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Not sure this is a "bidding" question, but certainly an "operational" question.

Everywhere I've been, and everywhere I've seen, personnel working on indirect efforts charge a job directly when there is funding to cover.  In many cases the indirect function may have nothing to do with the contract they are charging, but will do so because charging indirect comes out of the bottom line and is not covered by Revenue.  I've even seen this in cases where the employee was at a venue where charging the contract would not have been possible.  Recently an employee was at a seminar and physically not available to do contractural duties, but he charged the contract anyway.

I'm sure the "purist" response would be "Everyone needs to charge where they are working."  But I've seen departures in cases where there is coverage under direct cost for a contract, and funding was adequate.  I'm not sure this is against the law, but I do believe the practice is rampant and sometimes blatant. 

I'm not sure this is illegal, but I do believe there is a difference if the contract is cost-plus, or T&M.  Charging a fixed-price contract is relatively harmless as far as a customer is concerned.

Comments?

 

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4 hours ago, Corduroy Frog said:

I'm not sure this is illegal, but I do believe there is a difference if the contract is cost-plus, or T&M.  Charging a fixed-price contract is relatively harmless as far as a customer is concerned.

Inconsistently “charging” to a fixed-price contract is not relatively harmless as a (this) customer is concerned. Cost principles are usually applicable to pricing of modifications or claims settlements, so inconsistent allocation of costs between direct and indirect affect such pricing . For example,  see FAR 31.202 (a) under Direct costs  and 31.203 (b) under Indirect costs. 

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It would be helpful to know in each case how the direct and indirect labor was bid on the government contract, whether the contractor is subject to Cost Accounting Standards, whether the contractor has submitted a Disclosure Statement and whether it was reviewed by DCAA. Offhand, from the way your post is written, I would suspect the practice you describe is questionable.

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Thanks gentlemen for your response.  The incidents of which I speak are many and rampant, but the one I singled out for going to a seminar was clearly with a company not subject to CAS, nor has a disclosure statement been submitted.  The contract was fixed price, bid with labor categories and specified numbers of hours and rates, but "overcharging" the contract does not result in any additional revenue.  Furthermore, no hours report will be submitted because the customer is not DoD.

The incident is clearly "questionable" but I'm wondering whether it is illegal or breaks any DCAA protocol.

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As you describe it, it is an illegal act.  Intentionally allocating a cost to a  cost reimbursement contract to which the cost is not allocable and then submitting a claim for that cost to the government violates the False Claims Act, 31 U.S.C.  3729.  It also violates several criminal statutes such as 18 U.S.C. 287, 18 U.S.C. 1001, 18 U.S.C. 1343.

The same would apply to a T&M contract if the contractor intentionally claims an hour of labor that was properly allocable to an indirect cost pool as a direct hour of labor.

The criminal statutes cited above, all require intent.  However, no intent is required to be in violation of the FCA.

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14 hours ago, Corduroy Frog said:

Everywhere I've been, and everywhere I've seen, personnel working on indirect efforts charge a job directly when there is funding to cover.  In many cases the indirect function may have nothing to do with the contract they are charging, but will do so because charging indirect comes out of the bottom line and is not covered by Revenue. 

Comments?

 

1. The notion that overhead "comes out of the bottom line and is not covered by Revenue" is nonsense. I'm not saying that you (CFrog) believe it, but anybody who spouts such rubbish should be required to attend remedial accounting classes. (a) Overhead is not the same as profit. (b) Overhead is, by definition, allocated to active contracts and is bid and billed as a fee-bearing contract cost. In other words, contractors make a profit on their overhead. (c) Since overhead is billed, it is part of revenue.

2. I've been doing this since Reagan funded Peace Shield (aka Star Wars) and I have never witnessed nor heard about rampant, systemic, mischarging of indirect personnel or indirect functions. Does it happen? Sure. But when it happens employees get disciplined. Anybody with contract clause 52.203-13 knows what happens next.

3. With respect to FFP contracts, yes. I have seen certain PMs say that, once they deliver the budgeted profit to Corporate, then anything left over is theirs to spend as they wish. And then the Purchasing folks and the Property folks start talking about "authority to acquire" and then DCAA starts interviewing people about what they are doing and how that activity benefits the contract. And then you are back to 52.203-13 land again.

4. Contractors of a certain size and maturity are expected to have an "adequate" accounting system. Many defense contractors have the DFARS clause 252.242-7006. See (c)(1) of that clause. In other words, a contractor could lose its adequacy determination through systemic mischarging of indirect labor to contracts. Further, the biggest defense contractors have the DFARS clause 252.242.7005. If those contractors lose accounting system adequacy they will be on the receiving end of a payment withhold, the pain of which they likely won't even notice since they will be paying a lot of lawyers to work out a False Claims Act settlement, the pain of which they likely won't even notice since they will suddenly have great difficulty receiving any cost-type contracts until adequacy is restored. To sum this all up, most contractors know that the benefit of moving indirect costs to direct costs is short-lived; and the benefit is far outweighed by the severe and long-lasting pain of getting caught doing so.

I'm not saying you (CFrog) are lying or even mistaken. I'm saying that the contractors where you saw that happening are living on borrowed time. They're dead men walking, and they don't even know it.

 

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Thanks for your comments "Here2Help".  I detect that you are in an advanced environment, and deeply engrained in cost-type and T&M contracts.

In recent years, the government has migrated to Fixed-Price contracts, even acknowledging that cost-plus contracts would be cheaper.  DCAA for whatever reason is bogged down in minutia and is not even calling on small contractors in a fixed-price environment.  Given the fact that these small contractors never interface with DCAA or any enforcement, it's hard to convince them that violations such as 52.203-13 are worth their effort to correct.

I've lived through several pendulum swings, but do not see a return to cost-plus awards except in extreme situations where the contractor can't deal with the risk.

It may not sound like it, but I know what overhead and G&A are.  They are real costs, but only in cases where they are reimbursed do they become billable beyond bid rates.  Over-charges to fixed-price contracts do not affect the customer, who couldn't care less since they don't have to cough up any money.

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CR, I don't know about today's government "customers," but I spent 24 years in DoD procurement and mischarging to FFP contracts was a significant issue if it could be detected.  Detection was a problem because the government does not have the general authority to audit costs incurred on an FFP contract.

Shifting costs from cost reimbursement or T&M contracts to an FFP contract, while not usual in my experience, gives a distorted picture of the contractor's ability to control costs and its internal controls.  A lack of cost control would be reflected in the contractor's CPARS.  A distorted CPARS showing that the contractor is a better performer than it truly is is potentially harmful to the government's interest.  Further, if we are talking about CPIF or CPAF contracts, shifting potential overrun costs to an FFP contract can entitle the contractor to receive more fee than they otherwise would.  Finally, if there is a follow-on to the FFP contract, the false recording of costs on the predecessor contract can be a justification for a higher price on the follow-on.  In short, mischarging to an FFP contract is not a "victimless crime."

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14 hours ago, Corduroy Frog said:

In recent years, the government has migrated to Fixed-Price contracts, even acknowledging that cost-plus contracts would be cheaper.  DCAA for whatever reason is bogged down in minutia and is not even calling on small contractors in a fixed-price environment.

This is true and it's shameful. I've had my disagreements with DCAA (more than a few, actually) but as a taxpayer I root for the auditors to do their jobs. Ever since the agency decided to measure success by measuring the amount of questioned costs (taxpayer savings) in relation to hours spent auditing, they agency has moved away from auditing smaller contractors. Even when auditors show up at larger contractors, they focus on T&M and cost-type contracts because any detected unallowable direct costs get paid back dollar for dollar.

What I would say to smaller contractors who think all is well when they mischarge to certain FFP contracts instead of charging overhead is that is a habit that's difficult to break. The company's culture is being established. (You might take a close look at the image that goes with my posts, over to the left.) One day (perhaps) they will grow or be acquired by a larger company. They will enter a world that has a mix of different contract types. DCAA will be more likely to show up and perform an audit. Then the bad habit will lead to consequences. The culture of wrong-doing cannot change quickly and it will one day matter very much.

Until then? *Shrug* Don't come to me for assistance. I only like to work with ethical contractors trying to do the right thing, of which there are many.

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Just make sure the "indirect" function isn't really a "direct" function that someone doesn't feel should be direct. This has been an area of surprisingly consistent frustration in my career. I'm not talking about areas where mischarging is clear (e.g. where an employee working exclusively on program A charges to program A work to program B), but rather when time for a direct-charge (per disclosure statement) contracts, finance, or program management employee is invoiced and a COR rejects the invoice because in the COR's view "back-office" employees should be indirect (and thus included in the rates). It's an issue that should be easily resolved by a quick review of the disclosure statement and proposal/negotiation (for good measure) that included funding for contracts/finance/PM.  But it's rarely that easy thanks to under-trained CORs who feel that the only contractor employees who contribute to a contract are those who are visible on a day-to-day basis, coupled with overwhelmed COs who effectively abdicate responsibility to the COR.

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On 4/8/2018 at 2:19 PM, here_2_help said:

The company's culture is being established.

PepeTheFrog agrees with everything here_2_help said. Especially the connection to his account icon or picture.

Here's a great test of your employer, who controls your paycheck, your time, and the stability you crave as an employee.

The first time you encounter a questionable billing practice, confront your direct supervisor. Gauge his reaction. Is he concerned? Does he investigate? Worse yet, does he double down and tell you to continue things you know are unethical? Does he even understand the issue? 

Weighing the risk of your supervisor firing you, maybe you should repeat this process one or more steps above the supervisor. You can learn a lot about your management by how they handle, ignore, cover up, or double down on shady practices.

Back to the account icon or picture for here_2_help: If that's the behavior of management, what else do you think is happening at this company? How does that relate to the stability you expect as a wage slave employee?

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On 4/7/2018 at 2:18 AM, Corduroy Frog said:

Everywhere I've been, and everywhere I've seen, personnel working on indirect efforts charge a job directly when there is funding to cover.  In many cases the indirect function may have nothing to do with the contract they are charging.... I'm not sure this is against the law, but I do believe the practice is rampant and sometimes blatant. 

Not sure it's against the law? Holy cats! Really? Not sure?

 

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10 hours ago, Vern Edwards said:

Not sure its against the law? Holy cats! Really? Not sure?

 

Mr. Edwards - from what I've seen, the practice is so commonplace in my environs, that I have no idea whether any laws are being broken or not.  I had a right to ask the question without being made to feel like an idiot.

My expertise is not in this area - my background is in math and in tax work.  I ask questions which may appear infantile and elementary to most of you, but I appreciate the feedback on this forum, and have learned quite a bit.

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CR, I really have to wonder about the type of ethics programs these contractors have.  There should be no question concerning whether this practice is proper.  Look at FAR 52.203-13.  If you have not been trained in what is correct and what is not, there is a real problem.

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Obviously, if I am still asking these kind of questions, I have not been trained.  But speaking truthfully, I've been associated with a half-dozen contractors, and all of them do this to one degree or another.

Thanks for everyone's input.

Corduroy Frog

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13 hours ago, Corduroy Frog said:

Mr. Edwards - from what I've seen, the practice is so commonplace in my environs, that I have no idea whether any laws are being broken or not.  I had a right to ask the question without being made to feel like an idiot.

My expertise is not in this area - my background is in math and in tax work.  I ask questions which may appear infantile and elementary to most of you, but I appreciate the feedback on this forum, and have learned quite a bit.

Well, you could have posted in the Beginners Forum, but since you didn't, how was I to know that you had no idea?

But don't play the mistreated innocent. You clearly thought that there was something was wrong with the practice. Moreover, I just Googled "cost mischarging" and the very first hit I got was entitled, "Mischarging Costs: Another Form of Procurement Fraud," which was immediately followed by several other damning explanatory articles.

With a background in "tax work," it's hard for me to understand why you couldn't figure out that charging a contract that has nothing to do with the work being done is not a violation of the contract terms and a kind of fraud. There's nothing wrong with wanting to post and have a conversation about a practice that you think is wrong, but to say, "I'm not sure this is illegal..." strikes me as a little much. Anyway, it sounds like you could have a future as a qui tam relator ("whistleblower"). You might want to look into that.

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Not interested in whistleblowing contact people and acquaintenances whom I know.  Or anyone for that matter.  If that's the way I have to make money I'll do without.

The IRS has a whistleblower arrangement as well which is supposed to be "confidential".  But they don't simply take your information - they expect you to furnish all sensitive information (in effect make their case for them).  The nature of the sensitive information lets the perpetrator know that no one else would have this information except you.  So much for their "confidential" treatment.

Apologies to those who believe that a sense of "right vs. wrong" equates to the same thing as "legal vs. illegal."  Most lawyers would take issue with this.

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CR, I don't know what your last paragraph means, but in the situations you describe, the actions of the contractors is not only wrong, i.e., not in accordance with regulations and contract terms, but also illegal, i.e., subject to criminal sanctions.

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Given: Activities that are clearly indirect (overhead) in nature are treated as direct costs of a government contract. In the following scenarios, identify how the government has been harmed:

1. The labor was treated as allowable costs of a firm, fixed-price contract. No request for equitable adjustment was ever submitted.

2. The labor was treated as being unallowable costs of a cost-type contract, and thus were never billed. The contractor segregated those costs from the "authorized" costs of contract performance and did not use those costs as support for future cost estimates.

I think CFrog was talking about Scenario 1 in his original post.

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This was the original post:

On 4/7/2018 at 2:18 AM, Corduroy Frog said:

Not sure this is a "bidding" question, but certainly an "operational" question.

Everywhere I've been, and everywhere I've seen, personnel working on indirect efforts charge a job directly when there is funding to cover.  In many cases the indirect function may have nothing to do with the contract they are charging, but will do so because charging indirect comes out of the bottom line and is not covered by Revenue.  I've even seen this in cases where the employee was at a venue where charging the contract would not have been possible.  Recently an employee was at a seminar and physically not available to do contractural duties, but he charged the contract anyway.

I'm sure the "purist" response would be "Everyone needs to charge where they are working."  But I've seen departures in cases where there is coverage under direct cost for a contract, and funding was adequate.  I'm not sure this is against the law, but I do believe the practice is rampant and sometimes blatant. 

I'm not sure this is illegal, but I do believe there is a difference if the contract is cost-plus, or T&M.  Charging a fixed-price contract is relatively harmless as far as a customer is concerned.

Comments?

Note that this was not posted to the Beginners Forum.

At first, I was tempted to comment: Awful. Just awful. Instead, I ignored the post. But after the Frog went on for a while my brute reaction was:

On 4/11/2018 at 8:33 AM, Vern Edwards said:

Not sure it's against the law? Holy cats! Really? Not sure?

He asked for comments, after all.

But that insulted the Frog, and I think the last sentence of the Frog's last post was an allusion my rudely scornful post, for which I'm truly sorry. But he should have posted as a Beginner.

Wifcon "Discussions" Forum has become a Q&A site. Two kinds of people post to Wifcon Forum: (1) those who ask questions and (2) those who answer them. The former far outnumber the latter, and clueless inquirers appear to outnumber informed inquirers. Among the latter, some occasionally ask questions, but not often. I don't often see Retreadfed, C Culham, Here_2_Help, Don Mansfield, Joel Hoffman, and the other seasoned pros as OPs. (Don occasionally poses something for discussion.)

Some ideas:

1. I suggest that Bob redesign the Discussions page. I suggest that he rename it Q&A or Q&A Discussions. (The only thing we ever discuss is responses to questions.)

2. I suggest that he emphasize, in a very large, red font, that non-practitioners and inexperienced practitioners must post questions to the Beginners Forum.

3. I also suggest that new members be required to classify themselves as Non-practitioner, Inexperienced Practitioner, or Seasoned Practitioner, so they can be assured of beneficial responses to their questions.

4. I suggest that Bob get rid of the annoying member classifications (Orange Diamond (Orange?!), Red Diamond, Chartreuse, etc.). No one should be classified on the basis of the number of posts they make.

5. Finally, I suggest that Bob post some guidelines about how to ask questions. The guidelines should include: (1) what is a question and what are the components of a question and (2) the recommended structure for a question post. The ability to ask appropriate and effective questions is an essential skill for contracting pros. Wifcon should help the inexperienced develop that skill.

I dedicate these recommendations to Corduroy Frog.

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2 hours ago, Vern Edwards said:

4. I suggest that Bob get rid of the annoying member classifications (Orange Diamond (Orange?!), Red Diamond, Chartreuse, etc.). No one should be classified on the basis of the number of posts they make.

NO!! I'm not resting until I reach "Diamond Diamond" status!

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Good recommendations, Mr. Edwards.  I guess I did not realize how much of a beginner I was, and will try out the beginner forum for my next question.  I am not quite the neophyte in the area of preparing pricing, but I have quite a bit to learn about strategy, and what is allowed and what is not.  I am much ill-informed when it comes to contracts.  I will be on the beginner's forum before the evening is over.

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On 4/14/2018 at 2:30 AM, Corduroy Frog said:

I am not quite the neophyte in the area of preparing pricing

 

On 4/12/2018 at 12:56 AM, Corduroy Frog said:

I have not been trained

 

On 4/12/2018 at 12:56 AM, Corduroy Frog said:

But speaking truthfully, I've been associated with a half-dozen contractors, and all of them do this to one degree or another.

 

On 4/11/2018 at 10:15 PM, Corduroy Frog said:

the practice is so commonplace in my environs, that I have no idea whether any laws are being broken or not

 

On 4/11/2018 at 10:15 PM, Corduroy Frog said:

my background is in math and in tax work

PepeTheFrog disavows any connection to Corduroy Frog.

PepeTheFrog has not had the pleasure of knowing or swimming with Corduroy Frog.

Frog Lives Matter.

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