. Alternately, submit the true-up invoices and, when the customer rejects them, submit a certified claim and wait for the CO Final Decision, which you can then appeal to the appropriate forum.

On the other hand, if your cognizant ACO isn't acting on requests to establish reasonable provisional billing rates while awaiting audit and rate finalization, there may be a reason. For example, if you are under criminal investigation by the IG or DCIS the ACO may have received direction not to act.

Regardless of the course of action you take, you need to realize that you are leaving the routine administrative world and entering into the world of disputes and potential litigation. Consequently it is time to get your legal folks involved and let them advise you.

Hope this helps.

[GC_Cost_Accountant]

Thanks H2H. We do have a little flex time on the 6 year statute as several of our early year ICS's have been subsequently recertified/resubmitted. So - I believe the clock resets in those cases.

ACO has verbally told me (on the phone calls very rarely returned or answered) that the only reason the Cognizant Agency can't address provisional indirect rate agreements, updates to those agreements, and final/audited rates on a more timely basis is that they are only 60% staffed for their workload. I'm 60% staffed for my compliance role, yet somehow I have to get my ICS filed by June 30 or suffer the later consequences... Seems to me like contract administration responsibilities should be bilaterally upheld, versus unilaterally, but at the end of the day I'm only an Accountant who plays a lawyer on TV.

I would agree with you that with the COFD/CDA route - we are leaving the administration world and jumping head-first into the litigation realm. Unfortunately, I have both the head of contracts and general counsel involved in discussions on this matter and - although the cash flow is material - they all want to wait it out, but somehow expect me to pull a rabbit out of my hat to be able to collect the variances before de-obligations occur.

I just wanted to run the circumstances above by everyone and see if there was something or anything I was missing in the normal administrative regs that could be leveraged here as my rabbit in the hat. (COFD/CDA route is more of the unleashed pit bull approach...)

Thanks again for your thoughts. They are greatly appreciated.

[Retreadfed]

GC, as I read your post, you have underbilled costs that you want to recover. One thing you did not mention in your post, is the effect this underbilling has on the Limitation of Cost clause. Will the true-up invoices cause an overrun on some of your contracts? If so, have you given the government notice of the overrun? If you are performing in an overrun status, why are you doing so?

[policyguy]

I would agree with you that with the COFD/CDA route - we are leaving the administration world and jumping head-first into the litigation realm. Unfortunately, I have both the head of contracts and general counsel involved in discussions on this matter and - although the cash flow is material - they all want to wait it out, but somehow expect me to pull a rabbit out of my hat to be able to collect the variances before de-obligations occur.

I would not recommend waiting it out. Vern Edwards had a very informative blog entry on a contractor waiting things out to their detriment as well as some helpful tips to all contractors that I would suggest you review:

http://www.wifcon.com/discussion/index.php?/blog/2/entry-1346-tips-for-the-clueless-would-be-contractor/

[Retreadfed]

GC, why do you think that recertification of your ICS' is the time the limitation period starts running? The issue is when did you know you might have been underpaid because your billing rates were understated. That is when your claim accrued. DCAA tries to argue that recertification starts the six year period running against the government, however, I am not convinced that you can have a bright line test such as this for determining when a specific claim accrues.

[here_2_help]

GC-Cost-Accountant,

I am not a lawyer, but my lawyer friends believe that the SOL cannot be tolled through a resubmission -- much to the chagrin of DCAA.

H2H

[GC_Cost_Accountant]

Thanks again to everyone for the comments and great points.

Retreadfred: Thanks. You understood correctly in that we have significant underbilled indirect cost. On a contract by contract basis, it is not very significant - but in total across our entire contract portfoio, it becomes financially material. I am the head of our compliance function and, together with the head of our contracts function, designed a compliance checklist for each variance invoice that will be issued - to include researching Limitation of Costs/Funds clauses as they apply to that specific contract (at the billing line item level) and to the specific GFY funds allocated to the contract. So - I'm hoping (fingers crossed) that this risk is mitigated by our designed controls process.

Policyguy: Thanks. I am - personally - not a fan of waiting it out. My company's leadership is. I come from a government contracts accounting consulting and litigation background and have had some clients who were political lightning rods for oversight/scrutiny. I've seen that you have to fight for what is yours, if you truly want it. But - Vern's post you referenced is excellent and I will pass it on to a couple of key "wait-it-out" people in leadership to give them something to contemplate while barbequeing over the holiday weekend...

Retreadfred and H2H: Agree on the SOL restart being a DCAA initiative. But - I've seen that fight go both ways. In court it goes to the contractor, but many contractors don't take it that far. I don't feel that the leadership team at my company has the fortitude to go down the ASBCA road...although I have and will certainly continue to recommend this if Cognizant Agency doesn't step up to the plate.