Client Rejection of Invoice based on Fluctuating Daily Rate on CPFF contract

[LeighHar]

I have a CPFF completion contract.  The contract budget within the agreement only has four cost categories (Direct, Indirect, Fee and Total) although we submitted a more detailed budget.  The client has rejected an invoice because the daily rate equivalent for the pay period exceeds the daily rate equivalent in the budget.  

Our invoicing (and payment to staff of their salaries) procedures is such that the annual salary is divided up into 24 equal payments corresponding to the bi-monthly pay periods.  This means, that depending on the number of hours in the pay period, the daily/hourly rate will fluctuate.  For illustrative purposes, an employee whose annual salary is $120,000 ($461.54 daily/$57.69 hourly) gets paid that salary at $5,000 per pay period.  If the pay period has more billable days and hours in it, this mean the daily/hourly rate is lower (for example an hourly rate of $56.82 for an 88 hour pay period).  When there are less days in the pay period, the rate is higher (for example, an hourly rate of $62.50 for an 80 hour pay period).  For budgeting purposes, our budget would contain the daily/hourly rate as the $120,000 annual salary divided by 260 days/2080 hours so $461.54 daily or $57.69 hourly.  The client is rejecting any invoices with a rate higher than the $461.54 daily or $57.69 hourly on the grounds that it exceeds the daily/hourly rate in the approved budget.  A call was had with the CO and COR on this topic, but they maintain their stance based on the following: 1.) they see it going against what they approved; 2.) on the basis that  we never told them in advance of this internal payroll process; and 3.) they want the same hourly rate billed each month. 

If this were a T&M contract, I think I could understand this, but given that its a CPFF?  Do I have grounds to push back further and fight them on this?  If so, what FAR clauses/other content do you suggest I use to push back?

[Jacques]

Might DCAA Contract Audit Manual sections 6-410.4 & 6.410.5 be relevant to your question?  Chapter 6 of the CAM is linked here.

[Vern Edwards]

@LeighHarYour post is hard to respond to. I would need to see the contract in order to determine whether the CO has any contractual basis for rejecting your invoice. I acknowledge that what you have described seems inconsistent with the usual terms of a CPFF contract, but such contracts sometimes contain terms that justify the CO's course of action.

If this is a serious problem for you, rather than just an annoyance or inconvenience, then your best course of action would be to seek the advice of attorney who specializes in government contracting.

[LeighHar]

@Jacques.  I had asked my finance team if there was anything in the DCAA that might help make our case.  The section you are referring to is regarding overtime.  In this case, its not overtime, but fluctuation in regular hours based on our procedures for payment of staff salaries in equal installments even though the pay period hours fluctuate.

@Vern Edwards, I really appreciate you weighing in.  I will check with my supervisor about having an attorney weigh in.  It is an annoyance, but we may work with this CO/COR in the future so acceptance of their interpretation may set a precedence.  Although, a take away for me is that our new business unit needs to review budget notes to ensure this is salary payment methodology is thoroughly explained at proposal phase in the future.  I looked through the contract and there are no special terms and conditions that address this and no labor categories.  Anything else or area where the CO may be authorized such interpretation would be found in a FAR clause.  Are there any particular clauses you can think of that I should look for in the contract?  The contract does contain 52.216-7.  Would this clause allow for such interpretation by the CO/COR?

(a) Invoicing. (1) The Government will make payments to the Contractor when requested as work progresses, but (except for small business concerns) not more often than once every 2 weeks, in amounts determined to be allowable by the Contracting Officer in accordance with Federal Acquisition Regulation (FAR) subpart 31.2 in effect on the date of this contract and the terms of this contract. The Contractor may submit to an authorized representative of the Contracting Officer, in such form and reasonable detail as the representative may require, an invoice or voucher supported by a statement of the claimed allowable cost for performing this contract.

I think we can reference 31.205-6 as the process for paying staff salaries as I described is in line with our established compensation plan.  Thoughts?

[Vern Edwards]

16 minutes ago, LeighHar said:

Are there any particular clauses you can think of that I should look for in the contract?  The contract does contain 52.216-7.  Would this clause allow for such interpretation by the CO/COR?

No clauses in the FAR that I can think of. However, there may be something in the agency's FAR supplement that's in the contract.

FAR 52.216-7 would not support the interpretation that you have been given by the CO.

If the contract is written in the Uniform Contract Format (see FAR 15.204), check Section G, "Contract administration data." Many agencies put payment instructions in there. Don't limit your review to just "clauses." They might have put something elsewhere. You never know.

Check the statement of work. Sometimes agencies put such things in there.

And ask the CO what in the contract supports what they've been telling you.

Has the CO said that the amounts in excess of the budget are "unallowable" or just not payable at this time?

Is the contract fully funded or incrementally funded? (See FAR Subpart 32.7)

Does the contract include the clause at FAR 52.232-20 or 52.232-22?

[Retreadfed]

LeighHar, how do you submit your request for payment of labor?  Do you bill at an hourly rate, a daily rate or something else?  How often do you submit your vouchers?

[Neil Roberts]

On 12/9/2021 at 2:03 PM, LeighHar said:

I have a CPFF completion contract.  The contract budget within the agreement only has four cost categories 

 

Can you explain what a "budget" is contractually? My take is that the usual cost type contract has funding and allowable cost requirements, not a budget.

[LeighHar]

@Neil Roberts, so many words, so many meanings, right!  So I looked at the contract.  It is under a section called "Awarded Prices."  It goes further to say, "The estimated awarded price for this action will not exceed $500,000.  Final negotiated price will be included in the contract documentation."

This is then followed by a table that has a total of $500,000 and a breakdown of costs into four lines: Total Direct Cost, Indirect Costs, Fixed Fee, Total Cost Plus Fixed Fee (not to exceed).

We are working on preparing a response now.  I'm looking at our CASB form.  I'm not finding definitions for the options on the form for 2.5.0 Method of Charging Direct Labor. 

[LeighHar]

On 12/10/2021 at 9:04 AM, Vern Edwards said:

No clauses in the FAR that I can think of. However, there may be something in the agency's FAR supplement that's in the contract.

FAR 52.216-7 would not support the interpretation that you have been given by the CO.

If the contract is written in the Uniform Contract Format (see FAR 15.204), check Section G, "Contract administration data." Many agencies put payment instructions in there. Don't limit your review to just "clauses." They might have put something elsewhere. You never know.

Check the statement of work. Sometimes agencies put such things in there.

And ask the CO what in the contract supports what they've been telling you.

Has the CO said that the amounts in excess of the budget are "unallowable" or just not payable at this time?

Is the contract fully funded or incrementally funded? (See FAR Subpart 32.7)

Does the contract include the clause at FAR 52.232-20 or 52.232-22?

The contract is written as per the Uniform Contract Format.  Section G mentions AIDAR 752.7003 Documentation for Payment, CO's Authority, info on the COR, Technical Directions/Relationship with USAID (essentially the COR's designation letter, which now that I see that, is odd that its inserted into the contract).  I've always seen it given as a supplemental document.  It also contains general info on invoicing and invoice frequency.  

 

The contract is only valued at $500,000 so they fully funded it.

Your question about unallowable or not payable at this time, is a good one.  I didn't know that you could pay incurred costs at a later date.  How does that work?  I was not on the call with the CO and COR, only consulted afterwards, so I'm not clear on this question...I just assumed "unallowable".

I checked the SOW, don't see anything regarding limits on salary.

Limitation of funds is in the contract, but not limitation of costs.

In our CASB DS-1 form, under Item no. 2.5.0, for Method of Charging Direct Labor, we checked "A. Individual/actual rates" for Other Direct (we don't do manufacturing or engineering work), but I wonder it that is correct or based on what I described above, its actually C. Average Rates-uncompensated overtime excluded from computation.  I looked online for definitions of the options given or detailed instruction on completing the CASB but didn't find any.

 

[Vern Edwards]

@LeighHarThe following is from your opening post:

On 12/9/2021 at 2:03 PM, LeighHar said:

I have a CPFF completion contract.  The contract budget within the agreement only has four cost categories (Direct, Indirect, Fee and Total) although we submitted a more detailed budget.  The client has rejected an invoice because the daily rate equivalent for the pay period exceeds the daily rate equivalent in the budget.  

So the contract includes a "budget", and at some point you submitted "a more detailed budget." What you have invoiced exceeds the "budget". That appears to be the source of the issue.

I don't know what the contract says, so I cannot advise you based on the information that you have provided, and I doubt that more information via this forum would make it any easier.

I suggest that you sit down with the contracting officer and ask on what specific basis in the contract they have rejected your invoice.

It is essential that you fully understand the basis for their rejection in no uncertain terms. Until you do, and can explain it clearly to others, going back and forth about it in this forum is likely to be fruitless.

This forum can be helpful, but it is not an alternative to professional advice from someone who has read the contract and knows ALL of the potentially pertinent facts.

I wish you well.