here_2_help

For those following this thread, the key point is that, when the lease is with an affiliated entity under common control, it does not matter whether the monthly rent is at market rates, below market rates, or above market rates. The market research to show that comparison is irrelevant to the allowable rent expense that may be claimed by the contractor. The contractor must perform the calculations required by the cost principle to adjust the actual rent expense to the allowable value. Failure to do so likely creates unallowable cost that, if claimed in a certified final billing rate proposal, might lead to assertions that the amounts are expressly unallowable, which invites penalties and interest.

Thanks for the update, Vern. Thinking of you, Bob

Vern's advice is spot on. The answer is that the facility rental cost, if adjusted in accordance with the cost principle Vern cited, will be allowable. But the adjustment must be made.

If I were the Ktr I would be very reluctant to provide a cost breakdown for a lump-sum/FFP invoice. We have an agreement as to price; the costs incurred are irrelevant. To Vern's question, if the program office wants cost information to help shape future bids, this is not the right way to obtain such information, in my opinion. More importantly, the Ktr may not have an accounting system that is adequate to track/report its costs by cost element. The Ktr doesn't need an "adequate" accounting system in order to perform an FFP contract. You want a cost breakdown generated from an adequate accounting system? Then issue a cost-type contract and have DCAA (or equivalent) perform a pre-award accounting system survey. Make sure the Ktr can actually report what the program office wants to see.

I cannot help you but I did find a Wikipedia article that traces the quoted philosophy back to 1862 Germany. It provides a decent starting point for further research. https://en.wikipedia.org/wiki/Night-watchman_state

These are contract costs in the year they are received and recognized by your accounting system, unless you accrued for them earlier. (Doubtful but possible.) Apply the current year rates to the subcontractor invoiced costs you have received. I hope you have sufficient funding to cover the additional subcontractor costs. If not, you would need to argue that the costs were not reasonably foreseeable in order to show why you didn't submit the required Limitation of Cost notification ahead of time. Finally, there is a lesson here about proper subcontractor oversight and management. If you were unaware of the incoming rate adjustment costs, ask yourself why. (If you knew you should have accrued for them.) Why are you not communicating with your subcontractors, such that you would understand their current final billing rate status and probable rate impacts to your contract? In my experience, far too many primes simply don't manage the financial aspects of their subcontractors, even in a full EVM situation. I wish that was not the case, but it is.

All, the requirement is found in 52.216-7(d)(2)(v). To my knowledge, there is nothing in the FAR that tells a contracting officer what to do if the contractor is late. I imagine that a CPARS rating might be affected. I imagine that the adequacy of a contractor's accounting system might be affected, as the issue might warrant a Level 2 Corrective Action Request during an accounting system adequacy audit. That's about all I can come up with.

Have you read the contract--especially Sections H and I? Do you understand what each clause means? If not, I urge you to obtain advice from a competent government contracts attorney or consultant. Why? Because all those clauses are part of the deal you agreed to when you signed the contract. I don't know all the clauses in your contract, but I'm willing to bet that, if you are receiving performance-based payments, you will find the clause 52.232-32 in Section I. If it's there (and I bet it is), then visit www.acquisition.gov and type the clause number into the the "Regulations Search" function (found under "Tools"). Look at paragraphs (h) and (i) of that clause. Okay? Now ... for your own protection, please get someone to advise you because coming here isn't going to be enough to ensure you are meeting the terms of the deal.

I believe you are misinterpreting the requirements of the clause. (Emphasis added.) Essentially, the clause states that when a prime contractor, or a contractor at a lower tier, awards a subcontract (or multiple subcontracts) that exceed 70% of the total cost of work to be performed, then it must justify why the awarding entity adds value -- NOT the awardee(s). In other words, the awarding entity must justify why it received its contract instead of the contract going directly to the awardee. Typically this is not a huge challenge. However, if the awarding entity cannot convince the KO that it is adding value (as defined above), then "indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs)" are unallowable. (Note I'm cutting and pasting directly from acquisition.gov. The italicized words are in the original.)

In 2018, DCAA issued audit guidance regarding Long-Term Agreements (LTAs). Unfortunately, the audit guidance is no longer available--which perhaps means it has been incorporated into the Contract Audit Manual or elsewhere (I didn't check). The audit guidance clarifies that auditors can review the reasonableness of LTA pricing independently of a government solicitation. In other words, a contracting officer can request a DCAA review of LTA price reasonableness before the LTA pricing is incorporated into a contractor cost proposal. According to the MRD, there are four preconditions that need to be in place before the auditors can perform an audit. They are: The subcontract proposal has been approved by the appropriate subcontractor management. The prime contractor has submitted the subcontract proposal to the Government with an assertion from the prime contractor’s management that it intends to award an LTA with the subcontractor and identifies the benefit of the LTA to the Government The subcontract proposal is adequate for examination based on the requirements set forth in FAR Subpart 15.4, Contract Pricing The Contracting Officer has determined that subcontract audit support is required based on DFARS PGI 215.404-3, Subcontract pricing considerations Importantly, it seems that DCAA envisions that the contractor will engage with its contracting officer (and the auditors) prior to negotiating and finalizing the LTA pricing. Based on what we see (above), the prime contractor will request a proposal from the LTA supplier and then submit it to a contracting officer for … what? The audit guidance is not clear. I hope this helps.

Vern, ATS is a small engineering firm with less than 200 employees (according to LinkedIn). I agree there is an expedited procedure available.

Bob, I read the decision when you posted it on the front page. (Thank you for doing that, by the way!) My sense is that the issue is important to protest attorneys and their clients. I'm not sure if it does (or should) impact how a CO does business. I would be interested to hear other opinions on that.

Over on the other side of the table, I have a hard time imagining any contractor (other than the smallest) litigating $40,000. I think there would be significant hesitations over litigating $400,000. Ten years ago, while employed at a large DOD contractor, I was told our legal department had a rule of thumb: assume $2 million in (unallowable) attorney's fees and two years to get a decision. If the matter wasn't worth the time and expense, let it go. I would have advised the CO in this situation to call the contractor's (assumed) bluff. Edited to add: Oftentimes these disputes settle between the filing of the COFD appeal and the trial. I don't have the stats but I believe settlements are a common occurrence, at least based on the number of "decisions" that announce settlement.

I believe I know the answer to Question #2 but as these are legal questions -- and I am not an attorney versed in labor law let alone an attorney of any kind -- I'm going to pass. There are hundreds of lawyers who can advise Anonymous FS; I recommend he go to one of them with his questions.

I believe the case Retreadfed alluded to answered that question. (Was it AT&T? I don't have time to research right now.) The answer provided by the court was "the effective date" not the award date.