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bigred

Prime Contract Employee is now a consultant to the Prime Part 2

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I have another situation regarding my employee who is now a consultant. I have created a new fully burdened rate for this individual that is inclusive of profit. I am now being told that I am not allowed to charge profit on my cost for this consultuant because this is a T&M contract.

I believe that the new T&M rules in FAR 52.232-7 Payments under T&M and Labor-Hour Contracts (Feb 2007) is fairly clear that hourly rates can include profit. However, the basic contract was awarded in late 2006 so it does not have the Feb 2007 version of 52.232-7 incorporated. Upon review of the clause in the contract, I would still argue that profit is allowed to be included as part of the Consultants rate.

Any and all thoughts are appreciated.

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I have another situation regarding my employee who is now a consultant.

I am now being told that I am not allowed to charge profit on my cost for this consultuant because this is a T&M contract.

The basic contract was awarded in late 2006 so it does not have the Feb 2007 version of 52.232-7 incorporated.

bigred,

I feel your pain. The old T&M payment clause is unclear (and there have been several WIFCON threads on that topic, that you should check out). The new rules are somewhat complex and difficult to implement in specific contract situations. Administering a contract with the old clause in the new environment is probably even more confusing. The challenge is exacerbated by poor, or non-existent, training of the acquisition workforce. As a result, there is quite a bit of, shall we say, inconsitency in application--throughout the Federal contracting community.

Your situation revolves around whether costs incurred through use of a consultant should be billed at the contract labor hour rates for performing work that meets the labor category qualifications specified in the contract (the "T" in T&M) or as pass-through direct material, ODC, supplies, and incidental services (the "M" in T&M). Subcontractors (and by extension consultants) can be billed on either side. I agree with you that the clause at 52.232-7 (Feb 2007) is pretty clear on how to distinguish between the subcontractor efforts and set up an appropriate contract billing mechanism.

But your contract has the old T&M Payment clause, which is much less clear. However, there is case law out there that supports the position (vis-a-vis the old clause language) that if the work being performed by a consultant is indistinguishable from work peformed by a contractor employee, the contractor should bill at the rates established for employees, regardless of profit earned as a result. A good Government contracts attorney can find that case for you.

If you don't want to hire an attorney, then you are left with the unappetizing task of negotiating and persuading your C.O. that his/her position is wrong -- which it is. Obviously, profit is permitted on labor hours incurred in performance of the contract SOW. Just because a contractor uses a consultant instead of a full-time employee is no reason for denying it the profit to which it would otherwise be entitled. Now, if you didn't set up an hourly billing rate for the consultant and just passed-through the consultant's cost on the "M" side, there would be a stronger argument to be made about profit -- but it would still fail (see the court case mentioned above).

As I said, I feel your pain. Hope this helps.

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