Hi - I have a question concerning introducing additional labor categories after contract award. This is for a DOD - CPFF Delivery Order Type 5 year contract.

We were issued a CPFF contract based on 9 labor categories in 2008. In June 2009 DCAA audited forward pricing rates which introduced additional labor categories. Once audited we provided the report to the Government and began providing quotes using the additional categories. The Government issued four delivery orders using the new catergories. We are now being told that new labor categories are not allowed in the contract and that we should only provide quotes using the original labor categories. They also stated we can only invoice for the rates provided in the proposal (we provided rates that were escaleted out by percentage over the contract years) which is incorrect. We are allowed to change the base labor category rates once approved by DCAA - the same for the indirect rates (man ovhd, eng ovhd and G &A). My question would be how do we get the new labor categories into the contract if possible. We are a growing company and the labor categories are growing with us. Thank you.

Wanda -

Give it the old college try. Submit a letter to your CO requesting a modification. Explain the benefit to the Government (not to you) of having the new labor categories on the contract.

As far as rates and billing goes - does your contract state that the rates included were ceiling rates? If so, that's where the objection you are getting now probably comes from.

What do you mean by "labor categories"? Are you talking about different kinds of workers? People who do different kinds of work? For instance, suppose that the contract lists various types of engineers -- civil, mechanical, aeronautical, and electrical. Are you talking about adding computer programmers and data base managers? That kind of change? Or are you talking about additional skill levels/wage grades for the same kinds of workers? For instance, suppose that the contract includes Mechanical Engineer I, Mechanical Engineer II, and Mechanical Engineer III. Are you talking about adding Mechanical Engineer IV?

Would not the 4 delivery orders containing the new labor categories and signed by the KO indicate that the Government had de facto accepted the additional labor categories?

To me, the issuance of the DO's is a case of implied acceptance of the new categories at a minimum, and express acceptance if the government acknowledged the new categories or paid any invoices containing costs associated with the new categories.

FAR 46.407(g) states: Notices of rejection shall include the reasons for rejection and be furnished promptly to the contractor. Promptness in giving this notice is essential because, if timely nature of rejection is not furnished, acceptance may in certain cases be implied as a matter of law...

The issuance of 4 delivery orders indicates to me that the Government was not "prompt" in giving notice that the new labor categories were unacceptable, however that is an assumption on my part given no information on how long it took for the DO's to be issued. If indeed the notice was NOT timely, then contract law and the FAR support the position that implied or express acceptance has occured.

I'm not a lawyer, but I have had a number of law classes in my degree programs, the Federal Law Enforcement Academy and via DAU, and I believe the situation described by the OP is a case of either implied or express acceptance. If that is the case, then the Government is wrong to reject the new labor categories at this time after such acceptance through the issuance of the 4 delivery orders.

I agree with dwgerard that if the CO issued orders that expressly included the new categories, then it will have to pay you at those category rates. Of course, that assumes that you are willing to press the issue. It is not clear to me that the same is true if the orders did not expressly include the new categories, even though they were in the quote. That is a much more complicated matter. However, acceptance of the new categories in the past does not bind the government to accept them in the future if they are not included in the umbrella contract.

What do you mean by "labor categories"? Are you talking about different kinds of workers? People who do different kinds of work? For instance, suppose that the contract lists various types of engineers -- civil, mechanical, aeronautical, and electrical. Are you talking about adding computer programmers and data base managers? That kind of change? Or are you talking about additional skill levels/wage grades for the same kinds of workers? For instance, suppose that the contract includes Mechanical Engineer I, Mechanical Engineer II, and Mechanical Engineer III. Are you talking about adding Mechanical Engineer IV?

Hi - Thank you for the responses. To answer your question Vern - I am talking about different kinds of workers. We would like to add additional skill levels (II, and III) and a program manager which did not exist when the contract was awarded.

I agree with dwgerard that if the CO issued orders that expressly included the new categories, then it will have to pay you at those category rates. Of course, that assumes that you are willing to press the issue. It is not clear to me that the same is true if the orders did not expressly include the new categories, even though they were in the quote. That is a much more complicated matter. However, acceptance of the new categories in the past does not bind the government to accept them in the future if they are not included in the umbrella contract.

Hi - Thank you for the responses. The task order that was issued specifically states the new labor category and the rates associated with it.

Would not the 4 delivery orders containing the new labor categories and signed by the KO indicate that the Government had de facto accepted the additional labor categories?

To me, the issuance of the DO's is a case of implied acceptance of the new categories at a minimum, and express acceptance if the government acknowledged the new categories or paid any invoices containing costs associated with the new categories.

FAR 46.407(g) states: Notices of rejection shall include the reasons for rejection and be furnished promptly to the contractor. Promptness in giving this notice is essential because, if timely nature of rejection is not furnished, acceptance may in certain cases be implied as a matter of law...

The issuance of 4 delivery orders indicates to me that the Government was not "prompt" in giving notice that the new labor categories were unacceptable, however that is an assumption on my part given no information on how long it took for the DO's to be issued. If indeed the notice was NOT timely, then contract law and the FAR support the position that implied or express acceptance has occured.

I'm not a lawyer, but I have had a number of law classes in my degree programs, the Federal Law Enforcement Academy and via DAU, and I believe the situation described by the OP is a case of either implied or express acceptance. If that is the case, then the Government is wrong to reject the new labor categories at this time after such acceptance through the issuance of the 4 delivery orders.

Hi - The first Delivery Order with the new labor category of Program Manager was issued on Septemeber 25, 2009. The contract was awarded on December 18, 2008.

Wanda -

Give it the old college try. Submit a letter to your CO requesting a modification. Explain the benefit to the Government (not to you) of having the new labor categories on the contract.

As far as rates and billing goes - does your contract state that the rates included were ceiling rates? If so, that's where the objection you are getting now probably comes from.

hi - The contract states uner CLIN 0001 that "orders issued under this line item will be cost plus fixed fee completion form orders and shall be reimbursed in accordance with clauses herein entitled "allowable Cost and Payment" FAR 52.216-07. The FFP portion is to be reimbursed under FAR 52.216-08.

Maybe it's just me, but I have trouble with the concept of "rates approved by DCAA." I always thought DCAA audited and recommended, but it took a warranted Contracting Officer to approve. Am I out of line?

Maybe it's just me, but I have trouble with the concept of "rates approved by DCAA." I always thought DCAA audited and recommended, but it took a warranted Contracting Officer to approve. Am I out of line?

In DoD, due to DoDIG reports about poor pricing and Congressional reaction to the reports, the balance of power has shifted toward DCAA. In certain instances, a contracting officer's refusal to accept DCAA recommendations can be reviewed. See this link: http://www.dcaa.mil/mmr/10-PAS-015.pdf.

DCAA is auditing and recommending the indirect rates while the CO is approving the rates to be charged on the contract.

The situation regarding indirect cost rates is more complex than has been described. And potentially more challenging, as well.

See the June 4, 2010 audit guidance (MRD PSP-018) at the DCAA website (www.dcaa.mil).

Essentially, DCAA has staked out the position that, if a Forward Pricing Rate Agreement (FPRA) is negotiated between the contractor and DCMA but DCAA did not perform a full audit of the rates prior to DCMA negotiation, then it will question all costs it has not yet audited, even those indirect cost rates that conform to an executed (and otherwise valid) FPRA. If DCAA did audit the submitted rates, but the authorized ACO negotiated FPRA rates that were significantly different than those DCAA recommended, then the auditors will ignore the FPRA rates and substitute their own rates in place of the negotiated FPRA rates. Any difference between the two sets of rates will result in questioned costs.

The guidance directs auditors to perform a full-scope audit of indirect cost rates used in cost proposals, where such rates have not been previously audited. In my view, that's going to add to the already overlong period between the time a Contracting Officer requests a DCAA audit and the time that the audit report is received.

Obviously I can't summarize every nuance in a single post. You will want to see the audit guidance for yourselves. And perhaps consider adding more time to your acquisition schedules, or consider moving away from DCAA audit results as a factor in determining price and/or cost reasonableness.