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FAR 31.201-5 states "The applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund. See 31.205-6(j)(3) for rules governing refund or credit to the Government associated with pension adjustments and asset reversions."

Would this be applicable to any cashback or credit card rewards (gift cards, merchandise)?

Would this be applicable to any deposit returned to the company from the use of a vending machine (pop/soda)?

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Roy,

Do you have a cost-reimbursement contract for pop/soda in vending machines?

Do you have a cost-reimbursement contract where gift cards are purchased by the contractor and used by the contractor?

Please explain.  It will help you get better answers to your questions.

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Is your company required to comply with Cost Accounting Standards? If not, this may not be a contractual concern. If so, has your company submitted a Disclosure Statement and can we assume there is nothing in the Disclosure Statement dealing with how this is treated?

Edited by Neil Roberts
revise language in 2nd sentence
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8 hours ago, roy.manninen said:

FAR 31.201-5 states "The applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund. See 31.205-6(j)(3) for rules governing refund or credit to the Government associated with pension adjustments and asset reversions."

Would this be applicable to any cashback or credit card rewards (gift cards, merchandise)?

Would this be applicable to any deposit returned to the company from the use of a vending machine (pop/soda)?

The cost principle you quote is applicable. However, the government is only entitled to participate in the credit/rebate/allowance to the extent it paid for the original cost. If you charged the cost that generated the cashback/credit card rewards to a government contract (either directly or indirectly) then yes, the government participates. Same with the cost of the vending machines.

However, whether the government recovers its share of the credit/rebate/allowance is dependent on contract terms and conditions. For example, if the government's share is allocated to firm, fixed-priced contracts then it is unlikely the government can recover.

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11 hours ago, here_2_help said:

However, whether the government recovers its share of the credit/rebate/allowance is dependent on contract terms and conditions. For example, if the government's share is allocated to firm, fixed-priced contracts then it is unlikely the government can recover.

I doubt that the government would be interested in a price reduction for “rewards”, as described in the original post.

However, if the price or cost of a fixed price contract action is represented or based upon price quotes or invoice prices that were or will result in a cash back or other cost credit, then it should be

20 hours ago, roy.manninen said:

...credited to the Government either as a cost reduction or by cash refund.

If known during a negotiation, the government could insist upon the refund or credit. If discovered during a post award action such as an audit, the government might or might not be interested in demanding a refund or cost reduction. Depends upon if and how it was originally represented in pricing the action and whether or not it is significant. “Gift cards or merchandise”? Perhaps Not, if it doesn’t affect the cost to the government.

This even affects government employees. DoD and our agency TDY rules generally “require” the use of the Government issued travel (credit) cards in lieu of employee’s personal credit cards for cc charges made for travel costs identified on travel vouchers for transportation, hotels, rental cars, etc. While the agency cost savings for individual travel may not be “significant”, the overall workforce TDY savings for thousands or millions of TDY’s can be significant.

EDIT: I forgot but DoD used to say that all frequent flier miles belonged to the government. I assumed that it was to allow the bigwigs and generals to fly free or obtain upgrades. They finally dropped that.

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The government’s seeming “penny pinching” and intense scrutiny concerning government employee travel and other reimbursements, such as claims for damage to household items associated with PCS and damage during long term storage always irked me, in comparison of how scrutiny of costs and prices paid to contractors was generally nowhere near as intense.

Even DCAA audits usually use sampling methods rather than scouring through each and every cost item. We were generally trusted to negotiate or administer thousands of contract actions with seemingly little agency level oversight or intense scrutiny but the voucher examiners use magnifying glasses.

Back in the 1980’s, I had the head examiner in our District office call me long distance to deny a 50 cent charge for my wife to park when she dropped me off at the airport for TDY, so she and our little kids could sit with me in the terminal. There was no such thing as email, text or other electronic correspondence. Only oral or written (memos or forms typed up by a secretary) and then mailed correspondence.

We only had one car and we had to make sure that the plane actually left or she’d have to drive back to pick me up. Of course, the government would have paid for daily parking for me for the whole trip,  had we had two vehicles. Even now, they scrutinize vouchers to see if it is more economical to use Uber or taxi vs. leaving a vehicle in parking.

I suppose it adds up when considering the overall work force travel. Still, they trusted me and others to negotiate many millions of dollars of contracts, mods and claims.

I can almost guarantee that none of those in positions of oversight reviews or auditors, with the exception of two KOs who had worked for contractors and some of our own COE contract auditors (which were eliminated years ago) had the technical knowledge or detailed knowledge of Construction contractor means, methods, project controls systems or daily operations to double check anything but glaring or obvious errors or omissions in the settlement actions. 

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2 hours ago, joel hoffman said:

I doubt that the government would be interested in a price reduction for “rewards”, as described in the original post.

However, if the price or cost of a fixed price contract action is represented or based upon price quotes or invoice prices that were or will result in a cash back or other cost credit, then it should be

Joel, in my view you're describing a fairly obscure and minor type of defective pricing, which turns on the definition of cost or pricing data, and that definition contains the word "significantly." So, no. I'm not going to go there with you. Insignificant costs or insignificant refunds/rebates don't matter, by definition.

Now, I know this is a WIFCON-special rabbit hole (and we all love those!) ... but were we talking about refunds of state/local taxes, we could have a whole thread about the differences between 52.229-3 and 52.229-4, and also the commonalities (e.g., the government only cares about adjustments greater than $250.00). I know of a low-level corporate attorney whose entire career was made because she understood those two clauses! Her knowledge saved that company millions.

Then we could talk about the Hercules case and how to determine the government's fair share of the tax refund. That would be fun & interesting for me! But perhaps not for other readers. So let's just stick with the OP's questions. I'm happy with my answer to those questions.

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9 hours ago, here_2_help said:

Joel, in my view you're describing a fairly obscure and minor type of defective pricing, which turns on the definition of cost or pricing data, and that definition contains the word "significantly." So, no. I'm not going to go there with you. Insignificant costs or insignificant refunds/rebates don't matter, by definition.

Now, I know this is a WIFCON-special rabbit hole (and we all love those!) ... but were we talking about refunds of state/local taxes, we could have a whole thread about the differences between 52.229-3 and 52.229-4, and also the commonalities (e.g., the government only cares about adjustments greater than $250.00). I know of a low-level corporate attorney whose entire career was made because she understood those two clauses! Her knowledge saved that company millions.

Then we could talk about the Hercules case and how to determine the government's fair share of the tax refund. That would be fun & interesting for me! But perhaps not for other readers. So let's just stick with the OP's questions. I'm happy with my answer to those questions.

H2H, thanks.  My intent was to indicate that FFP doesn’t mean that the credit or recovery isn’t possible, depending upon the circumstances. Whether or not the government would pay attention to it or not is unknown. If it were a government employee and it is for a few dollars, it would seemingly be important.  Who knows about dealing with contractors but you said:

 

22 hours ago, here_2_help said:

For example, if the government's share is allocated to firm, fixed-priced contracts then it is unlikely the government can recover.

“Unlikely the government can recover” is a little strong in my opinion. That’s all I meant though I was admittedly wordy. They are penny pinchers when dealing with their employees. Sometimes less so with contractors.

P.S. , I’m only referring to costs that were identified and represented during a fixed price negotiated contract action to be $X , etc. and the contractor intended to or normally uses a rewards card offering rebates or discounts to make payments. 

Edited by joel hoffman
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