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CHILINVLN

FFP - Projected/Budgeted Hours, and Projected Costs

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I searched this topic extensively and I could only find bits and pieces, but nothing to answer my question overall - so I'm hoping for some additional insight.

Pertaining to a FFP contract, once awarded, the estimated hours our company moves into our timekeeping system. So, if we estimate 1920HRS per FTE, we would move that over and allow each employee 1920 hours on contract. However, for those employees who work a few extra hours here and there to get the job done, or those who are motivated to go the extra mile, they're likely going to exceed the 1920 hours. If/when that happens, they will (towards then end of the PoP), receive a notification that they have exceeded the total # of hours allocated. As a result, the hours will need to be adjusted up with a higher ceiling so that they can continue billing.

In previous engagements, I've never seen a company place a ceiling on the total # of hours an employee can bill on a FFP contract, they only draw the line at the end of the PoP.

My understanding, it should not matter, as the labor rate is diluted. However, others say that projected profitability is affected if we thought we would accomplish the job with X hours and then it ends up taking Y hours. Labor cost is not necessarily affected because it's a salary position, but projected cost of project is affected because we thought it would be accomplished with fewer hours. It boils down to "budgeted hours".

I wanted some other input on this topic.

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Is your question wholly internal to your company and your own accouting system?

Or is your question somehow related to the Government?

For example, is the "notification that they have exceeded the total # of hours allocated" wholly within your company? Or does the Government send the notification?

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Two questions --

1. If the employees' "overrun" hours are not charged to the FFP contract (regardless of reason including expiration of the PoP) -- then where do they go?

2. Does the estimating system provide that actual hours incurred on similar work is the basis of future cost estimates?

Thanks

H2H

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Adding to H2H's questions, are any of the employees working on other projects that are subject to the CAS or the cost principles in FAR Part 31? Also, are any of the contracts FP-LOE?

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Answering the above questions.

1. The only other option would be an unbillable charge code directly associated to the project, or the hours could be placed on OH. This is not what's currently being done, as the additional hours are in fact being placed against the FFP project. Just saying what the alternative would be that I know of.

2. I don't believe that it does, though, would need to confirm whether that's true or not.

The employees working on the FFP project are 100% dedicated to that project and are not working on other projects. None of the subject contracts are FFP-LOE.

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First, the work authorization system needs to be reprogrammed to account for the fact that certain employees work uncompensated overtime (UCOT), hours that the total time timekeeping system records. The "average" number of annual labor hours may be 1,920, but a weighting factor needs to be applied to account for the UCOT being worked.

Second, when certain employees "overrun" their work authorization labor hour budgets, the only acceptable answer is to let them keep charging what they are working on. Anything else is just asking for trouble. The notion that there are "unbillable" labor hours on an FFP contract is basically nonsense, though I get there are some revenue recognition issues to be worked out. (That's what a rigorous periodic Estimate-to-Complete is for.) Charging the labor hours to overhead is just 100% wrong, unless you're looking for a subpoena in the near future.

Basically, the company has a problem with UCOT and it needs to deal with it. The diluted labor rate is one method, but it isn't always the right method, as this situation shows. There are other approaches and those other approaches are identified in the DCAA Contract Audit Manual.

Hope this helps

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Thanks for the feedback. I will look into the UCOT. Our salary staff don't receive overtime compensation, so I'm not sure what I'm looking for there, but I'm happy to ask.

Regarding the OH comment, while it's not currently done, I was curious to whether or not it would be acceptable in cases like:

1. Government is shutdown, staff are considered non-essential, couldn't I have them bill to an direct/unallowable charge code on a FFP contract? Wouldn't that be better than placing on G&A? Or, is that some type of violation? I've seen this done elsewhere, which is why I ask.

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CHILINVLN,

Uncompensated Overtime (UCOT) is what happens when salaried exempt personnel record labor hours in excess of their standard workweek. (I.e., in excess of 8 hours per day or 40 hours per week, depending on what state they are in.) That's the root source of the issue here.

You've used the term "bill" twice now; you have to understand that's not the right term. Employees do not "bill" their labor hours; they record their labor hours based on what they are working on, and then those labor hours are used to distribute their salary and/or wages to those cost objectives. We often use the term "charge" because the hours carry a cost, but we really mean "record"; the terms are fairly interchangeable in common usage -- but "bill" is not used.

Employees should only record labor hours based on what they are doing. They should record direct labor hours (to a customer contract) when they are working on that contract; otherwise not. When they are not working on a customer contract, they should "charge" other cost objectives, including overhead if they are sitting around waiting for something to do. (This happens, for example, when employees are awaiting security clearances.) Whether the employees continue to charge the contract (and whether those charges are reimbursable), or charge overhead or fringe benefits or G&A, is up to the individual contractor to decide. There are pros and cons associated with that decision and there is no "one size fits all" answer.

To your question, this is not an uncommon event -- e.g., government shutdown because of weather. Most contractors know how to handle the situation and there is some guidance out there on the internet for you to review in order to establish this company's policy position (and associated procedures) on the topic.

Hope this helps.

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As you stated, "Whether the employees continue to charge the contract, or charge OH, or G&A, is up to the individual contractor to decide. There are pros and cons associated with that decision and there is no "one size fits all" answer.

That's exactly the foundation of my question and I would like to understand what those pros and cons are so I can have additional information on the topic.

I apologize for using "bill", you're correct, I'm referring to charging to the contract.

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"I would like to understand what those pros and cons are so I can have additional information on the topic."

Respectfully, you have gotten the best answer I have to give on a public forum. Others may offer additional information and that's their call to make. As for me, if you would like to engage me to provide consulting assistance and advice, please send me a private mesage. I have assisted several contractors (some quite large) with the issue of UCOT and I normally get paid for doing so.

H2H

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H2H, why do you say the company has a problem with UCOT? Based on what we have been told, all the employees are charging their time to one cost objective. The cost of their labor is not distributed to other cost objectives (how this is possible when the employee is on leave, training, etc. I don't know but that is what we have been told). Based on the facts given us, I do not see any issue with UCOT on the present contract(s), while there may be an estimating system issue with future contracts.

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Retreadfed --

From the original post --

"... if we estimate 1920HRS per FTE, we would move that over and allow each employee 1920 hours on contract. However, for those employees who work a few extra hours here and there to get the job done, or those who are motivated to go the extra mile, they're likely going to exceed the 1920 hours. ... My understanding, it should not matter, as the labor rate is diluted. "

The poster is decribing the impact of UCOT in a total time environment.

H2H

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To further elaborate, there are other charge codes that are utilized by the staff. PTO, Corporate Training, etc. There is a lengthy list of G&A codes that are available for that purpose, and those are used when appropriate.

My point and question is specific to the time spent on a FFP contract in excess of a scheduled 8hr day for a salary-exempt employee and what affect that additional time has on projected budgets, etc.

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Was this provision applicable on your contract?

The contracting officer shall insert the provision at 52.237-10, Identification of Uncompensated Overtime, in all solicitations valued above the simplified acquisition threshold, for professional or technical services to be acquired on the basis of the number of hours to be provided.

37.115 -- Uncompensated Overtime. 37.115-1 -- Scope.

The policies in this section are based on Section 834 of Public Law 101-510 (10 U.S.C. 2331).

37.115-2 -- General Policy.

(a) Use of uncompensated overtime is not encouraged.

(B ) When professional or technical services are acquired on the basis of the number of hours to be provided, rather than on the task to be performed, the solicitation shall require offerors to identify uncompensated overtime hours and the uncompensated overtime rate for direct charge Fair Labor Standards Act -- exempt personnel included in their proposals and subcontractor proposals. This includes uncompensated overtime hours that are in indirect cost pools for personnel whose regular hours are normally charged direct.

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JMG,

I believe you quoted the FAR and not any solicitation provision or contract clause. Regardless, 52.237-10 is a solicitation provision and not a contract clause. It would not apply to labor hours recorded after award.

H2H

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JMG,

I believe you quoted the FAR and not any solicitation provision or contract clause. Regardless, 52.237-10 is a solicitation provision and not a contract clause. It would not apply to labor hours recorded after award.

H2H

I asked the question for a reason. It would be applicable if it was a provision. Assuming 52.237-10 is a requirement in future solicitations from the buying agency, then the contractor would be required to account for these hours for estimating purposes. Yes, I quoted the prescription and the provision is new as of March 2015.

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JMG, what do you mean by "these hours"? Are you referring to hours used in performing a previous contract or hours anticipated to be used in performing a future contract? 52.237-10 only applies to the latter. Further, note that the provision does not require a contractor to price a proposal in any way. All it does is require potential offerors to provide information to the government.

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