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Time and Material Rates: I have been having discussions with my Director, the Director of Finance and our internal auditor because I have been told by those three people that T&M labor rates are flexible and that one can ask for "Ceiling T&M Rates" I have quoted FAR 16.601, specifically sections b, and c (2). I am still told that I am incorrect, yet no one has been able to point out a FAR clause to show where i am incorrect. Please let me know if there is another FAR Clause regarding T&M rates which speaks to the fact that they can be flexible and a subcontractor can propose "Ceiling T&M Rates".

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I tend to discern that you're a contractor employee, and you make mention of T&M subcontracts. You're right that FAR 16.601(:lol:(1) and ©(2) seem to suggest that federal prime T&M contracts should have fixed hourly rates (not floating ceiling rates). But your question seems to be about subcontracts. Are you talking about subcontracts to federal prime contracts?

ji

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I tend to discern that you're a contractor employee, and you make mention of T&M subcontracts. You're right that FAR 16.601(:lol:(1) and ?(2) seem to suggest that federal prime T&M contracts should have fixed hourly rates (not floating ceiling rates). But your question seems to be about subcontracts. Are you talking about subcontracts to federal prime contracts?

ji

I am speaking to issuing an IDIQ subcontract to a Federal Prime Subcontract with all the Ts & Cs flowed down. the Prime is IDIQ with both CPFF and FFP task orders possible. Both CPFF and FFP labor rates were provided in the proposal to the Government.

That being said, when issuing an IDIQ subcontract with T&M task orders or T&M subcontracts for a Government Prime, can those T&M rates be Ceiling rates so that per task order the labor rate for, say, a Senior Engineer can be different than which is stated on the subcontract in section B.

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Sorry -- my [open parenthesis] b [close parenthesis] and my my [open parenthesis] c [close parenthesis] were turned into something else by the automatic editor. How about if I write it with spaces: FAR 16.601 ( b ) ( 1 ) and ( c ) ( 2 )...

ji

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FAR 16.505 ( b ) ( 3 ) seems to allow for a task order contract which does not firmly establish the prices, allowing prices for each order to be established at the time of order issuance.

If you're asking if an IDIQ contract could include maximum prices which cannot be exceeded during task order "fair opportunity to be considered" scenarios, I'm not aware of any prohibition on such a practice. We do it in my office. We include language in the schedule that the contractor may offer lower prices during task order competitions or negotiations.

ji

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If you're asking if an IDIQ contract could include maximum prices which cannot be exceeded during task order "fair opportunity to be considered" scenarios, I'm not aware of any prohibition on such a practice. We do it in my office. We include language in the schedule that the contractor may offer lower prices during task order competitions or negotiations.

ji

I'm not asking that at all. I am asking if a person can ask for a "Ceiling T&M Rate". I. E. A Ceiling rate for a Sr. Electrical Engineer. therefore if we provide for 50 hours of Sr. Electrical Engieer work, there could possibly be several different rates charged for the Sr. Electrical Engineer on the invoice.

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I am asking if a person can ask for a "Ceiling T&M Rate". I. E. A Ceiling rate for a Sr. Electrical Engineer. therefore if we provide for 50 hours of Sr. Electrical Engieer work, there could possibly be several different rates charged for the Sr. Electrical Engineer on the invoice.

The answer is yes. There is no prohibition against such a subcontract agreement under a government prime contract.

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The answer is yes. There is no prohibition against such a subcontract agreement under a government prime contract.

If the definition of a T&M rate at 16.601 is a fixed labor rate, how can a T&M labor rate be variable?

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If the definition of a T&M rate at 16.601 is a fixed labor rate, how can a T&M labor rate be variable?

Subcontracts under government prime contracts are not governed by the FAR except as provided in the contract clauses in the prime contract. There is no FAR clause for prime contracts that prohibit the kind of relationship that you have described. Primes and subs are free to make any deal that they want except, in some cases, cost-plus-percentage-of-cost contracts. There is no prohibition in FAR against the kind of prime-subcontract relationship that you describe.

What I presume you have is a deal to pay the lesser of the ceiling rate or the "actual" rate. There is nothing wrong with such a deal. It's a better deal than the government gets under a T&M contract.

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FAR says that hourly rates in a T&M contract are fixed. FAR 16.601(c )(2).

?The contract shall specify separate fixed hourly rates that include wages, overhead, general and administrative expenses, and profit for each category of labor.? (emphasis added)

This is further confirmed in the T&M payment clauses in FAR 52.232-7 and Alt I of 52.212-4 Alt I. They provide for calculating payment for labor by multiplying the hourly rate by the numbers of hours.

But, as Vern points out, FAR is direction to Government contracting officers, not to a prime contractor.* A prime contractor must follow FAR only to the extent required by its prime contract. So, if your prime contract doesn?t prohibit ceilings on hourly rates, you can use same in a subcontract - but that wouldn?t be a T&M contract as described by FAR.

I don?t know why one would want to create such a contract - or what to call it.

If you simply set a ceiling (maximum) hourly rate for a T&M labor category, how would you determine any unspecified lower rates for the same labor category?

Why would you expect to get billed for anything lower than the ceiling rate?

You could fix the lower rates, but in so doing the so-called ceiling rate would become the highest of several rates, not a ceiling. This would conform to the FAR description of T&Ms.

Maybe you could set up some method or establish standards for determining any rates lower than the ceiling.

Ceilings on cost elements is a cost-reimbursement concept. Maybe your folks are thinking of advance agreements on cost elements, as described in FAR 31.109.

*[One place where FAR seems to speak directly to prime contractors is 15.404-3 and [c]. There may be others.]

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FAR 15.404-3(B) and ( c) do not address contractors. They tell contracting officers what they must require of contractors. I know that the FAR says, "The contractor shall," but those words cannot be interpreted as directive of contractors. FAR applies to "agencies," not to contractors. See FAR 1.101 ("for acquisition by all executive agencies"), 1.104, and the definition of "acquisition" in FAR 2.101. (An acquisition is conducted "by... the Federal Government.") The FAR, unlike other regulations in the Code of Federal Regulations, is internal to the government.

"Lesser of" rate terms are very advantageous to the government. They prevent contractors from benefiting by negotiating a rate and then using less experienced, lower-paid workers in the job classification to do the work, which is a problem under T&M contracts with fixed-rates. The disadvantage of "lesser of" rates is that you must audit the contractor's records to confirm its actual rates.

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FAR says that hourly rates in a T&M contract are fixed. FAR 16.601(c )(2).

?The contract shall specify separate fixed hourly rates that include wages, overhead, general and administrative expenses, and profit for each category of labor.? (emphasis added)

If you simply set a ceiling (maximum) hourly rate for a T&M labor category, how would you determine any unspecified lower rates for the same labor category?

Why would you expect to get billed for anything lower than the ceiling rate?

You could fix the lower rates, but in so doing the so-called ceiling rate would become the highest of several rates, not a ceiling. This would conform to the FAR description of T&Ms.

Maybe you could set up some method or establish standards for determining any rates lower than the ceiling.

Ceilings on cost elements is a cost-reimbursement concept. Maybe your folks are thinking of advance agreements on cost elements, as described in FAR 31.109.

*[One place where FAR seems to speak directly to prime contractors is 15.404-3 and [c]. There may be others.]

Hi elf949,

I was thinking along the same lines. If the hourly labor rates aren't fixed, then they must be reimbursable. In essence, the contracting parties want to convert a fixed-price concept into a cost-reimbursement one. So to calculate the appropriate billing rate, one would need to calculate a cost build-up from direct labor dollars. As an aside, that value may or may not be what the employee is actually paid (because the contractor could use average labor rates.)

To that DL $ value, one would add-in applicable indirect cost burdens (e.g., fringe benefits, overheads, G&A) as per established/disclosed practices. From there one would add in an agreed-upon profit factor, I would think. That's how I would build-up an "actual" hourly rate were I the performing entity.

Interesting subpoint -- what indirect rates would the performing entity use? The higher-tier would need to create a clause very much like 52.216-7 in order to specify how the indirect rates would be calculated. You would want the rates to adjust to avoid windfalls from overly pessimistic forecasts, I suppose. Also the performer would want the rates to adjust to avoid losses from overly optimistic forecasts. But you wouldn't want the rates adjusting every month, so you would want to specify timing, such as quarterly or every six months. Complicated.

Another interesting question would be whether the applied rates could be questioned by an auditor, based (say) on alleged unallowable costs being included? Would the rates need to be adjusted after audit?

In other words, would creating a "lower of actual cost or ceiling" hourly billing rate in a T&M contract create more problems than it solves?

Hope this helps.

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"Lesser of" rates are no big deal for people who know what they're doing. Such contracts have been around forever. All of here_2_help's questions are easily settled by competent negotiators/contract managers.

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All of here_2_help's questions are easily settled by competent negotiators/contract managers.

Not saying you're wrong, Vern. And meaning no disrespect to anybody anywhere.

But how many of them types you seen 'round the campfire lately? 'Specially down two/three tiers in the supply chain?

H2H

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Haven't seen many, but I haven't looked. I suspect you won't find many if you do look. People these days don't understand such things -- witness the question that started this thread. And too many government acquisition people think that T&M and L-H are the cat's meow.

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I think another twist on this issue comes from FAR 52.232-7 ©.

If a contractor enters into a subcontract that requires consent under the subcontracts clause without obtaining consent, the government

is not required to pay the contractor?s invoices for any costs incurred under the subcontract prior to the date the required consent is received. The government can elect to pay the costs, but reserves the sole discretion to decide to do so.

If approval of a request for consent to subcontract has not yet been received from the government, but performance has commenced,

contractors need to be aware of the danger of incurring costs for which they cannot yet bill. For this reason, it is advisable for ontractors who will be performing T&M or labor-hour contracts to attempt to get their significant subcontracts approved, in the

absence of an approved purchasing system, during the contract formation phase.

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