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My company won a cost plus fixed fee contract.  One of the contract terms states that the average fully burdened bill rate per LCAT should not exceed 15% of the fully burdened rate bid for that LCAT.  If so, it sets off a "tripwire" and requires additional approvals.  Per government direction in the RFP, the PM position was bid as a direct bill LCAT; however, we plan to initially fill that need with an employee that far exceeds the tripwire.  There will only be one individual in this role at a time.  This is a large (to us) contract with a new customer, and (a) we don't want to come out of the gate with a tripwire issue, and (b) the person we want for the PM role is key to setting us on the right path with this customer.

My question is, can we invoice this PM's hours using a discounted direct hourly rate and apply indirect burden to it consistently with the way we apply indirect burden on all other direct rates on that contract?  

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In my opinion, you can treat the "excess" direct labor you pay the PM as an unallowable cost. If you did that, the indirect costs would be allocated to both the allowable and unallowable direct labor.

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