Price Negotiation Memorandum, and Contractors access to it

[ji20874]

Retreadfed,

No.

This hypothetical text from a PNM suggests that the proposed element of cost, during the cost analysis exercise, was seen as reasonable for purposes of forming the contract and establishing the overall estimated cost of the contract.  It is not dispositive evidence that a cost incurred during contract performance is allowable (incl. reasonable) for purposes of reimbursement.

[Retreadfed]

28 minutes ago, ji20874 said:

It is not dispositive evidence

Ji, note that I asked if it was evidence.  Evidence and dispositive evidence are not necessarily the same.  Also, can you provide some rationale for your position? 

[joel hoffman]

4 hours ago, Retreadfed said:

ji, consider this language from a hypothetical PNM:  "The contractor proposed an hourly labor rate of $X.  We verified this labor rate with DCAA.  Further, this same labor rate was proposed and agreed to under other contemporaneous competitively awarded contracts.  Based on these facts, I have determined that $X per hour is a reasonable amount for the labor proposed."

During contract performance, the contractor paid $X per hour of labor.  Do you believe that this statement from the PNM is not evidence of the reasonableness of the cost incurred during contract performance?

Yes,  indeed, if that level of detail, in fact, was captured in price negotiation memorandum. From the description provided I’m not even sure that there were any negotiations before award.

Regardless, as H2H has stated, the PNM information should be discoverable in a claim. 

In another thread, sprice11 stated the DCAA was applying restrictions or comparisons with DSSR rates, which are not applicable to the contract. I think that this is a continuation of or related to the other thread. 

http://www.wifcon.com/discussion/index.php?/topic/4647-dcaa-using-dssr-rates-as-cap-for-hazardous-duty-pay/&tab=comments#comment-44500

 I am getting the sense that the government award team did not object to the methodology nor incentive package that the contractor proposed and the contracting officer awarded the contract or task order. Now, DCAA has raised the DSSR issue during its invoice reviews. I may be wrong.

[ji20874]

1 hour ago, joel hoffman said:

I am getting the sense that the government award team did not object to the methodology nor incentive package that the contractor proposed and the contracting officer awarded the contract or task order. Now, DCAA has raised the DSSR issue during its invoice reviews. I may be wrong.

1

I'm thinking the same way.

If this goes to a board of contract appeals, it will be interesting to read the decision.  Can a pre-award finding of reasonableness for an element of cost by the Government during contract formation establish a perpetual presumption in the contractor's favor regarding the reasonableness portion of post-award incurred cost allowability reviews, and estop the Government from questioning or disallowing the incurred costs during contract administration?  Some here would say YES, but I would say NO.  

[Retreadfed]

36 minutes ago, ji20874 said:

 Some here would say YES, but I would say NO.  

So are you in favor of the government potentially misleading a contractor as to what would be an allowable cost?  Would a prior course of dealing allowing the cost on previous contracts have an impact on the allowability of the cost?  Would you say the the PNM is not admissible as evidence in a BCA proceeding?

[joel hoffman]

I’ll have to find some time to review my Nash and Cibinic books. 

 Here is my take on it. The contract doesn’t restrict compensation to that for government employees.

The contractor expressly proposed and explained its planned approach. The government had clear knowledge of that plan.  The government evaluated and accepted the proposed approach. The KO has the responsibility to determine whether or not the proposed approach was fair and reasonable before awarding the task order.

The government apparently did not seek field pricing support from DCAA during proposal review.

There may not have been any negotiation before award - at least concerning the proposed compensation and incentive plan.

Edit: I reread the other thread. The OP did mention that the incentive and hazard allowances were negotiated and agreed upon. 

The contractor executed its plan accordingly. 

The government made no objection to the reasonableness during contract performance.

Another agency now decides to redefine what is reasonable after the fact, based upon an inapplicable cost ceiling - that wasn’t in the contract. 

Can the government redefine what is fair and reasonable after the fact, based upon the other agency’s later judgement of what is fair and reasonable?  

Should the contracting office have obtained DCAA field pricing assistance and input prior to accepting the proposal?  FAR contemplates that. It used to be standard practice in our organization to obtain audit support for non-competitively negotiated contract actions. This is a perfect example of why field pricing support should be sought and provided. 

Should those performing cost and price analysis be qualified and/or seek advice as necessary? 

Where fair and reasonable isn’t specifically defined in the contracti, it is supposedly based upon judgement.

I don’t think that the government can get away with redefining it after performance by basing it upon something that wasn’t  contractually binding or even mutually known or raised until after performance.

i may be wrong. 

[joel hoffman]

DuplicTw

[ji20874]

4 hours ago, Retreadfed said:

So are you in favor of the government potentially misleading a contractor as to what would be an allowable cost?  

 

No.  It is professionally discourteous of you to so suggest.

If the parties had come to agreement on how particular costs were to be treated, they would have executed an advance agreement (FAR 31.109) -- that is the express purpose of an advance agreement.  But they didn't execute an advance agreement (or at least, the original poster hasn't mentioned one); therefore, they did not agree on future treatment of incurred costs.  FAR 31.109(h)(1) points specifically to this subject of contractor employee compensation.

Let me ask you if you agree with any or all of the following statements, all drawn from FAR Subpart 15.4--

1. In a pre-award negotiation based on cost analysis for a cost-reimbursement contract, it is not necessary for the parties to agree on every element of cost; rather, it is only necessary that they agree on the bottom-line estimated cost.  AGREE  DISAGREE
2. In such a pre-award negotiation, and having agreed on the bottom-line estimated cost, the parties are free to retain their own understandings of the several cost elements.  AGREE  DISAGREE
3. The PNM reflects the Government's record of the negotiation -- it is not a joint record.  AGREE  DISAGREE

And one last question:  Can a pre-award finding of reasonableness for an element of cost by the Government during contract formation establish a perpetual presumption in the contractor's favor regarding the reasonableness portion of post-award incurred cost allowability reviews, and estop the Government from questioning or disallowing the incurred costs during contract administration?  YES  NO

By the way, I think the original poster will win its DSSR case at a board of contract appeals, but not for the reason discussed in this thread -- it will win based on the reason discussed in the other thread (that DSSR doesn't apply to contractor employees).

[ji20874]

2 hours ago, joel hoffman said:

The government made no objection to the reasonableness during contract performance.

 

Para. (g) of the Allowable Cost and Payment clause specifically allows for audits, and resulting reductions or adjustments in previous payments, after the contracting officer has approved the invoice and up to the point of final payment.  I have no objection to DCAA looking at invoices that I have already approved and paid.

2 hours ago, joel hoffman said:

Another agency now decides to redefine what is reasonable after the fact, based upon an inapplicable cost ceiling - that wasn’t in the contract. 

Can the government redefine what is fair and reasonable after the fact, based upon the other agency’s later judgement of what is fair and reasonable?  

1

DCAA's imposition of DCAA rates as a ceiling is error, in my opinion.  I hope the contracting officer does not accept DCAA's position (if the DCAA position is solely premised on the contractor's rates exceeding DSSR rates).  However, if the DCAA position is supported by other evidence, well, that's different.

 

[joel hoffman]

6 hours ago, ji20874 said:

Para. (g) of the Allowable Cost and Payment clause specifically allows for audits, and resulting reductions or adjustments in previous payments, after the contracting officer has approved the invoice and up to the point of final payment.  I have no objection to DCAA looking at invoices that I have already approved and paid.

Sure they can audit after approval of an invoice. However, can they make a determination for the government that a cost is unreasonable, simply based upon a standard or requirement that doesn’t apply to the contract? They can question a cost. In this case, the basis of those questioned costs was proposed, evaluated, negotiated and, presumably accepted. From the other thread by the OP under contract pricing:

“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...”

“1)...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.”

If the contracting officer (KO) had no independent basis of estimate (I.e., had no clue) as to what would constitute fair and reasonable incentive/hazardous duty compensation for contractor employees, the KO should have sought out field pricing support from DCAA or other qualified cost/price analysts during the proposal evaluation and pre-negotiation procedures in accordance with FAR Part 15.4.  For a second bite of the apple, the KO could have also consulted with others during negotiations, before determining that the proposed price was fair and reasonable, 

Here, I’m guessing that the KO did not express reservations or any disagreement with the proposed compensation approach during negotiations of the overall proposal.

So, DCAA is questioning incurred costs by expressing an OPINION of what it considers to be a reasonable limit or comparison for incentive/hazardous duty contractor employee compensation. 

For purposes of answering the basic question in this thread, as others have stated, if the KO won’t voluntarily release any information concerning the relevant portions of the record of negotiations, I believe that the contractor can obtain access to it if it submits a claim.  

I recommend face to face (recorded, if possible) meeting with the KO to confirm that the government both understood and did not take any exception to the proposed compensation basis prior to awarding the task order and during execution of the task order, while the costs were being expended with the understanding that they were “fair and reasonable”. 

Yes, under 31.201-3 (a), “...[if] an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer's representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

And the cost principles in FAR 31.205 also apply.

It appears that the contractor met its burden and fulfilled it’s part of the bargain.

Assuming that 31.205-6 or other CONTRACTUALLY APPLICABLE cost principles aren’t in question here, how many “initial reviews” is the government allowed and when are they REASONABLY allowed?

Is it REASONABLE for the government to re-formulate an OPINION of what would be a reasonable compensation plan late in the game - after opportunities  and prescribed procedures for “initial review” by the appropriate personnel, explained in the Federal Acquisition Regulations , allow and require the KO to determine that the contractor’s PROPOSED compensation plan is fair and reasonable? 

The KO awarded the task order with the full knowledge of the proposed compensation plan and the KO or its authorized representative were or should have been well aware of the costs being expended for that effort with the mutual understanding and agreement that this was fair and reasonable.

The DCAA expressed an opposition OPINION, based upon non-applicable comparison criteria.

[joel hoffman]

In case it isn’t evident, I get riled up when the government doesn’t have the knowledge or skips vital processes such as field pricing support and audits of proposals to award task order or contracts- especially cost reimbursable awards, with full knowledge of the intended plan.

Then the government observes - or worse, fails to observe - the execution, letting the. contractor expend costs in execution of its plan. 

Then the KO thinks it can rely upon auditor’s opinion of what is “fair and reasonable” approach to deny approval of those same costs.

Its not the contractors fault or responsibility that DCAA or the KO don’t have the necessary resources to properly review a clearly stated cost and method proposal before accepting it under the guise that it is fair and reasonable.

In a cost reimbursement contract, when a cost principle is not in question, after plenty of opportunity for “initial review”, the government should advise, object or just plain tell the contractor that it’s spending is too high - during performance.

The government has some contractual and good faith responsibilities too!!!

[C Culham]

Going back and re-reading this thread the issue is the government has stated a position and Sprice is looking for ways to defend his/her entities position specifically with regard to obtaining the agency's price negotiation memorandum.  The answer seems, and I agree, that it depends on the who, when, etc. of whether the agency will, or has to provide the memorandum.   Beyond this need it would seem there is a process that both the agency and Sprice needs to follow with regard to a direct cost being questioned, negotiated and possibly and ultimately disallowed by the agency.  Noting this I uncovered this memorandum that may be helpful to Sprice......

https://www.dcma.mil/Portals/31/Documents/Policy/DCMA-INST-128.pdf

[Retreadfed]

12 hours ago, ji20874 said:

No.  It is professionally discourteous of you to so suggest.

If the parties had come to agreement on how particular costs were to be treated, they would have executed an advance agreement (FAR 31.109) -- that is the express purpose of an advance agreement.  But they didn't execute an advance agreement (or at least, the original poster hasn't mentioned one); therefore, they did not agree on future treatment of incurred costs.  FAR 31.109(h)(1) points specifically to this subject of contractor employee compensation.

Let me ask you if you agree with any or all of the following statements, all drawn from FAR Subpart 15.4--

1. In a pre-award negotiation based on cost analysis for a cost-reimbursement contract, it is not necessary for the parties to agree on every element of cost; rather, it is only necessary that they agree on the bottom-line estimated cost.  AGREE  DISAGREE
2. In such a pre-award negotiation, and having agreed on the bottom-line estimated cost, the parties are free to retain their own understandings of the several cost elements.  AGREE  DISAGREE
3. The PNM reflects the Government's record of the negotiation -- it is not a joint record.  AGREE  DISAGREE

And one last question:  Can a pre-award finding of reasonableness for an element of cost by the Government during contract formation establish a perpetual presumption in the contractor's favor regarding the reasonableness portion of post-award incurred cost allowability reviews, and estop the Government from questioning or disallowing the incurred costs during contract administration?  YES  NO

There is a lot to unpack here but let me try.

First, I was not being discourteous.  You made a statement of principle and I was attempting to explore the scope of the principle you were asserting.  This question was based on experience with government contracting officers.  I have had situations where the contractor stated its pricing assumptions in its proposal.  However, the government was aware that the contract would require much more than the contractor assumed.  However, the government never made the contractor aware of its erroneous assumptions.  This failure to disclose government superior knowledge misled the contractor into underpricing the contract.

The parties would not necessarily have executed an advance agreement.  Many contractors would expect the government to abide by agreements concerning price reached in negotiations.  Further, in my dealings with contracting officers, I doubt that most of them would go to the trouble of drafting an advance agreement to cover what was agreed to in negotiations.

As for the three questions you asked, I would agree if the negotiations were all on a bottom line basis.  However, I would disagree if there was a negotiation concerning specific elements of costs. 

As for your last question, I have to resort to my favorite answer concerning government contract questions - it depends on the facts that are present at the time of the negotiations.