Jump to content
The Wifcon Forums and Blogs

SLK Contractor

Lowering indirect rates due to cost savings - rules regarding negotiating new T&M rates with existing customers?

Recommended Posts

Due to implementing some new costs savings strategies, we have calculated we can reduce our Plant-Site OH by approx 15% and our G&A by 4%. We won't begin to realize these cost savings until starting in September-October time frame.

Going forward of course we will use our newly lowered OH & G&A to calculate new T&M rates.

But we have several existing contracts where T&M rates were built using the older, higher OH & G&A.

At what point are we obligated to inform the current customers that due to cost savings we can renegotiate lower rates this coming fall? Assuming we do HAVE to inform current customers?

I.e., we can't just say "those rates were already negotiated & agreed to, so even though we know our OH & G&A costs will be lower next year, that doesn't affect our agreed to T&M rates on existing contracts", can we?

Thanks in advance for any feedback or direction to relevant rules.

Share this post


Link to post
Share on other sites

Unless your contract has a provision in it that requires you to disclose or share savings, your rate is firm and shouldn't be re-opened. As long as you acted in accordance with TINA (if this is in fact a TINA procurement) and did not hold back information when agreeing to the rates, you should be ok in my opinion.

Would love to hear from others on this.

Patrick

Share this post


Link to post
Share on other sites

Are you making any changes to cost accounting practice? Are any of your contracts covered by CAS? If the answer is NO then you do not need to negotiate new T&M hourly billing rates on your existing contracts--unless there is a contract clause that requires establishment of annual rates.

H2H

Share this post


Link to post
Share on other sites

Are you making any changes to cost accounting practice? Are any of your contracts covered by CAS? If the answer is NO then you do not need to negotiate new T&M hourly billing rates on your existing contracts--unless there is a contract clause that requires establishment of annual rates.

H2H

H2H,

Even if it were a change in accounting practice and the contract were subject to CAS, wouldn't that only affect indirect rates applied to materials? I didn't think it would affect the hourly rate.

Share this post


Link to post
Share on other sites

As has been said before, unless there is something unusual in your contract requiring you to renegotiate your labor rates, you do not have to do anything about them. If your indirect cost rates went up, the government would not be beating a path to your door to increase the labor rates.

On the other hand, if you have material in your current T&M contracts, you would be using the new indirect cost rates when you bill for material whenever those new indirect cost rates kick in.

Share this post


Link to post
Share on other sites

H2H,

Even if it were a change in accounting practice and the contract were subject to CAS, wouldn't that only affect indirect rates applied to materials? I didn't think it would affect the hourly rate.

Don, take a look at FAR 30.6 as well as the clause 52.230-6. You will see that a cost impact analysis covers all CAS-covered contracts, regardless of type, to include T&M as well as firm, fixed-price contracts. A cost decrease to a FFP contract is treated as a cost increase for purposes of calculating the value known as "increased costs in the aggregate".

H2H

Share this post


Link to post
Share on other sites

Help:

Are you saying that CAS require a contractor under a CAS-covered contract to offer a rate reduction if it implements "cost saving strategies" that reduce its indirect cost rates?

If so, where, exactly, in 52.230-6 does it say that a contractor must make reductions to the T&M rates in a CAS-covered contract when it cuts costs as described by SLK Contractor?

Share this post


Link to post
Share on other sites

Are you making any changes to cost accounting practice? Are any of your contracts covered by CAS? If the answer is NO then you do not need to negotiate new T&M hourly billing rates on your existing contracts--unless there is a contract clause that requires establishment of annual rates.

H2H

I believe H2H already said that, if SLK's company is NOT making any changes to their accounting practices to achieve the cost savings described above, there is no need to make reductions to existing T&M rates in a CAS covered contract - "unless there is a contract clause that requires establishment of annual rates."

Share this post


Link to post
Share on other sites

Joel,

Thank you.

Vern,

No. I am not saying that.

What I am saying is that IF a contract is CAS-covered AND the contractor makes a change to its cost accounting practices (as that phrase is defined in the CAS regulations) THEN it must compute a cost impact on ALL its CAS-covered contracts and negotiate an appropriate contract price adjustment, in compliance with 52.230-6. Regardless of contract type.

H2H

Share this post


Link to post
Share on other sites

Vern,

Yes, according to the clause and FAR 30.6. BTW, they are now called "unilateral changes" instead of "voluntary changes".

H2H

Share this post


Link to post
Share on other sites

Vern,

No problem. Looking forward to seeing you in July and buying you a cup of coffee.

They have coffee in Seattle, right? I heard they do.

:-)

Share this post


Link to post
Share on other sites

Yes, but coffee was not quite what I had in mind. Keep one night open for dinner. Might be able to get Jim Nagle to meet up with us.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×