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SLK Contractor

Is my company required to submit an Incurred Cost Submission to DCAA?

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Although we have been submitting ICS annually to DCAA, this question just arose -

Since we only have subcontracts thus far, no prime contracts, are we required to submit an ICS to DCAA?

I googled this question and came up with several websites advising "Generally, if you have a prime contract with the FAR Allowable Cost and Payment Clause 52.216-7 or you are a subcontractor with flow-down provisions from the prime, you will need to complete an Incurred Cost Submission."

But another site advised that subcontractors were only required to submit an ICS if they met certain "Type & Materiality" requirements. It did not specify what was meant by Type or Materiality nor a FAR reference.

We DO have the FAR clause 52.216-7 in three of our Subcontracts.

Can anyone point me to an official government source that says, since 52.216-7 is flowed down to us in our Subcontracts, we are required to submit an ICS?

We are an ED-WOSB if that makes any difference.

Thank you for any help!

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I do not think you will not find such "an official government source" because to the best of my knowledge none exists. However, businesses are required to comply with the terms of their contracts. That includes subcontractors to government prime contractors. That means you have to read what your subcontracts say in order to determine what your obligations are. In this regard, when prime contractors include clauses from their prime contracts in subcontracts, it is a common practice for prime contractors to place language in the subcontracts changing "government" to "prime contractor" or "contracting officer" to a contractor employee. Read your subcontracts to see if there has been a similar modification to the language of FAR clauses in your subcontract.

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SLK Contractor,

Retreadfed has given you the correct answer.

But you are in an interesting position, having only subcontracts and no prime contracts. It got me to thinking ...

Even though you may be required by the terms of your (sub)contract to submit a proposal to establish final billing rates, you do NOT have to wait for a DCAA audit to establish final billing rates with your prime contractors. The government has no privity of contract with you and your prime's contracting officer cannot issue a CO Final Decision with respect to the allowability of your (sub)contract costs directly to you. The government CO must work through the prime contractor.

You and your prime(s) are responsible for establishing your final billing rates with respect to your subcontracts. No government entity is or can be responsible for that action. Your prime is responsible for managing its subcontract with you and that responsibility includes final rate determination and close-out. Your prime is subject to government review and oversight regarding how it executes its responsibilities.

Of course, this raises the question as to whom you submit the required proposal to establish final billing rates. If you have the vanilla 52.216-7 clause, then clearly your cognizant DCAA office is one recipient. It's much less clear to me whom the other recipient would be, given that the government lacks privity and you may not want to share your detailed cost information with your prime.

My point being, even if you must submit your "ICE Model" you need not use it to negotiate final billing rates on your subcontracts. You can start negotiations with your prime whenever you are both ready to do so.

Hope this helps.

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Be careful. Sometimes things can be difficult. For example, I know of a prime contractor that settled with their subcontractor. The subcontractor went out of business after settlement and time records were destroyed. Now the government wants the time-cards to support the allowability of the of the Prime's cost.

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Retreadfed,

Can we agree that the 52.216-7 clause (or equivalent) would not (or perhaps should not) be included in an FFP contract type?

H2H

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Retreadfed,

Can we agree that the 52.216-7 clause (or equivalent) would not (or perhaps should not) be included in an FFP contract type?

H2H

yes

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We can agree that it should not be. However, some primes do not think about what clauses should be included in subcontracts and merely incorporate the clauses from their prime contract into subcontracts regardless of the applicability of the clauses to the subcontract. Prime example, CAS clauses being included in subcontracts with small businesses.

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Retreadfed,

Continuing my thought experiment ...

Consider the hypothetical circumstance where my company had no cost-type or T&M contracts (or subcontracts), and no contracts (or subcontacts) with 52.216-7. My company has never submitted a proposal to establish final biling rates because it was never required to do so.

Then one day we receive a FFP subcontract that (perhaps mistakenly) included the 52.216-7 clause. Because inclusion was patently wrong, we inquire of the prime and are told that we must execute the contract we received or else we would be considered to be nonresponsive and the prime would award to another bidder. Reluctantly we sign, even though we had no idea when we submitted our proposal to the prime that the clause would end up in our subcontract. We needed the work so we agreed. And we do intend to be bound by the contract requirements, and so we will be submitting our first ICE Model proposal and we expect to support a DCAA (or prime contractor personnel) audit thereof.

1. Since this contract, and no other, requires submission of the final billing rate proposal and audit support thereof, can I charge labor incurred in preparing and supporting directly to the contract that requires it?

2. Is my company entitled to receive an equitable adjustment to the contract price for the additional, unpriced work, imposed by the customer?

Thanks for playing along ....

H2H

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Here is hoping that someone other than Retreaded can answer Help's post #10.

Retreadfed,

Continuing my thought experiment ...

Consider the hypothetical circumstance where my company had no cost-type or T&M contracts (or subcontracts), and no contracts (or subcontacts) with 52.216-7. My company has never submitted a proposal to establish final biling rates because it was never required to do so.

Then one day we receive a FFP subcontract that (perhaps mistakenly) included the 52.216-7 clause. Because inclusion was patently wrong, we inquire of the prime and are told that we must execute the contract we received or else we would be considered to be nonresponsive and the prime would award to another bidder. Reluctantly we sign, even though we had no idea when we submitted our proposal to the prime that the clause would end up in our subcontract. We needed the work so we agreed. And we do intend to be bound by the contract requirements, and so we will be submitting our first ICE Model proposal and we expect to support a DCAA (or prime contractor personnel) audit thereof.

1. Since this contract, and no other, requires submission of the final billing rate proposal and audit support thereof, can I charge labor incurred in preparing and supporting directly to the contract that requires it?

2. Is my company entitled to receive an equitable adjustment to the contract price for the additional, unpriced work, imposed by the customer?

Thanks for playing along ....

H2H

1. You can direct charge it to the contract in your accounting system as an incurred cost. It may depend upon who prepares the information and how they are normally charged.

2. You are not entitled to an equitable adjustment. The effort appears to be a requirement of your FFP subcontract with the prime. This isn't a customer imposed requirement. Even if it was, you have an FFP subcontract.

I have not been too successful at getting DCAA field pricing assistance where we really needed it. I don't think that DCAA is going to audit a proposed subcontract FFP final billing rate that isn't otherwise needed by the government.

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I basically agree with Joel's two answers. However, I have to part company with him in regard to the second sentence in answer 1. This sentence is similar to arguments I have had with DCAA on many occasions concerning direct and indirect personnel. There really is no such thing. There are only activities that generate costs. We then have to look to see what cost objectives benefit from those costs. Once we have done that, we have to ensure that the costs are allocated to those cost objectives in reasonable proportion to the benefits received by each cost objective. Here, only the one contract would benefit from the proposal to establlsh final indirect cost rates. It is irrelevant who prepares the proposal and how their time is usually charged.

This raises the question of why contractors who prepare proposals for final indirect cost rates that affect many, but not all of their contracts or subcontracts, frequently charge the cost of doing so as G&A and allocate the cost to all contracts, even those that do not require adjustment of indirect cost rates. I believe this is where H2H was heading.

As for DCAA not doing an audit that is not necessary, I recently had two separate instances where DCAA is insisting that a prime contractor require subcontractors with labor hour contracts to establish final indirect cost rates otherwise DCAA will question all the subcontract costs. Maybe this should be under Vern's thread of tragic or funny.

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Consider: in my hypothetical, has the proposal to establish final billing rates become a contract deliverable, by virtue of the fact that it is required by that one and only contract? If not, please explain why not.

If yes, and I didn't price in the cost of preparing that contract deliverable because it was "slipped" into the contract after the proposal was submitted, then please explain to me why I cannot submit an REA for the additional, unpriced, contract requirement. Remember, I inquired when I saw the clause -- and in this scenario we agree the prime included it in error but refused to delete it when challenged. Please explain why I should have to prepare a contract deliverable without compensation.

Again, we're just playing here. But I think I've got a good case for (1) direct-charging, and (2) obtaining a contract price adjustment from the prime.

H2H

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Consider: in my hypothetical, has the proposal to establish final billing rates become a contract deliverable, by virtue of the fact that it is required by that one and only contract? If not, please explain why not.

If yes, and I didn't price in the cost of preparing that contract deliverable because it was "slipped" into the contract after the proposal was submitted, then please explain to me why I cannot submit an REA for the additional, unpriced, contract requirement. Remember, I inquired when I saw the clause -- and in this scenario we agree the prime included it in error but refused to delete it when challenged. Please explain why I should have to prepare a contract deliverable without compensation.

Again, we're just playing here. But I think I've got a good case for (1) direct-charging, and (2) obtaining a contract price adjustment from the prime.

H2H

If I were the prime, I wouldn't give you a price adjustment because you were clearly aware of the requirement, inquired about it, were told that it needed to be included, had the opportunity to decline, then accepted the terms of the subcontract before you executed it. I don't know if I would win the lawsuit.

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Then one day we receive a FFP subcontract that (perhaps mistakenly) included the 52.216-7 clause. Because inclusion was patently wrong, we inquire of the prime and are told that we must execute the contract we received or else we would be considered to be nonresponsive and the prime would award to another bidder. Reluctantly we sign, even though we had no idea when we submitted our proposal to the prime that the clause would end up in our subcontract. We needed the work so we agreed. And we do intend to be bound by the contract requirements, and so we will be submitting our first ICE Model proposal and we expect to support a DCAA (or prime contractor personnel) audit thereof.

1. Since this contract, and no other, requires submission of the final billing rate proposal and audit support thereof, can I charge labor incurred in preparing and supporting directly to the contract that requires it?

2. Is my company entitled to receive an equitable adjustment to the contract price for the additional, unpriced work, imposed by the customer?

1. Yes, you can "charge" (allocate) the cost to the contract.

2. No, the clause was in the contract when you signed it, there has been no change to the contract and no breach of contract. Thus, there is no basis for entitlement to either an equitable adjustment or breach damages.

Consider: in my hypothetical, has the proposal to establish final billing rates become a contract deliverable, by virtue of the fact that it is required by that one and only contract? If not, please explain why not.

Who knows? "Contract deliverable" is not an officially defined term as far as I know. In practice, the term usually applies to an item listed in the Schedule with a prescribed delivery date and location. If were the prime and you asked me that I say, "Why do you ask?" My answer would depend on your reason for asking.

As for the clause being "slipped" into the contract after the proposal was submitted, so what? It was in there when you signed the contract. You knew that. You own it.

"Unpriced"? Nonsense. You agreed to the clause without changing your price. Therefore, it's priced.

You got no case. Next time act like you've got huevos and refuse to sign.

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"You got no case. Next time act like you've got huevos and refuse to sign."

That's funny, because yesterday I told some folks to "grow a pair" and you would have thought I'd disparaged a protected class or something.

Anyway, it was a fun thought exercise. Thanks for playing!

H2H

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Wow lot's of discussion on my thread since I last checked! Interesting.

To answer Retreadfed's question to me (#5), the majority of our subcontracts (95%) are T&M with one small CPFF starting this last fiscal year.

I wanted to add, we did pose the question to our cognizant DCAA office and their response was:

"Yes please continue to submit; also if you don't object to the audit being completed at the Prime Level you would also provide them a copy."

So we did go ahead & submit FY 14 to DCAA but we declined on submitting ICE info to our Prime as we consider that confidential.

Thanks again for all the responses.

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