Our non-profit organization is in process of applying for a government contract. Estimated Cost and Fixed Fee section of the RFP states "For all institutions that do not receive a fee, all references and sections relating to fee will be removed from the resulting contract".

We would like to ask for a 3% fixed fee. What is the general guidance regarding the fixed fee? Any eligibility requirements? Should we prepare a justification explaining how we came up with 3% and what it would be used for?

Any advice is greatly appreciated!

Our non-profit organization is in process of applying for a government contract. Estimated Cost and Fixed Fee section of the RFP states "For all institutions that do not receive a fee, all references and sections relating to fee will be removed from the resulting contract".

We would like to ask for a 3% fixed fee. What is the general guidance regarding the fixed fee? Any eligibility requirements? Should we prepare a justification explaining how we came up with 3% and what it would be used for?

Any advice is greatly appreciated!

Hi Yelena,

The fixed fee is generally expressed as a percentage of estimated total costs, which is the sum of direct and indirect costs less any applicable credits. A cost plus fixed fee contract has statutory limits on the fee percentage, which can be found in the FAR. I'm quite sure that 3% is below the ceiling, so no need to look it up unless you want to ask for more than 10%.

You do not need to justify your fee percentage. But be aware that the Government contracting officer will be using a "structured approach" to setting his/her pre-negotiation objectives with respect to the fee percentage. If DOD is the contracting agency, the CO will be using the "weighted guidelines" approach, which utilizes a DOD form to compute the amount of profit/fee to which a contractor should be entitled. You can google the DOD form, or perhaps wait for someone to post after me who knows the form number by heart. (DD 1663? I forget.) My point is that, while you don't need to justify the percentage, you will need to negotiate it with a CO who will have some support for his/her position. So you might want to review the form/approach and do some preparation, in order to be in a position to counter the CO should you be selected for award.

I have done some work with NFP contractors and many times the Government takes the position that, since the company is NFP, it should not get ANY profit/fee for its efforts. That's nonsense, of course. For one thing, you will need some fee to cover your unallowable costs that you incur. For another thing, some of that fee might go towards projects in line with your mission statement. Don't let the contracting officer tell you that NFPs aren't entitled to profit/fee, because they are.

Finally, when you calculate your estimated total costs, you will need to calculate indirect cost rates based on applicable regulations. Most NFPs follow OMB Circular A-122 and get a NICRA, but some choose to follow FAR Part 32 principles. In any case, make sure you spend time figuring out your cost allocation structure and calculating the resulting indirect cost rates.

Hope this helps.

The fixed fee is generally expressed as a percentage of estimated total costs... .

Actually, the fee is "expressed" in the contract as a specific dollar amount, not as a percentage of cost. It may be discussed or negotiated in terms of a percentage of cost, but it cannot be contractually expressed as such.

The fee limitations are stated in FAR 15.404-4?(4)(i). The DOD Weighted Guidelines form is DD 1547, Record of Weighted Guidelines Application.

You may well be asked during negotiations to justify or explain the amount of your fee request. The CO may say something like: Why three percent? Why not two percent? You should be prepared with an explanation. If probably won't be good enough to say: Because we want three percent. Two percent is too low. The CO might simply respond with: Why? You don't have to give a reason, but it will come across as strange or obstinate to refuse. Generally, you should justify fee on the basis of the complexity or difficulty of the work.

I agree with here_2_help that some government personnel think that not-for-profits (non-profits) are not legally not entitled to fee, and I agree that they are. The statement that you quoted from the RFP may reflect a misunderstanding or it may indicate something else. The only way to know is to ask what it means. Do that before you submit a proposal.

Actually, the fee is "expressed" in the contract as a specific dollar amount, not as a percentage of cost. It may be discussed or negotiated in terms of a percentage of cost, but it cannot be contractually expressed as such.

The fee limitations are stated in FAR 15.404-4?(4)(i). The DOD Weighted Guidelines form is DD 1547, Record of Weighted Guidelines Application.

You may well be asked during negotiations to justify or explain the amount of your fee request. The CO may say something like: Why three percent? Why not two percent? You should be prepared with an explanation. If probably won't be good enough to say: Because we want three percent. Two percent is too low. The CO might simply respond with: Why? You don't have to give a reason, but it will come across as strange or obstinate to refuse. Generally, you should justify fee on the basis of the complexity or difficulty of the work.

I agree with here_2_help that some government personnel think that not-for-profits (non-profits) are not legally not entitled to fee, and I agree that they are. The statement that you quoted from the RFP may reflect a misunderstanding or it may indicate something else. The only way to know is to ask what it means. Do that before you submit a proposal.

Thanks here_2_help and Vern!

Not sure whether you would revisit this topic, but am ready to provide a few more details.

The funding sourse is NIH, not DOD. The contract should be renewed every ten years or so. We have it in place right now under cost plus 2% fee structure. Unfortunately, none of the people who applied ten years ago and negotiated the 2% fee are longer with our organization. New crew could not find any information on how the 2% fee was established, but based on analizing ten years of expenses, we believe that 2% fee is way below of what's needed to cover expenses accotiated with this research project. 3% is not adequate either but asking for much more would likely be rejected.

Thanks again!

Actually, the fee is "expressed" in the contract as a specific dollar amount, not as a percentage of cost. It may be discussed or negotiated in terms of a percentage of cost, but it cannot be contractually expressed as such.

The fee limitations are stated in FAR 15.404-4?(4)(i). The DOD Weighted Guidelines form is DD 1547, Record of Weighted Guidelines Application.

You may well be asked during negotiations to justify or explain the amount of your fee request. The CO may say something like: Why three percent? Why not two percent? You should be prepared with an explanation. If probably won't be good enough to say: Because we want three percent. Two percent is too low. The CO might simply respond with: Why? You don't have to give a reason, but it will come across as strange or obstinate to refuse. Generally, you should justify fee on the basis of the complexity or difficulty of the work.

I agree with here_2_help that some government personnel think that not-for-profits (non-profits) are not legally not entitled to fee, and I agree that they are. The statement that you quoted from the RFP may reflect a misunderstanding or it may indicate something else. The only way to know is to ask what it means. Do that before you submit a proposal.

Thanks here_2_help and Vern!

Not sure whether you would revisit this topic, but am ready to provide a few more details.

The funding sourse is NIH, not DOD. The contract should be renewed every ten years or so. We have it in place right now under cost plus 2% fee structure. Unfortunately, none of the people who applied ten years ago and negotiated the 2% fee are longer with our organization. New crew could not find any information on how the 2% fee was established, but based on analizing ten years of expenses, we believe that 2% fee is way below of what's needed to cover expenses accotiated with this research project. 3% is not adequate either but asking for much more would likely be rejected.

Thanks again!

Yelena - While the following reference does not address "fee" I am providing it with regard to your last post where you indicate that the increase in fee is intended to cover "expenses". Having had a previous contract you are probably familiar with the reference but just in case you are not.......

2 CFR 230 (also known as OMB Circular A-122 Cost Principles for Non-Profit Organizations) found here http://www.whitehouse.gov/omb/assets/omb/f...083105_a122.pdf

You have not asked a question in your most recent post. It appears that you want to know how we react to the fact that you want more fee, but don't know how the fee was established in the first place. My reaction is: So what? You want what you want. What happened 10 years ago has nothing to do with it. If they ask about 10 years ago, just tell them what you told us, without blinking an eye.

I don't understand the business about the fee being too low to cover "expenses associated with this research project." You seem to be basing your request for fee on some expenses that are not covered by cost-reimbursement. What are those expenses? Are they legitimate, but unallowable, costs? If your legitimate unallowable costs come to more than two or three percent of allowable costs, then you need to do some cost cutting. If you do business with the government exclusively, then you need to do a lot of cost cutting. That's what I would tell you if I were the contracting officer.

Having said that, if you want more than three percent fee, then ask for what you want. You might not get more than three percent--you might not even get three percent--but what do you have to lose by asking? Ask for six percent. Are you afraid that the agency will decide not to do business with you at all if you ask for what they consider to be too much? Should we send William Shatner to your rescue?

You have not asked a question in your most recent post. It appears that you want to know how we react to the fact that you want more fee, but don't know how the fee was established in the first place. My reaction is: So what? You want what you want. What happened 10 years ago has nothing to do with it. If they ask about 10 years ago, just tell them what you told us, without blinking an eye.

I don't understand the business about the fee being too low to cover "expenses associated with this research project." You seem to be basing your request for fee on some expenses that are not covered by cost-reimbursement. What are those expenses? Are they legitimate, but unallowable, costs? If your legitimate unallowable costs come to more than two or three percent of allowable costs, then you need to do some cost cutting. If you do business with the government exclusively, then you need to do a lot of cost cutting. That's what I would tell you if I were the contracting officer.

Having said that, if you want more than three percent fee, then ask for what you want. You might not get more than three percent--you might not even get three percent--but what do you have to lose by asking? Ask for six percent. Are you afraid that the agency will decide not to do business with you at all if you ask for what they consider to be too much? Should we send William Shatner to your rescue?

We are allowed to use max 2.4% inflation-based increase for all costs for each year of ten-year project and have to provide three quotes for each line item for all non-labor expenses. This means, for example, using today's quote for airfare ten years from now. Additionally, our CO?s practice is to pick the lowest quote, even if it includes five stops for air travel. The fee would be used to cover legitimate expenses that were budgeted too low and, very likely, some legitimate but unallowable costs just as you suggested.

I?m still not sure how to justify this, but having William Shatner on our side sounds like a great idea! 

We are allowed to use max 2.4% inflation-based increase for all costs for each year of ten-year project and have to provide three quotes for each line item for all non-labor expenses. This means, for example, using today's quote for airfare ten years from now. Additionally, our CO’s practice is to pick the lowest quote, even if it includes five stops for air travel. The fee would be used to cover legitimate expenses that were budgeted too low and, very likely, some legitimate but unallowable costs just as you suggested.

I’m still not sure how to justify this, but having William Shatner on our side sounds like a great idea! 

If you want three percent, propose six percent and try to get four percent.

Yelena,

1. Vern is right. The Fixed Fee is expressed as a dollar amount. Most times, contractors develop their fee estimates as a percentage of estimated total costs, but the fixed fee amount is a fixed amount of dollars.

2. I'm confused. You have a cost plus fixed fee contract, yet "The fee would be used to cover legitimate expenses that were budgeted too low ..." Is there some reason your contract doesn't permit you to recover costs in excess of the estimated costs that were negotiated 10 years ago? A cost-reimbursable contract that doesn't permit recovery of allowable costs incurred isn't tremendously different than a firm fixed-price contract, in my view.

Hope this helps.