Needforspeed

Thank you Retread, Neil, Help, Voyager for your perspectives and the thought generating conversation. Very helpful!

In my experience on the civilian agency contracting side, most COs would not know the difference between provisional and actual indirect rates. They also would not have any real awareness for how or why rate fluctuations occur. Maybe if there was a cost/price analyst in the office. If awarding a cost plus contract COs knew they had to document their analysis of the rates in the negotiation memorandum to demonstrate they reviewed the rates and found them reasonable. Even if that meant pointing to the previous rate agreement used for the same contractor five years back and not wanting anything updated. Forward pricing rates? Not a shot. To counter Retreads point that contractors forget to track indirect costs - any adequate accounting system should have a decent ability to estimate and compare actuals to provisionals throughout the year. I think most project and finance staff grasp that concept pretty well. I don’t know that they forget to track them though - how could one even forget and still be compliant with the award - only calculating your indirects once after the completion of the entire fiscal year? I would say more likely the estimation of the rates was just bad. For whatever reason. The fluctuations were so drastic they could not have seen the broader impact against available funding before it was too late. Unless you are in a really big company, the act of estimating the rates is probably a job privy to one or two people in the company.

What if DCAA already agreed to the now current year target rates which are different from the ones first proposed? Agree about disclosing it - of course. But is there an actual obligation to amend your pricing if required to sign a C&P certificate - if the government doesn’t ask for a final proposal revision?

Thanks Neil. All I can really say is that it has always worked that way, and I have never heard of the government requiring the FP versus just accepting provisional billing rates as the award basis. I’m with you though, they two agreements would seem to serve fundamentally different purposes. If we sent a proposal at our current year provisional indirects last June, and the government now intends to award today (new fiscal year, new rates), would we be required to disclose the new rates and submit a final proposal revision? (Assuming a certificate of cost and pricing data were required). I suppose with the FP the rationale is that forward period would already be covered with an approved rate correct - unless true government took a really long time to make the award?

As far as I can tell, my company has never had a forward rate pricing agreement (FRPA) but has always had negotiated provisional billing rates with DCAA (NICRA). Given the absence of an FRPA, the NICRA has been a catch-all rate agreement used in all cost plus billings subject to the allowable cost and payment clause, but also used in all cost proposal and pricing activity. Is this process alone deficient? The rates estimation process has always been very successful and never results in material fluctuation of the rates. In fact, the provisional rates are always quite close to our actuals, so to use them in our proposals seems very reasonable and is a good indicator of what our future costs may be. I know the FRPA and NICRA are for different purposes but I am much more familiar with NICRAs. Is there an inherent risk of bidding contracts in this way?

To throw out another perspective, the entity’s actual G&A rate for a given fiscal year is calculated for the organization [first], then applied to contracts where it is required. The number of contracts where G&A is ‘charged’ or billed through its invoicing does not impact the G&A calculation itself. Say your G&A expense pool (numerator) is $125K. Your G&A base (denominator) is $1M. Your G&A is 12.5%. Provisional or ‘target’ indirect rates that track closely against the ‘actual’ rates allow for the rate variance to be kept to a minimum. It seems unusual if the government required proof of provisional billing rates during negotiations that there would be rates bid all over the place or without consistency. It may be helpful to visualize a pyramid. At the top of the pyramid are your company’s contracts that contain FAR 52.216-7, as Help already said. Those are the contracts where you are *required* to perform the true up of applicable indirect rates charged at ‘target’ versus ‘actual’. Would focus on those first. The next down on your pyramid could be subcontracts where the federal government is the ultimate customer, or other cost plus or grant agreements with non federal customers. Read the contract terms to see what if any terms dictate the settlement of indirect rates. Read the proposal too if you can. Everything else at the bottom of the pyramid - commercial contracts - should not require much additional analysis. Seems unlikely a ‘requirement’ would exist to perform a rate true up for a commercial non-FAR customer although I suppose it is possible. More likely the company bid G&A as an administrative ‘markup’ or material handling rate without the intent of ever settling the difference between ‘target’ and ‘’actual’

@Neil Roberts thanks for proving that link, interesting. Reading FAR 31.112 it allows the government CO to ‘encourage’ contractor payment for unpaid subks, ‘reduce or suspend’ payments to prime contractor when subks are left unpaid, and shall ‘advise the subcontractor’ whether ‘final payment under the contract has been made…’ So, as a prospective subk where the prime inserts pay-when-paid language, if one cannot strike the language altogether, it seems reasonable to request FAR 31.112-1,2 be added to allow for some escalation to the government when a subk goes unpaid. That is something, I guess. I did see an old 2001 wifcon thread on the web that suggested this FAR only applies if the prime is using progress payments, not sure if that still applies. @here_2_help thank you that is very helpful as well. Not to mention risking noncompliance with prompt payment for small business etc. These are smart factors to consider in a subk where the prime is covered by the FAR. It does not help where the prime may be under a state or local government for example, but the idea of crafting specific language that allows for the unpaid subk to go directly to the ultimate client contracting office is compelling. Essentially a threat to expose a prime contractor for not paying their bills. Will probably get most folks’ attention.

@Neil Roberts Let me try to rephrase what I’m really after. I agree that a subk’s opportunity to nix this payment clause is during the negotiations. And for me a subk should really never agree to it unless there is a specific application that makes sense. Again, it seems unfair and unreasonable to have your payment tied to some means far outside your control. But that is still not what I’m after here. I want to know what happens if a subk delivers exactly as prescribed in their subcontractor. The prime accepts said deliverables. For whatever reason, small hypothetical, the prime is never paid for work purported to include a portion of the said work subk performed. Therefore, prime never pays subk. Is subk left holding the bag, even though they complied with all requirements of the subk? Why would anyone agree to this?

Correct. Thanks, Neil. Sorry for not clarifying that up front. I do not have any language in front me, but this would not be a FAR clause of any sort, rather a commercial payment term negotiated into a subcontract. For example, instead of saying “subcontractor will be reimbursed within 30 days receipt of an acceptable invoice” the agreement says “subcontractor shall be paid 30 days after corresponding payment is made to prime contractor”

I have always despised these payment terms in subcontracts. Subcontractor A/R managers scoff each time they see them knowing their leverage to collect payment is altered from its normal state; drastically reduced. The only fair, practical application I can see them used is where the subcontractor performs the preponderance of the prime contract SOW, and the prime is just a pass through. From a cash flow perspective the prime doesn’t want to go out pocket to pay the subk knowing the invoice could be held up or rejected by the client for various reasons, and payment to the subk could have already occurred. Are there any other practical uses for these clauses? Does anyone feel these clauses are misused and except in special cases, should not be agreed to by subcontractors? Are there any primes out there who have held some false sense of security that the a pay when paid clause protects the prime from ever having to pay the subk if there is an issue at the prime contract? If a subcontractor performed the work as intended, they should be reimbursed. Whether the prime is paid by the ultimate client is the prime’s job to figure out. It is silly to think the two should be linked, in my opinion. Does anyone know of a subk that was stiffed by a prime because of this type of payment clause, took the prime to court, and what happened?

Thanks all for the added dialogue on this one. Neil, I think the reference provided at 4.703 (b) (2,3) answers my question. Which, until I found the file the government was asking about, was what happens if a cost plus contract was not closed out nor settled for indirects, and the contractor has no record of it. Suffice to say, not good. I believe that FAR reference to say the contractor is on the hook- pretty much forever in the case of retaining files that were not properly closed out and in accordance with the allowable cost and payment clause.

Thanks, C Culham, for the reference. Let's assume this is from a contractor's perspective. The government is asking for a final voucher - in furtherance of contract closeout. Let's assume the final payment occurred ten years ago. The contractor may or may not have complied with the allowable cost and payment clause, so let's also assume unreconciled indirect variance could exist. Is there anything that would compel a contractor to unearth a contract that old, more than ten years, and inspect and perform a reconciliation of final costs? In other words, does final payment occur only after all rate variance adjustments have been performed - in which case the six year clock would not start until then? I realize I may be conflating retention requirements with compliance on allowable cost and payment clause.

In the absence of a "closed out" cost plus contract, can anyone point me to guidance re: how long you must keep your files? I perused FAR 4.7 and 4.805 but didn't see the answer specific to my question. For example, would the "6 years after final payment" laid out in 4.805 apply to all contract types?

Thanks Help, correct - with a contractor. These are great questions. Can you clarify what you mean on question 2? For question 3, are you referring to something above and beyond the accounting system - does Sharepoint qualify as a database? Or something like an Access database? If you could expand on what a relational database is to you that would help.

Current filing structure is pretty chaotic/disorganized, so wanted to see if anyone has any good suggestions or best practices in how they maintain their e-files. My thinking is to create a Sharepoint site that is organized by internal project number - which is a number that is also linked to the project number assigned in our accounting system. That sounds better than by client, for example. Then, potentially separating the files by active/inactive. In the contract folder, you would have a contract brief, all awards and mods, a folder for subcontractors or consultants, if any. The proposal folder would be linked or visible in the folder and contain final proposal revisions/budget docs, etc. Outside of using a contract database, any ideas for a good file structure on Sharepoint?