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Radu C.

Tracking LOE in FFP subcontracts

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I am working for a USAID contractor. We have a CPFF Term prime contract with USAID and issued a Firm Fixed Price Independent Consultant Agreement to a consultant. The COR is requesting that we track LOE and count them against our prime contract's LOE. We argue back that tracking days of LOE is not consistent with the regulation governing fixed price agreements (FAR 16.202), but also is not realistic or feasible given that payments are released solely upon acceptance of deliverables rather than incurrence of costs such as the costs associated with days of LOE. In line with FAR 16.202, there is no requirement for the consultant or subcontractor to report any costs associated with the deliverables. Neither are consultants/subcontractors tied to a fixed number of days. In other words, the subcontractor or consultant has no obligation to deliver a certain number of days of LOE and is only held accountable to specified deliverables.

The COR is still pushing back and I am ready to reach to the CO. Before I do, are there any situations where a contractor would be required to track and report LOE on a Firm Fixed Price subcontract/ICA? 

Thank you

Radu

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Her rationale (she is a CCN) is that 'fixed-price deliverables-based consultancies' are not delivered within an undefined duration, these consultants's contracts are tied to a fix number of days / LOE, which qualifies as LOE, and should be calculated alongside the respective relevant LOE categories. In addition, the Short-term Technical Assistance (U.S. and TCN) category also includes 'fixed-price deliverables-based consultancies' (there is no such language in the prime contract) if they are counted as LOE, it follows that CCN STTA should also be treated using the same principles. 

I don't think this make sense from a contractual point of view. 

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On 11/30/2017 at 12:40 PM, Radu C. said:

We have a CPFF Term prime contract with USAID and issued a Firm Fixed Price Independent Consultant Agreement to a consultant.

 

On 11/30/2017 at 12:40 PM, Radu C. said:

We argue back that tracking days of LOE is not consistent with the regulation governing fixed price agreements (FAR 16.202)

....but you said above you had a CPFF prime contract.  What is your rationale for invoking Part 16.202 in regard to your subcontract when it has no relevance to your prime contract?

It sounds like the COR is asking that you flow the  requirement to track LOE down to the sub.  If you have a contract that requires you to track by LOE, you need to track by LOE, subcontractor or no.  Whether that impacts your agreement with your sub is a question only you can answer.  It's up to you to align any mismatches between contracts, terms, etc.

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Guest Vern Edwards
On 11/30/2017 at 9:40 AM, Radu C. said:

We argue back that tracking days of LOE is not consistent with the regulation governing fixed price agreements (FAR 16.202), but also is not realistic or feasible given that payments are released solely upon acceptance of deliverables rather than incurrence of costs such as the costs associated with days of LOE. In line with FAR 16.202, there is no requirement for the consultant or subcontractor to report any costs associated with the deliverables.

FAR 16.202 does not regulate fixed price contracts. It doesn't tell anybody what to do or what not to do with them. It merely describes them and their appropriate application. If I was your COR and you told me that what I was asking you was inconsistent with FAR 16.202, I'd laugh at you.

It's hard to address your problem, because your description of the situation is hard to understand. You said, "The COR is requesting that we track LOE and count them against our prime contract's LOE." I have no idea what that means.

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On 11/30/2017 at 9:40 AM, Radu C. said:

We have a CPFF Term prime contract with USAID and issued a Firm Fixed Price Independent Consultant Agreement to a consultant. The COR is requesting that we track LOE and count them against our prime contract's LOE.

This doesn't strike me as an unreasonable request. You have a CPFF Term contract. To augment your workforce you engaged a consultant. The COR wants you to track the consultant's labor hours as if they were your own labor hours and count them as if they were your own labor hours.

The fact that you awarded a FFP consultant subcontract would seem to be irrelevant. (It might also be unreasonable in certain circumstances. What if the consultant finished the subcontracted work in half the expected time?)

Why are you pushing back so hard? What don't you want the COR to know?

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If you 

On 12/2/2017 at 12:06 AM, Vern Edwards said:

FAR 16.202 does not regulate fixed price contracts. It doesn't tell anybody what to do or what not to do with them. It merely describes them and their appropriate application. If I was your COR and you told me that what I was asking you was inconsistent with FAR 16.202, I'd laugh at you.

It's hard to address your problem, because your description of the situation is hard to understand. You said, "The COR is requesting that we track LOE and count them against our prime contract's LOE." I have no idea what that means.

Let's say you are asking a consultant to gather data from 30 locations. The data should include the number of households, household income; and household size. Since this is not a complex task, you decide to issue the agreement based on a fixed price.  You estimate that it will take the consultant 30 days to conduct this survey. You determine a reasonable daily rate of $X + per diem + travel costs to come up with a reasonable fixed price for this consultancy. You Fixed Price Agreement with the consultant will not specify any of these costs, correct? It will specify a PRICE that will be paid to the consultant regarding of how much costs he/she incurs in delivering you the data. So, I cannot request that the consultant spends 30 days gathering the data. I cannot request that he limits his work day to 8 hours, 5 days-workweek. He can work 24/7 for a week and deliver me the data and I will have to pay him the full PRICE of the agreement is the data is satisfactory. 

My question is how can I reasonably hold this consultant to 30 days (my original estimate) if the OUTPUT is a survey and not days of LOE. 

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On 12/2/2017 at 10:03 AM, here_2_help said:

This doesn't strike me as an unreasonable request. You have a CPFF Term contract. To augment your workforce you engaged a consultant. The COR wants you to track the consultant's labor hours as if they were your own labor hours and count them as if they were your own labor hours.

The fact that you awarded a FFP consultant subcontract would seem to be irrelevant. (It might also be unreasonable in certain circumstances. What if the consultant finished the subcontracted work in half the expected time?)

Why are you pushing back so hard? What don't you want the COR to know?

The reason I am pushing back is because I have a limited number of LOEs in my prime contract. Counting LOEs from Fixed Price consultancy agreements or subcontracts will accelerate my spending of LOEs and thus will end the contract sooner than anticipated. 

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My opinion is that you made a poor choice in selecting the subcontract type. My opinion is that you used a subcontractor to bypass your prime contract LOE restrictions, and the COR caught you doing so. 

Too late to change the subcontract now, I guess.

In future, similar, situations you may want to consider a Fixed Unit Rate subcontract where each day has an associated FFP amount and each day counts as 8 hours against your LOE restrictions.

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1 minute ago, here_2_help said:

My opinion is that you made a poor choice in selecting the subcontract type. My opinion is that you used a subcontractor to bypass your prime contract LOE restrictions, and the COR caught you doing so. 

Too late to change the subcontract now, I guess.

In future, similar, situations you may want to consider a Fixed Unit Rate subcontract where each day has an associated FFP amount and each day counts as 8 hours against your LOE restrictions.

Thank you, although it is not my intend to bypass or find ways to trick the client. As a prime I make my choices on whom to subcontract with subject to FAR 44. My decision to award a FPP consultancy or subcontract is driven by the fact that this specific work is not complex and requires minimum customization. I am being efficient by not burdening the subcontractor or myself or the client with excessive paperwork of a cost reimbursement contract. Yet, I feel penalized by a COR who demands additional scrutiny from what is supposed to be a simple subcontract. 

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Guest Vern Edwards

Suppose you have a CPFF LOE Term contract with a 6,000 hour LOE, a $10,000,000 estimated cost, and a $600,000 fixed-fee. You are obligated to deliver the LOE in order to get the $600,000. You are not obligated to work beyond the LOE.

You expect to have to burn the 6,000 hours with your own employees. You hire an FFP consulting sub to advise you, but you still expect to have to use your own people to deliver the 6,000 hours.

Along comes the COR and tells you, to your surprise, that you must count the sub's hours against your LOE obligation. You realize that if you do that you can get to the 6,000 hours and collect your $600,000 with fewer hours from your own people.

Why would that be a bad thing for you?

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Forgive me for jumping in here, but what if the sub hasn’t tracked their hours, or declines to report them? After all, they were hired to produce a data set, not to provide X hours of labor, so from their perspective tracking hours is an unnecessary hassle. If they did track their hours, and were efficient enough to get the work done with less than the estimated LOE, then as a fixed-price subcontractor aren’t they within their rights to keep that information to themselves? As the OP said, “the OUTPUT is a survey and not days of LOE.”

I’ve often seen fixed-price subcontracts used for simple services under USAID CPFF prime contracts. Translation is a common example. Translators are normally paid by the word, so their price for the end product is the same regardless of how many hours they spend on it. Since neither the prime nor the Government is paying the translators for their labor hours, what purpose would it serve to track their LOE? In effect the translation is being purchased as a finished product, just as you would purchase a book or a software application or (in the OP’s case) a survey. Why track input when what you’re paying for is output?

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On 12/8/2017 at 8:48 PM, Vern Edwards said:

Suppose you have a CPFF LOE Term contract with a 6,000 hour LOE, a $10,000,000 estimated cost, and a $600,000 fixed-fee. You are obligated to deliver the LOE in order to get the $600,000. You are not obligated to work beyond the LOE.

You expect to have to burn the 6,000 hours with your own employees. You hire an FFP consulting sub to advise you, but you still expect to have to use your own people to deliver the 6,000 hours.

Along comes the COR and tells you, to your surprise, that you must count the sub's hours against your LOE obligation. You realize that if you do that you can get to the 6,000 hours and collect your $600,000 with fewer hours from your own people.

Why would that be a bad thing for you?

It depends on whether you're a shareholder or an employee. Shareholders (and mid/upper management) will want to see maximum profit and will be quite pleased with your example. Employees (and lower management assigning them to tasks) will want to maintain as many hours as possible for their own staff to keep them working on Government funds. 

 

In OP's case, I'm not sure where the extra funding is coming from for the FFP subcontract if he doesn't want to tie it to the LOE (assuming the estimated cost is tied to the LOE).

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Guest Vern Edwards
37 minutes ago, kevlar51 said:

In OP's case, I'm not sure where the extra funding is coming from for the FFP subcontract if he doesn't want to tie it to the LOE (assuming the estimated cost is tied to the LOE).

Extra funding? I don't understand what you're talking about. I presume that the contractor included the cost of the subcontract in its estimated cost for the LOE.

37 minutes ago, kevlar51 said:

Employees (and lower management assigning them to tasks) will want to maintain as many hours as possible for their own staff to keep them working on Government funds. 

Or maybe the contractor's upper management will want to assign the employees to other work or cut them loose.

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5 minutes ago, Vern Edwards said:

Extra funding? I don't understand what you're talking about. I presume that the contractor included the cost of the subcontract in its estimated cost for the LOE.

I suppose that's a question for the OP. Was the subcontract price included included in the overall estimated cost? Was the estimated cost tied exclusively to an LOE?

 

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Guest Vern Edwards

I'm not sure it makes a difference. Remember, the contract is cost-reimbursement. The contractor invoices on the basis of allowable cost incurred to deliver the level of effort. not by the hour at a fixed rate. There could be more to the cost of the level of effort than direct labor hours. If the subcontract cost is allowable, then the contractor invoices for it and the government reimburses up to the estimated cost or the total funds allotted.

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47 minutes ago, Vern Edwards said:

I'm not sure it makes a difference. Remember, the contract is cost-reimbursement. The contractor invoices on the basis of allowable cost incurred to deliver the level of effort. not by the hour at a fixed rate. There could be more to the cost of the level of effort than direct labor hours. If the subcontract cost is allowable, then the contractor invoices for it and the government reimburses up to the estimated cost or the total funds allotted.

All fair points. And with that, I'm now more confused at what the OP is concerned with "losing."  Though the chances of an overzealous COR are high, at which point it's hard to apply the rules when the "rules" are all in one person's head.

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