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Hello,

My company has a BPA with FFP labor rates.

The 'Calls' to follow have not said T&M or FFP; However the Contracting Officer says these are T&M/Labor hour Task Orders; We'll deal with that separately,

My questions are pretty general regarding normal practice on T&M contracts, because this will now change how we price in the future (we've been pricing them per month, FFP).

1. Let's say the employee has 15 days of PTO and 10 Holidays for a total of 200 hours paid off. This leaves 1880 billable hours, very standard.

However, with T&M contracts and option years...what if this person doesn't take their PTO and they work more than 1880? Can we still bill all of those hours (example: 1900 worked or whatever)?

2.Do we have to make them lose the PTO if they don't take it by contract "Base Year" end?

Essentially, the bucket of money for the "Base Year" will go away and a NEW bucket will be given the "Option Year 1".

*The employee not taking PTO in Base year and instead taking it in Option Year 1 will cause us to Over-bill hours in Base Year and Under-bill in Option Year 1.

An example with numbers as how exactly this Task Order was awarded BASE YEAR (fictional numbers but real structure) is:

1880 Hours

$100 Hour Rate

$188,000 Total Award

T&M Labor Hour Task Order

What are your thoughts and experience. Feel free to correct me on my points, as this is our first T&M contract.

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Under a T&M contract, you may bill the government at the specified labor rate for only the hours that your employee actually works on the task order. Your questions reflect a fundamental misunderstanding of the terms of a T&M contract. Read the T&M payment clause in the contract. There is no "total award".

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TNCONCPA,



This is not meant to be condescending, but I don't know if your company has cost-type contracts or if you're strictly FFP. Accepting a T&M contract ( a cost-type contract) will have a lot of ramifications (Incurred Cost Submissions, business system requirements, etc.) that your organization needs to be aware of. It may be a can of worms you might not want to open.



Paul


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Paul,

I don't look at a T&M contract as a cost type contract -- it also isn't a fixed-price contract -- it is its own creature.

In other words, a T&M contract is not a cost-type contract, and it is not a fixed-price contract. It is neither. It is its own creature.

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ji20874,

You are of course absolutely correct. Unfortunately, DCAA has decided that there are two general types of contracts: Flexibly Priced and Fixed Price. DCAA (and the FAR Council) lump T&M in the Flexibly Priced grouping along with Cost-Type and Labor Hour and Fixed- Price Incentive Fee contract types.

You are correct and they are wrong, but the confusion created when the regulations are based on such ill-logic spreads and it does nobody any good. Except consultants and lawyers.

H2H

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Regardless of semantics, Paul's basic point was spot on. Moving from FFP to T&M contracting is risky, risky, risky. I think it's actually easier to move from FFP to CPFF than it is to move from FFP to T&M ... at least from a risk management standpoint.

H2H

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T&M requires a competent project manager on the client and contractor sides. Such contracts are routinely used successfully in the commercial sector. For the government, they reduce risk the contractor will understaff.

There is different risk on both sides than FFP, which can be mitigated through skilled project management, and which I hope is a prereq on any engagement. That contractors need not receive acceptance for payment is a huge advantage to them.

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jlbdca,

Yeah, no. You cannot compare commercial market T&M to Federal government T&M. For one thing, you don't have the spectre of the False Claims Act in the commercial space. Recent DCAA audit guidance (and litigation) confirms that a contractor must be prepared to support why its employees qualify for the hourly billing rate categories or risk an allegation submitting a false claim. Not to mention the onerous pre-award and post-award requirements imposed on subcontractors and inter-organizational transfers. Not to mention the risk of overrun on the individual labor categories.

Skilled project management won't address those risks to any noticeable extent.

I have advised contractors moving from the world of FFP into the world of T&M. It hasn't been pretty.

H2H

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To follow up on the original question, holidays, annual leave, sick leave, training (and perhaps other time for which the employee is paid but does not work directly on the contract effort) are factored into the rate that is established in the contract. That is why you pay, as stated by Vern, the specified rate for the actual time worked.

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"To follow up on the original question, holidays, annual leave, sick leave, training (and perhaps other time for which the employee is paid but does not work directly on the contract effort) are factored into the rate that is established in the contract. That is why you pay, as stated by Vern, the specified rate for the actual time worked"

Above, is also my understanding of how a T&M contract is priced and invoiced. However, we have a T&M contract that is losing money and I am not sure why or if I have priced it correctly. We are invoicing for all other direct costs and the issue is believed to be in the labor.

We've priced as follows:

10 hoilday 15 vacation = 200 leave hours

236 days of labor = 1888 labor hours

The total cost for the hours plus all benefits, payroll, overhead, G&A and profit equal a total price of $62,000. I then took the price and divided by the labor hours (1888) to calculate the hourly rate $32.84, this is the price used to invoice all hours worked. Is this not correct? WHat if the employee does not work 1888 hours and therefore I only invoice 1728 hours worked, have I lost the other costs loaded in the hourly rate? Should I've calculated the hourly price based on the average hours worked?

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sharris,

You seem to be hung up on labor/leave hours. I haven't done pricing in a long time, but:

average hourly rate for the labor category

+ fringe

+ overhead

+ G&A

+ profit

= billing rate

Organizations apply indirect rates according to their standard practices, which can and do differ. I don't know your methodology, so I can't give you a specific calculation.

Also, are your actual direct and/or indirect rates runnings at close to what you used for pricing? Could explain your "loss" if they are running higher than your pricing rates.

Paul

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The total cost for the hours plus all benefits, payroll, overhead, G&A and profit equal a total price of $62,000. I then took the price and divided by the labor hours (1888) to calculate the hourly rate $32.84, this is the price used to invoice all hours worked. Is this not correct? WHat if the employee does not work 1888 hours and therefore I only invoice 1728 hours worked, have I lost the other costs loaded in the hourly rate? Should I've calculated the hourly price based on the average hours worked?

Obviously, if the worker doesn't work the total number of billable hours that you used to calculate the billing rate, you will not recover any more than what you can bill. I assume that you aren't billing any other contracts or you wouldn't have asked. By the way, did you allow for sick time, voting time or other admin type time that might be experienced?

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It's tough to do forensic analysis from long distance. I had some initial thoughts but, frankly, it's all speculative from over here sitting in my armchair.

You know, if I had a contract that was losing money but I didn't really know why, I wouldn't ask folks about it on the internet. I would go find me an ace consultant and give her my pricing file and BOEs and rate buildup calculations, and then have her explain to me exactly where I went wrong.

But maybe that's just me....

H2H

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T&M requires a competent project manager on the client and contractor sides. Such contracts are routinely used successfully in the commercial sector. For the government, they reduce risk the contractor will understaff.

There is different risk on both sides than FFP, which can be mitigated through skilled project management, and which I hope is a prereq on any engagement. That contractors need not receive acceptance for payment is a huge advantage to them.

Uhh, ALL project-related contracts, no matter what the pricing arrangement, require a competent project manager, don't you think?

In any case, the OP disappeared 11 days ago.

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I believe I have received an answer through all of the reply threads. Thank you all.

Another question while we're on the subject as this seems to have drawn some attention:

Our standard practice is 10 PTO days and 10 Holidays, for 1920 billable hours.

Our new T&M contract, the employees all require 15 PTO days and 10 Holidays, for 1880 billable hours. (Long story, but we are given the BNRs and basically bend to their demands to win the position).

However, when building the price for each employee (each is their own task order) our Fringe rate is not meant for people that are only billable 1880. In essence, we'll never "re-coop" the days off through the billable rate because it's meant for 1920 (how our indirect rates are built).

Is it appropriate and good practice to design an entire second fringe pool for people that have 15 PTO vs our normal 10 PTO?

Thanks again, Moderator please let me know if this should be a in new section.

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TNCONCPA,

My post #15 stands as my reply to your follow-up question. Respectfully, you seem to be out of your depth.

H2H

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H2H,

Firstly, your post #15 doesn't address my original post/question. You were responding to someone else who posted details of their contract operating at a loss (I think Sharris).

Secondly, of course most people here are out their depth. I have a multitude of credentials and experience. But nowhere in higher education/accounting credentials is a single class on FAR or DCAA that I know of unless you KNOW you're going into the field and maybe then..??. That said, most of us on the board are lost or learning. MBA, CPA etc. or not.

It's something you consult with others (which we have, and it's expensive). We are a small business and I am attempting to gather as much data from all sources possible. We are here to help each other, I thought.

To expand on my question for those willing to assist:

Our contract is NOT losing cash. Our profit is solid. My confusion, even after consulting and paying for outside consultants, lies in 1880 vs. 1920 hr Fringe rates.

When bid rates were built for the year, the data was from benefits stemming from 160 hrs time off. Meaning 1920 billable hours.

However, when bidding someone that has, say 200 hrs off, the billable hours in a seat are only going to be 1880.

**This effectively under-bills our cost because the billable rate has not included the extra 40 hours off.

I'm not sure how to make this clearer and I'm dumbfounded with how hard it is to find an answer in the FAR or DCAA.

I am simply asking for someone's experience, maybe even with an example. Should I find a clear cut answer, I will post it here to help others as they seek the same information.

TN CON

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I'm not sure how to make this clearer and I'm dumbfounded with how hard it is to find an answer in the FAR or DCAA. I am simply asking for someone's experience, maybe even with an example. Should I find a clear cut answer, I will post it here to help others as they seek the same information.

The FAR and the DCAAM are sets of rules and guidelines about how government personnel are to conduct contracting operations. While they include rules about permissible methods of cost accounting, they are not instructions to contractors about how to calculate and propose hourly labor rates or prices. Contractors are free to do that any way they want as long as their method is consistent with the cost principles and applicable cost accounting standards.

The problem confronting you is how to develop the hourly labor rate that you will charge for work to be done by the hour in a given contract year, a rate that will enable you to recover your costs and earn a profit. Essentially, you must estimate the total allowable direct and indirect costs that you will incur in a year for the number of hours you expect to bill, add the profit you hope to earn in that year, and divide by the number of hours. Part of the total allowable costs of those hours will be the cost of paid time off and sick time. You have to estimate what that will cost you in a year and include that cost in your estimate of total annual costs.

I'm not an accountant, but the problem seems to me to be pretty straightforward. I suspect that your befuddlement arises from doubt about whether a particular solution is permissible. It sounds like you are not thoroughly familiar with the cost principles and cost accounting standards (not many people are) and you want to know what you can and cannot do.

In #17 you asked:

Is it appropriate and good practice to design an entire second fringe pool for people that have 15 PTO vs our normal 10 PTO?

Short answer: I know of no rule against the use of that approach. I suspect that many companies would do it that way. Whether it is "appropriate and good practice" for you depends on whether it works for you. Let me ask you: How else would you do it if you don't do it that way? Do you know of any reason why that alternative method would be better? If so, then do it that way.

Once you have solved this, attend a course on government contract costs and pricing. There are many provided by many different firms. Try Public Contracts Institute (they have an ad on the Wifcon home page), ESI International, or Federal Publications. Buy a copy of Government Contract Costs and Pricing by Karen Manos.

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TN CON,

Fair enough. Allow me to retort.

Vern and others who regularly post responses to people's posts have spent the majority of their professional lives developing knowledge and experience that gives them the skills to answer most regulatory questions quickly. Your question cannot be answered quickly. Vern told you why that was the case.

To put it another way: I have spent 30 years figuring this stuff out. The easy answers I give away because "I'm here to help." And I'm sincerely happy to help, otherwise I wouldn't be here.

The hard stuff requires diligence, research and time. I ain't giving any of that away for free. You want to hire me as a consultant, great. Send me a message. You want somebody else? Even better because I'm swamped right now. Send me a message and I'll give you two or three names of top-notch folks who can help you out. But you are going to have to pay them for their time, because that's the way it works.

When I suggest you hire a consultant, it's not because I don't want to help you. It's because you need help that this forum cannot provide.

H2H

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Vern,

THANK YOU.

Makes sense and I will follow your advice on all things consulting and the book. We have used consultants, just maybe not the right ones. I continually get back vague answers when I'm seeking a straight forward solution to my problem, with examples. And yes we are paying these folks.

Again, just finding the right ones is a tall order.

I appreciate the help.

TN CON

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