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You are a Government contracting officer and you are negotiating a cost-plus-fixed-fee contract for research work and have come to an agreement with the contractor on the following elements of his cost proposal:

Estimated Cost (excluding FCCOM): $1,000,000

Facilities Capital Cost of Money (FCCOM): $ 10,000

What is the statutory maximum fee (in dollars) that you can agree to under this contract?

A. $150,000

B. $151,500

Here is a relevant excerpt from FAR 15.404-4( c ) that may help you answer the question:

(3) Contracting officers shall use the Government prenegotiation cost objective amounts as the basis for calculating the profit or fee prenegotiation objective. Before applying profit or fee factors, the contracting officer shall exclude any facilities capital cost of money included in the cost objective amounts. If the prospective contractor fails to identify or propose facilities capital cost of money in a proposal for a contract that will be subject to the cost principles for contracts with commercial organizations (see Subpart 31.2), facilities capital cost of money will not be an allowable cost in any resulting contract (see 15.408(i)).

(4)(i) The contracting officer shall not negotiate a price or fee that exceeds the following statutory limitations, imposed by 10 U.S.C. 2306(d) and 41 U.S.C. 254( b ):

(A) For experimental, developmental, or research work performed under a cost-plus-fixed-fee contract, the fee shall not exceed 15 percent of the contract?s estimated cost, excluding fee.

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I think that Vern is correct. The rule in ( c )(3) applies to the development of a prenegotiation profit/fee objective, while the rule in ( c )(4) applies to the amount of fee the contracting officer can negotiate. Developing a prenegotiation profit/fee objective is not the same as negotiating profit/fee.

Consider the following example. A contracting officer is developing a prenegotiation profit objective using the numbers above. The CO excludes FCCOM from the cost objectives when applying profit factors as required by ( c )(3) and comes up with prenegotiation profit objective of $150,000.

During negotiations, the Government and the contractor agree to the estimated costs as proposed. However, the contractor offers some concession (let's say Government-purpose rights to some of its proprietary data) if the CO is willing to pay $151,500 in fixed fee. Can the CO make the deal? To answer this, we have to apply the rule which limits what the CO can negotiate. That rule states:

For experimental, developmental, or research work performed under a cost-plus-fixed-fee contract, the fee shall not exceed 15 percent of the contract?s estimated cost, excluding fee.

The applicable rule says "estimated cost", it does not say "estimated cost excluding facilities capital cost of money." 15% of estimated costs ($1,010,000) would be $151,500.

Thank you all for playing.

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I'm out of office and away from a computer. There used to be coverage of FCCM in DFARS 215.4.I am unable to get to it on the Blackberry. Does it add anything here?

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I'm out of office and away from a computer. There used to be coverage of FCCM in DFARS 215.4.I am unable to get to it on the Blackberry. Does it add anything here?

I read the DFARS coverage below, because I didn't remember the FCCM being handled the way that the example illustrated. The DoD coverage refers to the DoD Alternate Structured Approach to the FAR Fee approach. For DOD profit objectives, when using the DOD alternate structured approach method, rather than reduce the base for computing the fee percentage, there is an offset to reduce the fee by the amount of the FCCM.

Thus, the fee objective would be calculated as (.15) X $1,010,000) - $10,000 = $1,515,000 - $10,000 = $1,415,000

Here is what DFARS says about FCCM and development of the Fee objective, when using the DOD alternate structured approach method:

215.404-73 Alternate structured approaches.

(a) The contracting officer may use an alternate structured approach under 215.404-4©.

(:lol: The contracting officer may design the structure of the alternate, but it shall include?

(1) Consideration of the three basic components of profit--performance risk, contract type risk (including working capital), and facilities capital employed. However, the contracting officer is not required to complete Blocks 21 through 30 of the DD Form 1547.

(2) Offset for facilities capital cost of money.

(i) The contracting officer shall reduce the overall prenegotiation profit objective by the amount of facilities capital cost of money under Cost Accounting Standard (CAS) 414, Cost of Money as an Element of the Cost of Facilities Capital (48 CFR 9904.414). Cost of money under CAS 417, Cost of Money as an Element of the Cost of Capital Assets Under Construction (48 CFR 9904.417), should not be used to reduce the overall prenegotiation profit objective. The profit amount in the negotiation summary of the DD Form 1547 must be net of the offset.

(ii) This adjustment is needed for the following reason: The values of the profit factors used in the weighted guidelines method were adjusted to recognize the shift in facilities capital cost of money from an element of profit to an element of contract cost (see FAR 31.205-10) and reductions were made directly to the profit factors for performance risk. In order to ensure that this policy is applied to all DoD contracts that allow facilities capital cost of money, similar adjustments shall be made to contracts that use alternate structured approaches.

The offset is also to be applied for CPAF contract pre-negotiations objectives.

215.404-74 Fee requirements for cost-plus-award-fee contracts.

In developing a fee objective for cost-plus-award-fee contracts, the contracting officer shall?

(a) Follow the guidance in FAR 16.405-2 and 216.405-2;

(B) Not use the weighted guidelines method or alternate structured approach;

© Apply the offset policy in 215.404-73(B)(2) for facilities capital cost of money, i.e., reduce the base fee by the amount of facilities capital cost of money; and

(d) Not complete a DD Form 1547.

Don, are you teaching the Alternate Structured approach to fee objective for DoD?

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The issue is not profit objective. The issue is application of the statutory fee limitation.

Vern, I don't disagree.

However, as part of the exercise, a DAU instructor illustrated developmemnt of a profit objective and how to handle FCCM within the ob jective. We were taught the DFARS method as an alternative to the FAR method. I knew that something didn't look familiar to me and was wondering what DAU is currently teaching.

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Yes, I understand that the audience here is broader than DOD.

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Vern, I don't disagree.

However, as part of the exercise, a DAU instructor illustrated developmemnt of a profit objective and how to handle FCCM within the ob jective. We were taught the DFARS method as an alternative to the FAR method. I knew that something didn't look familiar to me and was wondering what DAU is currently teaching.

That analysis was not part of the exercise itself.

By the way, you wrote:

Thus, the fee objective would be calculated as (.15) X $1,010,000) - $10,000 = $1,515,000 - $10,000 = $1,415,000[.]

Is that right? Here are the cost elements provided by Don:

Estimated Cost (excluding FCCOM): $1,000,000; Facilities Capital Cost of Money (FCCOM): $ 10,000; thus, the total estimated cost is $1,010,000.

I think you're saying that DFARS provides that the profit objective applies to the entire cost, including FCCOM, but that FCCOM is then subtracted from the profit objective. Thus, if the total cost is $1,010,000 and we assume a fee objective of 15 percent, the calculation should be:

(0.15 x $1,010,000) = $151,500 (not $1,515,000);

$151,500 - $10,000 = $141,500 (not $1,415,000);

$1,010,000 + $141,500 = $1,151,500 total estimated cost and fee.

Am I wrong?

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Vern, you are correct. Sloppy math work, my error.

When using the DFARS alternate approach, one subtracts the cost of money from the computed fee, not from the cost base.

From your post above: "DFARS provides that the profit objective applies to the entire cost, including FCCOM, but that FCCOM is then subtracted from the profit objective. Thus, if the total cost is $1,010,000 and we assume a fee objective of 15 percent, the calculation should be:

(0.15 x $1,010,000) = $151,500 (not $1,515,000);

$151,500 - $10,000 = $141,500 (not $1,415,000);

$1,010,000 + $141,500 = $1,151,500 total estimated cost and fee."

Don referred to the FAR discussion of FCCM, but not to the DoD coverage, which is different and is associated with the Alternate Structured Approach for fee or profit objective. Using that approach would yield a different result for a negotiation objective.

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Don referred to the FAR discussion of FCCM, but not to the DoD coverage, which is different and is associated with the Alternate Structured Approach for fee or profit objective. Using that approach would yield a different result for a negotiation objective.

Joel,

It's important to note that the DoD Alternate Structured Approach is an optional technique that is available only for actions--

- at or below the cost or pricing data threshold,

- for A-E or construction work,

- that are primarily for delivery of material from subcontractors, or

- for a termination settlement.

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Vern, I don't disagree.

However, as part of the exercise, a DAU instructor illustrated developmemnt of a profit objective and how to handle FCCM within the ob jective. We were taught the DFARS method as an alternative to the FAR method. I knew that something didn't look familiar to me and was wondering what DAU is currently teaching.

joel,

When using the DD Form 1547 to develop a prenegotiation profit objective, FCCOM is not included in the total cost objective (Block 20)--as required by FAR 15.404-4( c )(3).

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