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I am looking to see if anyone has dealt with a similar situation and how they went about recovering cost:

We are wrapping up pricing for a contract with a substantial amount of customer purchased material which will be drop-shipped off to our facility. As there will be no base associated with customer furnished/purchased material, we are concerned with how we will capture/recover material handling costs on this material (our OH rate will not be captured). The employees handling the items/material are indirect charging and with no base we are not sure how to capture this cost (aside from just incorporating it into the fee).

 

Has anyone else encountered this? Any recommendation for recovering costs OTHER than just increasing the fee? Any feedback is greatly appreciated!

 

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How would you track it as such if it is not getting captured in an ERP system? Would you estimate? Assign a monthly cost to charge based on some type of historical cost?

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"The employees handling the items/material are indirect charging" is why I disagree with Vern's suggestion. You've already baked the cost of those employees into your forward pricing and provisional billing rates. If you direct charge them then the government is paying twice. That's not good.

From my viewpoint, you have two options: (1) change the allocation base so that all affected contracts get a share of indirect costs that is reasonably proportionate to the benefit received, or (2) use a special allocation to ensure that the contract receives its equitable share of indirect costs.

Hope this helps.

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Canberra07, do you have a separate material handling rate or is this part of your G&A?  Also, will the contract be a cost reimbursement or T&M contract?

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You might want to read the Sikorsky COFC case on CAS 418 - selection of an allocation base for material handling that involved government property ($0 value on the books) was part of the debate. 

No. 09-844 ¶¶ 45-50; Sikorsky Aircraft Corp. v. United States, 105 Fed. Cl. 657, 674 (2012) (“Sikorsky II”)

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