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Sometimes the govt chooses to pay the contractor with a govt credit card.  Suppose the gov't pays $3000 to a contractor on a credit card.  The credit card charges 3% to the contractor, or $90.

Question:  Since the fee is based on a percentage, is it the same as a commission (selling expense).  If so, does this make the $90 unallowable cost?  It is a necessary cost of doing business but it is still a form of commission.

 

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Is there any alternative for a contractor to be paid who doesn’t have a Visa account?

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Thank you Mr. Culham.  Joel, I don't know whether a contractor can insist on payment terms or not.  Small contractors do not have that much bargaining power.  Payments from Gov't credit cards bring heavy fees - like 4% which can eat into a fee big time if unexpected.

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14 hours ago, Corduroy Frog said:

Thank you Mr. Culham.  Joel, I don't know whether a contractor can insist on payment terms or not.  Small contractors do not have that much bargaining power.  Payments from Gov't credit cards bring heavy fees - like 4% which can eat into a fee big time if unexpected.

Froggy, don’t I know it! I was a naive tadpole as a contractor immediately after retiring.

The USACE needed me to teach two Design-Build classes and for a small critical, task. They could not hire me back as a rehired annuitant immediately because the govt paid me for several hundred hours of Accumulated annual leave upon retirement.

They told me that Id have to open a VISA account to accept payment on the GPC. I called my bank and they talked me into a VISA account. The Bank rep told me that, for small payments, I should figure it costing about 5% for a small business to have VISA account. 

So I added 5% to my hourly labor rate and travel costs, which seemed to work out fine. It amounted to a couple of hundred dollars of VISA fees over a period of four months of part time work. 

Then the Corps hired me back essentially full-time as a rehired annuitant.

What the Bank didn’t tell me was that I had to maintain and utilize the VISA account for at least two years with a monthly minimum, which amounted to something like $350 per year. i ended up paying something like $500 or six hundred dollars in extra VISA fees for NOT using that damned account!!

I don’t know much if anything about PAYPAL  or other alternatives but there has to be some way for a small time govt contractor to do occasional contract work for the govt. without incurring large VISA fees.

Edited by joel hoffman
Clarified that VISA costs were not charged per transaction.

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Oh - then there was the City/County Business license...  The City charged quarterly based upon estimated receipts, which has to be reconciled quarter with actuals. I was only a consultant for that one quarter, so had to convince the City revenue office that I was no longer in business. Fortunately my neighbor lady worked there and got me through the red tape. But ever since 2007, I’ve been getting  Chamber of Commerce bulletins, ads for just about everything, catalogs for office furniture and various products and am often pestered by companies wanting info from me!! I’m doing my part to keep the Postal Service in business!  

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1 hour ago, joel hoffman said:

Froggy, don’t I know it! I was a naive tadpole as a contractor immediately after retiring

Joel - I think you still might be naïve!  The following comes from this reference - https://dodprocurementtoolbox.com/faqs/purchase-card-faqs

Can I use a merchant/vendor that charges a fee to use a GPC? What if the merchant/vendor is the only source that offers the supply/service I need to acquire?


 

Answer: No, the cardholder shall not pay a charge/fee to use a GPC. If the merchant/vendor/contractor, etc. is the only source that offers the supply/service needed; then the requirement shall be processed through the contracting office for award and payment by the servicing DFAS. Cardholder's are not authorized to violate VISA/MasterCard laws and regulations.

The charge card industry calls this charge a "checkout fee" and it is a reportable offense if this fee is passed on to the cardholder. The merchant/vendor/contractor, etc. could lose their ability to process payments with VISA/MasterCard for violating the laws and regulations governing the "no checkout fee" to cardholders.

Merchants/vendors/contractors, etc. can offer a discount for cash and check purchases; however, they cannot charge a fee for use of a credit card.

VISA and MasterCard rules do not allow merchants/vendors/contractors, etc. to charge cardholders a checkout fee for using their cards, mirroring laws in 10 U.S. states. Reference: VISA and MasterCard official websites: www.VISA.com ; www.MasterCard.com

9 hours ago, Corduroy Frog said:

Payments from Gov't credit cards bring heavy fees - like 4% which can eat into a fee big time if unexpected.

In the current competitive market I find this statement to be interesting.  I know it depends of volume but having researched this personally it would seem that 4% is at the top end of the fee matrix.

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The rule for paying "checkout fees" with the Government Purchase Card (GPC) changed a while back. It depends on where (State) the vendor is located See:

https://www.acq.osd.mil/dpap/pdi/pc/faq.html#q18

"Can I purchase from merchants that charge a surcharge/checkout fee to use the GPC?

Answer:  It depends on where the merchant is located.

If the merchant is located within a U.S. state or U.S. territories permitting merchants to impose a surcharge/checkout fee for charge/credit card purchases, then the CH may either make the purchase with the fee pursuant to the following requirements or consider another merchant that does not charge a surcharge/checkout fee. Surcharge/checkout fees are not imposed by merchants within the following U.S. states, which do not permit such fees: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma, Texas, and Utah."

As for PayPal and other third party payment processors, the GPC rules say that they can be used only if there is no other vendor who accepts credit card payments.  This kind of goes counter to the Government's push to use small businesses.  Many small businesses use a Third Party Payment processor as the fees are cheaper than the fees charged to accept a credit card payment, but the rules don't allow us to purchase from these vendors unless they are the only one's who offer the product or service. Use to be payment through a Third Party Payment processor was flat out forbidden, so the rules have eased up some.  I suspect they may be eased up even more, as more and more (small) vendors move to Third Party Payment vs. credit card payments.  

 

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48 minutes ago, jtolli said:

The rule for paying "checkout fees" with the Government Purchase Card (GPC) changed a while back. 

You are absolutely right but I chose a historic quote as remember Joel's war story is based on an occurrence from a few years back!!!!

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Carl and jtolli,  my situation did not include any VISA transaction fees.

Regions Bank told me that I could expect that having a VISA merchant account would cost me about 5% of monthly receipts based upon the anticipated small volume. That was simply an overhead cost.   I figured it into my proposed labor rate and in my estimated travel costs. The Corps didn’t require itemized receipts for payment, which may or may not have been correct. They were going to pay lump sum for travel.

My labor rate also included my self employment FICA tax (employers share of FICA). Since I had not anticipated working full time right after retirement, I didn’t initially factor in vacation/holiday or sick time in my labor rate, either. 

I invoiced for actual labor hours, which was never more than proposed. Invoiced for my travel cost, which was slightly less than the amount which I had proposed/estimated. 

Believe me, it was cheaper for them to hire me as a contractor than to use a full-time Govt employee. The effective GE hourly rate included about 130% departmental and general overhead multiplier and vacation/sick leave/holiday pay/medical/etc. on a govt employee’s hourly direct salary/FICA rate.

My labor “markup” was only about 13% to cover my additional FICA and Bank charges. But I hadn’t anticipated the two year minimum commitment period for the bank issued VISA account. 

Hiring a rehired annuitant is also a bargain for any government agency. Last time I checked, the USACE RA program only charges about 20% markup for overhead on the direct/FICA hourly government employee labor rate. There are no “bennies” . Pay is for number of hours worked - no vacation/sick/holiday pay etc. pay during is limited to no more than eight hours one way, regardless of delays or multiple day (e.g., overseas) itinerary.  Unless while on an assignment, all the mandatory employee “training” for safety, security, IT, anti-terrorism, EEO for “this and that”, etc. is unpaid time.

 

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2 hours ago, joel hoffman said:

my situation did not include any VISA transaction fees.

 

6 hours ago, joel hoffman said:

The Bank rep told me that, for small payments, I should figure about 5% in transaction fees. 

6 hours ago, joel hoffman said:

So I added 5% to my hourly labor rate 

Your facts provide otherwise.  I suspect based on facts as you have stated an auditor may question your position as to what your 5% add on to your hourly rate was truly for. 

Think before you leap!

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I forgot to edit my earlier post. Thanks. 

However, I understand that prior to 2013, merchants couldn’t legally charge extra for a customer paying with a credit card in commerce. Wasn’t aware of any “illegality” in establishing a labor rate that covered my costs. 

I don’t really give a Sheet because I wasn’t going to take a 5% pay cut AND/OR suck up 5% of my travel costs to do business with the agency that insisted that they needed my continued help and would only pay with a credit card. I didn’t otherwise need a VISA account .  My other clients - Government contractors - paid me by check.

Let them audit to their hearts content.  It was 12 years ago. There wasn’t anything to audit anyway. I proposed a labor rate, number of hours and a lump sum travel cost estimate. I didn’t even charge the full estimated amount. Part 31 wasn’t applicable.  There was no breakdown of costs provided or requested. Let them eat cake. 

Edited by joel hoffman

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7 hours ago, joel hoffman said:

Let them eat cake

The perfect acquisition professional response....good Lord!

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Carl, you are right. I’m sorry.

I wasn’t referring to the party who hired me. I’m referring to someone who would audit a few thousand dollar contract where there was no detailed cost data needed, asked for or provided.

As a government employee, I couldn’t even get audits for multimillion dollar contractor proposals.

But somebody is going to audit five days of labor and airline tickets and four nights of hotel receipts and a few meals to see if I added my cost of their mandatory VISA payment?

Let them eat cake! 

The labor rate that I charged was less than half of the effective labor rate that I had cost them for teaching the previous 20 plus years as a full time govt employee.  There was no need to explain or justify the labor rate and they didn’t ask. 

Travel was lump sum based upon estimated cost - no “profit” markup. I followed Vern Edwards’ advice and submitted travel as lump sum. 

The government got a great financial deal. I didn’t even invoice them the full estimated amounts for labor or travel afterward.

Then let’s add insult to injury because the Bank charged me several hundred dollars for a two year minimum commitment after I cancelled the arrangement.  I never received a VISA payment after that single assignment for them.

I came back as an RA and taught for them for six more years.  I was their least expensive instructor even though I was higher ranked GS than most of the other instructors. 

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It’s also interesting how Federal (Coast Guard annual Vessel Documentation, for example) State (professional licensing renewals, for example) and local government (license tags, property taxes, for example) charge an additional fee when citizens pay a bill with a credit card.

EDIT: (added below)

I accept that as a reasonable fee  to cover additional cost to the government.

What isn’t reasonable would be the government entity REQUIRING a merchant/Vendor to accept a VISA or whatever form of credit card for their services and then prohibiting them from recovering the cost. To me, that is extortion. 

It should be obvious that sellers of materials and products will normally include the cost of such transactions in the prices charged, unless market conditions induce or dictate a need for a lower profit margin. It may depend upon the forecasted percentage of credit card sales - but in today’s economy, that is pretty high. Where it is legal, a company could also offer discounts for cash. 

But where there is NO profit being charged, there is essentially nothing to lower, e.g., travel cost reimbursement, labor at cost, etc.

Then to suggest that auditors could, should or will audit small entities, small transactions, etc., looking for credit card fees - when audit resources aren’t even available for large contract actions. And when they do audit large actions, they generally only sample those costs; that’s the height of RIDICULOUSNESS.

If the government has such audit resources for other than large actions, they should be focusing on fraud, corruption and incompetence, like that frequently being reported on the WIFCON Home Page.

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Whether the fee can be added to the cardholder depends on state law.  IOW where you live or operate.

However, states that prohibit adding the fee to the payer somehow exempt themselves, and will not hesitate to add a "convenience" fee to someone's tax bill if they pay by credit card.  IRS accepts credit cards, but will add 2% to any payment agreement involving a credit or debit card.

Just yet another case of governments exempting themselves from unfair legislation forced upon its constituents.

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5 hours ago, Corduroy Frog said:

Whether the fee can be added to the cardholder depends on state law.  IOW where you live or operate.

However, states that prohibit adding the fee to the payer somehow exempt themselves, and will not hesitate to add a "convenience" fee to someone's tax bill if they pay by credit card.  IRS accepts credit cards, but will add 2% to any payment agreement involving a credit or debit card.

Just yet another case of governments exempting themselves from unfair legislation forced upon its constituents.

Amen. 

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