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elgueromeromero

Obligation to update indirect rates during negotiations

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We used our 2016 incurred rates to come up with our estimated cost for a CPFF proposal. DCAA did an informal review (not a full-blown audit) of these rates and they were "accepted". It's been about a year since we submitted our proposal and we finally received notice that we've been included in the competitive range and we're now in negotiations with the Gov't. We now have DCAA-accepted 2017 incurred indirect rates, which have changed slightly from our 2016 rates. I don't know if we should use the 2016 rates that we originally used to estimate our cost for the proposal, or if there's some expectation or requirement that we update our rates to the more current 2017 incurred rates. The RFP and negotiations letter are both silent on this matter.

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Are you going to be covered by the requirement for current, accurate, and complete cost or pricing data? 

Are you going to be asked to submit a proposal revision after negotiations?

Do you have a forward pricing rate agreement (FPRA)?

Are the 2017 rates generally higher or generally lower than the 2016 rates?

If the contracting officer learns about the DCAA-accepted 2017 incurred indirect rates from DCAA or some other source, rather than from you, and forms conclusions based on learning this from another source, is that okay with you?

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25 minutes ago, ji20874 said:

Are you going to be covered by the requirement for current, accurate, and complete cost or pricing data? 

Yes

Are you going to be asked to submit a proposal revision after negotiations?

Yes

Do you have a forward pricing rate agreement (FPRA)?

No

Are the 2017 rates generally higher or generally lower than the 2016 rates?

2017 Fringe and OH are slightly lower than 2016. G&A is slightly higher. Combined effective rate for 2017 is slightly lower than that of 2016.

If the contracting officer learns about the DCAA-accepted 2017 incurred indirect rates from DCAA or some other source, rather than from you, and forms conclusions based on learning this from another source, is that okay with you?

I don't know. Our DCAA letter says not to use the accepted rates for pricing proposals, which seems kind of odd to me (because what are we supposed to use then?), but I'm thinking we could point to that if they asked why we didn't use them. Also, I don't know if it matters, but the Gov't is capping indirect rates.

 

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El,  I'm confused about what you are saying.  You said you have been told you are in the competitive range for the procurement.  This indicates that this is a competitive procurement.  Yet, you say you are "covered by the requirement for current, accurate, and complete cost or pricing data?  This indicates that there is not adequate price competition.  Reconcile these statements.  If the latter requirement is correct, have you looked at the instructions for submission of certified cost or pricing data in Table 15-2 found in FAR 15.408?

Next, you are referring to incurred indirect cost rates.  This indicates final rates for the years to me.  What you would use going forward are either forward pricing rates or billing rates.  Do you have billing rates for 2018-2019?

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You are supposed to use a current projection of future rates, based on anticipated costs and anticipated revenues (or FPRA, if still accurate).  A mechanical reliance on approved billing rates or approved past-year final indirect cost rates is improper for new proposals. A FPRA is different from approved billing rates or approved final indirect cost rates, but you don't have a FPRA.

So your proposal should explain the basis for all of the indirect cost rates included in your proposal.  You might be audited during the proposal evaluation period to help the contracting officer negotiate your proposal. You will want to be sure that the information in your proposal is current, accurate, and complete.

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1 hour ago, Retreadfed said:

El,  I'm confused about what you are saying.  You said you have been told you are in the competitive range for the procurement.  This indicates that this is a competitive procurement.  Yet, you say you are "covered by the requirement for current, accurate, and complete cost or pricing data?  This indicates that there is not adequate price competition.  Reconcile these statements.  If the latter requirement is correct, have you looked at the instructions for submission of certified cost or pricing data in Table 15-2 found in FAR 15.408?

Next, you are referring to incurred indirect cost rates.  This indicates final rates for the years to me.  What you would use going forward are either forward pricing rates or billing rates.  Do you have billing rates for 2018-2019?

I'm sorry, I misspoke. We aren't covered by the requirement for cost or pricing data as this is a competitive procurement. 

From what I understand, we also don't have billing rates. We have very few cost-reimbursement contracts so we calculate our rates on a contract by contract basis, and usually just end up using our most recent DCAA-accepted rates. 

1 hour ago, ji20874 said:

You are supposed to use a current projection of future rates, based on anticipated costs and anticipated revenues (or FPRA, if still accurate).  A mechanical reliance on approved billing rates or approved past-year final indirect cost rates is improper for new proposals. A FPRA is different from approved billing rates or approved final indirect cost rates, but you don't have a FPRA.

So your proposal should explain the basis for all of the indirect cost rates included in your proposal.  You might be audited during the proposal evaluation period to help the contracting officer negotiate your proposal. You will want to be sure that the information in your proposal is current, accurate, and complete.

What you're saying makes sense. However, our experience has been that Contracting Officers almost always want to see SOMETHING from DCAA, and our "accepted" rates letter from DCAA is what we typically provide. I think it gives the Contracting Officers a sense of security to see that DCAA has reviewed our rates and accepted them. The impression we get is that they expect our proposed rates to match what DCAA has accepted. But you're saying that we shouldn't rely on these rates as they likely aren't the most current, accurate, and complete data, which seems to make more sense given we don't have an FPRA.

So back to my question, would you suggest that we forget about the rates we used in our initial proposal and that we update our rates for our final proposal revision to reflect" a current projection of future rates, based on anticipated costs and anticipated revenues"? 

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I don't know enough to give a recommendation.  You submitted a proposal in a competitive environment, and the Government hasn't questioned your indirect rates.  The only reason for including indirect rates in your proposal is to come to an estimate of total cost as a basis for the awarded contract -- the proposed rates do not become contractually binding, and are largely irrelevant once the negotiation is complete and the contract is awarded.  Would updating your rates in the final proposal revision help or hinder your chances of contract award?

Sooner or later, if you continue to stay in the competition, the Government is going to have to develop a probable cost for your proposal.  Using newer numbers (even if higher than earlier numbers) might work in your favor if the Government sees the newer numbers as more realistic.

You said the Government was going to cap the rates.  If your rates are higher than the announced caps, then maybe they really don't matter.

But for me, it seems that the indirect rates in your original proposal should have been based on a then-current projection of future rates, based on anticipated costs and anticipated revenues, but instead the indirect rates in your original proposal were based on a previous year's approved indirect cost rates.  If it were me, I might want to correct that error.  That's just a thought, not a recommendation.

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El, if you have an idea as to what the cap on indirect cost rates will be, have you done an analysis to determine if you will perform the contract  at a loss after you have figured in all your anticipated allowable cost that will be allocated to the contract as well as all of your unallowable costs that also must be allocated to the contract but not reimbursable?

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On 2/14/2019 at 2:17 PM, Retreadfed said:

El, if you have an idea as to what the cap on indirect cost rates will be, have you done an analysis to determine if you will perform the contract  at a loss after you have figured in all your anticipated allowable cost that will be allocated to the contract as well as all of your unallowable costs that also must be allocated to the contract but not reimbursable?

Retreadfed, the indirects proposed by each offeror will be the established capped indirect rates for proposal and billing purposes on task orders should the offeror be awarded a contract. 

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On 2/14/2019 at 10:15 AM, elgueromeromero said:

I'm sorry, I misspoke. We aren't covered by the requirement for cost or pricing data as this is a competitive procurement. 

From what I understand, we also don't have billing rates. We have very few cost-reimbursement contracts so we calculate our rates on a contract by contract basis, and usually just end up using our most recent DCAA-accepted rates. 

What you're saying makes sense. However, our experience has been that Contracting Officers almost always want to see SOMETHING from DCAA, and our "accepted" rates letter from DCAA is what we typically provide. I think it gives the Contracting Officers a sense of security to see that DCAA has reviewed our rates and accepted them. The impression we get is that they expect our proposed rates to match what DCAA has accepted. But you're saying that we shouldn't rely on these rates as they likely aren't the most current, accurate, and complete data, which seems to make more sense given we don't have an FPRA.

So back to my question, would you suggest that we forget about the rates we used in our initial proposal and that we update our rates for our final proposal revision to reflect" a current projection of future rates, based on anticipated costs and anticipated revenues"? 

I’m not sure how “established capped rates” will apply to orders other than as a ceiling. Will you be billing for orders using the capped rates or your most currently available rates, if they are lower?

You said “Retreadfed, the indirects proposed by each offeror will be the established capped indirect rates for proposal and billing purposes on task orders should the offeror be awarded a contract. 

If billings will be based upon most currently available rates, then you have to decide what you are willing to limit your future cost recovery to, since your recent rates were actually slightly higher than your most currently available rates. Then it would seem that you are free to propose a cap that you can live with, also considering the fact that you are competing with other firms for the contract. 

 

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16 hours ago, elgueromeromero said:

Retreadfed, the indirects proposed by each offeror will be the established capped indirect rates for proposal and billing purposes on task orders should the offeror be awarded a contract. 

So it's not a cost-reimbursable contract then? Clause 52.216-7 will not be included?

I mean, if the rates I propose become fixed for the life of the contract then, to that extent, the contract is fixed-price.

Reimbursable labor plus a fixed multiplier is common in commercial contracts (e.g., refinery maintenance) but I've never seen it in the government contracting world. How interesting! I wonder if the CO has obtained a deviation from FAR to create this contract type?

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17 hours ago, elgueromeromero said:

Retreadfed, the indirects proposed by each offeror will be the established capped indirect rates for proposal and billing purposes on task orders should the offeror be awarded a contract. 

I'm still not clear as to what is happening.  Will the rates you are proposing be fixed rates so that no matter what your actual rates are, those are the rates at which you can bill and will be reimbursed on the final voucher, or are the rates you propose rate caps so that the final rates may be lower, but not higher?  If the former, how is this not a cost plus percentage of cost contract?

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On 2/16/2019 at 10:42 AM, Retreadfed said:

I'm still not clear as to what is happening.  Will the rates you are proposing be fixed rates so that no matter what your actual rates are, those are the rates at which you can bill and will be reimbursed on the final voucher, or are the rates you propose rate caps so that the final rates may be lower, but not higher?  If the former, how is this not a cost plus percentage of cost contract?

The proposed indirects are ceilings for proposal and billing purposes. So we can bill actual indirect rates but NTE the ceiling/capped indirect rates established in the contract. Does that clear it up?

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On 2/16/2019 at 3:13 AM, joel hoffman said:

I’m not sure how “established capped rates” will apply to orders other than as a ceiling. Will you be billing for orders using the capped rates or your most currently available rates, if they are lower?

You said “Retreadfed, the indirects proposed by each offeror will be the established capped indirect rates for proposal and billing purposes on task orders should the offeror be awarded a contract. 

If billings will be based upon most currently available rates, then you have to decide what you are willing to limit your future cost recovery to, since your recent rates were actually slightly higher than your most currently available rates. Then it would seem that you are free to propose a cap that you can live with, also considering the fact that you are competing with other firms for the contract. 

 

They're ceilings. The Gov't is calling them "capped rates". Yes, we will bill at our actual rates up to the NTE ceiling rates. 

 

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On 2/16/2019 at 9:28 AM, here_2_help said:

So it's not a cost-reimbursable contract then? Clause 52.216-7 will not be included?

I mean, if the rates I propose become fixed for the life of the contract then, to that extent, the contract is fixed-price.

Reimbursable labor plus a fixed multiplier is common in commercial contracts (e.g., refinery maintenance) but I've never seen it in the government contracting world. How interesting! I wonder if the CO has obtained a deviation from FAR to create this contract type?

Yes, it's a CPFF and 52.216-7 will be included. The indirect rates aren't fixed--they're actually ceilings. The Gov't is calling them capped rates. I apologize if I said they were fixed or made it sound like they're fixed. So we can bill at our actual indirect rates up to the ceiling/caps. Hopefully that clears things up.

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45 minutes ago, elgueromeromero said:

Yes, it's a CPFF and 52.216-7 will be included. The indirect rates aren't fixed--they're actually ceilings. The Gov't is calling them capped rates. I apologize if I said they were fixed or made it sound like they're fixed. So we can bill at our actual indirect rates up to the ceiling/caps. Hopefully that clears things up.

Yeah, when the ceilings = the proposed rates then somebody is taking a shortcut to performing a solid cost realism analysis. If the proposed rates = contract ceiling rates, then make sure to bid rates that give you plenty of room on top. (Disclose your actual rates, of course. But propose higher rates.)

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On 2/19/2019 at 1:44 PM, here_2_help said:

Yeah, when the ceilings = the proposed rates then somebody is taking a shortcut to performing a solid cost realism analysis. If the proposed rates = contract ceiling rates, then make sure to bid rates that give you plenty of room on top. (Disclose your actual rates, of course. But propose higher rates.)

Thanks, Help. I really appreciate your thoughts on this. And thanks for your contribution to this site. I can't tell you how many times I've found answers to these types of questions by coming here and reading your comments. 

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