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Can someone help clarify contract language and how that applies to markup?  The language says "Trade contractor markup for Overhead is 10% and 4% for Profit.  Trade contractor shall be limited to a 5% fee on its lower tier contractors." 

So if I am the trade contractor and I have a proposal from a lower tier contractor for materials and labor totaling $250,000.  How do I calculate my markup?  Is it +5% ($12,500.00).  So now I am at $262,500 and add 10% for Overhead ($26,250.00) totaling $288,750.  Now do I add the 4% ($11,500.00) so my final proposal is $300,250.00?  So my markup total is $50,250?

Or is there another way to interpret the language?  Is this a standard for federal contracts to limit pass through costs?

Any help would be greatly appreciated. 

Thanks.

 

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In order to put this situation into perspective, you need to provide more information and context. Is this an existing (construction?) contract that was negotiated? Or was it bid? Is this language that applies to pricing modifications to the existing contract?  Or are you negotiating a new contract?  Is the contract FFP or cost reimbursement? 

If an existing negotiated contract, I would think that the situation has already arisen during the initial negotiations. But the context of the language and actual pricing process is necessary. 

Also- is "fee" defined anywhere ?  Fee might cover all markups to a subcontract price or it might refer to " profit".  Noting that the terms "overhead"and "profit" are distinguished from "fee" might be an indication that fee refers to total markup on subcontracts but you need to clearly describe the scenario. 

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If there is no existing contract, you need to contact the government and ask, as a clarification, what the language means. 

Nobody here can clarify apparently ambiguous contract language without knowing the context of the situation.  We don't even know if this is a federal contract  

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Surapak,

Your question cannot be answered because we don't know how you apply overhead. Some contractors apply overhead to labor only, others have different methods. We don't know if you normally and consistently apply overhead to your subcontractor's costs.

Hope this helps.

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H2H, I am under the impression that this is owner generated prescriptive language in a solicitation or contract, regardless of whatever the contractor's normal allocation/accounting method may be.  I may be wrong. 

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Joel, that's the point of my post. You may be right; you may be wrong. Nobody knows.

This is a classic opportunity for Surapak and his company to hire somebody as a consultant, somebody who can review the solicitation and ask intelligent questions about how the company has calculated its markup for past projects, and then advise the company how to tailor its practices to comply with the current requirements (if tailoring is even necessary).

Instead of spending a couple thousand bucks on somebody who can give concrete advice within the time constraints of the solicitation, Surapak has chosen to come here in hopes of getting the same advice for free. That's not a bad approach so long as there is engagement and clarifying questions are answered. The problem is that Surapak is not engaging and clarifying questions are not being answered, so the time between question and advice is stretching out ... at exactly the wrong time because the company needs advice now in order to prepare its cost proposal.

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"Like" I agree with you, Help.

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21 hours ago, Surapak said:

The language says "Trade contractor markup for Overhead is 10% and 4% for Profit.  Trade contractor shall be limited to a 5% fee on its lower tier contractors."

Now is not the time to hire a consultant. Apparently, Surapak knows what his contract says, but not what it means. So the first thing to be done is to figure out what those two sentences mean or what he wants them to mean. For instance, what do "overhead," "profit," and "fee" mean? Does "fee" mean a combination of "overhead" and "profit," or does it mean something else? To what numbers are the percentages to be applied?

Why has Surapak come here and asked us to tell him what they mean? It's his contract. If he doesn't know, how would we know? Those sentences are not any standard language that I have seen before and that have an established interpretation.

What did Surapak's company think those sentences meant when they signed the contract? What do they think they mean now? What meaning would work best for them? What does the other party think they mean?

Surapak should ask himself what he thinks those sentences mean or what he wants them to mean and then see if he can make that interpretation stick with the other party. If the other party won't agree, he must determine the basis for the disagreement, then either accede or dispute.

Surapak should not provide more information to us or answer any questions. Surapak should go away and do some thinking.

That was his first post. I wonder if he was member no. 4,000.

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Oh well. He/she may be the one who got 50 bucks for signing up to ask a vague question. Heh heh. 

EDIT: Surapak, please don't take it personally but I'll offer some advice. You have asked multiple questions here and no doubt expect folks to respond to your questions. Please realize that often questioners don't provide the full context necessary for someone to answer them. The original poster should stay engaged in the thread and respond to questions or requests for further clarification. It is aggravating to me when a person "drops off" a question and then ignores those who take the time to engage, perhaps hoping that someone will simply stumble upon the answer that they want to hear.  So don't be offended as the thread proceeds and responders' posts get testier. 

Edited by joel hoffman

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21 hours ago, Surapak said:

How do I calculate my markup? 

That was his question. It wasn't vague. It was quite clear. The problem was that it is unanswerable on the basis of the two sentences he quoted from the contract, and he gave us no other basis for an answer. One can only speculate about what they mean in terms of how to calculate his markup. Why speculate?

Perhaps his presupposition was that the two sentences are standard government contract language and that their meaning is known to some. As far as I know, those two sentences are not standard.

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Vern,

I disagree with your disagreement with my advice. You seem to want Surapak to go away and think about things. That's great advice for personal development. In the long run it's the right advice for anybody, from contractor to contracting officer, who wants to advance in this bizarro world we call "government contracting." But right now, it's the wrong advice for Surapak.

Surapak is apparently a contractor seeking to submit a proposal to a government customer. He needs help, as evidenced by his post here. He needs help now because the RFP clock is ticking. If my experience is anything to go on, his company can't afford for him to take time for personal development in order to come to a conclusion--one that may or may not be correct--about how to respond to the RFP requirements. His company needs solid answers and a path forward, and they need it now. If Surapak cannot provide solid answers and a path forward, then the company needs to obtain them from another source; typically that's a consultant. The price for guessing about what the RFP instructions require, or taking too long to reach a valid conclusion, may well be the loss of the opportunity.

That's where I'm coming from, at any rate. By the way, I recently landed a new consulting client, who waited until his company's incurred cost audit was just about complete before engaging me to help him understand the differences between what the IRS allows for tax deduction purposes and what FAR Part 31 allows for cost-reimbursement purposes. Despite performing on a cost-reimbursement subcontract for several years, he had never been aware of the distinctions. I really wish he had engaged me about 3 years ago! I admit that situation may be coloring my response to Surapak.

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7 hours ago, Vern Edwards said:

That was his question. It wasn't vague. It was quite clear. The problem was that it is unanswerable on the basis of the two sentences he quoted from the contract, and he gave us no other basis for an answer.

"He" asked numerous questions with little or no basis for answers. He doesn't know what composes " fee" and neither do we, given that specific scenario. 

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help:

Surapak quoted two sentences--two short sentences--and asked how to interpret them. If his company is considering submitting a proposal and they can't figure out how to call the CO and ask for an interpretation of two sentences, then they need a full time contracting person, not a consultant. But if I were still in the consulting business, then I, too, would encourage them to hire a consultant. ^_^

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Surapak,

You should carefully choose the best answer in this thread. Confidently present that answer to your leadership as the way forward. If anyone questions your analysis, explain how you quoted the two sentences to this online message board, and then selected the superior answer.

Make sure you get full credit for being innovative by selling this method as "cost-effective crowdsourcing in a collaborative, online environment."  PepeTheFrog thinks you might get a promotion or raise out of this.

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I apologize if I hadn't responded.  I thought my email would update me when there were responses.  As this was my first time on this forum I'm not aware of the reply protocol, very sorry.  Yes, I had hoped it might be standard language for a F.A.R. pricing guidelines that someone had run into before.  We have done a number of GSA projects, but have never run into this language.  Thank you for your time and your replies.

Best,

Surapak

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On ‎6‎/‎20‎/‎2016 at 7:24 AM, PepeTheFrog said:

Surapak,

You should carefully choose the best answer in this thread. Confidently present that answer to your leadership as the way forward. If anyone questions your analysis, explain how you quoted the two sentences to this online message board, and then selected the superior answer.

Make sure you get full credit for being innovative by selling this method as "cost-effective crowdsourcing in a collaborative, online environment."  PepeTheFrog thinks you might get a promotion or raise out of this.

Awesome! :D

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