Jump to content
The Wifcon Forums and Blogs
Sign in to follow this  
DMB044

Cost Reimbursement Contract for Services

Recommended Posts

Background. The prime contract was let in 2000, subject to FAR 52.216-7, Allowable Cost and Payment. According to the terms, the Federal Agency involved was required to approve an annual program plan that identified the program requirements and funding. In the early years, the Agency funded expenses in the annual program plan that in later years the Agency would not fund and called unallowable. Of particular interest is the funding of FAR 31.205-44 Training and education costs. During the early years, the Agency funded expenses such as the cost of training and education that were "related to the field in which the employee is working or may be reasonably expected to work.' However, as years passed, the Agency discontinued funding of certain training, insisting that they would fund only the cost of training specifically required and related to the principal geographical work locations, but not the cost of training at the CONUS support activities and contractor headquarters, which are exclusively dedicated to the Agency and program. Moreover, the AGENCY later insisted, as a matter of justification for not funding specific training, that the contractor was expected to hire personnel who possessed the requisite training.

At the time the contract was let, the SOW stated that Human Resources shall recruit, select, and retain a workforce according to its management approach and Agency-approved annual program plan requirements.* Current managers and available documentation cannot attest to what that management approach was, however, as I mentioned the training expenses funded in the early years differed from what was funded and allowed in the later. I believe the types of training and education funded in the early years provides insight into the management approach, and the Agencys' support of that approach was recognized and funded in the early annual program plans.

Question: Does the following apply to the situation described above in support of an equitable adjustment related to training? In a paper written by Richard P. Rector of DLA Piper US LLP, entitled "Quelling Disputes May Key on Contract Proposals," the following assertions are made:

o When faced with conflicting interpretations of contract terms, courts and administrative boards of contract appeals seek to carry out the common understanding of the parties at the time of the award.

o Therefore, the relevant meaning of a contract clause is the meaning that the parties intended at the time of award; not some meaning offered by a party at a later date.

While the author goes on to talk about what circumstances surrounded formation of the contract (pre-award conferences, discussions, communications, etc) to understand the meaning of a contract clause, does the same apply to management's initial approach related to performance of the SOW? That is, if management's approach was to initially fill the positions with qualified personnel, yet through follow on training and education continue to develop and improve the quality workforce (e.g., obtaining the required professional certifications), can the Agency later refuse to fund the training, if related, or say such training and certifications should have come with the hiring? (I'm planning on checking the Agency-approved and funded compensation levels to determine whether we could have attracted the candidates possessing such qualifications at the time of hiring.)

Consider also this is an award fee contract, and to the extent that the competency and training of employees contribute to achieving the award fee metrics, I believe the Agency position is counter productive to both the quality of the service as well as the contractors' ability to achieve the level of quality required to receive high marks.

I appreciate your comments, and hope I have done an adequate job of explaining the situation.

* When I first came here, I found it interesting that a FAR 52.216-7 contract combined with a rigid, Agency approved annual program plan took on more of a fixed priced contract than a cost reimbursement.

Share this post


Link to post
Share on other sites
Guest Vern Edwards

Assuming that the costs were not expressly unallowable (see FAR 31.001) at the time of contract award, and that the parties have not agreed to modify the contract to make the costs expressly unallowable, then the costs are allowable now. If the government has decided that it no longer wants to reimburse the costs, it cannot unilaterally declare the costs to be unallowable. It must either modify the SOW to eliminate the work for which the costs are necessary or negotiate a contract modification to make the costs expressly unallowable by agreement.

In my opinion, you are needlessly complicating a rather simple problem by bringing in Mr. Rector's paper and a lot of extraneous facts.

Share this post


Link to post
Share on other sites
Assuming that the costs were not expressly unallowable (see FAR 31.001) at the time of contract award, and that the parties have not agreed to modify the contract to make the costs expressly unallowable, then the costs are allowable now. If the government has decided that it no longer wants to reimburse the costs, it cannot unilaterally declare the costs to be unallowable. It must either modify the SOW to eliminate the work for which the costs are necessary or negotiate a contract modification to make the costs expressly unallowable by agreement.

In my opinion, you are needlessly complicating a rather simple problem by bringing in Mr. Rector's paper and a lot of extraneous facts.

I appreciate the straightforward answer, but I'm afraid the Agency has historically balked at such simplicity. I find it funny it also in my last two posts, the first I didn't provide sufficient information (which you called ridiculous), and this one I provided too much. Again, I respect your opinion, and I'm sure you hear that a lot. I'm just glad you're not a doctor because your bedside manner frankly... well, I'll leave it at that.

Share this post


Link to post
Share on other sites
Background. The prime contract was let in 2000, subject to FAR 52.216-7, Allowable Cost and Payment. According to the terms, the Federal Agency involved was required to approve an annual program plan that identified the program requirements and funding. In the early years, the Agency funded expenses in the annual program plan that in later years the Agency would not fund and called unallowable. Of particular interest is the funding of FAR 31.205-44 Training and education costs. During the early years, the Agency funded expenses such as the cost of training and education that were "related to the field in which the employee is working or may be reasonably expected to work.' However, as years passed, the Agency discontinued funding of certain training, insisting that they would fund only the cost of training specifically required and related to the principal geographical work locations, but not the cost of training at the CONUS support activities and contractor headquarters, which are exclusively dedicated to the Agency and program. Moreover, the AGENCY later insisted, as a matter of justification for not funding specific training, that the contractor was expected to hire personnel who possessed the requisite training.

At the time the contract was let, the SOW stated that Human Resources shall recruit, select, and retain a workforce according to its management approach and Agency-approved annual program plan requirements.* Current managers and available documentation cannot attest to what that management approach was, however, as I mentioned the training expenses funded in the early years differed from what was funded and allowed in the later. I believe the types of training and education funded in the early years provides insight into the management approach, and the Agencys' support of that approach was recognized and funded in the early annual program plans.

Question: Does the following apply to the situation described above in support of an equitable adjustment related to training? In a paper written by Richard P. Rector of DLA Piper US LLP, entitled "Quelling Disputes May Key on Contract Proposals," the following assertions are made:

o When faced with conflicting interpretations of contract terms, courts and administrative boards of contract appeals seek to carry out the common understanding of the parties at the time of the award.

o Therefore, the relevant meaning of a contract clause is the meaning that the parties intended at the time of award; not some meaning offered by a party at a later date.

While the author goes on to talk about what circumstances surrounded formation of the contract (pre-award conferences, discussions, communications, etc) to understand the meaning of a contract clause, does the same apply to management's initial approach related to performance of the SOW? That is, if management's approach was to initially fill the positions with qualified personnel, yet through follow on training and education continue to develop and improve the quality workforce (e.g., obtaining the required professional certifications), can the Agency later refuse to fund the training, if related, or say such training and certifications should have come with the hiring? (I'm planning on checking the Agency-approved and funded compensation levels to determine whether we could have attracted the candidates possessing such qualifications at the time of hiring.)

Consider also this is an award fee contract, and to the extent that the competency and training of employees contribute to achieving the award fee metrics, I believe the Agency position is counter productive to both the quality of the service as well as the contractors' ability to achieve the level of quality required to receive high marks.

I appreciate your comments, and hope I have done an adequate job of explaining the situation.

* When I first came here, I found it interesting that a FAR 52.216-7 contract combined with a rigid, Agency approved annual program plan took on more of a fixed priced contract than a cost reimbursement.

Among the information missing from the above scenario is a discussion of direct vs. indirect cost allocation. I have to assume that the contractor is charging labor (and perhaps travel) cost associated with certain employee training activities as a direct contract cost, and expects to get reimbursed. During contract performance the government customer decided that such costs were unallowable as direct contract costs and refused to pay for them as such. I also have to assume that if the costs were charged as indirect costs, the government customer would have no problem with paying the resulting indirect cost (overhead) rates.

With respect to direct costs and your theory that the intent of the parties at the time of contract formation controls subsequent interpretations, I would ask whether the contractor included such direct costs in its original proposal? Did the parties negotiate estimated costs that included such costs as direct costs? Was the historical practice (or future intent) to charge such costs direct disclosed in the submission of cost or pricing data?

With respect to direct vs. indirect, does the contractor have any policies or procedures that support its position? What are its established practices? Are training costs treated consistently amongst all contracts? What does its CASB Disclosure Statement say about treatment of labor and other costs associated with employee training?

These are some of the questions I would be asking.

In any case, I believe the CO has authority to disallow costs incurred during contract performance -- see 42.803.

Hope this helps.

Share this post


Link to post
Share on other sites

Here_2_Help - Will get back to you on the assumptions and questions. Good stuff. But are you saying the CO has authority to disallow any cost, whether CAS and/or FAR allowable?

Share this post


Link to post
Share on other sites
Guest Vern Edwards
I appreciate the straightforward answer, but I'm afraid the Agency has historically balked at such simplicity. I find it funny it also in my last two posts, the first I didn't provide sufficient information (which you called ridiculous), and this one I provided too much. Again, I respect your opinion, and I'm sure you hear that a lot. I'm just glad you're not a doctor because your bedside manner frankly... well, I'll leave it at that.

I'm trying to help you in two ways: first, by giving you an answer to what I think your question really is, and second, by letting you know that the way you have made your inquiries makes it hard for you to get a decent answer. But you're right, I'm not a doctor. Look--the first thing to do is to formulate a clear question. Next, determine whether the answer to the question is governed by regulation, contract law, or business practice. Third, if the answer is governed by rule, as this one is, read the rule and understand it. Finally, apply the rule to the pertinent facts and draw a conclusion.

You asked:

Does the following apply to the situation described above in support of an equitable adjustment related to training? In a paper written by Richard P. Rector of DLA Piper US LLP, entitled "Quelling Disputes May Key on Contract Proposals," the following assertions are made:

o When faced with conflicting interpretations of contract terms, courts and administrative boards of contract appeals seek to carry out the common understanding of the parties at the time of the award.

o Therefore, the relevant meaning of a contract clause is the meaning that the parties intended at the time of award; not some meaning offered by a party at a later date.

o Therefore, the relevant meaning of a contract clause is the meaning that the parties intended at the time of award; not some meaning offered by a party at a later date.

You then followed that with two paragraphs:

While the author goes on to talk about what circumstances surrounded formation of the contract (pre-award conferences, discussions, communications, etc) to understand the meaning of a contract clause, does the same apply to management's initial approach related to performance of the SOW? That is, if management's approach was to initially fill the positions with qualified personnel, yet through follow on training and education continue to develop and improve the quality workforce (e.g., obtaining the required professional certifications), can the Agency later refuse to fund the training, if related, or say such training and certifications should have come with the hiring? (I'm planning on checking the Agency-approved and funded compensation levels to determine whether we could have attracted the candidates possessing such qualifications at the time of hiring.)

Consider also this is an award fee contract, and to the extent that the competency and training of employees contribute to achieving the award fee metrics, I believe the Agency position is counter productive to both the quality of the service as well as the contractors' ability to achieve the level of quality required to receive high marks.

Good grief! What are we to make of all that? What you really want to know, I think, is whether under a cost-reimbursement contract the agency can suddenly refuse to reimburse you for costs incurred after having reimbursed you for those costs previously.

We are all working on other things. We want to help. We try to help. And it helps us when an inquiry is brief, clear, and to the point. Now, if my brusque manner hurts your feelings, I'll ignore your inquiries. You might note, however, that others are having trouble understanding you as well. So I'm not just picking on you. The difference is that I tell you what I think about it. There is no reason for you to feel embarrassed, since no one knows who you are.

Vern

Share this post


Link to post
Share on other sites
I'm trying to help you in two ways: first, by giving you an answer to what I think your question really is, and second, by letting you know that the way you have made your inquiries makes it hard for you to get a decent answer. But you're right, I'm not a doctor. Look--the first thing to do is to formulate a clear question. Next, determine whether the answer to the question is governed by regulation, contract law, or business practice. Third, if the answer is governed by rule, as this one is, read the rule and understand it. Finally, apply the rule to the pertinent facts and draw a conclusion.

You asked:

You then followed that with two paragraphs:

Good grief! What are we to make of all that? What you really want to know, I think, is whether under a cost-reimbursement contract the agency can suddenly refuse to reimburse you for costs incurred after having reimbursed you for those costs previously.

We are all working on other things. We want to help. We try to help. And it helps us when an inquiry is brief, clear, and to the point. Now, if my brusque manner hurts your feelings, I'll ignore your inquiries. You might note, however, that others are having trouble understanding you as well. So I'm not just picking on you. The difference is that I tell you what I think about it. There is no reason for you to feel embarrassed, since no one knows who you are.

Vern

I'm not embarrassed; frustrated yes. Part of the problem I have in formulating exactly what is what is the culture that I find myself in, and in that culture, there is a lot of smoke. I get wrapped around the wheel and that appears obviously as making matters too complicated. And yes, I am awkwardly trying to generalize the issue in order to avoid compromising either party. I just wish things were so easy as to say the FAR allows an expense; provide support that it benefitted the client, and then say to finance 'book it Dano.'

Feelings aren't hurt; just a wee bit frazzled. Thanks Vern.

Share this post


Link to post
Share on other sites
Guest Vern Edwards

In response to here-to-help's last post: I think that the contracting officer can disallow the costs only if the costs are unallowable under the cost principles in effect on the date of contract award. I don't think it matters whether the contractor included the costs in its original proposal. If the contractor incurs the cost during performance and if those costs meet the five tests of allowability, then the government must reimburse the contractor. The CO cannot disallow an allowable cost simply because the government no longer wants to reimburse the contractor for it. If the contractor must incur the cost in order to perform, then the only way that the government can disallow it is to delete the work for which the cost is incurred from the SOW or persuade the contractor to assent to a modification that would disallow it.

Share this post


Link to post
Share on other sites
In response to here-to-help's last post: I think that the contracting officer can disallow the costs only if the costs are unallowable under the cost principles in effect on the date of contract award. I don't think it matters whether the contractor included the costs in its original proposal. If the contractor incurs the cost during performance and if those costs meet the five tests of allowability, then the government must reimburse the contractor. The CO cannot disallow an allowable cost simply because the government no longer wants to reimburse the contractor for it. If the contractor must incur the cost in order to perform, then the only way that the government can disallow it is to delete the work for which the cost is incurred from the SOW or persuade the contractor to assent to a modification that would disallow it.

Vern,

You would agree that one of the five tests for allowability includes compliance with contract terms & conditions, correct?

You would agree that another one of the five tests for allowability is compliance with CAS, when applicable; otherwise compliance with GAAP, correct?

You would agree that the contracting officer has the authority to disallow costs he/she believes to be unallowable pursuant any one of the five tests, correct?

You would agree that the contractor has the ability, under the Disputes clause, to challenge a contracting officer cost disallowance that it believes was incorrectly determined, correct?

Then we are in complete agreement.

H2H

Share this post


Link to post
Share on other sites
Guest Vern Edwards
In any case, I believe the CO has authority to disallow costs incurred during contract performance -- see 42.803.

The CO can disallow costs only if the costs are unallowable.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.
Sign in to follow this  

×