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The Government seems to be using Global Insight for justifying or negotiating rate escalation but what if a company provides rather decent merit increases to its employees (above the standard Global Insight 2%=2.5% always referred to). The Govt should have no say in what kinds of increases it pays its employees. Any comments or guidance on what COL indices are reliable ?

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The Government seems to be using Global Insight for justifying or negotiating rate escalation but what if a company provides rather decent merit increases to its employees (above the standard Global Insight 2%=2.5% always referred to). The Govt should have no say in what kinds of increases it pays its employees. Any comments or guidance on what COL indices are reliable ?

I sighed when I read this post. I bet others did as well. Let's break it down --

1. Yes, most times DCAA uses the DRI/Global Insight values to establish its position(s) on the reasonableness of estimates of future costs. Generally, contracting officers use that position to establish pre-negotiation objectives.

2. If your company has a history of providing employees with raises larger than that used by Global Insight and -- more importantly -- if it has budgetary projections showing it intends to award those larger raises in the future, then those facts need to be given to the contracting officer during negotiations. At that point, it's simply a matter of negotiation. Let me reemphasize that: it is NOT a matter of index vs. index; it is a matter of negotiating skill. Period.

3. You say, "The Govt should have no say in what kinds of increases [my company] pays its employees." True, and so what? The Government has a say in the price it wants to pay its contractors. If you keep giving out raises in excess of the industry average, eventually you will price yourself out of the market.

The bottom-line here (excuse the pun) is that you are negotiating a price, of which labor escalation is but one element. I'm willing to bet that your indirect rates affect the contract price as much as -- if not more -- than direct labor escalation. Moreover, if you don't like the Government's escalation value, then jack-up proposed fee/profit to cover the difference. Finally, if this is a cost-reimbursement contract, then you're not even negotiating a price; you're just negotiating an estimated cost value. The Government is going to pay actual, allowable, costs in any case.

I feel your frustration, but you should understand how the process works, and be well-prepared to negotiate when you're at the table. Because that's where the rubber meets the road, not at the issuance of an audit report.

Hope this helps.

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