DCAA Using DSSR Rates as cap for hazardous duty pay

[sprice11]

My company is currently having a disagreement with an audit finding by DCAA that states the following:  "

"We determined the costs to be unreasonable due to the allowable rates applicable to Government civilian employees, per the Department of State's (DoS) Department of State Standardized Regulations (DSSR).  We do not believe {COMPANY NAME} practice of providing rate allowances that exceed what is allowable for Government civilian employees to be costs incurred by a prudent person in the conduct of competitive business."

My argument with DCAA,  and our ACO is this: 1) we negotiated the ODC/TDY/Hazard Rates with the government with our proposal, and costs were accepted by the Contracting Officer to be fair and reasonable before the contract was let.  2)  the DSSR does not apply to our contract.  3)  FAR 31.205-6 -- Compensation for Personal Services (f) Bonuses and Incentive Compensation.......as these costs are considered, in our opinion, to be incentive pay in order to get people to deploy to the parts of the world they do.....

 

Can anybody let me know if those arguments are good?  I also made the point that if DCAA can come in after all the work is completed, and try to apply a regulation that does not apply to our contract, then how are we to ever be able to negotiate with the government in good faith again..

[ji20874]

Has the ACO already agreed with the DCAA finding? 

[here_2_help]

sprice11,

Unless your contract incorporates the DSSR, DCAA's argument is probably not good. It is not good because, under the DSSR, your employees would be entitled to overtime pay for hours worked in excess of 40 per week, just like State Department employees. If you are like almost all contractors I know, you allow your deployed employees to charge up to X hours per week (depending on the site it could be up to 84 hours/week) and do not pay them overtime rates for the hours in excess of 40; and then you mark up the ST rates by the hazardous duty allowance. However, if you pay OT and then mark up the OT by the hazardous duty rate, DCAA has a stronger argument.

But the fundamental point is that the DSSR does not apply unless the contract says it does.

[Retreadfed]

In addition to what H2H has said, DCAA seems to talk out of both sides of its mouth in regard to what the government pays its employees being a measure of reasonableness.  For example, DCAA says that contractors cannot base what salary they pay their employees on pay rates for government employees.  Yet here, DCAA is saying that HD pay has to be based on what government employees get in order to be reasonable.

Also, DCAA does not know how to properly apply FAR 31.201-3.  Read it carefully and do some research on the discretion it affords contractors.  This should be helpful in responding to DCAA and the ACO.

[sprice11]

Sorry, for taking so long to reply.  

 

JJ20874 - No, the ACO has not yet agreed to the finding, but we had a discussion with the PCO today, and she said she plans on agreeing with it.  

Here_2_help - This was my exact point to both DCAA, and the ACO.   That is exactly how we allow our  deployed employees to charge.  In fact, our HD incentive pay is well documented in our policies and procedures, and they are provided to the PCO before each task order is released.   No overtime is allowed on the contract.  

[C Culham]

No cost contract expert.  Likewise I have been challenged before that my references that I provide are not spot on.  But, I do look at posts and explore issues raised just for my own inquisitive mind.  In this case as I was doing some reading I ran across this document (I acknowledge that it is dated) that may have some ideals that would be helpful in your discussion with PCO/ACO/DCAA....

https://www.dcaa.mil/content/Documents/mmr/m04ppd023.pdf

 

 

[sprice11]

Yes, I am familiar with that audit guidance, and with the fact that it is flawed.....DSSR Rates

basically my arguments boil down to a few things:

1) DCAA said "We do not believe [company name's] practice of providing rate allowances that exceed what is allowable for Government civilian employees to be costs incurred by a prudent person in the conduct of competitive business."

Makes absolutely zero sense, and is not based on any policy, or contract clause.  In negotiations with the government we made perfectly clear how we pay for hazard, incentive, etc pay, and provided the plans and policies to back this up.  We even showed that other companies charge much higher %'s.

2) The Contracting Officer already negotiated this pricing structure with us.  By going back now and changing the rules, shows that the govt (a) didnt adhere to the FAR when it requires pricing to be judged fair and reasonable before letting a contract,  (b) how are we to negotiate in good faith going forward if they change the rules

3) DCAA said that since the DSSR is mentioned in the FAR that it should apply to us.  This makes the least sense of it all.  We are under no contractual basis to follow the DSSR.  Yes, there are contracts that do require it, but ours does not.   I believe this would equate to a constructive change of contract.  

 

At least that is an overview of three points we will make.  I have also written to the PCO in order to obtain the Pricing Negotiation Memorandums that are required to be placed in our contract file.  However, I am not sure they have to share this information.

 

Please if you have any other arguments to make, share away!  

[here_2_help]

 

Quote

 

This appeal comes down to the interpretation of a contract provision permitting [CACI] to be reimbursed by the government for hazardous duty pay made to its employees assigned to work overseas …. . The pay at issue was 35% of the ‘basic compensation’ made by CACI to its employees. In its pending motion for summary judgment, the government contends that this ‘basic compensation’ is what the CACI employees are paid for non-overtime hours. After the employees were paid for the first 40 hours that they worked per week, the government argues, any additional hours that they worked should be considered to be overtime and not subject to the 35% pay supplement.

CACI urges the Board to recognize that the ‘normal hours’ that its employees were expected to work by the government (depending on the government task order at issue), were either 84 or 72 hours per week, without such hours being considered overtime. Thus, as CACI would have it, since 84 or 72 hours per week were the employees' expected hours, pay for the entirety of those hours was the employees' basic compensation to which the 35% pay supplement should apply.

.... CACI prevails

 

ASBCA No. 60171

 

 

 

[ji20874]

sprice11,

Are you willing to make this matter the subject of a claim under the Disputes clause of your contract if the contracting officer actually disallows the cost (depending, of course, on the reasoning explained in the disallowance notice)?  

[Retreadfed]

This would likely be a government claim against the contractor because the government would likely be seeking to recover costs already paid. 

[ji20874]

Retreaded,

Not necessarily.  The contracting officer can disallow the costs without making an immediate demand for re-payment (the contracting officer might want to offset future payments). The contracting officer’s decision to disallow the costs could easily be the basis for a dispute as a matter in interpretation of contract terms.

Edited January 27, 2019 by ji20874
delete parenthetical statment

[Retreadfed]

41 minutes ago, ji20874 said:

the contracting officer might want to offset future payments

How would the contracting officer do that without following the procedures in FAR 32.6 particularly 32.606?

[ji20874]

You're right; I should remove the parenthetical statement based on FAR 32.602.    

Once the contracting officer has made a decision to disallow an incurred (or projected) cost, and after the contracting officer issues a final decision affirming the disallowance of the cost, the contractor will be able to appeal the disallowance to a board of contract appeals.  I wonder if the original poster feels strongly enough to do so.

 

 

[ji20874]

A DCAA memo at https://www.dcaa.mil/content/Documents/mmr/m04ppd023.pdf that might be helpful to the original poster -- here's an excerpt:

"In cases where there is inadequate contractor support to justify hardship payments beyond the DSSR allowances, challenges to these costs should be made in accordance with FAR 31.205-6(b) because the costs exceed compensation practices of other firms in the same geographic area (i.e., Iraq). In accordance with FAR 31.201-3(a), the burden of proof is then upon the contractor to establish that such a cost is reasonable."

[here_2_help]

ji20874.

That memo is not particularly helpful to anybody. I post this not to try to make you feel bad, but so that others will know.

First, the memo is now 15 years old. It doesn't describe current compensation practices--if it ever did.

Second, from Day 1 there was controversy about that memo; the sample size was very small; it was alleged at the time that it was not a representative sample of contractors. Consequently, it was definitely questionable as to whether DCAA could extrapolate from its sample to all contractors being audited.

If DCAA and the CO are relying on that memo today as the basis for questioning costs, it's going to be fairly easy to rebut the government's position. As a couple of recent legal decisions have shown that when a cost is questioned on the basis of reasonableness, there must be a real issue associated with a specific cost. If a cost is simply questioned without specificity, and the CO thinks the burden is now solely on the contractor, that's an oversimplification of the situation.

[ji20874]

I said it "might" be helpful.

It is still on the DCAA website, and it speaks to two principles pertinent to this discussion:  

1. DSSR rates do not apply to contractor employees; and
2. If a DCAA auditor wants to challenge a contractor's rates, he or she has to have a better reason than citing the DSSR.  

Wouldn't you agree that these two principles are still valid today?  If there is an appeal, the original poster's counsel will want to know about this letter.

[C Culham]

On ‎1‎/‎23‎/‎2019 at 2:11 PM, C Culham said:

No cost contract expert.  Likewise I have been challenged before that my references that I provide are not spot on.  But, I do look at posts and explore issues raised just for my own inquisitive mind.  In this case as I was doing some reading I ran across this document (I acknowledge that it is dated) that may have some ideals that would be helpful in your discussion with PCO/ACO/DCAA....

https://www.dcaa.mil/content/Documents/mmr/m04ppd023.pdf

Thanks ji for supporting a reference I previously provided!!!!!!

[here_2_help]

11 hours ago, ji20874 said:

I said it "might" be helpful.

It is still on the DCAA website, and it speaks to two principles pertinent to this discussion:  

1. DSSR rates do not apply to contractor employees; and
2. If a DCAA auditor wants to challenge a contractor's rates, he or she has to have a better reason than citing the DSSR.  

Wouldn't you agree that these two principles are still valid today?  If there is an appeal, the original poster's counsel will want to know about this letter.

Yes, those two principles are still valid. You were correct to ressurect them.

[UseTheFARLuke]

On ‎1‎/‎23‎/‎2019 at 4:48 PM, sprice11 said:

3) DCAA said that since the DSSR is mentioned in the FAR that it should apply to us.  This makes the least sense of it all.  We are under no contractual basis to follow the DSSR.  Yes, there are contracts that do require it, but ours does not.   I believe this would equate to a constructive change of contract.  

The DSSR is mentioned in FAR 31.205-46.  However, the travel cost principle only incorporates the PER DIEM RATES and even says that the entirety of the DSSR is not incorporated into the FAR.  If DCAA is referring to -46 the it is a FAR reach (pun intended) to incorporate the danger pay uplifts into the contract.  Especially because the employees are not on travel, they are permanently stationed overseas.