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Question is regarding contract limitations and if the limitation would be acceptable to DCAA?  Subject is subcontractor to the prime.  The prime, in an effort to be more competitive, wants to bid a OCONUS CPFF contract where they only apply indirect rates to the first 2080 hours of work and then only fee to the remaining 1600 or so hours.  The typically run about 3750 hours/year for these type contracts.   If it would be acceptable by DCAA, would there be any negative ramifications for the subcontractor that should be considered?  

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I'm assuming (but would like confirmation) that the prime would flow the limitations down to the subcontractor via Ts & Cs.

Your question presupposes the methodology would be acceptable to DCAA. I don't believe it would be. What is described is called "fragmenting the base" and it's generally frowned upon, absent a compelling rationale. (Note: Trying to be more competitive would not be that compelling rationale.)

If the prime decided to BILL only indirect costs allocated only to the first 2,080 hours of work, and eat the remainder out of its profit, that might be acceptable to DCAA.

If implemented, are there negative ramifications for the subcontractor? Absolutely. First and foremost, the subcontractor has its own cost accounting practices and it needs to apply those practices consistently across every single one of its contracts. There are others but that's the big one.

Look, I could pick a dozen nits with this plan. It smells strongly of marketing trying to get cute. It does not seem to have been planned by a government accountant--or, at least, not a good one. There are legitimate ways to become more cost competitive with OCONUS work; I don't think this is one of them.

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38 minutes ago, Vern Edwards said:

@here_2_help

Help, you don't consider it a form of "capping" or putting a "ceiling" on indirect costs?

Not as described. It was described as "only apply indirect rates to the first 2,080 hours" not "only bill the indirect rates applied to the first 2,080 and eat the remaining indirect rates that were applied to the additional labor hours out of profit". The latter is analogous to a rate cap but the former is fragmenting the base by picking and choosing certain portions of costs to apply burdens to.

 

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