joel hoffman

Here, I don't disagree with you about how G&A rates are established. I have dealing with them for years. My explanation was probably not very clear and was generalized. By "future rates" rates I meant the next time they are updated, they will reflect what occurred during the latest accounting period. I didn't mean to infer that the contractor arbitrarily increases them to make up for past losses. However, I do know that DCAA and our auditors also looked at the proposed G&A rates to see if they track how the company is doing during the period of performance. For instance if the rate was based on last year's base and nUmerator, but this year the company's business doubles with little increas in the G&A pool, the auditors would question the proposed G&A rate. The Contractor could also ask for an adjustment if the calculated rate is not representative of conditions in the next accounting period. I don't know whether CAS allows these practices or not. At any rate, actual events during the last accounting period that provide the numbers for the cost pool and for the base in the G&A calculation will reflect, for example, the underrun. The next calculated rate will, in effect, reflect the underruns. That's what I was trying to say. Of course, the costs within the G&A pool will be a mix of fix and variable costs, duh. Depending upon the company's accounting system, some home office costs may be direct charged to contracts and with other companies, they are charged to the G& a pool. However, when the method of allocating or recovering, absorbing or whatever term used to charge G&A costs to contracts is to charge X percent to the contract costs or revenues, etc., you are recovering G&A on a variable basis, not on a fixed or lump sum basis. My choice of terms might not match yours but I generally know how G& A is applied to contracts - it isn't applied as a lump sum. Companies treat various costs in different ways. Some don't distinguish between G&A and "home office overhead". Some have several layers of indirects for branch offices, etc. Many companIes have field overhead or job overhead while others don't. One large contractor I work with, for instance, considers all costs charged at the project or contract level to be "direct costs", including site supervision and admin, safety, job trailers, inspectors, admin staff, as well as many home office personnel who direct charge to the contract rather than charge as G&A.

Vern, my problem is with HOOH and/or G&A, which have traditionally been "absorbed", "earned" or whatever, based on some formula such as a percentage of sales or cost of sales, etc. I explained earlier how these costs are charged to all the firm's jobs over the year, then periodically adjusted, as necessary to reflect past performance or projected future performance. These have been treated as "variable costs". This decision seems to say that G&A/HOOH is guaranteed as a lump sum or fixed amount, similar to job overhead expenses, whether or not the estimated amount of work is actually there. G&A has been traditionally charged as a variable cost to a project (percentage), not as a lump sum cost allocated to a project (fixed $). Traditional job costs, such as mobilization, management, supervision, etc. are the type costs that get "underabsorbed" when there are overall underruns in the estimated unit priced work. I have no problem with an adjustment for them, when it can be shown that they weren't recovered to the extent that they would have been had (75%) (85%) of the units priced work have been realized. I do have a huge problem with treating a cost that is generally "absorbed" by a project based upon the cost or amount of sales and overall calculated to be "absorbed" over the accounting year from all projects, is traditionally charged to jobs as a percentage (variable cost). This Board just seems to not understand how such business costs have traditionally been charged and simplistically treats such costs as fixed or lump sum costs. The Contractor will eventually "absorb" G&A costs, because they will often adjust future rates on past period cost of sales and/or adjust for future sales projections. Bigger firms are more sophisticated and make more adjustments. Small firms may or may not make interim adjustments of their rates. At any rate, that is how G&A/HOOH has traditionally been "absorbed" in the lines that I've been familiar with over the years (A-E and Construction). Maybe the service contract industry treats general business expense differently than construction and A-E world. I doubt it though. For gosh sakes, though - estimated quantities of work are just that - estimated or variable quantities, based upon actual needs or circumstances. The VEQ clauses have been there to help alleiviate the problem under recovery of certain costs that have traditionally been spread over some or all of the estimated quantity, not for costs that are charged as a percentage of costs, like G&A/HOOH. Even if a contractor only has one contract and it is unit-priced, it may probably establish the next G&A/HOOH rate based upon the previous accounting period's sales or cost of sales, etc. Am I making any sense in my distinction between how various indirects have been charged and/or treated over the years, some being fixed or one-time, while others are recovered as a percentage of all sales or cost of sales?

Having reread the CBCA Decision, I'm confused as to what the Board considers to be "overhead costs". That is a broad term. My organization has long recognized unrecovered fixed and job type indirect costs as allowable to the extent that they would have been recovered had the "minimum" quantity been encountered (here 75%). However, "home office overhead" and "G&A" has been generally charged to the job as a percentage applied to the job costs. Thus, we would have allowed G&A to be marked up on the other costs. The Board seems to be saying here that the contractor is entitled to charge G&A/HOOH to the unearned quantities, which I disagree with - of course they are the Board, not me. "Brink’s is entitled to be reimbursed for the indirect costs associated with the number of hours below the range that were not ordered." Using that logic, it should follow then that every time there is an overrun beyond the range of the estimated quantities, the contractor has "over-recovered" its G&A/Home office type overhead and the government is entitled to a credit for the excess. The logic is correct for certain one-time or fixed job type costs, which don't involve additional time. But recovery of G&A/HOOH has traditionally been proportional to the amount of work done, not some guaranteed range of income. And - I maintain that the CBCA is citing rejected case law and the incorrect premise for adjustments for variations in estimated quantity. "Adjustment to the unit prices or the total contract price is intended “to prevent either windfalls or losses, potentially even immense windfalls or ruinous losses, to the contract. The object is to retain a fair price for the contract as a whole in the face of unexpectedly large variations from the estimated quantities on which bids are based.” Burnett, 26 Cl. Ct. at 303 (quoting from the concurring opinion in Bean Dredging Corp., ENG BCA 5507, 89-3 BCA ? 22,034, at 110,824.). The Court of Appeals rejected that reasoning and those cases over 16 years ago in Foley Company v. US, "11 F. 3d 1032.

I haven't seen the term "unabsorbed overhead" applied to other than home office, G&A and other similar costs. Job specific "indirects", such as job supervision and other fixed costs have been referred to as "unrecovered costs" in my experience. Of course, I haven't read lots of cases where somebody may have applied the term "unabsorbed overhead" to such costs. For the last ten years of my regular duties, our Chem-Demil contractors accounted for all job specific expenses as "direct costs" in their accounting systems.

Vern, sorry - I edited my post above to be more specific. I am referring to unabsorbed home office overhead, not other types, such as job or field "overheads", which are often recoverable to a certain extent on underruns. By the way, such costs are not always classified as "indirect" or "overhead", either. Many companies charge all on-site costs as well as some home office costs as direct costs to a contract, not as indirect costs. Regarding "unabsorbed home office overhead", I believe that the Courts have said that the exclusive method for recovering such costs is to use Eichleay formula. Thus, there are certain circumstances that must be applicable in order to recover "unabsorbed home office overhead using the prescribed Eichleay method. At any rate, the CBCA was explaining the purpose of variation in estimated quantity clauses, referring to obsolete cases. The "Victory" principle didn't maintain that either party was entitled to get out of a bad deal (reprice the CLIN for original work outside the range) just because the limits were exceeded. That is the premise of Bean Dredging and the Burnett case. Victory was based upon the premise that both parties agreed to the unit price and were to abide by it, absent a change to the work, unless the over or underrun of estimated quantities of the originally contemplated work caused a change in the unit cost to the contractor.the adjustment is only for the difference in cost (plus applicable markups), not re-priced for actual costs.

Nope. But application of the Eichleay method of determining "unabsorbed overhead" (home office overhead) has been pretty much limited to govt caused delays of undeterminable duration, primarily under the Suspension of Work clause. The delay causes the contractor to standby ready to work, thus preventing it from taking on replacement work. Underruns don't normally fit those circumstances. G&A rates are often developed based upon using the overhead pool in the numerator and cost of sales in the denominator, based upon the past full accounting period, and perhaps adjusted for predicted changes in volume for the year that the rates will be applicable to.thus, overhead rates may reflect actual delays that occurred during the past year, anyway. Plus, the G&A rate is really an approximation anyway, adjusted when necessary to reflect business conditions. At any rate, if the contractor can claim "unabsorbed overhead" on underrun CLINs, shouldn't the government be similarly entitled to claim a reduction for "overabsorbed overhead" on overrun CLINS?

Good luck, Boof.ill have to reread the case and the wording of the clause, but I think the idea of unabsorbed home office overhead on underruns is a stretch of the original and current application of the concept. Then, the Civilian Agency BCA has, in my opinion, also gone down the wrong road as to the intent of VEQ clauses. The Court of Appeals rejected the Bean Dredging/Burnett approach in 1993.

I agree that the contractor is probably due an adjustment of some sort, but the decision appears to be based on obsolete law, refers to unabsorbed overhead, and refers to an incorrect interpretation of the standard Variation in Estimated Quantities Clause. In the instant case, the State Department used a custom Variation in Quantity clause. The CBCA referred to the FAR Variation in Estimated Quantities Clause (52.212-11) in its analysis. The Court mentioned the purpose of the VEQ Clause was to prevent windfalls or losses due to excess quantities or underruns. It cited the language in Burnett v. US ("26 Cl. Ct. at 303") and the Corps of Engineers Board of Contract Appeals' Bean Dredging Corp. Decision, "ENGBCA 5507, 89-3 BCA, 22,034, at 110,824". Those cases essentially involved the principle of re-pricing overruns, based upon actual costs. Those cases were rejected by the US Court of Appeals back in 1993. US Court of Appeals rejected the holding in Burnett in the Nov 4, 1993 Decision of Foley Company v. US, "11 F. 3d 1032". Instead, it reaffirmed what I term the "Victory Principle" (Victory Const. v. US, 510 F. 2d 1379, 206 Ct. Cl. 274 (1975)). The Victory Principle doesn't allow re-pricing. Instead, the party seeking an adjustment has to show that the cost to the contractor per unit outside of the estimated band (85-115%) was increased or decreased solely as a result of the variation in estimated quantities. It doesn't seem to matter whether or not there was a windfall or loss on the work, so the excess or underrun isn't priced at actual costs plus markup. We have traditionally looked at recovery of 85% (75% in the instant State Department case) of certain fixed and one-time costs for underruns, as well as anything else that the contractor can justify as an increased cost due to the underrun. Examples include higher unit costs due to the "learning curve", waste materials, mob and demob costs, fixed field office costs, etc. We haven't looked at paying "underabsorbed" or "unabsorbed" home office overhead on the un-earned quantities, instead added HOOH onto the additional unabsorbed direct and other indirect costs. This Court seemed to extend the application of unabsorbed or unearned home office overhead to underruns. There may be some discussion of this new case in Nash and Cibinic Reports or elsewhere - I don't have access to those type reports anymore. However, I thought it was strange that the CBCA would refer to case law that has been since rejected. With the Foley Decision, we got away from the Bean Dredging and Burnett logic way back in 1993. The pendulum may be swinging back, but I don't think that a Board of Contract Appeals can overrule Appeals Courts. Of course - I'm not a lawyer or a paralegal. My last Business Law course was in night school in 1983.

It was lacking any meaning or point, as asked - inane. Nobody but the questioner knew until three days later that he or she was referring to a time and materials contract.

Sorry to be acerbic, AAC. The question was inane in the manner which you asked. Your question was so broad that it would take an essay to answer it. I didn't understand the point of your question. "Fee" can be applied to materials or it can be excluded, depending upon the situation. There - I believe that I responded more politely your original question. Materials could be involved in most contract types and pricing arrangements (supplies, services, A-E, construction R&D, FFP, CP, T&M, etc.). In FAR talk, the term "fee" is generally associated with cost reimbursement contracts (The Government Contracts Reference Book, 2nd Ed., by Nash, Schooner, Obrien). However, people often refer to "profit" as fee, which could be associated with various FFP contracts. In an A-E contract, "fee" is referred to in Federal Law as the price for various professional services. And in the commercial world, "fee" could mean many different things, including "costs", "markups" or the price for something. DHS referred to certain costs as fee, herein. So, who could tell what the heck you were asking? In the future please be more specific when asking for advice. If you ask a question, please be prepared to promptly clarify if someone needs more information to answer. Responders often go to lengths to do some reasonable amount of research before responding. To answer your question would have taken a research paper. You asked the question late Thursday night or early Friday morning, two people asked for clarification and it appears that you didn't followup until Sunday**. So - sorry, but it is really aggravating when folks ask fuzzy questions, then don't bother to followup when others need clarification or more detail. I wasn't going to waste time researching or otherwise trying to answer such a "shotgun" (with an open choke) question. **I do salute you for apparently reading and responding to my post on a Sunday, which is a day off in many places - unless, of course, you are in the Middle East in a Moslem country. There, "weekends" fall on Thursday and Friday, with Sunday being a regular workday.

What an inane question. Are we supposed to guess what type contract and/or pricing arrangement is applicable or is this just a general interest question?

Formerfed, experience may be important. However it takes much more than experience to be competent. Experience doing things wrong or using poor or outdated guidance, learned from incompetent supervisors, supervisors that haven't kept up with acquisition changes and reform, etc. is worse than not having any experience. I had a couple of examples which infect our organization but have decided not to describe them. However, they are widespread across our entire organization. Suffice it to say that a lot of KO's and their supervisors apparently don't know that FAR Part 15 was rewritten in major ways, over 12 years ago.

Is this contingency no longer necessary?

Deleted - pulled the trigger too soon...

Just curious. Since cost, such as fuel, and rates see, to change, would you want to fix them in a BPA? Wouldn't you want to compete something like helicopter services on a call basis? What do you compete among equal prices, for instance - availability?

They want to keep the same contractor for an additional year until they can get a the next follow-on contract in place. The next contract will have more scope than the existing contract.

Its not a variation in estimated quantities, because you are apparently adding work that wasn't included in the original scope of work indicated in the contract drawings. I am assuming that the drawings indicate where sidewalks are to be constructed. That will probably answer your question. I'm curious, though. Roughly how much additional quantities of sidewalks are involved and is this a small percentage of the existing scope?

Maybe I'm missing something here. Why cant you have a FFP line item for travel or better yet, have them include the travel cost in the price for the course? You know when the course will be and where...??? As for the IGCE, how are you going to use it? If you include a range of flight and other time related travel costs in the IGCE, if you are going to use it to evaluate reasonableness, you can apply the range to the proposals that you are looking at, knowing where the particular firm is from. The IGC is only an estimate - why cant it be adjusted if some new information comes up? Why would you want to hire somebody from Alaska and pay that much more to travel to the East Coast if there are other firms that can do a good job for much less cost? Seems like this is overkill, anyway. Can't you hire someone based on qualifications and a reasonable overall price, including proposed lump sum travel cost?

Matt, in USACE, we developed a contract clause and teach that the contract consists of the terms of the RFP, as amended through award, and the Accepted proposal. The final design documents, developed after award, are contract deliverables, which must conform to the contract requirements (i.e., the RFP and the accepted proposal). In case of conflict between the contract documents, the order of precedence is 1) anything within the accepted proposal which specifically exceeds the RFP requirements (must still meet the RFP requirements) becomes the new minimum requirement, 2) the minimum requirements of the of the RFP and 3) the remainder of the accepted proposal. The deliverables are not part of the contract but must conform to the contract. This does leave some flexibility for contractor adjustments during construction. Designs aren't perfect, plus sometimes the designer adds features which aren't contractually required, and/or aren't available, and/or available within the design-builder's budget, etc. While many of the non-contractual "niceties" do get incorporated, some might be have to be sacrificed or modified during construction. The design details weren't specifically part of the specific contract bargain at contract formation. We have also developed a clause that puts some contractual controls on deviations from the accepted design. The contractor's designer of record (DOR) must review and technically approve all proposed deviations and government concurrence is necessary prior to adoption. The design-builder must also track all approved deviations in the design documents and the as-built documentation The government reserves the right to non-concur if the deviation prejudices or otherwise impacts the government, such as interior design finishes, where the government has ordered the furnishings and fixtures in accordance with the accepted design. Any proposed deviation from the the accepted contract proposal or the RFP requires both DOR and Government approval and a contract modification. The Government doesn't have to agree to the change to the contract. The government won't pay for any increased cost of a deviation. Decreases are subject to a credit change. Yes, we have some battles. But, we have found that the above ground rules seem to work pretty well, when understood and applied. When we have good contractor and government teams and with implementation of our partnering processes, we seem to be able to work all or most of those issues out.

- Matt, I believe that an ACO who is an engineer or architect in USACE must have the same Defense Acquisition Workforce Improvement Act qualifications and training that an ACO who is an 1102 must have to get the same level KO warrant. Level II DAU certification is required, although many obtain Level III certification. Those of us who were GS14 and above were also members of Army Acquisition Corps. The 13's and below were usually Acquisition Corps Eligible, if they aspired to higher level positions. The mandatory refresher training requirements are also applicable. Plus, all ACO's and COR's must take yearly Appropriations Law and Ethics, etc. training. In addition, the ACO's who are engineers or architects have additional technical training and will have probably had construction contract specific training. Then there is the required training for those who are supervisors. If the ACO is a Resident or Area Engineer, he/she must also be a Registered Architect or licensed Professional Engineer and keep up with any state required continuing education requirements. Most states require 4 years of engineering or architectural experience, in addition to the various pre-PE licensing levels and pass all the licensing tests. There is a move on within the college community to change to a five year curriculum for future engineers and architects. I haven't kept up with the latest DAWIA quals but a KO (including ACO) must possess a Bachelor's degree and have at least 24 semester hours of business curriculum from an accredited institution, plus whatever number of years experience in contracts is required (I don't remember how many). Our ACO's have KO warrants with certain authorities, including modification authority on FFP construction contracts under specific clauses up to various limits. I think the maximum mod authority is still $500k, unless it has been adjusted for inflation. The ACO's duties also include that of Contracting Officer's Representative (COR), although there can also be separate COR's, who aren't ACO's. It depends upon individual District policy, but as contract administrator's, we negotiated modifications, claims and even new sole source negotiated contracts. Pre-negotiation objectives and settlements were subject to the ACO's approval or subject the KO's approval, for actions which exceeded the ACO's authority. The ACO or PCO would review and approve pre-negotiation objectives and post-negotiations packages, as applicable. In addition, there was legal coordination and review at various monetary levels and for claims. Some Districts centralize negotiations of larger actions, many don't. Some of us also ran competitive source selections under the PCO's supervision. I joined civil service with USACE in 1980, after four years outside engineering and construction experience and after my Air Force civil engineering time. According to NAVFAC personnel that I spoke with in early USACE training classes, there were no NAVFAC ACO's at all in the field. I believe that every modification had to go back to Washington DC. for at least KO execution. I don't know who negotiated them. Back then, our KO's for construction contracting were all Military Engineer Officer's (the District Engineer and/or their Deputies). The field offices had "Resident Contracting Officer's" (this was predecessor to the ACO), who were engineer's or architects with certain required contract administration training. The Contracting shop folks were the KO's for service, supply and (I think) A-E contracts. This all changed with DAWIA, when construction PCO responsibility went to Contracting and RCO's became ACO's with DAWIA training. New ACO's had to meet full DAWIA qualifications, while most of the existing RCO's met the Grandfathering criteria but still had to take the DAWIA training. I thought that the USACE-wide contract training was better than most of the required DAWIA courses back in the 1980's and 1990's. I'm probably prejudiced, because I taught some of the USACE-wide training, like Cost Analysis, Estimating for Modifications and Claims, Contract Admin., local contract admin courses and seminars, etc. I know that our PCO's are more qualified now than "back in the day" and we seem to have less claims with our current ACO Cadre, so I suppose that DAWIA seems to be working. I know that there are a currently LOT more qualifications to be an ACO/Resident Engineer now, between DAWIA and licensing requirements, than years ago. Fortunately, I was a PE prior to my employment with USACE. I will say though that my RE's and Area Engineers were highly qualified, experienced engineers and contract administrators/RCO's/COR's.

Aw, y'all quit whining about whining. A person's opinion is often based upon their perspective. The progream that I retired from a couple of years ago required management and advisory services at many locations over a period of years. There was no way to reasonably estimate number of trips or even when or where travel would be required. In addition, we sometimes travelled from one TDY location to another. We even ended up traveling to various contractor home or division offices. The original post indicated that travel seemed to be indeterminent in nature. That was my perspective. Vern makes a good point that what seems to be indeterminent may just be laziness on the part of the customer...

Aw, quit whining, y'all. For the time being, the First. Amendment allows folks to speak their mind. Even though this is a private forum, I would hope that it wouldn't be THAT restrictive.

What is a "level of production by skilled labor"? In general terms, at least explain what is being produced. Is this repair, maintenance, construction or what? As stated above, unit-priced construction contracts are common in commercial, local and state government construction projects. Typical projects are utilities and transportation. It is also common on horizontal Civil Works construction and dredging contracts. Also used for painting and other type maintenance or repair contracts. Generally, the scope is known but not all quantities might be accurately known before execution, so unit-priced items with estimated quantities are mixed with lump sum items. These type contracts are considered FFP when the overall scope is "fixed" at award. I think NASA also uses unit-priced items, such as launch support services, mission operations, mission recovery, etc.on a per mission basis. Is this a DOD or NASA contract? I may have missed it above...