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Patrick Mathern

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    Santa Barbara, CA
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    CPSR, cost analysis, price analysis, supplier rate and factor audits, business system reviews, training, consulting, exchanging ideas, networking

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  1. Hi @LucyQ - Our software, SpendLogic, is a CPSR-centric platform that automates and organizes procurement documentation. We have built out various automations such as you've discussed and are currently building out our Reps & Certs (approved supplier) module. Our solution will bounce the supplier's CAGE off of SAM, checking reps & certs, and also build in company-specific reps and certs reviews. Records are kept in SpendLogic and you're alerted when updates are required. Budget-wise, we are far more affordable than Ariba or other overly-complex systems. For a demo of current and upcoming capabilities, you can reach out to me directly, or visit our website. Patrick
  2. Hi Drew - We have a wealth of information available on this topic - this article is a great place to start: https://spendlogic.com/a-guide-to-cpsr-and-federal-procurement-compliance/ If you have specific questions, reach out to me directly, or post here. We provide CPSR-compliant purchasing manuals, training, and document organization and automation to contractors just like you. Happy to talk shop anytime. Patrick
  3. Always request field audit assist via DCMA or request that this be done by a third party. The type you're describing are very straightforward and fast. Some subs will allow a third party in order to expedite things, others will not. If you need a contract but also need to wait on the DCMA, add a downward-adjustment clause for rates in case there's something that comes back with a comment from the DCMA.
  4. My issue continues to be pressed under the idea that there’s an appearance that it’s not an “arm’s length transaction.” Based on this, my former DCAA auditors are recommending the prime does not add profit so as to avoid any appearance of conflict/collusion. I’m still of the opinion that the Prime should add full markups to the item when it’s purchased from the sub. I would bet nearly every major subcontractor out there has had this situation in the past and treated it the same way. I’ve searched FAR and DFARS, Cost Principles, and attempted to search for case law. I see nothing. Is anyone aware of a precedent for this?
  5. Thank you - I agree with this. Keeping pool and bases straight is important here and worth mentioning to the client. I've gotten a bit more color commentary on the individuals' concerns...maybe this will spark something for you Vern: What we are actually talking about is “Arms-Length Transactions”. The reason an IDWA can only have profit applied once is the division is not considered at “Arms Length”. The same applies to the Buyer Furnished Equipment of a Prime and Subcontractor. Because of their prior and continuing relationships they would not necessarily be considered to be at “Arms Length” for the type of transactions we are talking about. A Government Contracting Officer could draw a conclusion upon review that the Prime and Subcontractor were colluding to increase the price of the end item to the Government. [...] To be safe, BFE equipment should be supplied to the subcontractor at no cost and have the profit applied to the part at the prime only and a $0 cost from the sub in the final assembly for the detail part or the value of the detail when sold at cost to the sub has profit applied at the sub and the value of the detail has no profit applied at the prime. In my view, they are now effectively saying that this could raise eyebrows and attract attention (a major walk-back from the "unethical" and "unallowable" concepts raised earlier. I don't see any explicit FAR violations here. Thanks all.
  6. One of our clients is providing material to their sub at cost. There is no business relationship between the two entities other than as Prime and Sub (this cannot be viewed as an intercompany transfer in any way). Here's a simplified version of what's going on: Prime purchases material from distributor for $1,000 Prime sells to Sub for $1,000 cost Sub adds value of $500 (including labor and/or other materials, OH, G&A, and profit) Sub sells to Prime for $1,500 Prime sells to end customer for $2,000 (including added labor, material, OH, G&A, and profit) I'm being told by two "former DCAA auditors" that this is not in alignment with far and is also "unethical." Their view is that the Prime-Sub relationship counts as a "Related Entity" and therefore the sub must sell back to the Prime at cost. Their view is that the arrangement as outlined above is "double dipping." I don't see any allowability issues here, but I wanted to get the opinion of those in this forum. Any input is appreciated.
  7. In my opinion, without knowledge of the entire set of contract terms, this is a non-issue. The only time you need to certify cost or pricing data is at the date of price agreement. Since you apparently have an LTA that sets price for 10 years, there will be no requirement for you to show “current accurate and complete and therefore no basis for the customer to require certified cost or pricing data.
  8. LeighHar - reach out to me directly via email. I have someone on my team with experience in this and should be able to help quickly and won't likely cost you anything unless you want us to do the work for you. We are currently building novations into SpendFile, a SpendLogic module that deals with electronic procurement files...the shared insights here would be beneficial to all. patrick@spendlogic.com
  9. Typo. Should have said: What if we all focused on one piece of the puzzle: Why does a limitation of 10% apply to non-R&D CPFF? Why not 17.5%? Or 4.6%? Where did the 10% come from? OP talked about the "original ranges" - this conversation is about statute, but not in a vacuum. WGL is a very widely-utilized tool with a foundation in statute.
  10. I'll gladly walk back my editorial commentary, Vern, but haven't yet seen anything that leads me any closer to the "analysis and theory" that went into the WGL. This is a great study, but does not provide insight into "how the original ranges" were developed. This article simply explains the WGL development as a tool that fits profit within the range limits set forth by the FAR. It appears their point is that KO's weren't using consistent logic in analyzing profit, so they set out to create something and voila! Weighted Guildelines was born. Thus, the study appears to support an idea that "there appears to be no logical basis for the original ranges other than they allowed the WG to "calculate" profit ranges that fit the desired target rates (7-15%ish)." What if we all focused on one piece of the puzzle: Why does a limitation of 15% apply to non-R&D CPFF? Why not 17.5%? Or 4.6%? Where did the 15% come from?
  11. You asked the right question on the right day. I have been researching this very topic recently as part of a DARPA-funded initiative and below is a raw dump of what I've found. I'd be happy to talk through this more. Spoiler Alert: There appears to be no logical basis for the original ranges other than they allowed the WG to "calculate" profit ranges that fit the desired target rates (7-15%ish). It's just a house of cards that appears unrelated to the market-based profit rates earned in the private sector. (My editorial opinion.) The Dump: August 1942, Limitation of War Profits, Edward Stimson (https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=9271&context=penn_law_review) “The large profits by manufacturers of war materials…are in sharp contrast to the wages of men in our armed forces. The resulting pressure on Congress for some limitation upon war profits has resulted in a number of proposals and several bills.” March 27, 1934, Vinson-Trammel Act Secretary of the Navy should not let contracts >$10K unless contractor agreed to pay all profit in excess of 10% (profit after tax) June 25, 1936, amendment to Vinson-Trammel to make the excess payable in the year in which the contract was completed Merchant Marine Act of 1936: Added a clause that no salary over $25K/year should be considered a part of the calculation for excess profits. Suggested reviewing costs to make sure they were fair, just, and not in excess of reasonable market prices Act of April 3, 1939 – extended Vinson-trammel to Army aircraft…increased profit from 10% to 12% March 16, 1942: The Smith Bill Requires “every naval contractor” whose fiscal year contracts completed exceed $10K to limit profit to 6% of total contract cost (does not allow taxes to be calculated out) Opposition: “Limitation based on the cost of completing the contract would leave a profit which would in many cases bear no reasonable relation to capital invested. Total cost of completion of contracts completed in any one year might be a fraction of the invested capital or several times the amount of invested capital. If the total cost of completing the contracts completed in one year was one-third of the invested capital, then the profit would only be two percent. If the total cost was four times the invested capital, then the permitted profit would be twenty-four precent of the capital. Permits profit as a percent of cost. Only applies to war contracts…incentivizes companies to work with commercial customers over the government. Did not apply to subs High cost of auditing They felt that an excess profits tax would be a better remedy. It was suggested that a tax of 75% of profits in excess of $500K would work well. Impact of the Weighted Guidelines Profit System on Defense Contract Fees April 8, 1970, The Rand Corporation (https://apps.dtic.mil/sti/pdfs/AD0703274.pdf) WWI: introduction of various excess profit taxes. From 1911 to 1913, a tax was applied to any profit in excess of the average of the period 1911-1913, or profit in excess of 10% on invested capital, whichever was greater. This was the last time rate of return on investment was figured into profit policy After WWI, production returned to government facilities. 1930’s: Government increasingly turned to commercial entities for production; contracts were negotiated one by one without a framework for looking at profit overall. WWII: Instead of excess profit taxes, new statutes emerged that had renegotiation clauses. At end of the contract, the actual costs were inspected and re-evaluated for fairness. 1944 amendments contained wording that implied intent to create a broader standard for profit Included looking at pre-war earnings, risk, contractor efficiency, extent and type of subcontracting, turnover rate, capital employed, and contractor’s net worth During this time and throughout the 1950’s, there was an aversion to creating a formula to determine profits. All profit analysis was done on a case-by-case basis. Armed services procurement act of 1947: Forbids cost-plus-percentage-of-cost contracting and CPFF cannot exceed 10%, unless it’s R&D, then it’s 15% “With cost-based procurement prices, the appropriate fee is a part of the problem of determining a price; but determining an appropriate profit is also a problem in determining the rate of return on investment capital, which is required to make defense production attractive to a sufficient number of producers. The former problem has received great attention from officials ever since the start of WWII. The later problem is recognized in principle, but has been largely avoided in practice.
  12. Hi Caitlin - If you've allowed the sub to include G&A on travel, then it's the sub's G&A rate that would be applied. This is the cost to you, the Prime, which is what is then passed to the government. Applying the sub's G&A to travel does not impact whether or not you need to submit an incurred cost submission. However, I'm not familiar with the specifics of your contract, so you will want to get clear with your contracting officer to understand whether you have ICS requirements on the travel line or not. My guess is that they would have structured the contract in such a way to avoid an ICS on this piece, but you'll want to clarify.
  13. I am attempting to research the negotiated fee % paid by DoD (DARPA, more specifically) on CPFF contracts. I've searched records on FPDS and SAM - I don't see anywhere that I can obtain the fee data as a percent of cost. This leads me to believe my only path forward is a FOIA request. Does anyone have insight into... 1. Whether this data already exists somewhere 2. Whether this is a valid FOIA request 3. What agency this should be directed to
  14. @Retreadfed and @Vern Edwards: Thanks for that input - are you saying that firms were open to R&D contracts as a way to bring in revenue in lean times? Or what did the contractors get out of the deal that made it attractive? Were these firms in question new to government contracting, or was having ongoing government work part of their strategy?
  15. To take a step back and clarify, I'm specifically talking about profit as a tool to increase interest in DoD R&D efforts. Increasing profit is likely to increase that interest, but I'm not saying it's the only lever or that it's the even most impactful lever. You mentioned data rights, Vern, and I agree that this is a big factor in whether a firm decides to work with the government or not. There are other factors as well. Where the WGL comes into play is how contractors and contracting officers view it as being directly related to the effort required. Does it ask the right questions and produce the answer expected given the situation? Small businesses surely don't believe that to be the case. Who else might feel slighted and why? That's where I would like to go. Have thoughts on this? This group absolutely has the depth of knowledge to shed light on this.
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