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Hello,

I need some help from the FAR and pricing experts. This has been an old topic on this forum and I found other threads on it - about how much G&A can be applied on subcontractor costs and not seem "excessive". This post I found is the most detailed and on-point in my mind - https://graniteleadershipstrategies.com/government-contracting-when-to-add-a-subcontract-handling-pool/

So, here is a situation. Lets say we are a small business prime with a significant G&A rate (we are in our growth phase). Can we apply a lower G&A on our subcontractors to be competitive on a Cost-plus bid? But we still have to collect costs in the accounting system by applying all G&A on subs keeping the "Total cost input" method, right? We do not have a subcontractor handling pool and that would bring its own set of challenges by increasing our G&A further and am trying to avoid that.

Are we breaking any rules and upsetting procurement Gods by reducing G&A in the bid but in turn apply all of it in execution when we collect the costs? If we discount the G&A on a bid, do we have to discount it consistently in every bid?

Thank you for your guidance. 

 

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2 hours ago, xanadu said:

Hello,

I need some help from the FAR and pricing experts. This has been an old topic on this forum and I found other threads on it - about how much G&A can be applied on subcontractor costs and not seem "excessive". This post I found is the most detailed and on-point in my mind - https://graniteleadershipstrategies.com/government-contracting-when-to-add-a-subcontract-handling-pool/

So, here is a situation. Lets say we are a small business prime with a significant G&A rate (we are in our growth phase). Can we apply a lower G&A on our subcontractors to be competitive on a Cost-plus bid? But we still have to collect costs in the accounting system by applying all G&A on subs keeping the "Total cost input" method, right? We do not have a subcontractor handling pool and that would bring its own set of challenges by increasing our G&A further and am trying to avoid that.

Are we breaking any rules and upsetting procurement Gods by reducing G&A in the bid but in turn apply all of it in execution when we collect the costs? If we discount the G&A on a bid, do we have to discount it consistently in every bid?

Thank you for your guidance. 

 

1. There is a difference between "excessive pass-through" costs and G&A expenses allocated to subcontractors. If the prime adds value (and/or the amount of subcontracting is less than 70%) then there can be no excessive pass through costs regardless of the G&A rate being applied.

2. Yes, you can apply a lower G&A rate to your subcontractors. That's a fairly complicated endeavor, though. Instead, you can adopt a value-added G&A allocation base which exempts subcontractors from any/all G&A expense allocations. You can change from the Total Cost Input base to the Value-Added Base. On the other hand, (a) if you don't burden your subcontractors (or apply a lower burden) then all your G&A expense is going to be allocated to your other costs, which is going to jack up your G&A rate even more!

3. You cannot cherry-pick which subcontractors get G&A and which do not. Google "fragmenting the base." If you reduce or eliminate G&A on subcontractors, that new approach must apply to ALL subcontractors.

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Question:  Why would you WANT to reduce G&A?

If the answer is that you want your price to be competitive with other bidders, then simply reduce your fee.  Avoid screwing around with how you collect and report your costs.  G&A costs are real dollars.  Reducing the G&A rate means those costs have to be covered somewhere else.

Also, if this Prime is eligible for cost-reimbursable work, it likely means that they have an accounting system that has been determined adequate.  You don't want to mess that up by playing games with costs.

 

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21 hours ago, xanadu said:

Are we breaking any rules and upsetting procurement Gods by reducing G&A in the bid but in turn apply all of it in execution when we collect the costs?

I'm not sure what you mean when you say "apply all of it in execution."  If you mean can you propose an estimated cost that excludes certain G&A but then include that excluded G&A in billings to the government, I think you can have major problems.  You can be accused of procuring the contract through fraud based on a "bait and switch" theory.  Further, if you do this, there is a good possibility that you will have an overrun on the contract.  This can have a negative impact on your CPARS.

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You can bid capped but you will be losing out on being able to bill the government anything over the cap amount.  Since you're on a TCI base those costs will still get burdened with G&A but it will hit how profitable the contract is. 

Having a material handling pool won't increase G&A.  The purpose of having a material handling pool is to keep the costs out of the G&A pool.  You allocate the cost of the material handling pool to the subcontracts and procurements made by the folks in the pool.  Granted the material handling costs would be burdened with G&A in a TCI situation.  It all depends on how many contracts your company has and the size of those contracts.

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1 hour ago, UseTheFARLuke said:

The purpose of having a material handling pool is to keep the costs out of the G&A pool.

1 hour ago, UseTheFARLuke said:

It all depends on how many contracts your company has and the size of those contracts.

 

Yeah, I gotta disagree with these two points. The first point is wrong because it ignores the definition of G&A found in CAS 410 and the discussion of pools and bases found in CAS 418. The second point is wrong because it ignores the Ford Aeronutronics decision regarding the appropriate allocation base to use for G&A.

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