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Some time ago, I began a discussion regarding an epidemic-like position streaming across the country:   Contracting officers not wanting to pay G&A on travel.  If you remember the discussion and are wore out with it, please don't read further.

The strategies in that conversation for available remedies have been largely ineffective.  One strategy is to use the FAR Clause to insert a fixed-dollar amount instead of a G&A rate, and CO's hoping the contractor will not ignore a response, meaning zero is available.  But even when a fixed-dollar amount is discussed, the CO's and COR's are like a deer-in-the-headlights.  They didn't want a fixed dollar amount, they wanted absolutely zero, regardless of provisions in the FAR.

Another strategy is to increase the G&A rate on everything else to compensate for the loss of G&A on travel.  A few problems with this strategy, firstly very few things create administrative expense as does Travel, so this strategy does not reflect cause-and-effect.  Secondly, solicitations ask for ceilings on G&A, hence the G&A rate cannot by raised.  Thirdly, there are often single line-item CLINS dedicated to travel, so raising the G&A rate on the other CLINs makes the contractor non-competitive.

I have not seen any relenting in the insistence on the part of COs (with or without the FAR clause).  Formerly, I was advised to simply negotiate with the COs, but the sad fact is that small contractors (i.e. MOST contractors) do not have the negotiating power to deal with these avaricious COs.

Comments?  Tell me to quit whining, if you wish, but this is still an issue.

 

 

 

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Avaricious COs?  I'm not sure that adjective fits.

But I think you are correct that many contracting officers do not fully understand Alt. I to the clause at FAR 52.212-4, used for T&M contracts for commercial items.  Many contractors don't, either.  

Maybe if you were to write an article to help educate the community of practice?

But still, if your competitors are willing to accept zero as the fill-in, maybe you simply have no negotiation leverage.  That's not necessarily unfair; rather, it may be a simple fact of life in your segment of the marketplace.

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7 hours ago, ji20874 said:

But still, if your competitors are willing to accept zero as the fill-in, maybe you simply have no negotiation leverage.  That's not necessarily unfair; rather, it may be a simple fact of life in your segment of the marketplace.

 

10 hours ago, Corduroy Frog said:

Comments?  Tell me to quit whining, if you wish, but this is still an issue.

Maybe discussed in previous discussions on this matter but maybe not but renewed discussion in the infancy of two posts to the thread raise a thought for me.  No doubt the thread will role on otherwise but........   In the context of best value, maybe fair dealings, maybe FAR 1.102(b)(3) and of course the cost principles of FAR part 31 the real question is if it reasonable, allowable, allocable is G&A on travel really the cost to hang ones hat on ( on either side) for saying yes or no?  After all is it not things like profit where the risks of doing business are acknowledged or not?

FAR 15.405 "....A fair and reasonable price does not require that agreement be reached on every element of cost..."

All said understanding the dilemma but I am not sure that the habit of the Federal government to out right deny the G&A on travel that is rightfully calculated based on cost principles will ever be overcome.

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1 hour ago, C Culham said:

...but I am not sure that the habit of the Federal government to out right deny the G&A on travel that is rightfully calculated based on cost principles...

Rightfully calculated?  But do the cost principles of FAR part 31 apply to the original poster's situation?  I think not* -- and if the cost principles don't apply, then it seems to be error to insist that they be "rightfully" calculated and applied.

* See FAR 31.103(a).  Based on this original posting and earlier threads, I think we're talking about T&M contracts for commercial items using Alt. 1 to FAR 52.212-4.  If this is true, then the original poster errs in asserting a right to a percentage rate for G&A on travel.

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9 minutes ago, ji20874 said:

Rightfully calculated?  But do the cost principles of FAR part 31 apply to the original poster's situation?  I think not* -- and if the cost principles don't apply, then it seems to be error to insist that they be "rightfully" calculated and applied.

* See FAR 31.103(a).  Based on this original posting and earlier threads, I think we're talking about T&M contracts for commercial items using Alt. 1 to FAR 52.212-4.  If this is true, then the original poster errs in asserting a right to a percentage rate for G&A on travel.

I believe the basic problem of charging a percentage rate on travel costs is that it has held to be a form of the cost plus percentage of costs method, prohibited by law.

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11 minutes ago, ji20874 said:

I think not*

????  Is not the poster talking about contracting with commercial organizations rather than educational or non-profits?   Commercial item acquisition is different than FAR 31 reference to contracting with "commercial organizations".  I am not in alignment with your thinking.

14 minutes ago, ji20874 said:

I think we're talking about T&M contracts

Well I did not see T&M anywhere in the OP so I did not go that direction.   But if I had I am still confused as 52.212-4 Alt 1 clearly allows for travel as a Material Other Direct cost.  Now I could be crazy but based on the cost principles one could reasonably draw the conclusion that the "actual cost" for  Material Other Direct cost for travel not only must be actual but be in accord with the guiding cost principles of FAR part 31. 

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The original poster referenced an earlier discussion, and I recall that it was T&M contracts for commercial items.  For this sort of contract, indirect costs (such as G&A) on ODCs (such as travel) are paid only as specified in the fill-in for para. (i)(1)(ii)(D)(2).  That fill-in calls for a fixed amount (not a percentage rate) for indirect costs.  The principles of FAR Part 31 do not apply.

Let's let the original poster enlighten us.

Frog, Are you talking about T&M contracts for commercial items?  Or are you talking something else?  Please be specific.

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3 hours ago, Vern Edwards said:

Quit whining.

Vern, this is exactly what I expected from you - it was just a matter of time.  Be that as it may, your links were good reading material.

It would be different if contractors were cashing in big time by charging G&A.  The sad truth, however, is the G&A doesn't even cover the additional time required to account for travel, with advances, repayments, IRS-approved expense reports, and per diem administration.

Perhaps to insult contracting officers (some of who may be posting on this forum), I believe many of them don't understand the Alt I in the FAR clause.  If contractors wise up and start proposing fixed dollar amounts as allowed, I believe some of them will just say "We're not going to pay it, period, and we don't care what's in Alt I".  It seems to be a consensus opinion that the negotiating power of the contractor is a big factor.

I have been asked whether my experience is with T&M, FFP, or CT contracts.  My experience is that this abuse is going on everywhere, although personally the CT contracts seem to have dried up for small contractors that I have dealt with as an accounting consultant.

 

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1 hour ago, Corduroy Frog said:

Perhaps to insult contracting officers (some of who may be posting on this forum), I believe many of them don't understand the Alt I in the FAR clause. 

I would rephrase this to state that some contracting officers do not understand G&A.  I know of some who do not believe it is a real cost, but is a hidden form of profit.  Others do not realize that G&A is a period cost.  I once had to negotiate with a contracting officer who thought he should pay G&A on only the first year of a multi-year contract not realizing the contractor incurred G&A expenses every year.  For others, it simply is a matter of cost.  They use G&A on travel as a way to squeeze a contractor on cost.

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Vern and Retread and others, thanks for your discussion.

For virtually the entire Federal contracting environment, if indirects such as Overhead and G&A were not available to the contractors, they would go broke.

In the commercial world (non-govt), contractors bid high enough to hopefully have some profit left over, and this is usually their expected cost plus 18-20%.  Contrast to the govt world, Fee as high as 8-10% is considered exorbitant.  And the administrative costs of running a govt contractor are almost always more than in the commercial world.  So without indirect costs being added, a contractor would go broke.  Adding G&A and Overhead or M/H simply raises the margin to the same level as that encountered in the commercial bidding.

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Corduroy Frog,

Overhead and G&A are available to contractors on all federal contracts.  For fixed-price contracts, the contractor needs to account for indirect costs in its price proposal.  In T&M contracts not for commercial items and for cost-reimbursement contracts, the clause at FAR 52.216-7 governs.  For T&M contracts for commercial items, Alt. I of the clause at FAR 52.212-4 governs.  And, or course, the realities of competition and negotiation leverage govern.  

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7 hours ago, ji20874 said:

The principles of FAR Part 31 do not apply.

Let me explore.

T&M Contract - FAR 16.601 

Material means other direct costs such as travel and applicable indirect costs.  FAR 16.601(a) definitions.

Material Handling costs may be included as part of material costs.   FAR 16.601(c)(3). 

And if the solicitation/contract provides that material handling costs can be included then this applies  -  "Material handling costs may include all appropriate indirect costs allocated to direct materials in accordance with the contractor's usual accounting procedures consistent with part  31."   Again FAR 16.601(c)(3).

Now I may be completely off base but it would seem in a full read that reference to FAR "part 31" invokes that its principles may apply and I read no exclusion with regard to a commercial item acquisition.

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Carl,

You need to read Alt. 1 to FAR 52.212-4 for T&M commercial item contracts -- everything else one reads about G&A in FAR 16.601 or Part 31 or the clause at 52.216-7 is irrelevant to T&M contracts for commercial items -- the only relevant text is in Alt. I to FAR 52.212-4.  It requires a fixed amount for any and all indirect costs -- that is the amount the contractor will receive for indirect costs.  The contractor does not mark up actual direct costs with a percentage rate -- rather, the contractor bids a fixed amount.

The original poster can have all the G&A on travel that he wants, if he bids it (as a fixed amount) and/or bargains for it.  It sounds like he does neither, and yet he expects the G&A as a free gift.  But if he doesn't bid it up front, or if he bids it but lets it go away during negotiations, then he has no entitlement for payment after award.

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3 hours ago, C Culham said:

Now I may be completely off base but it would seem in a full read that reference to FAR "part 31" invokes that its principles may apply and I read no exclusion with regard to a commercial item acquisition.

 

2 hours ago, ji20874 said:

You need to read Alt. 1 to FAR 52.212-4 for T&M commercial item contracts -- everything else one reads about G&A in FAR 16.601 or Part 31 or the clause at 52.216-7 is irrelevant to T&M contracts for commercial items -- the only relevant text is in Alt. I to FAR 52.212-4.  It requires a fixed amount for any and all indirect costs -- that is the amount the contractor will receive for indirect costs.  The contractor does not mark up actual direct costs with a percentage rate -- rather, the contractor bids a fixed amount.

In order to verify that ji20874 is right—in addition to reading the plain language of FAR 52.212-4, Alt. I—read FAC 2005-15, 71 FR 74667, Dec. 12, 2006, which authorized the use of T&M contracts for commercial items.

From the responses to public comments:

Quote

Comment: Exclude indirect costs from the definition of material costs to eliminate the two contradictory methods for reimbursing indirect costs. The proposed rule permits reimbursement at a fixed amount but also defines indirect costs as an element of material costs that can only be reimbursed at actual costs unless the material meets the definition of commercial item.

Response: The Councils revised the rule to eliminate the contradictory methods. Instead of excluding indirect costs from the definition of materials, the Councils revised the provisions in the alternate clause at FAR 52.212-4, Alternate I (i)(1)(ii)(D)(2) to exclude indirect costs from being reimbursed at actual cost.  [Emphasis added.]

 

Quote

Comment: Agree with the provisions that permit reimbursement of indirect costs at a fixed price on a pro-rata basis over the period of contract performance but recommend clarifying that the fixed price could be adjusted as new work is added and also allowing contractors to be reimbursed at the Government approved percentage mark-up for non-commercial contracts. Cost Accounting Standards (CAS) covered contractors are required to allocate material handling in accordance with their approved accounting practices. Material handling rates are well-recognized in Federal and commercial markets. The Councils are proposing to reimburse indirect costs at a fixed price because of concerns over violating the cost-plus-a-percentage-of-cost prohibition. Material handling rates do not add fee or any other price component to cost and therefore could not be considered a cost-plus-a-percentage-of-cost violation. Recommend revising the coverage to permit contractors to recover material handling provided it is excluded from the hourly rates.

Response: If new work is added, a fixed amount may be added for indirect expenses if appropriate. Nothing in the rule prevents contract changes. The approved percentage mark-up for non-commercial contracts is subject to the allowability provisions of FAR Part 31. The Councils believe it is more appropriate to reimburse indirect costs without imposing the requirements of FAR Part 31 to be consistent with commercial practices. While the commenter disagrees, the Councils believe use of a fixed rate violates the cost plus percentage of cost contract prohibition. CAS covered contractors already allocate material handling and other indirect costs to commercial and non-commercial FFP contracts in accordance with their disclosed accounting practices. While the costs are allocated to those FFP contracts, the allocation may be different from the amounts recovered under the contracts for those elements of cost.  [Emphasis added.]

FAR Part 31 does not apply to the determination of indirect costs like G&A under T&M contracts for commercial items.

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What I believe that is being missed in this conversation is that Material is defined as travel and as such travel as material can include a material handling cost or in other words travel handling costs that are Indirect Costs not included in the labor hours costs.   As such when computing the the Indirect Costs fixed price material (travel) handling costs would not be used in determining the Indirect Cost fixed price.  Further if the CO felt that rates for labor and materials (inclusive of travel) adequately accounted for all indirects the CO would then enter "$0" in the Indirect Cost  paragraph of the Alt 1. 

This is akin to the fact that fixed hourly rates of a TM include indirects and as such the indirect included in the labor hour fixed hourly rates would not be a basis for computing the Indirect Costs fixed price of a commercial item contract.

The choices are - 

Indirects in labor and material therefore no Indirect Cost or a Indirect Cost that picks up any of the indirects that are reasonable, allocable and allowable and that were not included in labor or material rates such as material handling (travel indirect) if not included in the material (travel) rate already.

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To clear up and define what my involvement is:

I am an Accounting Consultant for small contractors.  My involvement in contracts administration is limited to exposure only, and that's why I bring questions to this forum.

My customers, whether knowledgeable or not, are having no luck when COs insist (rightly or wrongly) that they are not going to pay G&A on travel.

 

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10 hours ago, C Culham said:

What I believe that is being missed in this conversation is that Material is defined as travel and as such travel as material can include a material handling cost or in other words travel handling costs that are Indirect Costs not included in the labor hours costs. 

What I believe is missed is that the application of G&A to travel under a T&M contract is a matter of negotiation.

If a company cannot get a deal it can live with it should walk away. And don't tell me how hard that is on small businesses. Business is hard. Period.

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On 10/25/2021 at 7:59 PM, ji20874 said:

But still, if your competitors are willing to accept zero as the fill-in, maybe you simply have no negotiation leverage.

 

1 hour ago, Vern Edwards said:

What I believe is missed is that the application of G&A to travel under a T&M contract is a matter of negotiation.

My belief is aligned with the negotiation aspect buffered by the sad fact  a fill-in derived by the Government that fails to recognize travel G&A, or the Government otherwise does not accept that travel is a "material" and therefore can have "material handling costs' attributed to the material price in a TM commercial item contract does not understand the reality of business.  

And with this opportunity of continued discussion I want to address this - 

12 hours ago, Vern Edwards said:

FAR Part 31 does not apply to the determination of indirect costs like G&A under T&M contracts for commercial items.

By example -

TM commercial item contract for reforestation services.

Contractor proposes labor rate.

Government questions rate and contractor provides breakdown and notes in the break down that there is factor in the rate for employee recognition that is a beer party after completing all projects government or otherwise.   An expense captured in the  contractor's usual accounting procedures.  If FAR Part 31  does not apply what would be the governments negotiation position regarding the beer?  Sorry no beer cost in the rate?  If so the contractor just simply removes the word "beer" and the government is happy?   

I am honestly on Frog's side and the stereotypical CO statement that negatively addresses a true cost of a contractor to a contract as it is this way or the highway has their head in the clouds and in part is at odds with conducting the governments business with integrity and fairness.  But then that is just me!

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I am a little sympathetic to Frog as well, but still, the reality is the reality.  And pointing to FAR 31 for indirects on commercial T&M is inapt.  The pointing should be to Alt. I of FAR 52.212-4, para. (i)(1)(ii)(D)(2).  There, Material Handling is treated as an indirect cost.  If an offeror wants compensation for indirect costs on travel, it needs to bid it in its proposal in the fill-in to para. (i)(1)(ii)(D)(2) for Alt. I of FAR 52.212-4.  If the offeror becomes the successful contractor and accepts the contract with $0 as the fill-in, then $0 is the payment.  Period.  The contractor got what the contractor bargained for.  That's fair.

I get that some contractors and some contracting officers may not fully understand Alt. I of FAR 52.212-4.  I hope this discussion can be helpful.  But the original poster's desire of getting G&A on travel as a percentage rate simply doesn't fit within the construct of T&M contracts for commercial items.

Regarding the T&M reforestation services example:  A labor rate is not an indirect cost on materials, so the example is not germane to the discussion in this thread.

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1 hour ago, C Culham said:

If FAR Part 31  does not apply what would be the governments negotiation position regarding the beer?  Sorry no beer cost in the rate?  If so the contractor just simply removes the word "beer" and the government is happy?   

@C CulhamIf you are buying a commercial service, why are you asking questions about what is included in the rates? Why aren't you doing a price analysis of the rates, instead of a cost analysis? Why should you care whether beer is included if the rate is fair and reasonable based on market pricing?

See, this is why reforms don't work. People who learned old techniques cannot let them go.

 

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6 minutes ago, ji20874 said:

Material Handling is treated as an indirect cost.

It is exemplified as a possible indirect if it is not allowed to be in the material cost.  If the wording is definitive then under your premise only "material handling costs" and "subcontract administration" are the only indirects allowed.

 

7 minutes ago, ji20874 said:

it needs to bid it in its proposal in the fill-in to para. (i)(1)(ii)(D)(2) for Alt. I of FAR 52.212-4.

The fill in is by its very nature and wording a fill in that the CO is to complete.   Note especially the word "provided" along with the other emphasized wording.   "Insert a fixed amount for the indirect costs and payment schedule. Insert "$0" if no fixed price reimbursement for indirect costs will be provided. (If this is an indefinite delivery contract, the Contracting Officer may insert "Each order must list separately the fixed amount for the indirect costs and payment schedule or, if no reimbursement for indirect costs, insert ‘None’)."  I will give you that it can be negotiated once offers are received

 

14 minutes ago, ji20874 said:

Regarding the T&M reforestation services example:  A labor rate is not an indirect cost on materials, so the example is not germane to the discussion in this thread.

Yes it is because you and others have stated FAR part 31 is not applicable.  And as to your insistence that material and material handling is not applicable in the context of travel and commercial item acquisition I refer you specifically to the Alt 1 which includes this -


"Definitions. (1) The clause at FAR 52.202-1, Definitions, is incorporated herein by reference. As used in this clause-"

 

 

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8 minutes ago, Vern Edwards said:

CulhamIf you are buying a commercial service, why are you asking questions about what is included in the rates? Why aren't you doing a price analysis of the rates, instead of a cost analysis? Why should you care what is included in the rates?

See, this is why reforms don't work. People who learned old techniques cannot let them go.

Poor word choice.   But I will say "Analysis of data other than certified cost or pricing data (as defined at 2.101) provided by the offeror."

I think I have learned new techniques and your "Why should you care what is included in the rates?" seems to point back at you and ji.   I mean after all why should you care ( critically argue)  if a contractor has G&A on travel in their Material payment item of the contract especially when adequate price competition has occurred.

The mixed metaphors of this thread are over the top by us all in my view as to Commercial Item TM contract.    If a CO is questioning  G&A on travel in a Commercial Item TM contract as ji implies, and Frog seems to agree, the CO should excommunicated.  And maybe ji, you and me too for extending this thread!

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