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elgueromeromero

Costs of addressing invoice concerns allowable?

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The Government is auditing several previously submitted invoices (some paid, some pending payment) on our CPFF contract. They are requesting that we meet in person as they have several questions on our invoicing process and they claim to have found several discrepancies in some of our invoices. In the request for the meeting they stated that they don't think any costs incurred for travel or time associated with explaining and defending our billing processes and these discrepancies should be chargeable to the contract. Are these costs typically allowable? This seems to be sort of a gray area. I've reviewed FAR 31.2 and it seems to come down to whether these costs would meet the following test for allocability: 

(a) Is incurred specifically for the contract; YES

(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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Several questions need to be answered first, such as do you have only one cost reimbursement (sub)contract)?  Do you have other contracts that are subject to the cost principles, e.g., FPI or the material portion of T&M contracts?  Do you know if the invoicing concerns relate to direct costs, indirect costs, or both?  How do you normally account for the cost of your accounting department, including the cost of supporting government audits?  Finally, is there anything in your contract(s) that address this issue?

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2 hours ago, Retreadfed said:

Several questions need to be answered first, such as do you have only one cost reimbursement (sub)contract)?  Do you have other contracts that are subject to the cost principles, e.g., FPI or the material portion of T&M contracts?  Do you know if the invoicing concerns relate to direct costs, indirect costs, or both?  How do you normally account for the cost of your accounting department, including the cost of supporting government audits?  Finally, is there anything in your contract(s) that address this issue?

We have several CR contracts. Yes, we have other contracts that are subject to the cost principles. The invoicing concerns in this situation are related to direct costs. I believe for actual full-blown audits, the costs are accounted for as indirect costs (not 100% sure on this). Our contract is silent on this issue.

thank

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Who(m) is attending the meeting on your company's behalf? Is it the accounting/audit support personnel who normally support government audits, or is it program personnel?

Further, where is this meeting to take place? Contractor personnel are not required to support audits in remote locations; quite to the contrary, 52.215-2 specifies the how and where and when and what of audit support.

If program direct-charging personnel are being asked to attend a meeting in a location other than their normal work locations, and such meetings are not specified in the SOW, then the contractor may have a legitimate position that the work has been changed and it is entitled to an REA for the additional costs. The contractor can also insist on strict adherence to the requirements of 52.215-2, unless the contract specifies something else.

On the other hand, wow. That would take some chutzpah on the contractor's part. I don't think I've ever seen a contractor take that position in circumstances similar to these.

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1 hour ago, here_2_help said:

Who(m) is attending the meeting on your company's behalf? Is it the accounting/audit support personnel who normally support government audits, or is it program personnel?

Program personnel.

Further, where is this meeting to take place? Contractor personnel are not required to support audits in remote locations; quite to the contrary, 52.215-2 specifies the how and where and when and what of audit support.

The Client's location. Would require travel by air to attend.

If program direct-charging personnel are being asked to attend a meeting in a location other than their normal work locations, and such meetings are not specified in the SOW, then the contractor may have a legitimate position that the work has been changed and it is entitled to an REA for the additional costs. The contractor can also insist on strict adherence to the requirements of 52.215-2, unless the contract specifies something else.

On the other hand, wow. That would take some chutzpah on the contractor's part. I don't think I've ever seen a contractor take that position in circumstances similar to these.

What do you mean? What position? We haven't really taken a position or responded to the Client's request yet.

 

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2 hours ago, elgueromeromero said:

What do you mean? What position? We haven't really taken a position or responded to the Client's request yet.

Sorry for any confusion. I meant my hypothetical position that any deviation from the requirements found in 52.215-2 would be a change to the contract.

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At first blush, and knowing nothing more than I have read here, I think it is reasonable to expect the costs to be charged as indirect costs.  Direct costs to the contract ought to be directly relatable to the work.  At least, it is reasonable as a starting point.

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In my experience, the Government request to attend at a Government site is unusual. I would ask that the Government put its request in writing. Not clear if they have done so.  I would respond that the auditors are welcome at your site, which would permit you to provide the "right" experts to answer any given question. I would ask that some of the basic questions be put in writing in advance. Since the Government has already stated that cost incurred for this topic is not an appropriate contract charge, you should consider booking costs incurred as indirect. Not sure how your accounting system handles that for personnel that charge direct. In the event it turns out that all or part of the work is justified as a direct contract charge, you should be able to reverse the booking within a reasonable amount of time. Or you may put the incurred costs into a holding account of some type until you make a final decision. Since the Government has predetermined that this work is not a contract charge, under no circumstances would I want to be in the position of having any personnel charge the contract for this work until the smoke has cleared.             

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3 hours ago, Neil Roberts said:

In my experience, the Government request to attend at a Government site is unusual. I would ask that the Government put its request in writing. Not clear if they have done so.  I would respond that the auditors are welcome at your site, which would permit you to provide the "right" experts to answer any given question. I would ask that some of the basic questions be put in writing in advance. Since the Government has already stated that cost incurred for this topic is not an appropriate contract charge, you should consider booking costs incurred as indirect. Not sure how your accounting system handles that for personnel that charge direct. In the event it turns out that all or part of the work is justified as a direct contract charge, you should be able to reverse the booking within a reasonable amount of time. Or you may put the incurred costs into a holding account of some type until you make a final decision. Since the Government has predetermined that this work is not a contract charge, under no circumstances would I want to be in the position of having any personnel charge the contract for this work until the smoke has cleared.             

Basically, your position is that a cost may be direct if it will be reimbursable; otherwise it should be indirect. I can assure you that's not how it works. See CAS 402. See FAR Part 31.

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On ‎12‎/‎21‎/‎2018 at 10:10 PM, ji20874 said:

Direct costs to the contract ought to be directly relatable to the work.

I don't know what this means.  However, the test for Allocability under the FAR is whether there is some beneficial or other equitable relationship between a cost and the cost objective(s) to which that cost is allocated.  Under the CAS, the test is whether there is a causal or beneficial relationship between the cost and cost objective(s).  If we are talking about costs incurred justifying the allowability of a direct cost incurred under one contract on what theory would such costs be allocable to other contracts?  In other words, what benefit do those other contracts receive from these costs?  They clearly did not cause the costs.

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12 minutes ago, Retreadfed said:

I don't know what this means.  However, the test for Allocability under the FAR is whether there is some beneficial or other equitable relationship between a cost and the cost objective(s) to which that cost is allocated.  Under the CAS, the test is whether there is a causal or beneficial relationship between the cost and cost objective(s).  If we are talking about costs incurred justifying the allowability of a direct cost incurred under one contract on what theory would such costs be allocable to other contracts?  In other words, what benefit do those other contracts receive from these costs?  They clearly did not cause the costs.

The costs obviously don't benefit other contracts, but my question is whether they somehow benefit the contract in question. If so, then I think we should be able to charge the costs as direct costs. If not, then I don't think they pass the test for allocability and we therefore can't bill them as direct costs. Am I missing something? Probably. That's why I came here.

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If a cost does not benefit a contract, that cost cannot be allocated to that contract either as a direct cost or an indirect cost.  It seems to me that justifying direct cost of a contract clearly benefits that contract.  Benefit is an accounting concept that simply means there is some logical connection between a cost and contract so that it is fair for that contract to bear at least a portion of that cost.  We do not know if those costs will benefit other contracts because we do not know all the facts relating to your circumstances.

The fact that an auditor has indicated that the costs of justifying costs the auditor may have questioned are unallowable as a direct cost, is only the auditor's opinion.  The contracting officer is the one who makes the final decision, subject to appeal under the Disputes clause.

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20 hours ago, here_2_help said:

Basically, your position is that a cost may be direct if it will be reimbursable; otherwise it should be indirect.

Here_2_Help, with respect to your quote above, I don't believe I intended or actually said that indirect costs are not reimbursable.

To Elgueromeromero, you have asked if you are missing anything. My view is that you would be missing something if your decision was not supported by your company's Cost Accounting Standards (CAS) Disclosure Statement or Generally Accepted Accounting Principles (GAAP) with respect to how/which personnel charge and are responsible for answering audit questions from your customer regarding invoice/billing processes and who it is that your company is planning on sending to the audit site and how you are planning to charge that work. Previous commenters seem to have inferred this as well, but did not mention the above standards.    

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Is it really necessary to travel to the audit site or could the meeting be conducted electronically ? You said the auditors or someone have “several questions”...  Seems like like “several questions” and your answers aren’t worth a trip for what may be only a couple of hours long meeting.

Why not offer an alternative to travel since the government has stated that it doesn’t want to pay for it? 

Can you explain what the relative magnitude of the travel and labor expense is vs. the amount of the questioned costs? 

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8 hours ago, joel hoffman said:

Can you explain what the relative magnitude of the travel and labor expense is vs. the amount of the questioned costs? 

Joel, as I read the OP, no costs have been questioned yet; the reviewer(s) simply have "several questions" about the invoicing process, and about "several discrepancies in some of our invoices." The fact that the contractor is being asked to travel to the reviewer(s)' location to answer those questions is not aligned with the rights and responsibilities imposed by 52.215-2. The fact that the reviewer(s) don't want to pay for the contractor travel as a direct contract cost is just the cherry on top of the sundae of unreasonableness.

Five bucks says all the questions and concerns can be answered by the contractor's billing department in a 10 minute phone conversation.

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8 hours ago, here_2_help said:

Joel, as I read the OP, no costs have been questioned yet; the reviewer(s) simply have "several questions" about the invoicing process, and about "several discrepancies in some of our invoices." The fact that the contractor is being asked to travel to the reviewer(s)' location to answer those questions is not aligned with the rights and responsibilities imposed by 52.215-2. The fact that the reviewer(s) don't want to pay for the contractor travel as a direct contract cost is just the cherry on top of the sundae of unreasonableness.

Five bucks says all the questions and concerns can be answered by the contractor's billing department in a 10 minute phone conversation.

H2H, I agree with you.

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