I am just at a loss of why CO's just continues to approve direct rate increases .

I currently administer a CPFF contract along with my CO. I realize the premise of a CPFF contract is an "estimate "

But what is the threshold of reasonableness.... so a prime as submitted direct rate increases for 5 of its employees

ranging from 10% to 25%. I think 25% is absolutley unreasonable when the govt is asked to cut costs especially as it relates to support services contracts and we just approve these increases, yeah we ask for some justification but as a new CO I don't believe its detailed justification; and not being the primary CO I'm reluctant to express my opinion.

What can I say to the CO before he responds to the prime.

Can we "allow" an increase up to a certain percentage or is it all or nothing? I was told its all or nothing as far as the increases go

Please provide guidance

I am just at a loss of why CO's just continues to approve direct rate increases .

I currently administer a CPFF contract along with my CO. I realize the premise of a CPFF contract is an "estimate "

But what is the threshold of reasonableness.... so a prime as submitted direct rate increases for 5 of its employees

ranging from 10% to 25%. I think 25% is absolutley unreasonable when the govt is asked to cut costs especially as it relates to support services contracts and we just approve these increases, yeah we ask for some justification but as a new CO I don't believe its detailed justification; and not being the primary CO I'm reluctant to express my opinion.

What can I say to the CO before he responds to the prime.

Can we "allow" an increase up to a certain percentage or is it all or nothing? I was told its all or nothing as far as the increases go

Please provide guidance

It is most certainly not "all or nothing".

The government has the right to reimburse the contractor only for "reasonable" costs (see 31.201-3). When I type "see 31.201-3" I really mean go read it carefully, especially ((1) through ((4). Other factors that may impact the determination of reasonableness might include: whether the contractor has an approved compensation system, whether the contractor proposed escalation factors that included salary increases of such magnitude, and whether the contractor has written compensation plans that have been shared with the ACO. (Also see 31.205-6(a)(1) through (a)(5).)

Hope this helps.

You have not said what, if anything, your contract says about CO approval of rate increases, so I'll assume it says nothing.

Under a CPFF contract, costs must be allowable in accordance with FAR Subpart 31.2 in order to be reimburseable. FAR 31.201-2 says that in order to be allowable a cost must be reasonable. FAR 31.201-3 says:

31.201-3 Determining reasonableness.

(a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

( What is reasonable depends upon a variety of considerations and circumstances, including?

(1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance;

(2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations;

(3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and

(4) Any significant deviations from the contractor?s established practices.

In light of that passage, ask yourself these questions:

1. Why do you think that a 25 percent increase is "absolutely unreasonable"? What is your logic? The fact that the Government has been asked to cut costs is not, in and of itself, justification for your position. What if rates throughout the industry have increased by that much since the rate in question was established? What if the contractor would lose highly qualified employees to other contractors if it did not raise the rate by 25 percent, resulting in reduced efficiency under your contract?

2. What argument has the contractor provided in support of the reasonableness of the proposed increase? The contractor bears the burden of proof.

I don't know what you mean by "all or nothing."

You have not said what, if anything, your contract says about CO approval of rate increases, so I'll assume it says nothing.

Under a CPFF contract, costs must be allowable in accordance with FAR Subpart 31.2 in order to be reimburseable. FAR 31.201-2 says that in order to be allowable a cost must be reasonable. FAR 31.201-3 says:

In light of that passage, ask yourself these questions:

1. Why do you think that a 25 percent increase is "absolutely unreasonable"? What is your logic? The fact that the Government has been asked to cut costs is not, in and of itself, justification for your position. What if rates throughout the industry have increased by that much since the rate in question was established? What if the contractor would lose highly qualified employees to other contractors if it did not raise the rate by 25 percent, resulting in reduced efficiency under your contract?

2. What argument has the contractor provided in support of the reasonableness of the proposed increase? The contractor bears the burden of proof.

I don't know what you mean by "all or nothing."

The 25% increase request ( for one individula) is unreasonable because the proposal stated merit increases will be about 5%, this person has not been on the contract for too long ( less than a year) however, they have been with the company for a while. Also, out of 20 people the rates vary from 1% to 25%

The all or nothing comment relates to allowing all of the 25% to be reasonable or can we allow what we have determined to be reasonable. I plan to talk to the program office since the funds are within their budget

The 25% increase request ( for one individula) is unreasonable because the proposal stated merit increases will be about 5%, this person has not been on the contract for too long ( less than a year) however, they have been with the company for a while. Also, out of 20 people the rates vary from 1% to 25%

The all or nothing comment relates to allowing all of the 25% to be reasonable or can we allow what we have determined to be reasonable. I plan to talk to the program office since the funds are within their budget

But please remember that simply because funds are available doesn't establish reasonableness. Challeng the contractor to justify the amount of the increased costs.

But please remember that simply because funds are available doesn't establish reasonableness. Challeng the contractor to justify the amount of the increased costs.

Thank you Mr. Hoffman, that is a good point, still waiting to hear back from contractor