Jump to content

Final Invoice - Over/Under billing due to final indirect cost rates


LPCompliance

Recommended Posts

Hello I'm hoping to gain some understanding in the contract administration process when it comes to submitting a final invoice to the government on cost reimbursible contracts when final indirect cost rates have been settled.

In my scenario, I have cost reimbursible (CPFF) contracts that are physically complete. Final indirect cost rate for a particular fiscal year have been settled between the contractor and government. Per FAR 52.216-7(d)(5) the contractor has 120 days to submit a completion invoice to reflect settled amounts/rates. Unless final rates are equal to provisional billing rates, the rates will be adjusted and actual contract cost will more or less than prior to the final indirect rate settlement. If actual contract cost after rate adjustment is less than what the contractor has nvoiced, the contractor has "overbilled". If the actual contract cost after rate adjustment is more than what the contractor has invoiced, the contractor has "underbilled". Schedule I in the incurred cost proposal calls out these amounts.

My question is how these overbillings and underbillings are handled in the final invoice in situations where there is no additional funding on the contract. If the contractor overbilled, I expect the government wants the amount paid back to them. If the contractor underbilled, and with no funding, I'm not sure what happens.

Also what happens in the same scenario if the final indirect rates are settled for a fiscal year greater than 6 years ago?

Thanks.

Link to comment
Share on other sites

If the government receives a valid invoice the contractor gets paid; I'm pretty sure it gets paid with current year appropriations. More to the point, why wasn't sufficient funding obligated to cover the rate adjustment invoice? One purpose of the Schedule I is to put the government on notice of funding needs so that sufficient funds can be obligated.

In addition, 52.216-7 requires notification of necessary billing rate adjustments so as to prevent a significant over or under-billing situation. The FAR permits the provisional billing rates to be adjusted to the submitted, certified rates (less a decrement for historical unallowable costs found during audit). Why did this not take place?

Bottom line (in my view) -- the lack of obligated funding is not an impediment to paying a final invoice and proceeding to contract close-out.

Hope this helps.

Link to comment
Share on other sites

Thanks Help.

The reason notification of rate adjustments didn't happen is because the contractor delayed submitting an adequate indirect rate cost proposal for years. In some fiscal years an adequate proposal wasn't completed and the contractor and government agreed to a settlement. This made things quite messy because instead of decrementing the final rates based on the 16.2% decrement of costs recommended by DCAA, the government accepted the rates as submitted from the contractor's inadequate proposal and directed the contractor to write a check to the government which I imagine was distributed amongst all the flexibly priced contracts for those years.

So now here I am trying to close out their contracts using these final rates.

Link to comment
Share on other sites

Wow, that is a mess.

And yet, if the contractor wrote a check to the U.S. Treasury to settle the matter, then its final billing rates are now binding and you have to find the funds from somewhere.

The lesson here, for others who may be interested, is that a final billing rate proposal must be submitted and the government must hold the contractor accountable for compliance with 52.216-7 requirements. On the other hand, when DCAA claims a final billing rate proposal is "inadequate" (as happens with depressing frequency) then the CO must step in to mediate the dispute and decide, on behalf of the government, whether the inadequacies can be overlooked for the sake of determining obligation needs and (ultimately) moving the contract close-out process forward. Remember it is the CO and NOT DCAA that has the authority and responsibility for determining whether a contractor's proposal to establish final biling rates is or is not adequate -- and the FAR gives far more leeway than DCAA does in that determination.

Hope this helps

Link to comment
Share on other sites

H2H, the government may not have an obligation to fund the overrun. Under the Limitation of Cost clause, 52.232-20, the contractor must give the government notice of any substantial overruns that are expected. If the contractor does not provide this notice before the overrun occurs, the government generally has no obligation to fund the overrun. The exception is if the contractor did not and could not have known of the overrun in advance so that it was impossible for the contractor to give the required notice. In regard to indirect cost rates, contractors are expected to have systems in place to monitor rates so that they can give the government the required notice. This gets complicated where a contract ends early in a contractor's fiscal year, but events happen later in the year that cause the contractor's rates to increase above what was anticipated. Obviously, the contractor could not give the required notice in this situation.

Link to comment
Share on other sites

Retreadfed,

Yes, that's true in general but I suspect not in this specific case, where the government agreed to accept payment via check. On the other hand, now we're veering into legal stuff, including the doctrine of full accord and satisfaction. So you may be right. I would think that government acceptance of payment PLUS a subsequent (i.e., after then deal was made) refusal to pay a final invoice based on a failure to submit LoC/LoF notification would not be perceived as being entirely above board, since to me it would look a bit duplicitious. But I'm no lawyer.

*Shrug*

I still stand by my answer. The government was made whole for ALL affected contracts when it accepted the check from the contractor. To complete the deal, the government must now come up with the funding to pay the final invoice for each contract.

H2H

Link to comment
Share on other sites

LCP, assuming your cost reimbursement contracts have FAR 52.216-7, 52.232-20 and perhaps 52.232-22 in them, pursuant to those clauses, on close-out vouchers, the contractor is only permitted to bill the government for costs up to the estimated cost of the contract, plus any fee that is due. The fact that the contractor's actual costs may exceed the estimated cost of the contract does not entitle the contractor to recover those costs. FAR 52.232-20 specifically states that any costs incurred in excess of the estimated cos of the contract are at the contractor's risk. The fact that the government asked for and received a check for overbillings is irrelevant in determining the contractor's right to receive payment for overrun costs.

If the contractor did not give the government the notice required by 52.232-20 prior to incurring the overrun, the contractor may have forfeited its right to recover those costs. For example, see http://www.asbca.mil/Decisions/2007/55385_55386.pdf.

Link to comment
Share on other sites

The fact that the government asked for and received a check for overbillings is irrelevant in determining the contractor's right to receive payment for overrun costs.

Retreadfed,

You are asserting a legal position without any support for that position. Moreover, the ASBCA decision you link to contains the following statement:

"The rule is well established that a CO abuses his discretion under the LOC clause to refuse to fund an overrun, when the contractor, through no fault or inadequacy on its part (including his accounting procedures), has no reason to believe, during performance, that a cost overrun will occur and the CO’s sole ground for refusal is the contractor’s failure to give proper notice of the overrun."

There are facts not in evidence here that may sway the CO's decision one way or the other. Neither one of us knows those facts, so making strong assertions and legal conclusions seems to me to be ... less than optimal.

If I'm right and the Government waived its right to assert further defenses when it accepted the contractor's check, then following your advice would be a mistake. I'm not saying you are wrong in your position. I'm saying you are wrong to be so certain that you understand the facts of the matter and thus are applying the legal doctrine(s) correctly.

*Shrug*

Free advice: worth every penny paid.

H2H

Link to comment
Share on other sites

H2H, go back to my post #5 where you will see that I noted the exception to the no obligation rule that you cited from the ASBCA decision. Until the contractor can show that it did not know and could not know of the overrun during contract performance, the government has no obligation to pay overrun costs. That is fundamental contract administration. As for asking for a check for overbilling, that means nothing in regard to the government's obligation to fund an overrun. That is merely how a cost reimbursement contract operates. A contractor is only entitled to be reimbursed for its allowable costs up to the estimated cost of the contract. If its actual allowable costs are less than what was billed, it owes the government money back. If its actual allowable costs exceed the estimated cost of the contract, and the contractor did not inform the government of the overrun before it occurred, the government is under no obligation to reimburse the contractor for the overrun costs. In this regard, your position results in the act of asking for and accepting a check for overbilling, overriding the terms of 52.232-20. What basis do you have for taking this position?

I admit that we do not have all the facts, but I have given LCP the standards to be applied in this situation, including what to do if the contractor gave proper notice or if the contractor did not. This is not getting into legal interpretations, but basic contract administration.

Link to comment
Share on other sites

Thanks for everyone's feedback. I do appreciate all of the discussions.

However just to muddy the waters a bit :)...

I have one contract in question where the costs did not exceed the original contract agreement. For this example, let's just say the contractor was $50K under the contract cost ceiling.

After rates were agreed upon, plugging those final rates into the direct costs vs. what rates where used provisionally in billings, the contractor underbilled. However the fiscal year in question happened so long ago that the government has deobligated the $50K in funding remaining because the funds were going to expire and go back to the Treasury dept. So in the scenario, can the contractor invoice for the unbilled portion?

My thoughts are that the contractor should have known about the underbilling and when the government tried to mod the contract to deobligate funding they should have taken action then to report it.

Link to comment
Share on other sites

LPC, didn't the government coordinate with the contractor before deobligating the funds? I have seen several occasions where the government unilaterally deobligates funds only to find out that the contractor's allowable costs are within the estimated cost of the contract, but exceed the amount funded on the contract. This is a screw up on the government's part not the contractor.

When the funds were deobligated, did the government change the estimated cost of the contract and did the contractor agree to this reduction? The key is what is the estimated cost of the contract? If the contractor is within that estimate, it is entitled to recover its allowable costs. If the government deobligated funds and did not change the estimated cost of the contract to match the amount of funds obligated, there may be an Anti-Deficiency Act violation.

If the funds had remained obligated and the appropriation was canceled, the government could have used funds currently available for obligation to pay for the underbilling within the estimated cost.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...