Whats direct cost versus indirect

[WC79]

Curious to get thoughts on the following:

 A few years ago I was working on the award of an R&D contract (disease research) in which the offeror proposed laptops in their proposal as well as cost for building rental and servers. I struggle with including this as direct cost to the contract as it will not be solely used during the performance of the contract. I would like to know the thoughts of others. Should the listed cost be covered in their indirects??

There are also situations where offerors propose budget analyst as staff on the contract. Where are your thoughts?

 

[C Culham]

3 minutes ago, WC79 said:

Curious to get thoughts on the following:

 A few years ago I was working on the award of an R&D contract (disease research) in which the offeror proposed laptops in their proposal as well as cost for building rental and servers. I struggle with including this as direct cost to the contract as it will not be solely used during the performance of the contract. I would like to know the thoughts of others. Should the listed cost be covered in their indirects??

There are also situations where offerors propose budget analyst as staff on the contract. Where are your thoughts?

 

There are better experts than I but my knowledge would offer that determination of directs and indirects would be subject to the specific accounting practices and policies of the entity as well as to what the contract terms and conditions demanded of the contractor.

[joel hoffman]

3 hours ago, WC79 said:

Curious to get thoughts on the following:

 A few years ago I was working on the award of an R&D contract (disease research) in which the offeror proposed laptops in their proposal as well as cost for building rental and servers. I struggle with including this as direct cost to the contract as it will not be solely used during the performance of the contract. I would like to know the thoughts of others. Should the listed cost be covered in their indirects??

There are also situations where offerors propose budget analyst as staff on the contract. Where are your thoughts?

 

If the building, servers and computers were to be used exclusively and paid for under the contract, then they would likely be direct costs to the contract and the servers and computers should also likely become government property. If the contractor wanted to retain them, then there would have to be some shared cost arrangement, such as depreciation and/or residual or salvage value. 

If the contractor was also going to use them for other purposes or after the contract, different treatment of costs would be necessary.

Building rent can be a direct cost. If used exclusively or significantly for the contract, the contract’s share of the rent could be determinant or approximated.

There are ways to equitably apportion costs between purposes and different uses.

See also 31.202 Direct Costs and 31.203 Indirect costs. 

Not enough information on the staffing question to comment. 

[here_2_help]

7 hours ago, joel hoffman said:

If the building, servers and computers were to be used exclusively and paid for under the contract, then they would likely be direct costs to the contract and the servers and computers should also likely become government property. If the contractor wanted to retain them, then there would have to be some shared cost arrangement, such as depreciation and/or residual or salvage value. 

If the contractor was also going to use them for other purposes or after the contract, different treatment of costs would be necessary.

Building rent can be a direct cost. If used exclusively or significantly for the contract, the contract’s share of the rent could be determinant or approximated.

There are ways to equitably apportion costs between purposes and different uses.

See also 31.202 Direct Costs and 31.203 Indirect costs. 

Not enough information on the staffing question to comment. 

Well, not exactly.

The contractor cannot charge direct the costs of any goods or services that, in similar circumstances, it has also charged indirect. Period end of sentence.

In order to charge the listed costs as direct, the contractor must first show (a) that the costs are not ever charged as indirect OR (b) that the circumstances are different with respect to this contract. Moreover, in order for the circumstances to be different with respect to this contract, then all other contracts with the same/similar circumstances as this contract must also be paying for the costs as direct costs and not as indirect costs. The contractor needs to be consistent in the direct/indirect costing treatment with respect to all contracts in similar circumstances.

For example, if the contractor routinely engages in R&D efforts and wants to charge the cost of building rental, laptops, and servers as direct contract costs, then it must also charge all its other R&D contracts the cost of building rental, laptops, and servers as direct contract costs of those other R&D contracts -- unless it can somehow argue that this particular R&D effort is unique, distinct, and or different from any of its other R&D efforts.

A government representative may be rightly skeptical that building rental, which is normally an indirect expense, should be reimbursed as a direct expense in this particular instance. It is up to the contractor to support why that would be the case--i.e., what is different. I suppose that if this particular R&D effort was for disease research and the building needed to be demolished after the end of the period of performance to ensure no diseases escaped to the public, then that would be a good argument. But otherwise, not so much.