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Don,

I left it as "None" because it isn't germane to this thread.  But in real life, that fill-in can also be negotiated.

Here is a real-life example:  I awarded a contract with a "None" in that fill-in because the contractor did not propose any subcontractors.  A year or more after award, the prime contractor brought on a subcontractor with higher "approved" rates and invoiced for those higher rates for the subcontractor work.  Of course, I rejected the invoice.  The contractor was a cry-baby -- it really thought it was entitled to higher rates because they were "real" costs.  But when I administer a T&M contract for commercial items, I don't care what a contractor's "real" costs are -- I pay according to the contract.  I don't know why some contractors are troubled by this, or think of this as unfair.

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Corduroy Frog,

I'm not minimizing -- but I really believe in the principles I shared with Don--

  1. If a prospective contractor wants something from a contract, it should negotiate for it pre-award. 
  2. A contracting officer should not make payment post-award unless the contract allows for it. 

If you really want separate reimbursement for G&A on top of travel, negotiate for it before the contract is awarded.  If you don't negotiate for it, you might not get it.  If you do negotiate for it and then don't get it, file a claim.  If you try to negotiate for it and are unsuccessful because of the realities of the competitive marketplace, oh, well, that's business, right?  You can deal with that in other ways.  Everyone knows, in Government contracts and in commercial contracts, that costs for which direct payment is not contemplated by the contract are a subsidiary obligation of the contractor.  Travel administration is not your only subsidiary obligation.  You can manage this.

If you really want separate reimbursement for G&A on top of travel, negotiate for it before the contract is awarded.   

I'm still unaware of any policy.

I view WIFCON as sort of a public service announcement that can be helpful to both contractors and contracting officers.  I hope that any contractor who didn't get travel administration as a separate reimbursement in its last contract, and thinks this is a really big deal, will simply try to negotiate for it next time.  It is pretty easy to make a persuasive argument, and you might be successful.  Or, depending on the realities of the competitive marketplace, you might not.  That's all fair.

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Thanks ji.

You may not have been on the other side (contractor), and should be aware of some real world (but unwritten) factors:

  • The negotiating power in most cases are overwhelmingly in favor of the government.  The contractor is chosen out of several competing contractors and cannot negotiate with an agency who insists.  Only in cases where the contractor has clear, attractive and unique capabilities can a contractor be on level ground with the government.
  • If a contractor files a claim, or sometimes even when they lodge a protest, many agencies become infuriated with the contractor.  We all know the govt is not supposed to respond with bias if a contractor does this, but most of us know those in the agency will hold a grudge.

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Okay, so you deal with your reality.  If the agency does not intend to separately reimburse you for indirects on top of travel--

For a FFP contract, estimate the travel that will be required and add the administrative costs for that estimate to your FFP.  Your FFP covers all of your expected costs and profit.

For a T&M contract, spread those administrative costs among your fixed hourly rates.  Your fixed hourly rates include indirect costs and profit.

This is what your competitors are doing.  All contractors submit proposals that cover their expected costs.  I acknowledge that costs are real, but you can manage this.

But I am still wondering, is your agency (1) not agreeing to separate reimbursement of travel overhead in pre-award negotiations, or (2) disallowing travel overhead in post-award administration?

I am not convinced of widespread Government bias.  I actually prefer contractors who negotiate hard and who know what the contract actually says -- and when they're right, I pay them, fair and square.  When I'm right, they go back to work, fair and square.  And all this with professional respect and no hard feelings.  It is unhealthy when people take these things personally.

So, you have to deal with your reality.  You can manage this.

If you are able, share the policy with us in a new thread -- if you do, you might get some helpful feedback based on how to deal with the policy.  Your contracting officer should be willing to share the policy with you.

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10 hours ago, Corduroy Frog said:

Thanks to all who are participating in this discussion.  All of you are more knowledgeable than myself.

However:

  1. If a company is disclosed as a "total cost input" methodology for cost allocation, can they change as a result of this relatively new phenomenon?  Regardless of what Huntsville RFPs are saying, contracting officers are going after this new approach like a pig after slop.
  2. Incurred cost submissions address cost only and not revenue (except for the section addressing T&M).  And there are several instances where revenue does not flow as cost does.  So if G&A is not allowed on Travel and ODCs for purposes of capturing revenue, does a contractor still have to do so for cost purposes on an incurred cost submission?  If so, their G&A rate does not change, and they cannot recover the loss.

ji20874, thanks for your comments, but you tend to minimize the effect of this.  Chiefly, because no other element consumes as much administrative and G&A time as Travel.  Advances, JTR, Expense Reports, etc.  Not to mention application of JTR can result in a real loss if G&A is not allowed.  There is real cost involved, not just imagined indirects.

I thought I was done with this thread until I read the post quoted above.

1. Sure, especially if the contractor is a small business. Even if the contractor is not a small business, it can make a change to its cost accounting practices so long as it follows the requirements of the CAS clauses in its contracts. Moreover, if the contractor was really full of vinegar, it could check the solicitation provision 52.230-7 and put the customer on notice that it was treating the requirement not to allocate G&A on travel as a direction to change its cost accounting practices, thus entitling it to an equitable adjustment on its other contracts for the unrecovered G&A expense they would then receive.

2. Yes, of course. The proposal to establish final billing rates (aka "incurred cost submission") must be prepared in a manner that is consistent with disclosed and/or established practices. Also see CAS 401. Further, your comment "they cannot recover the loss" was addressed in my earlier post. Of course they can recover the loss, through negotiating a higher profit rate to compensate them for the lost G&A expense allocation.

Moreover, I find it difficult to accept the assertion that "No other element consumes as much administrative and G&A time as Travel." If that's true, the contractor is really doing something wrong. Most travel is ancillary to the work being performed. Further, in my experience most travel is indirect and not direct. So if the contractor is really focusing on managing its travel cost, then I would argue its attention is misfocused.

Which brings up another point I should have mentioned in the earlier post. Another option is to STOP CHARGING TRAVEL AS A DIRECT COST. Simply charge all travel to an indirect cost objective. There's nothing at all wrong with this practice and it also solves the problem. Now there is no travel being charged as an ODC and nothing for a customer to object to. Sure OH is increased, but the OH pool is still in the TCI G&A base, so the G&A rate stays exactly the same.

If I were a consultant to this contractor, I would convene leadership and ask where the company was going. Is this particular negotiating issue going to become the norm? If the answer were affirmative, then I would be laying out COAs along the lines I've posted on this thread, for their consideration. The time to address these types of issues is before they arise, not after.

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On ‎10‎/‎4‎/‎2019 at 1:34 AM, ji20874 said:

I am generally not willing to make payment for indirect costs on Government-directed contractor employee travel for--

  • T&M contracts for commercial items.
  • FP contracts where travel is authorized as a direct reimbursable.

Maybe I misinterpreted your meaning here in light of later posts.  This seems to indicate a general unwillingness to negotiate for the inclusion of indirect costs to be allocated to contracts on the basis of travel costs incurred for those contracts.  If you consider this to be the subject of good faith negotiations, I have no problem with that.  However, many contracting officers are not.  They simply state that this is a non-negotiable issue and that  contractors simply cannot recover G&A allocated to contracts because of travel costs incurred for the contracts.  In this regard, some of the solutions to this issue are somewhat troublesome.  For example, for a T&M contract including the G&A for travel in the hourly rate for labor has its perils depending on the language of the solicitation and contract.  If the contract prohibits recovery of G&A allocated to the contract because of travel, including that G&A in the hourly rate may be considered a false claim.

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In a fixed-price setting, the offeror quotes a price that covers all costs.  It is not necessary to apply cost principles if FAR Part 31 to fixed-price proposals, especially in competitive settings.  After a competitive fixed-price contract is awarded, it is error to insist on applying cost principles to the individual cost elements.  

When an offeror proposes an hourly rate of $167.50 for an ANALYST III in a competitive setting, no one knows what the elements of that price are.  It might well (and should) include enough to cover indirect costs on the travel that is anticipated to occur, maybe with some margin.

In my practice, I do not declare in a solicitation or contract that indirect costs on travel are forever unallowable.  Simply saying that this contract will not provide a separate payment for those indirect costs is far different than saying those costs are forever unallowable.  It is not required for the government to provide a separate payment for travel indirects in a fixed-price or commercial T&M contract.

I have no doubt that there is sloppy language out there.  

p.s.  We need to remember two basic principles, and allow those principles to play in this discussion--

  • even in a cost-reimbursement contract, the parties can agree to fix any element of cost; and
  • even in a cost-reimbursement contract, the parties can agree to a cap on any indirect cost.

If we can do this on cost-reimbursement contracts, then certainly we can do it elsewhere.  Indirect costs on contractor employee travel is not a special category that we MUST treat differently and in the contractor's favor.

Edited by ji20874
added post-script

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1 hour ago, ji20874 said:

In a fixed-price setting, the offeror quotes a price that covers all costs.

However, in many solicitations and FFP contracts, there is a separate CLIN for ODCs, including travel.  Along with the separate CLIN, the contract contains a clause stating that no G&A will be allocated to the contract because of travel costs. 

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As I said, I have no doubt there is sloppy language out there.  That is sloppy language.  Can you tell if that is an agency’s standard clause, or home-made and cut-and-paste?

That language is sloppy because it goes beyond indicating what the Government will pay — in other words, it goes beyond the contract — a single contract should not attempt to dictate to a contractor’s internal accounting practices.

Instead of “stating that no G&A will be allocated to the contract because of travel costs,” it would probably be better if it said something like, “Direct Reimbursable Travel.  For Government-directed contractor employee travel, the Government will reimburse  the contractor for its actual incurred costs for lodging, air fare, and per diem, not to exceed the limits of the Federal Travel Regulation.  The Government will not make separate payment to the contractor under this contract for any indirect costs associated with travel.”

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Thanks to everyone who has contributed.  From the standpoint of the contractor, few COs are as consistently fair-minded as ji20874.  Most of them see nothing but dollar signs and are adamant that the government is going to save money by denying G&A on travel, not considering that the contractor will make up the loss somewhere else.

I have to take issue with Here-2-Help, normally a reliable source of good information.  Administration of travel is indeed a time-consuming tar baby, and to assert otherwise makes me think one has never had to deal with it.  We now have "accountable plans" from the IRS - more important than ever under the new tax law - which eliminates job expenses for employees.  The accountable plan requires a trip report from the employee, even if the travel is charged to indirect.  Accounting for advances, per diem, extra airline charges, restitution of money to employee or the company, etc.  All of this sucks up ridiculous amounts of time and administrative effort.

And any time the JTR is exceeded without permission subjects the company to an uncompensated loss.

 

 

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I found this conversation to be interesting... I do have a follow-on question if allowable.  

We have a contractor that is trying to request fee (aka profit) for travel costs.  I can understand G&A to a point, but is fee permissible?  I was under then (perhaps incorrect) impression that travel should be reimbursed per the FTR/JTR but with no fee/profit.  

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39 minutes ago, Desparado said:

We have a contractor that is trying to request fee (aka profit) for travel costs.  I can understand G&A to a point, but is fee permissible?  I was under then (perhaps incorrect) impression that travel should be reimbursed per the FTR/JTR but with no fee/profit.  

There is nothing in the FAR that prohibits contractors from receiving fee "on" travel.  Travel costs are real costs just as material and labor are real costs.  To me, in addition to there being no FAR prohibition against including travel costs in the calculation of fee, there is no logical reason why travel costs should not be used in that calculation.  BTW, fee is not profit.  Part of fee may be profit but fee also covers unallowable costs allocated to a contract.  Thus, a 7% fee may equate to only a 5% profit which is not very much.  Further, if you exclude certain allowable costs from the calculation of fee, you will reduce that profit even more.

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Desparado,

Are you in pre-award negotiations?  Or post-award?

FP? CR? T&M?

Commercial or non-commercial?

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8 hours ago, Corduroy Frog said:

I have to take issue with Here-2-Help, normally a reliable source of good information.  Administration of travel is indeed a time-consuming tar baby, and to assert otherwise makes me think one has never had to deal with it.  We now have "accountable plans" from the IRS - more important than ever under the new tax law - which eliminates job expenses for employees.  The accountable plan requires a trip report from the employee, even if the travel is charged to indirect.  Accounting for advances, per diem, extra airline charges, restitution of money to employee or the company, etc.  All of this sucks up ridiculous amounts of time and administrative effort.

 

All that may be true, but does your G&A function really spend all that much time managing travel? Remember, G&A expenses are those that benefit the entire business unit as a whole. Certainly, the accounting function may be in G&A but also I would expect to see (without knowing your company) the costs of executive management, B&P expenses, IR&D expenses, and other central payments. Given all that, do you still maintain that managing travel is a significant portion of how G&A functions spend their time? If so, wow. You are essentially describing a travel agency.

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Isn’t paying a percentage fee on top of reimbursable travel costs prohibited as cost plus percentage of cost?  

There IS something in both Statute and FAR which prohibits paying profit as a direct percentage of a cost when the cost is strictly a reimbursable. 

If a line item is for reimbursement of travel COSTS, it means COSTS,  not the PRICE of travel (FFP contract with reimbursable travel line item) .

See FAR 16.102 (c), 10 U.S.C. 2306(a) and 41 U.S.C. 3905(a)

Edited by joel hoffman
Clarify FFP contract with reimbursable travel line item

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In addition to paying a fixed percentage for fee on reimbursing actual travel costs, this reference indicates that paying a pre-determined, fixed G&A percentage rate or material handling percentage rate on actual reimbursable (e.g.,  travel) costs may also be an illegal form of CPPC: 

https://mossadams.com/articles/2016/august/how-to-spot-illegal-cppc-contracts

“How to Spot a CPPC Provision

Put simply, contract provisions fall into the CPPC category if a fixed payment rate is applied to actual costs. For example, a contract where a fixed “material handling” or “general and administrative” rate is applied to actual costs often constitutes a CPPC agreement...”

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Whoa!  I believe @Retreadfed and  @ji20874 are headed down the right track because as they say The devil  is in the details.   My first question is like that of ji's but paraphrased  and that is why are you worried about the details of profit/fee on travel?  From there I propose you do your own research as maybe these quick references will peak you interest to do so with regard to your specific matter at hand.  

https://www.dcaa.mil/Content/Documents/sac/Chapter72.pdf 

“In any event, allowable costs to Government contracts may not exceed the maximum per diem rates specified in the Government travel regulations. If a contractor's policy is to reimburse its employees a fixed amount (per diem) for subsistence within the prescribed maximum daily per diem rates, there is a presumption that the costs are reasonable and allowable and detailed receipts or other documentation are not required to support claims by employees. On the other hand, if a contractor's policy is to reimburse its employees actual expenses incurred, all unallowable costs (such as, alcoholic beverages and entertainment) must be separately identified and excluded from billings, claims, and proposals to the Government in accordance with FAR 31.201-6 and CAS 405.”

https://www.dau.edu/tools/p/cprg

Vol. 3 Chapter 8 -

Requirement for Profit/Fee Analysis (FAR 15.404-4(b)). Profit/fee is the dollar amount over and above allowable costs that is paid to the firm for contract performance.”

 “Most contract prices include either profit or fee, but contract profit/fee analysis is not required unless cost analysis is required to determine contract price reasonableness. When cost or pricing data are required, you must use profit/fee analysis to determine the reasonableness of any profit/fee included in the contract price.”

Vol 3 Chapter 11

“Identifying Other Direct Costs (FAR Table 15-2). FAR describes other direct costs as costs not previously identified as a direct material cost, direct labor cost, or indirect cost. In other words, an other direct cost is a cost that can be identified specifically with a final cost objective that the offeror does not treat as a direct material cost or a direct labor cost. Examples of the types of cost that are commonly proposed as other direct costs include:

  • Special tooling and test equipment:

  • Computer services;

  • Consultant services;

  • Travel;

  • Federal excise taxes;

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There are lots of nuances as described in various references as to how and what markups may be allowable for a reimbursable line item such as travel (on a firm fixed price contract). However, I’m fairly certain that charging a profit percentage to reimbursable travel costs is Likely a prohibited form of CPPC. 

Edited by joel hoffman
Clarify FFP contract with reimbursable travel line itme

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https://www.transit.dot.gov/funding/procurement/third-party-procurement/cost-plus-percentage-cost-contracts

 

"We believe you are confusing how contract prices are negotiated with how contract payment terms are structured once they are negotiated. Contract prices for A&E services will almost always be negotiated on the basis of a cost proposal from the A&E that presents estimated costs for labor, overhead as a percent of labor costs, travel, etc., plus an amount for profit or fee that is usually expressed in the proposal as a percent of total estimated costs. The grantee will then evaluate the proposed labor costs, overhead rates and profit rates for reasonableness, and negotiate either (a) a firm fixed price contract (to include all costs and profit), (b) a cost plus fixed fee (CPFF) contract where the contract value includes an estimated cost amount and a fixed amount of fee dollars, or (c) a time & materials contract that provides for a fixed billing rate per hour for various labor categories that includes all costs and profit. Using rates to negotiate overhead and profit does not result in a cost plus percent of cost (CPPC) type of contract.

Cost plus percent of cost (CPPC) contracts may never be used for any procurement, whether construction, A&E, etc. A CPPC contract is one that is structured to pay the contractor his actual costs incurred on the contract plus a fixed percent for profit or overhead (that is not audited/adjusted) and which is applied to actual costs incurred. When negotiating contract prices grantees will always have to obtain overhead rate information and evaluate those rates. Negotiating contract prices on the basis of those rates does not result in a CPPC contract unless the actual payment terms are structured on a CPPC basis. As explained above, the three allowable forms of contracting (fixed price, CPFF and T&M) do not use CPPC methods of compensation even though overhead and profit rates are used to negotiate those contract values.

Note that the fee to be paid on the CPFF contract is fixed in terms of dollars and is not expressed as a percent to be applied to actual costs incurred, which would constitute an unallowable cost plus percent of cost (CPPC) contract. As for compensating overhead costs, the CPFF contract may stipulate a provisional billing rate for payment purposes but must also provide for an audit of overhead costs after completion of the contract and adjustment of the amounts billed during contract performance to reflect the final audited rate for the fiscal periods during which the contract was performed. Grantees may not fix overhead rates on CPFF contracts without allowing for audit and adjustment after audit as this would constitute a cost plus percent of cost method of compensation."

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1 hour ago, joel hoffman said:

There are lots of nuances as described in various references as to how and what markups may be allowable for a reimbursable line item such as travel. However, I’m fairly certain that charging a profit percentage to reimbursable travel costs is Likely a prohibited form of CPPC. 

LOL

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On 10/18/2019 at 10:25 AM, PepeTheFrog said:

LOL

Why is that funny? It’s pretty classic form of CPPC (on a FFP contract with CR line item for travel expenses).  
 

Edited by joel hoffman
Clarify referring to FFP contract with CR line item for travel.

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4 hours ago, joel hoffman said:

However, I’m fairly certain that charging a profit percentage to reimbursable travel costs is Likely a prohibited form of CPPC. 

Joel, perhaps I was not as clear on this as I should have been.  By statute the CPPC type of contracting is prohibited.  Also, by statute, there is a limit on the amount of fee that can be paid on CPFF contracts.  The law states this limitation in terms of a percent of the estimated cost of the contract.  For example, for most CPFF contracts the fixed fee cannot exceed 10% of the estimated cost of the contract.  It is rare for a contractor to receive a fixed fee that equals 10% of the estimated cost of the contract.  Instead, the fixed fee is usually negotiated at a lower level and is frequently referred to as a fee of say 7%.  This of course is not a literal statement of fact.  The fee is fixed and the fixed fee in $ terms is 7% of the estimated cost of the contract.  Thus, there is no CPPC contract because the fee is fixed and not variable.

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Retread, I was thinking more of application to commercial or other fixed price contracts that have a cost reimbursable line item for travel costs that cannot be readily quantified.  That is the context of my posts. 

From the data that I found through FY-15,  two thirds of all contract obligations were fixed price or time and materials. I will speculate that the percentage of all contracts awarded is likely an even higher percentage for fixed price and T&M. 
 

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On 10/17/2019 at 2:11 PM, Retreadfed said:

There is nothing in the FAR that prohibits contractors from receiving fee "on" travel.  Travel costs are real costs just as material and labor are real costs.  To me, in addition to there being no FAR prohibition against including travel costs in the calculation of fee, there is no logical reason why travel costs should not be used in that calculation.  BTW, fee is not profit.  Part of fee may be profit but fee also covers unallowable costs allocated to a contract.  Thus, a 7% fee may equate to only a 5% profit which is not very much.  Further, if you exclude certain allowable costs from the calculation of fee, you will reduce that profit even more.

Honestly, I don't agree.  To me costs for travel should be reimbursed to the extent of the FTR and although they can and should get G&A, I don't believe that fee or profit should be given.  Just my opinion. 

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