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G&A allowable on FFP Change Order?

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Competitively awarded contract for services with FFP CLIN (covering the majority of the work scope), a T&M CLIN for a small portion of the work, CPAF CLIN for another small portion of the work, and an IDIQ CLIN with the ability to place FFP, T&M or CPAF task orders on.  (To date the IDIQ has not been utilized.) No cost detail was required in the award process for the T&M rates or cost type work.  (Both CLINS were so small in relation to the FFP work.  The CPAF CLIN values were provided as plug numbers for proposal purposes based on history.)  Awarded contractor is an LLC partnership formed just for this procurement so this contract is the only final cost objective with only the distinct CLINS as intermediary cost objectives.  Change order is issued to expand base work under the FFP CLIN.  Contractor submits FAR Table II compliant proposal to support adjustment of the FFP CLIN including G&A.  In support of the change order proposal, the contractor provided their G&A pool and base detail.  The G&A pool is minimal including a modicum of corporate flow-down G&A from the partnerships corporate parents as well as a few contractor salaries and a few other G&A type expenses.  Is the government cost price analyst correct in asserting that G&A should not be included because the increased work does not result in increased G&A pool base and under the assumption that the original competitive proposal would have been priced to absorb forecasted G&A? 

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I don't think the cost analyst has enough information to make that assertion. So my answer is no, the cost analyst is not correct. I believe the contractor needs to provide the cost detail that they used in their original proposal so the analyst can compare it to the change order cost proposal and see exactly what changed and why and then decide if the changes are acceptable.

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1 hour ago, Username said:

Is the government cost price analyst correct in asserting that G&A should not be included because the increased work does not result in increased G&A pool base and under the assumption that the original competitive proposal would have been priced to absorb forecasted G&A? 

No.

The contractor's original proposal was priced to include expected G&A associated with the original SOW. Then the contract was changed. The contractor is entitled to be compensated for the cost of the changed work. Total cost includes G&A (see FAR 31 definition of total cost).

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2 hours ago, Username said:

Competitively awarded contract for services with FFP CLIN (covering the majority of the work scope), a T&M CLIN for a small portion of the work, CPAF CLIN for another small portion of the work, and an IDIQ CLIN with the ability to place FFP, T&M or CPAF task orders on.  (To date the IDIQ has not been utilized.) No cost detail was required in the award process for the T&M rates or cost type work.  (Both CLINS were so small in relation to the FFP work.  The CPAF CLIN values were provided as plug numbers for proposal purposes based on history.)  Awarded contractor is an LLC partnership formed just for this procurement so this contract is the only final cost objective with only the distinct CLINS as intermediary cost objectives.  Change order is issued to expand base work under the FFP CLIN.  Contractor submits FAR Table II compliant proposal to support adjustment of the FFP CLIN including G&A.  In support of the change order proposal, the contractor provided their G&A pool and base detail.  The G&A pool is minimal including a modicum of corporate flow-down G&A from the partnerships corporate parents as well as a few contractor salaries and a few other G&A type expenses.  Is the government cost price analyst correct in asserting that G&A should not be included because the increased work does not result in increased G&A pool base and under the assumption that the original competitive proposal would have been priced to absorb forecasted G&A? 

I disagree with the cost analyst.  I think that the G&A pool may not be correct if this is a joint venture with one contract as the final cost objective.

I think that the combined, devolved corporate G&A rate is appropriate and applicable on mods for added or deleted FFP work.  

The other expenses would seem to be direct costs to the contract but would have to be analyzed as to their behavior. 

I might question the "few contractor salaries" under G&A .  Should those not be direct costs to the contract?  Are they variable costs?  Do they vary with the amount of work ( e.g., not full time devoted to the contract)?  Are they fixed  (time related) costs?  

If there is but one contract, those "few other G&A type expenses" may more appropriately be classified as direct costs to the contract, not G&A.  Then you would analyze the behavior of the costs with respect to additional or deleted work, (are they fixed, variable, semi-variable, one time, etc.?).  

I believe that any costs determined to be direct should be removed from the G&A pool and included in the direct cost base for a calculation of the G & A rate, assuming that the base is "cost of sales" or "total cost input". 

 

 

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Joel,

I wonder if the OP used the correct terminology re: "LLC partnership" which is a seeming contradiction in terms. I wonder if Joint Venture would have been the more correct terminology. If so, the rules on JV's are complicated and some of your points, while valid in a general sense, would not be correct if applied to a JV.

Hope this helps.

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As I see it, the G&A expense pool dollars remained unchanged even though the G&A base dollars grew with the addition of the new work.

So for the original bid, let’s assume for illustration purposes only, that the base was $1,000 and the G&A expense was $100 for a total cost of $1,100 (a G&A rate of 10% 100/1000). The new work added another $1,000 to the base but added $0 to G&A expense (for an overall G&A rate of 5% 100/2000). Does the contractor say the new work should be valued at $1,000 plus $50 G$A (5%) for an added new work total of $1,050 and the original work value should stay the same $1,100 (10% G&A)?  Or should the original work be revised down to $1,050 (5% G&A)? Or should the original work stay the same $1,100 (10% G&A) and the new work be added at $1000 (0% incremental G&A)?

Scenario 1: $1,100 + $1,050 = $2,150

Scenario 2: $1,050 + $1,050 = $2,100

Scenario 3: $1,100 + $1,000 = $2,100

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1 hour ago, here_2_help said:

Joel,

I wonder if the OP used the correct terminology re: "LLC partnership" which is a seeming contradiction in terms. I wonder if Joint Venture would have been the more correct terminology. If so, the rules on JV's are complicated and some of your points, while valid in a general sense, would not be correct if applied to a JV.

Hope this helps.

H2H,  I do have second thoughts about having said : 

"I believe that any costs determined to be direct should be removed from the G&A pool and included in the direct cost base for a calculation of the G & A rate, assuming that the base is "cost of sales" or "total cost input". "

Please disregard that statement.  

I think that this is probably a single project [JV?] arrangement.

General and Administrive costs are costs that cannot be identified to a single projectFrom my experience, G&A then consists of a factored combination of the partners' applicable G&A rates, depending upon their individual share of the agreement. G&A is generally allowable and allocable for either an increase or a deduct change, right? 

The other costs identified appear to be costs to the single program, thus cannot be G&A costs. They are direct costs to the contract and may or may not be applicable to a FFP change modification. Depends upon the nature and behavior of those costs.  I think that would be correct for the described scenario. 

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8 hours ago, joel hoffman said:

General and Administrive costs are costs that cannot be identified to a single projectFrom my experience, G&A then consists of a factored combination of the partners' applicable G&A rates, depending upon their individual share of the agreement. G&A is generally allowable and allocable for either an increase or a deduct change, right? 

 

Joel, we don't know. We don't know what the contractor's practices are. We don't know what costs are direct and what costs are indirect--for this particular contractor. For example, contractor folks that are doing prime contract administration could be direct-charging to the contract they administer, or else they could be a G&A function because that's the way the contractor chooses to operate. We just don't know. Having said all that, generally speaking you and I are in agreement on this one.

In my experience with JVs (including having audited one DOE M&O JV), the G&A costs are a combination of partner G&A allocations (see CAS 403) and local costs that have been declared to be G&A costs. Because at least some of the G&A pool costs are allocations from the partners, and because at least some of those allocations almost certainly use revenue as at least one allocation base factor (again see CAS 403), Whynot is wrong in his analysis above. The pool can and almost certainly will increase with an increase in JV revenue ... and an additive change will increase JV revenue.

JV cost accounting is hard -- as at least one article on the WIFCON reading page discusses.

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Thank you for the responses.  Basically the C/PA is advocating Scenario 3 that WhyNot presented above.  Thinking the use of an abated G&A rate to cover only corporate flow down G&A may be appropriate. 

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24 minutes ago, Username said:

Thank you for the responses.  Basically the C/PA is advocating Scenario 3 that WhyNot presented above.  Thinking the use of an abated G&A rate to cover only corporate flow down G&A may be appropriate. 

The C/PA appears to be off-base.

Good luck with your approach.  

Im not saying that some of those other expenses might not be allowable - IF they vary with the amount of work or otherwise represent additional expenses due to the change.

But they appear to me to be direct type or project overhead type expenses, not "G&A" expenses. I would question them and require more explanation and justification before I would consider allowing all or part of them (but probably not in the G&A percentage).  

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