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Protest costs reimbursed by recommendation of GAO not allowable?

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Hello all. (Long long long time lurker here)


After 8 years of lurking, my first post will be regarding cost allowability for protest costs that are reimbursed by the Government due to GAO recommendations that the Government reimburses a contractor's protest cost after the contractor's protests were sustained.


The situation: Company protests Government's source selection process with the GAO and the GAO sustains the protest. Contractor goes from losing the award to winning an award under a MAC IDIQ contract. The GAO recommends reimbursement of the protest costs as per FAR 33.103 (h). The Government reimburses contractor 50k in protest costs.


FAR 31.205- 47 (f)(8) states "Costs not covered elsewhere in this subsection are unallowable if incurred in connection with Protests of Federal Government solicitations or contract awards, or the defense against protests of such solicitations or contract awards, unless the costs of defending against a protest are incurred pursuant to a written request from the cognizant contracting officer.

After reading through FAR 31.205-47, I do not find this cost covered under any other part of the subsection. Does that mean while the Government reimbursed the costs, they're still unallowable? If this is true, are there any other situations which the Government reimbursed costs but they're not considered allowable?


Hypothetically, if the protest was not sustained but resolved through a Agency Corrective Action that stated if the contractor agreed to drop the protest fees they would be put on the award, these would unreimbursed costs for the Government not following regulations?


Side question related to if the contractor failed to put in a claim of costs within 60 days as per FAR 33.103 (h) (2) they may forfeit their right to the costs. Does anyone know of any case studies where a contractor submitted a claim for their GAO recommend cost reimbursement of protest costs after the 60 days or something similar and was successful? The word "may" has me curious. Sorry if it is a bit long winded, it has been 8 years in the making!  Thank you in advance!

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10 minutes ago, Privacy said:

The situation: Company protests Government's source selection process with the GAO and the GAO sustains the protest. Contractor goes from losing the award to winning an award under a MAC IDIQ contract. The GAO recommends reimbursement of the protest costs as per FAR 33.103 (h). The Government reimburses contractor 50k in protest costs.

1. Does that mean while the Government reimbursed the costs, they're still unallowable? If this is true, are there any other situations which the Government reimbursed costs but they're not considered allowable?

2. If the protest was not sustained but resolved through a Agency Corrective Action that stated if the contractor agreed to drop the protest fees they would be put on the award, these would unreimbursed costs for the Government not following regulations?

3. If the contractor failed to put in a claim of costs within 60 days as per FAR 33.103 (h) (2) they may forfeit their right to the costs. Does anyone know of any case studies where a contractor submitted a claim for their GAO recommend cost reimbursement of protest costs after the 60 days or something similar and was successful?

My opinion:

1. The protest costs are unallowable. Because they are unallowable, they come out of the contractor's profits. When the government reimburses the costs, the check is recorded to "other income/expense" (or similar) to restore the contractor's lost profits.

2. The protest costs would still be unallowble. In this case, the contractor has traded restoration of its lost profits for an opportunity to receive an award and make future profits on that award.

3. I don't know of any case law on this question. It seems a bit silly to receive a GAO opinion recommending cost reimbursement and then fail to comply with the associated requirements. That said, I've seen sillier stuff so I probably shouldn't judge.

Hope this helps.

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H2H, you are quick!

In situation 1., does this negatively affect the contractor's OH rate? Since some of their indirect costs are disallowed?

Do you know of any other situations where the Government reimburses non-allowable costs? (Sorry I am very weak in CAS)

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1 hour ago, Privacy said:

FAR 31.205- 47 (f)(8) states "Costs not covered elsewhere in this subsection are unallowable if incurred in connection with Protests of Federal Government solicitations or contract awards, or the defense against protests of such solicitations or contract awards, unless the costs of defending against a protest are incurred pursuant to a written request from the cognizant contracting officer.

Think of this as a form of the "American Rule," whereby a litigant must pay his own litigation costs. Although there are exceptions, generally, you pay your own litigation costs (in government contracting). You can see another manifestation of this principle in the fact that costs of preparing a request for equitable adjustment (REA) are allowable (because the REA is considered contract administration) but the costs or preparing a claim are unallowable (because the claim is the start of litigation). 

1 hour ago, Privacy said:

Does that mean while the Government reimbursed the costs, they're still unallowable? If this is true, are there any other situations which the Government reimbursed costs but they're not considered allowable?

 

37 minutes ago, Privacy said:

Do you know of any other situations where the Government reimburses non-allowable costs? (Sorry I am very weak in CAS)

You need to distinguish between (a) the government in the form of the GAO recommending that a federal agency reimburse a contractor (unsuccessful offeror) for its protest costs and (b) the government in the form of a federal agency reimbursing a contractor pursuant to the CAS/cost allowability rules in a cost-reimbursement contract. If you don't distinguish between these two distinct scenarios, you will chase your tail.

 

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1 hour ago, Privacy said:

H2H, you are quick!

In situation 1., does this negatively affect the contractor's OH rate? Since some of their indirect costs are disallowed?

Do you know of any other situations where the Government reimburses non-allowable costs? (Sorry I am very weak in CAS)

Whenever you have unallowable indirect costs it reduces the allowable indirect cost rates, since pool/base = rate. Unallowable costs reduce the numerator (pool).

Often a contractor will have legal expenses (e.g., defense of government claims) for which allowability cannot be determined until after the outcome of the case. In those circumstances, conservative contractors treat the costs as being unallowable and hope they get a resolution before audit/negotion of the final billing rates. (That's tough to do in these days of "6-12-6".) Otherwise, they pursue an advance agreement re: treatment of the costs.

Hope this helps.

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18 minutes ago, here_2_help said:

Whenever you have unallowable indirect costs it reduces the allowable indirect cost rates, since pool/base = rate. Unallowable costs reduce the numerator (pool).

Often a contractor will have legal expenses (e.g., defense of government claims) for which allowability cannot be determined until after the outcome of the case. In those circumstances, conservative contractors treat the costs as being unallowable and hope they get a resolution before audit/negotion of the final billing rates. (That's tough to do in these days of "6-12-6".) Otherwise, they pursue an advance agreement re: treatment of the costs.

Hope this helps.

H2H and Pepe, I really appreciate your prompt and concise guidance. I have one final question.

If the GAO makes a recommendation that the agency should reimburse the protest costs, the claim should include the indirect costs of that protest as well since it cannot recoup them in their rate their indirect cost rates due to protest cost disallowance? If this claim was accepted, would that mitigate all the costs theoretical inccured by the agency's error?

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1 hour ago, Privacy said:

If the GAO makes a recommendation that the agency should reimburse the protest costs, the claim should include the indirect costs of that protest as well since it cannot recoup them in their rate their indirect cost rates due to protest cost disallowance? If this claim was accepted, would that mitigate all the costs theoretical inccured by the agency's error?

You're getting some of the semantics wrong, in my view. The submission of bid protest costs for reimbursement is not a "claim" (at least I don't think it is). The contractor is submitting its costs for reimbursement pursuant to the GAO recommendation.

Would reimbursement of the costs "mitigate" the problem? Not really, since had the costs been allowable the contractor likely would have received profit on those dollars. But it's far better than nothing.

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H2H, I use the term claim because FAR 33.104 (h)(2) uses the term claim. I have never actually been involved with this process so I do not know how it actually works. But once again, thank you for taking the time to discuss this hypothetical.

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Privacy, I have a slightly different take on this.  Protest costs are a form of costs that must be allocated to contracts in accordance with FAR 31.201-1 even though they are unallowable.  Many contractors accumulate protest costs in a litigation account which is an indirect cost account, usually G&A.  Unallowable G&A costs are not included in the G&A pool for determining reimbursable costs.  Instead, they are accumulated in an unallowable pool per FAR 31.201-6 and CAS 405.  When the government reimburses a contractor for protest costs, the reimbursement is treated as a credit to the protest costs per FAR 31.201-5.  This significantly reduces or eliminates the protest costs.  Thus, there are little if any unallowable protest costs to be allocated to contracts.  Accordingly, incurring protest costs that are reimbursed by the government should have little or no impact on indirect cost rates because unallowable protest costs are completely or nearly zeroed out due to government reimbursement.

Reimbursement of protest costs is not the only instance in which the government may reimburse a contractor for unallowable costs.  Some other examples are reimbursement of Contract Disputes Act costs under the Equal Access to Justice Act.  Also, the government may reimburse a contractor for unallowable costs under P.L. 85-804.

I am not sure what you mean by indirect costs of a protest.  However, most protest costs, such as outside attorney fees, are treated as indirect costs and are not burdened with indirect costs.

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Retread,

I think you may be ignoring the timing difference between cost incurrence and receipt of the reimbursement.

H2H

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1 hour ago, Retreadfed said:

Privacy, I have a slightly different take on this.  Protest costs are a form of costs that must be allocated to contracts in accordance with FAR 31.201-1 even though they are unallowable.  Many contractors accumulate protest costs in a litigation account which is an indirect cost account, usually G&A.  Unallowable G&A costs are not included in the G&A pool for determining reimbursable costs.  Instead, they are accumulated in an unallowable pool per FAR 31.201-6 and CAS 405.  When the government reimburses a contractor for protest costs, the reimbursement is treated as a credit to the protest costs per FAR 31.201-5.  This significantly reduces or eliminates the protest costs.  Thus, there are little if any unallowable protest costs to be allocated to contracts.  Accordingly, incurring protest costs that are reimbursed by the government should have little or no impact on indirect cost rates because unallowable protest costs are completely or nearly zeroed out due to government reimbursement.

Reimbursement of protest costs is not the only instance in which the government may reimburse a contractor for unallowable costs.  Some other examples are reimbursement of Contract Disputes Act costs under the Equal Access to Justice Act.  Also, the government may reimburse a contractor for unallowable costs under P.L. 85-804.

I am not sure what you mean by indirect costs of a protest.  However, most protest costs, such as outside attorney fees, are treated as indirect costs and are not burdened with indirect costs.

Retread, thank you for your input.

Why would you not burden the outside attorney fees? Isn't there G&A costs associated with using an outside attorney such as time with the CEO, AR, AP, etc?

Hypothetically, if the contractor made a time card with a task code for working on the project and documented their hours on it, would that be the way to get back the G&A expenses? (Assuming you bill the wrap rate for the employee.)

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36 minutes ago, Privacy said:

Why would you not burden the outside attorney fees? Isn't there G&A costs associated with using an outside attorney such as time with the CEO, AR, AP, etc?

The time contractor personnel spend with the outside attorney should be charged to the protest account.  Because it relates to the protest, the  cost of the time spent by contractor personnel working on the protest is unallowable.  Thus, it has to be segregated from allowable G&A.  It is recoverable as protest costs, not as G&A if the GAO recommends reimbursement of the cost of filing and pursuing the protest.

H2H, when you are asking about timing differences, are you talking about the situation where protest costs may be incurred in one accounting period and recovered in another?  If not, what did you have in mind?

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20 hours ago, Privacy said:

If the GAO makes a recommendation that the agency should reimburse the protest costs, the claim should include the indirect costs of that protest as well since it cannot recoup them in their rate their indirect cost rates due to protest cost disallowance?

PepeTheFrog does not know whether the GAO or the agency will recommend or agree to pay the indirect costs of the protest. There is an opportunity for the agency to accept, deny, or negotiate the costs that the successful protestor submits. There is also an "appeals" process back to the GAO if you can't come to an agreement. See below.

It seems like the regulations are focused on the direct (hourly) costs of attorneys, consultants, and expert witnesses. PepeTheFrog does not know if there is any precedent on such indirect costs, but you could create or add to such precedent by "giving it the old Harvard try."

https://www.gao.gov/legal/bid-protests/reference-materials

From 4 CFR 21.8 (Title 4 of the Code of Federal Regulations, Section 21.8):

"(d) If GAO determines that a solicitation, proposed award, or award does not comply with statute or regulation, it may recommend that the agency pay the protester the costs of:

(1) Filing and pursuing the protest, including attorneys’ fees and consultant and expert witness fees; and

(2) Bid and proposal preparation.

(e) Recommendation for reimbursement of costs. If the agency decides to take corrective action in response to a protest, GAO may recommend that the agency pay the protester the reasonable costs of filing and pursuing the protest, including attorneys’ fees and consultant and expert witness fees. The protester shall file any request that GAO recommend that costs be paid not later than 15 days after the date on which the protester learned (or should have learned, if that is earlier) that GAO had closed the protest based on the agency’s decision to take corrective action. The agency shall file a response within 15 days after the request is filed. The protester shall file comments on the agency response within 10 days of receipt of the response. GAO shall dismiss the request unless the protester files comments within the 10-day period, except where GAO has granted an extension or established a shorter period.

(f) Recommendation on the amount of costs.

(1) If GAO recommends that the agency pay the protester the costs of filing and pursuing the protest and/or of bid or proposal preparation, the protester and the agency shall attempt to reach agreement on the amount of costs. The protester shall file its claim for costs, detailing and certifying the time expended and costs incurred, with the agency within 60 days after receipt of GAO’s recommendation that the agency pay the protester its costs. Failure to file the claim within that time may result in forfeiture of the protester’s right to recover its costs.

(2) The agency shall issue a decision on the claim for costs as soon as practicable after the claim is filed.

(3) If the protester and the agency cannot reach agreement regarding the amount of costs within a reasonable time, the protester may file a request that GAO recommend the amount of costs to be paid, but such request shall be filed within 10 days of when the agency advises the protester that the agency will not participate in further discussions regarding the amount of costs.

(4) Within 15 days after receipt of the request that GAO recommend the amount of costs to be paid, the agency shall file a response. The protester shall file comments on the agency response within 10 days of receipt of the response. GAO shall dismiss the request unless the protester files comments within the 10-day period, except where GAO has granted an extension or established a shorter period.

(5) In accordance with 31 U.S.C. 3554(c), GAO may recommend the amount of costs the agency should pay. In such cases, GAO may also recommend that the agency pay the protester the costs of pursuing the claim for costs before GAO.

(6) Within 60 days after GAO recommends the amount of costs the agency should pay the protester, the agency shall file a notification of the action the agency took in response to the recommendation."

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5 minutes ago, PepeTheFrog said:

PepeTheFrog does not know whether the GAO or the agency will recommend or agree to pay the indirect costs of the protest. There is an opportunity for the agency to accept, deny, or negotiate the costs that the successful protestor submits. There is also an "appeals" process back to the GAO if you can't come to an agreement. See below.

It seems like the regulations are focused on the direct (hourly) costs of attorneys, consultants, and expert witnesses. PepeTheFrog does not know if there is any precedent on such indirect costs, but you could create or add to such precedent by "giving it the old Harvard try."

https://www.gao.gov/legal/bid-protests/reference-materials

From 4 CFR 21.8 (Title 4 of the Code of Federal Regulations, Section 21.8):

"(d) If GAO determines that a solicitation, proposed award, or award does not comply with statute or regulation, it may recommend that the agency pay the protester the costs of:

(1) Filing and pursuing the protest, including attorneys’ fees and consultant and expert witness fees; and

(2) Bid and proposal preparation.

(e) Recommendation for reimbursement of costs. If the agency decides to take corrective action in response to a protest, GAO may recommend that the agency pay the protester the reasonable costs of filing and pursuing the protest, including attorneys’ fees and consultant and expert witness fees. The protester shall file any request that GAO recommend that costs be paid not later than 15 days after the date on which the protester learned (or should have learned, if that is earlier) that GAO had closed the protest based on the agency’s decision to take corrective action. The agency shall file a response within 15 days after the request is filed. The protester shall file comments on the agency response within 10 days of receipt of the response. GAO shall dismiss the request unless the protester files comments within the 10-day period, except where GAO has granted an extension or established a shorter period.

(f) Recommendation on the amount of costs.

(1) If GAO recommends that the agency pay the protester the costs of filing and pursuing the protest and/or of bid or proposal preparation, the protester and the agency shall attempt to reach agreement on the amount of costs. The protester shall file its claim for costs, detailing and certifying the time expended and costs incurred, with the agency within 60 days after receipt of GAO’s recommendation that the agency pay the protester its costs. Failure to file the claim within that time may result in forfeiture of the protester’s right to recover its costs.

(2) The agency shall issue a decision on the claim for costs as soon as practicable after the claim is filed.

(3) If the protester and the agency cannot reach agreement regarding the amount of costs within a reasonable time, the protester may file a request that GAO recommend the amount of costs to be paid, but such request shall be filed within 10 days of when the agency advises the protester that the agency will not participate in further discussions regarding the amount of costs.

(4) Within 15 days after receipt of the request that GAO recommend the amount of costs to be paid, the agency shall file a response. The protester shall file comments on the agency response within 10 days of receipt of the response. GAO shall dismiss the request unless the protester files comments within the 10-day period, except where GAO has granted an extension or established a shorter period.

(5) In accordance with 31 U.S.C. 3554(c), GAO may recommend the amount of costs the agency should pay. In such cases, GAO may also recommend that the agency pay the protester the costs of pursuing the claim for costs before GAO.

(6) Within 60 days after GAO recommends the amount of costs the agency should pay the protester, the agency shall file a notification of the action the agency took in response to the recommendation."

Pepe, roger that. Do you know of any precedent of accepting claims after the 60 window? The word "may"  IAW FAR 33.104 (h)(2) (also 4 CFR 21.8 (f)(1)) seems like there is some flexibility.

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5 hours ago, Retreadfed said:

H2H, when you are asking about timing differences, are you talking about the situation where protest costs may be incurred in one accounting period and recovered in another?

Yes

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I don't see a problem because we are talking about expressly unallowable costs that cannot be charged to the government.  A credit or non-credit to an expressly unallowable cost will have no impact on the costs that are billed to the government.

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