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CO1559

FAR 31.205-44 (b) and (c) Training and Education Costs

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My question concerns a cost-type contractor that is paying tuition for an employee who is completing his doctorate on a part time basis.

31.205-44(b) states: "The cost of salaries for attending undergraduate level classes or part-time graduate level classes during working hours is unallowable, except when unusual circumstances do not permit attendance at such classes outside of regular working hours."    

Since the education in not during work hours, this principle does not make the cost unallowable.

31.205-44(c) states: "Costs of tuition, fees, training materials and textbooks, subsistence, salary, and any other payments in connection with full-time graduate level education are unallowable for any portion of the program that exceeds two school years or the length of the degree program, whichever is less." 

Given that this employee has been working on the doctorate for seven years and incurred $100K, I believe that this principle would make a portion of this cost unallowable because the doctorate program has exceeded two years.  

I am posting this because I'm not the best researcher and I'm not sure if I am right.  Thanks for your help.

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22 minutes ago, CO1559 said:

Given that this employee has been working on the doctorate for seven years and incurred $100K, I believe that this principle would make a portion of this cost unallowable because the doctorate program has exceeded two years.

I don't. FAR 31.205-44( c ) clearly applies to costs "in connection with full-time graduate level education". If the employee is enrolled in part-time graduate education, paragraph ( c ) does not apply.

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Don beat me to the punch.

Paragraph (c) seems to refer to full-time education.  If they are going part-time, the paragraph doesn't apply.

Paragraph (b) is talking about their salary during working hours.  If they are not taking the class during working hours, you wouldn't be paying their salary anyway.

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Thank you for the help.  I was hoping that my interpretation was correct.  Does this mean that paragraph (b) governs? The cost incurred seems unreasonable.  

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I don't have a standard at this point, but I will be looking into it to see what history shows.

Thanks

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Paragraph (b) is a different cost--the cost of the employee's salary. It is not the cost of tuition, etc. From what you have written, I don't think FAR 31.205-44 makes the cost unallowable. However, it would be unallowable if it were unreasonable. 

FWIW, the cost of tuition for graduate education at University of San Diego is ~$1,500/credit. $100K would buy you ~66 credits. You need about twice that for a Ph.D. So, $100K for a Ph.D. doesn't sound unreasonable.

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2 hours ago, CO1559 said:

My question concerns a cost-type contractor that is paying tuition for an employee who is completing his doctorate on a part time basis.

31.205-44(b) states: "The cost of salaries for attending undergraduate level classes or part-time graduate level classes during working hours is unallowable, except when unusual circumstances do not permit attendance at such classes outside of regular working hours."    

Since the education in not during work hours, this principle does not make the cost unallowable.

31.205-44(c) states: "Costs of tuition, fees, training materials and textbooks, subsistence, salary, and any other payments in connection with full-time graduate level education are unallowable for any portion of the program that exceeds two school years or the length of the degree program, whichever is less." 

Given that this employee has been working on the doctorate for seven years and incurred $100K, I believe that this principle would make a portion of this cost unallowable because the doctorate program has exceeded two years.  

I am posting this because I'm not the best researcher and I'm not sure if I am right.  Thanks for your help.

Is the entire cost of the Doctorate Degree allocable to this contract?  31.205-44 isn't the only standard for allowability. Basic questions, such as - is the degree necessary for the operation of the business or for the contract? Will the degree benefit other contracts or customers?  If the person has been working on the degree for seven years, has that effort been related to or beneficial to the contract performance?

 

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31.201-4 -- Determining Allocability.

A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. Subject to the foregoing, a cost is allocable to a Government contract if it --

(a) Is incurred specifically for the contract;

(b) Benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or

(c) Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown

 

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Quote

 

31.201-3 -- Determining Reasonableness.

(a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer’s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

(b) What is reasonable depends upon a variety of considerations and circumstances, including --

(1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance;

(2) Generally accepted sound business practices, arm’s-length bargaining, and Federal and State laws and regulations;

(3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and

(4) Any significant deviations from the contractor’s established practices.

 

 

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Wow, that is really helpful Joel.  I know that the entire cost quoted above ($100K) has been charged to the contract;  

I'll follow the path/questions you have provided and see what we find.  

Thanks again, and thanks for the refresher!

 

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I suppose I could concoct a cost structure where every employee's individual fringe benefits (e.g., payroll withholdings, medical insurance costs, 401(k) match, etc.) followed that employee's labor charges. It would be a lot of work, but I bet it could be done. In that hypothetical, if the employee charged 100% of work hour time to one and only one contract, then the associated fringe benefits (including, in this case, tuition reimbursement) might then be charged to that one contract as a direct cost.

Absent that scenario, I have a hard time understanding why the cost of tuition reimbursement would be allocable/charged to a single contract, rather than charged to an indirect account. To expand a bit, if the employee is attending on their own time then there are no labor hours to record to the contract. (If the employee was attending school during work hours, then there would be recordable labor hours; but I would question why they would be direct-charged to a single contract since, obviously, the employee wasn't accomplishing work in the contract's SOW.) If there are no recordable labor hours to create a nexus between the benefit and the contract, then the tuition reimbursement becomes an indirect employee benefit -- presumably part of the fringe benefit pool or overhead pool. Again, absent the hypothetical, above.

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In addition to the above, it's hard for me to believe that, if the employee has been studying for a Doctorate for seven years (off duty time or on duty time) that there is any direct benefit or necessity for the degree for the contract or the company.   Start the evaluation at the top. 

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18 hours ago, CO1559 said:

Thank you for the help.  I was hoping that my interpretation was correct.  Does this mean that paragraph (b) governs? The cost incurred seems unreasonable.  

What costs are you asking about? Tuition? Salary? Both? Something else? You have not made that clear--not to me. Paragraph (b) is about the cost of salaries. Is the $100,000 that you appear to think is unreasonable salary, tuition, or both?

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I apologize for that Vern.  I am asking about tuition. That is the only cost in question at this point, however thanks to WIFCON I have been given a lot of advice to help me make a determination of allowable or unallowable cost. 

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FAR 31.205-44 starts off by saying "Costs of training and education that are related to the field in which the employee is working or may reasonably be expected to work are allowable, except as follows."  Thus, the general presumption is that if a cost meets there criteria, it is allowable unless an exception listed in the cost principle applies.  However, FAR 31.204(a) states that "Costs are allowable to the extent they are reasonable, allocable, and determined to be allowable under 31.201, 31.202, 31.203, and 31.205. These criteria apply to all of the selected items that follow, even if particular guidance is provided for certain items for emphasis or clarity."  Therefore, these general cost principles have to be considered in determining the allowability of the enumerated cost principles in 31.205.  As Joel suggested, start at the top and ask if the doctorate is "related to the field in which the employee is working or may reasonably be expected to work" then go from there.  By the way, if this has been going on for seven years, has an audit been conducted on the contract?  If it has, how were these costs treated in the audit?

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In determining reasonableness, keep in mind that it's not uncommon for people pursuing a Ph.D. on a part-time basis to take a number of years to finish. See this discussion: "Part Time PhD In 4 Years- Any Chance??" http://www.postgraduateforum.com/thread-13690

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I'm a full time lecturer too and completed my PhD part-time.  It took me 9 years all together although I did have a break of 12 months half way through. Other part timers at my institution who work full time take between 7 and 10 years to complete.  The reality is that it is very difficult to switch between PhD and your job even if your PhD is related to your work. I was given a day a week to work on my research but the problem for me was that my job tended to leak into that day and the weekend too.

 

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Some very good advice in this thread for any contracting officer that wants to understand whether or not a cost is allowable.

1. Is it reasonable in amount?

2. Is it allocable as charged? (Direct vs. indirect, direct vs. B&P, direct vs. IR&D, etc.)

3. Is the contractor's treatment consistent with its disclosed or established practices? Can it point to a company policy or procedure that supports its treatment?

4. If reasonable in amount and allocable as charged, and consistent with past treatment of similar costs, then (and only then) does it comply with the applicable cost principle or closest analog?

5. Finally, did the contractor propose the cost as it would like to claim it? If not, is there a good reason why not? (Things change; it may have been missed or not even contemplated when the contract was bid.)

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Retread: Thanks for the advice.  Regarding audit, there has not been an incurred cost audit on this business segment for six years and the tuition issue was not raised in the last audit. 

Vern: Thanks for the blog entries and quote. I see that these doctorates can take quite a bit of time.

Here to Help: Thanks to you as well.

All: I will keep this string of advice in order to jog my memory whenever I run into a questionable cost.  You folks are a great help and I appreciate the free consultation!

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