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Michael11

Managing vendor costs going from base to option period

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Does anyone have any guidance or best practices for how to properly manage vendor and/or subcontract costs as you near the end of a base period and enter an option period? The SOW is essentially the exact same for both periods - it's just a continuation of services. Any costs incurred during the base period would go towards delivery of the ultimate campaign which would end at the end of OY 1. It's possible we may find ourselves in an underrun scenario under the base period which has it's own pool of funds and can't be extended or carried over past the base period end date. Is it permissible to incur costs during the base period for services that may be delivered in both the base and option periods? These costs would technically be 'in scope' for either period. I want to give the project team clear guidance on what can and cannot be paid with base period funds versus waiting until the OY starts.

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Michael11,

The base period has a period of performance, right? And the option year also has a period of performance, right? It seems to me that costs incurred during the Base Year PoP, whether by the prime or a lower-tier supplier, have to be charged to the Base Year. I don't see how you can move costs from one PoP to another PoP.

Now if your question is, can you accelerate performance, moving work that could have been performed in the Option Year into the Base Period -- for work that is legitimately in the Base Period SOW -- then my answer is "maybe" based on what your contract says. (And I'm assuming it's cost-type.) Are there any incentives that might be affected? Is your government customer okay with this, or is somebody maybe expecting to deobligate funds to cover needs elsewhere? Do you have Earned Value issues to worry about?

And finally, are you sure you have a legitimate underrun, when all lagging costs and indirect rate adjustments are factored-in?

I'm thinking the prudent course of action is to let the underrun be the underrun, and get credit for providing quality while not blowing the budget. It should lead to a good CPARS rating, which is worth a lot these days. Why be the contractor that has to spend every last dime of taxpayer funds? But if you must push the funding envelope, you may be able to.

Hope this helps.

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Thanks, Help. Your post is pretty spot on. Yes, it's a cost type agreement. It's still a little early to determine whether a legitimate underrun will occur which is why we're planning. It would not affect any incentives to my knowledge. We wouldn't necessarily be accelerating performance but we would be cognizant of when certain vendor costs hit our books as they relate to the base POP. If the SOW has, say, military community outreach as an activity. It's written the exact same way for both the base and option period. If activities we may have originally planned internally to occur during the option period just so happen to fall under the base period, assuming the rest of the contract requirements are met, these costs would still be allowable under the base, yes?

RE: your feedback about not blowing the budget or pushing the envelop the spend every dime - I can only speak to my experience but it's my opinion that the COR/CO largely want just as much for the contractor to spend every dime (assuming they're adequately performing the requirement and doing a good job). If a large balance remained at the end of the contract, it reflected poorly on somebody. The COR developed a faulty estimate. The CO wasn't keeping a closely eye to ensure all funds would be spent (this was tasked to them, sort of). If no funds were left, that was one less thing to closeout the contract (deobligate funds). And in my experience, the COR would do whatever they could to ensure the $ was spent towards their program because they had to make the best use of those funds. Not saying I agree with any of this, but I never got the sense that if you left money on the table, as a contractor, you were in store for a better CPARS rating.

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Michael11--

You wrote, "... I never got the sense that if you left money on the table, as a contractor, you were in store for a better CPARS rating."

Maybe you are correct. Maybe nobody gets any brownie points for offering funds back for deobligation while meeting all SOW requirements.

Let's see what others have to say about this -- others who deal with this issue every day. There are literally hundreds of Government contracting folks who read this forum. Would any of them care to offer an opinion on the issue?

H2H

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Guest Vern Edwards

If the contract funding comes from an annual appropriation, you cannot use left-over funds appropriated for the needs of one one-year period for the needs of a second one-year period. That would violate the GAO's bonafide needs rule. And that is why they want all the money spent in the first year.

When buying O&M type facility support services, the government is using annual funding. It has a budget to cover everything that needs doing at a facility in the course of a year. Funds are appropriated for each year and can be used only for the needs of that year.

It's a fiction that the government can specify requirements for such services in detail, since the services rendered are in large measure a response to what happens in the course of time, which is not entirely predictable. There is always more that needs doing than the government anticipated when it wrote it's "PWS." And besides, it did not get all the money it asked for.

Thus, the requirements manager wants the money spent efficiently, to get the most bang for the buck that he can, but he has no interest in spending less than his budget, because it's usually not enough for all the things that need doing. To him, the money is a one-time, expiring resource. Spending it is not the same as wasting it; not spending it is not the same as saving it.

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The people (and Vern) have spoken.

H2H

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Help I wasn't trying to give you a hard time. I figured my comment would get a rise out of somebody. Although I think Vern's response actually supports my previous statement that leaving $ on the table does not set you up for a better CPARS rating. He eloquently explained that a requirements manager dare not issue an award and not do everything he or she can to get the most bang for Uncle Sam's buck. If the $ is spent, it's going towards a good cause (or should be). And there's no incentive to spend less than the budget (because what sense would that make?). On the other hand, as a contractor, you know that every contract/task order could be your last, so you're going to do everything you can to protect your financial resources. If a contractor is willing to leave a bunch of $ on the table, they either already made a boat load or couldn't figure out how to legally spend it down.

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Guest Vern Edwards
Is it permissible to incur costs during the base period for services that may be delivered in both the base and option periods? These costs would technically be 'in scope' for either period.

You asked a question to which the answer is very complex. When Congress makes an appropriation of funds with a time period for obligation, the funds may only be used to fulfill the needs of that time period. Now, what constitutes a need of a time period is not necessarily determined by when the need will be fulfilled and the money actually expended.

Go to the GAO website and find the publication known as "The Red Book." Look in Vol. 1, Ch. 5, and read Section B, "The Bona Fide Needs Rule."

http://gao.gov/assets/210/202437.pdf

Reading that should give you the answer to the above question, but you'll have to read slowly and carefully.

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