Can the Fee negotiated on a CPFF contract be revised should a contractor's business restructuring results in a substantial reduction of their Indirect Cost Rates? I thought I read where this is allowable, but I'm having a hard time locating that guidance--perhaps the DCAA Audit manuals--unsure.

Example: CPFF contract negotiated for $10M cost and $500K fixed fee, based on [whatever]. After award, contractor restructuring results in 30% reduction in Indirect Cost Rates. The work called for under the contract remains constant; there is no change to the scope; and the contractor's cost or pricing data was accurate and complete at the time of negotiations (i.e, their were rumors of the company restructuring, but no changes prior to finalizing negotiations).

Please help. Thanks.

Can the Fee negotiated on a CPFF contract be revised should a contractor's business restructuring results in a substantial reduction of their Indirect Cost Rates? I thought I read where this is allowable, but I'm having a hard time locating that guidance--perhaps the DCAA Audit manuals--unsure.

Example: CPFF contract negotiated for $10M cost and $500K fixed fee, based on [whatever]. After award, contractor restructuring results in 30% reduction in Indirect Cost Rates. The work called for under the contract remains constant; there is no change to the scope; and the contractor's cost or pricing data was accurate and complete at the time of negotiations (i.e, their were rumors of the company restructuring, but no changes prior to finalizing negotiations).

Please help. Thanks.

I'll help. The answer to your question is NO. Absent some unusual contractual provision to the contrary, there is no contractual or other legal basis for reducing a contractor's fee because restructuring reduced its indirect cost rates. Would you want to increase its fee if restructuring increased its rates?

The key is this: "The work called for under the contract remains constant; there is no change to the scope... ."

Vern is as usual absolutely correct in his answer. But your initial question raised two or three potential issues that I would have DCAA explore if I were the KO.

1. You wrote, "their were rumors of the company restructuring, but no changes prior to finalizing negotiations" That doesn't really provide much information, but company structure "changes" don't have to take place before negotiations are finalized in order to constitute cost or pricing data that should have been disclosed. In fact, knowing about a potential restructuring that might, in the future (during time of post-award contract performance) reduce contract costs, and not disclosing it would be the classic defective pricing scenario. Also, if company executives knew about the upcoming restructure then the contractor knew about it, even if the individual negotiators did not. I would have DCAA follow-up on this in a post-award (i.e., "defective pricing" audit).

2. Corporate restructurings come in different flavors. There is the ongoing management reorganization, the internal restructuring, and the external restructuring. Each of these is a term of art and has its own section the DCAA Contract Audit Manual. In either of the two restructuring scenarios, the contractor is supposed to forecast the cost savings into its forward pricing rates. Another area for potential DCAA follow-up, in my view.

3. Did the contractor change any cost accounting practices along with the restructure, and was the CPFF contract CAS-covered, and does the contractor owe the ACO a cost impact proposal pursuant to the CAS administration clause? If indirect rates go down on this contract, where are they going up?

Hope this helps.

Thanks for the quick response... it was exactly what I needed!

Vern is as usual absolutely correct in his answer. But your initial question raised two or three potential issues that I would have DCAA explore if I were the KO.

1. You wrote, "their were rumors of the company restructuring, but no changes prior to finalizing negotiations" That doesn't really provide much information, but company structure "changes" don't have to take place before negotiations are finalized in order to constitute cost or pricing data that should have been disclosed. In fact, knowing about a potential restructuring that might, in the future (during time of post-award contract performance) reduce contract costs, and not disclosing it would be the classic defective pricing scenario. Also, if company executives knew about the upcoming restructure then the contractor knew about it, even if the individual negotiators did not. I would have DCAA follow-up on this in a post-award (i.e., "defective pricing" audit).

2. Corporate restructurings come in different flavors. There is the ongoing management reorganization, the internal restructuring, and the external restructuring. Each of these is a term of art and has its own section the DCAA Contract Audit Manual. In either of the two restructuring scenarios, the contractor is supposed to forecast the cost savings into its forward pricing rates. Another area for potential DCAA follow-up, in my view.

3. Did the contractor change any cost accounting practices along with the restructure, and was the CPFF contract CAS-covered, and does the contractor owe the ACO a cost impact proposal pursuant to the CAS administration clause? If indirect rates go down on this contract, where are they going up?

Hope this helps.

Yes--subject to full CAS--will turn the issue over to DCAA for further analysis. Thanks again!