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Are there any issues I'm missing with attempting to charge facilities direct to a contract? 

Background:

Company primarily performs on one large gov't contract and about 80% of the people are dedicated to that contract, while the remaining 20% are execs, HR, IT, etc. 

The contract is being re-competed next year and we're looking at proposing roughly 80% of the facility cost as direct. I haven't been able to find anything that prohibits doing so. 

 

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1 hour ago, Former_DCAA said:

Are there any issues I'm missing with attempting to charge facilities direct to a contract? 

Background:

Company primarily performs on one large gov't contract and about 80% of the people are dedicated to that contract, while the remaining 20% are execs, HR, IT, etc. 

The contract is being re-competed next year and we're looking at proposing roughly 80% of the facility cost as direct. I haven't been able to find anything that prohibits doing so. 

 

It sounds like you're asking whether rent can be treated as material, where the total rent charge from your landlord supports more than one cost center.  I thought G&A had to be included in the labor rates on a T&M contract. Hopefully I'm misunderstanding.

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So, instead of

(1) charging "facilities" costs to an overhead pool and covering those costs with the overhead portion of the hourly rate charges,

you want to

(2) charge "facilities" costs as direct costs under materials.

Is that right?

If so, do you really think all of those "facilities" charges can fit under the definition of materials?

 

 

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Just now, ji20874 said:

So, instead of

(1) charging "facilities" costs to an overhead pool and covering those costs with the overhead portion of the hourly rate charges,

you want to

(2) charge "facilities" costs as direct costs under materials.

Is that right?

If so, do you really think all of those "facilities" charges can fit under the definition of materials?

 

 

That is correct. The reason is that the indirect rates are extremely high and this is a change that can have the biggest impact. It is definitely a stretch though. 

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You should read the definition of materials in para. (e) of the clause at FAR 52.212-4 with it's Alt. I and the definition of materials in para. (b) of the clause at FAR 52.232-7.  I suppose one of these clauses will be included in your contract.

Do you think you can make your "facilities" costs fit within either of those definitions?  If your answer is YES, feel free to try.

 

 

 

 

 

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From FAR 16.601:

Quote

Materials means-

           (1) Direct materials, including supplies transferred between divisions, subsidiaries, or affiliates of the contractor under a common control;

           (2) Subcontracts for supplies and incidental services for which there is not a labor category specified in the contract;

           (3) Other direct costs (e.g., incidental services for which there is not a labor category specified in the contract, travel, computer usage charges, etc.); and

           (4) Applicable indirect costs.

Now why couldn't rent be charged as an "other direct cost"?

I don't think the issue is whether rent could be materials. I think the issue is whether the rent for the facility is a direct cost of the contract.

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There is no problem for a non-CAS-covered contractor to change its accounting practices (well, other than compliance with Truthful Cost or Pricing Data requirements). The former practice was to charge the cost of facilities as an indirect charge; the changed practice is to allocate facility costs to benefiting cost objectives (contracts) based on occupied square footage, assuming that certain employees charge only one contract for the majority of their time. This can be done.

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Just now, here_2_help said:

There is no problem for a non-CAS-covered contractor to change its accounting practices (will, other than compliance with Truthful Cost or Pricing Data requirements). The former practice was to charge the cost of facilities as an indirect charge; the changed practice is to allocate facility costs to benefiting cost objectives (contracts) based on occupied square footage, assuming that certain employees charge only one contract for the majority of their time. This can be done.

That's kind of the approach I was thinking, I just don't know what happens if they wind up winning another contract and that Contracting Officer rejects that idea. 

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1 minute ago, Former_DCAA said:

That's kind of the approach I was thinking, I just don't know what happens if they wind up winning another contract and that Contracting Officer rejects that idea. 

The CO doesn't get to approve the contractor's cost accounting practices; however, the CO gets to determine what costs will be accepted in the contract price (or reimbursed). The contractor has appeal rights.

If the contractor performs multiple contracts, the logic breaks down. A cost that benefits multiple cost objectives is likely to be an indirect cost, not a direct cost.

Also, if a particular CO insists that facilities cost must be indirect when the contractor had elected direct allocation treatment, then the contractor should execute 52.230-7 in Section K of its proposal.

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1 hour ago, Vern Edwards said:

Now why couldn't rent be charged as an "other direct cost"?

Maybe it could, especially if the rent was for a location solely for the performance of the contract work.  But if the rent is for the company headquarters space, maybe it couldn't.  We don't know if the original poster performs the contract work in a government facility, in a contractor-provided facility just for that contract, or in its company headquarters space.

1 hour ago, Vern Edwards said:

I don't think the issue is whether rent could be materials.

Other direct costs is a subset of materials.  If rent fits under other direct costs, then it also fits under materials.

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2 hours ago, ji20874 said:

Maybe it could, especially if the rent was for a location solely for the performance of the contract work.  But if the rent is for the company headquarters space, maybe it couldn't.  We don't know if the original poster performs the contract work in a government facility, in a contractor-provided facility just for that contract, or in its company headquarters space.

Other direct costs is a subset of materials.  If rent fits under other direct costs, then it also fits under materials.

Thanks for the insight.

The company only rents one building that houses all employees and all direct and indirect functions are performed there (plus some telework).  There are a few other very small commercial contracts and gov't subcontracts, but this one contract is about 95% of the total work.

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