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EE working half time On-Site, half-time Contractor-Site for 1.5 mos acceptable?

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Guest Vern Edwards

Help:

I hope this doesn't sound dumb, but if the employee works both on site and off site, can the employee's labor be included in more than one allocation base? For instance, in the base for on-site indirects and in a base for off-site indirects?

Vern

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H2H, I'm glad you brought up CAS 418. It says "Pooled costs shall be allocated to cost objectives in reasonable proportion to the beneficial or causal relationship of the pooled costs to cost objectives." You have already said that there is no causal or beneficial relationship between the cost of providing an employee an office and a contract (cost objective) where the government provides that employee an office. If that is the case, how can you burden that employee's labor with an indirect cost rate that includes the cost of the office without being in non-compliance with 418 (assuming the contract is CAS covered)? If the contract is not CAS covered, you have the same issue with FAR 31.201-4.

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Vern,

What you described is called "fragmenting the base". It's a problem. Assuming the employee's "office" is maintained, then 100% of the employee's labor must go into the allocation base of the cost pool that contains the cost of the facilities. I don't know how to explain it any more clearly than that.

Retreadfed,

It is the labor that receives the indirect cost burden, not the contract. The contract is charged labor and the labor carries with it the appropriate burden. The theory is that the relationship is between the labor and the contract. In other words, CAS 418 says that you can use direct labor as your allocation base because there is a relationship between the indirect costs in the pool and the direct labor of the employees, and when labor is charged to contracts that is a reasonable representation of the benefits provided by the indirect costs to the contract. I.e., the more labor, the more indirect costs are absorbed.

A contractor does not have to have two indirect cost pools (one with facilities and one without facilities) but the FAR says that structure may be appropriate. If the contractor elects to have two cost pools, then it has to define each pool's allocation base and follow that definition consistently. The definition of one pool is "direct labor for employees for whom we, the contractor, provide facilities," and the definition of the other pool is "direct labor for employees for whom our customer provides facilities." Once those bases are defined, you cannot then split the bases.

At this point, either I've made my case or I haven't.

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H2H, your next to last paragraph is the point that I have been driving at. The answer to the OP's question depends on what their policy is for accounting for facility costs. Thus, if their policy is to allocate facility costs as described in your last paragraph, the employee could split time between the two locations when performing under the two contracts and have the off-site rate applied to one contract and the on-site rate applied to labor under the other contract.

Considering DCAA's penchant forf squeezing contractors, I suspect that DCAA would question costs if a contractor attempted to change the way it allocated facility costs to a contract when an employee is working part time on-site at a government facility and part time at the contractor facility with the change resulting in more cost being allocated to the on-site contract.

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Retreaded, I agree with you in principle. However, if we are discussing the 1 1/2 month overlap period, I don't think that the difference in cost would attract the attention of the DCAA. It might cost more to take any action than the difference would amount to.

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Guest Vern Edwards

A contractor does not have to have two indirect cost pools (one with facilities and one without facilities) but the FAR says that structure may be appropriate. If the contractor elects to have two cost pools, then it has to define each pool's allocation base and follow that definition consistently. The definition of one pool is "direct labor for employees for whom we, the contractor, provide facilities," and the definition of the other pool is "direct labor for employees for whom our customer provides facilities." Once those bases are defined, you cannot then split the bases.

H2H, your next to last paragraph is the point that I have been driving at. The answer to the OP's question depends on what their policy is for accounting for facility costs. Thus, if their policy is to allocate facility costs as described in your last paragraph, the employee could split time between the two locations when performing under the two contracts and have the off-site rate applied to one contract and the on-site rate applied to labor under the other contract.

Considering DCAA's penchant forf squeezing contractors, I suspect that DCAA would question costs if a contractor attempted to change the way it allocated facility costs to a contract when an employee is working part time on-site at a government facility and part time at the contractor facility with the change resulting in more cost being allocated to the on-site contract.

Maybe the issue is the definition of "fragment" ("split"). If the contractor is charging four hours direct to on-site, with its Pool A/Base A, and four hours direct to off-site, with its Pool B/Base B, maybe that kind of charging/allocating does not constitute "fragmenting." Maybe "fragment" means something else.

Is there any published guidance that provides a definition, explanation, or example of fragmenting a base? FAR 31.203 is not helpful in this regard.

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Vern, whether you consider it helpful, there is some discussion of this in Preamble A to CAS 405, paragraph 4. Also, see Martin Marietta, ASBCA No. 35895 decided June 5, 1992, reversed in part in 13 F.3d 1563. This latter decision also adresses H2H's statements that indirect costs are allocated to base costs.

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