here_2_help

I wouldn't want to bill the government for hours not worked. I suggest you sit down with the contracting officer and walk through the situation. Suggest there is now an opportunity to deobligate some contract funds and put them to use elsewhere.

I don't have any of the facts but I wonder whether there is a subcontractor who is difficult for the prime to deal with. Perhaps a subcontractor who is being asked to submit certified cost or pricing data but is not well-versed in TINA requirements and compliance? Shrug. Just a wild guess.

Most every contractor I work with takes great pride in submitting solid proposals on time without needing to ask for extensions. But then again, those contractors have robust and adequate estimating systems.

3 hours ago, Vern Edwards said:

@here_2_help On a scale of 1 to 5, 5 being best, how clear would you say that opportunity post would be to a small business that is not an experienced government contractor? Maybe they've had one or two contracts valued at more than the SAT.

Two. With some thought, you can follow what's going on. But you need to look at what's there and THINK about what the CO is trying to do. For most small businesses, they won't have the time and/or will be overwhelmed. Either they'll submit an offer without being certain what they are bidding on, or else they will pass.

To your question: I think a reasonably knowledgeable person could and would figure out that "1202SA22R9201 - HSS - Type 1.pdf" is the solicitation. There are a number of amendments (aren't there always?) that a reasonable person should be able to navigate. The pricing workbooks? Not so much. I hope the Solicitation instructions provide clarity whether one, or all, of the pricing workbooks must be completed and submitted for evaluation. The distinction (if any) between "T1" and "T1Modern" is not apparent. I would guess that, as questions were answered, the pricing workbooks evolved to address offerors' concerns. Maybe. If so, then I guess only the most recent workbook (one for "T1" and one for "T1Modern"?) would need to be submitted. But who knows unless the instructions provide the answer.

Quote

242.708 Quick-closeout procedure.

(a) Defense Contract Management Agency administrative contracting officers are authorized to negotiate the settlement of direct and indirect costs for a specific contract, task order, or delivery order to be closed in advance of the determination of final direct costs and indirect rates set forth in FAR 42.705, regardless of the dollar value or percentage of unsettled direct or indirect costs allocable to the contract, task order, or delivery order.

(2) In lieu of the thresholds at FAR 42.708(a)(2)(i) and (ii), the amount of unsettled direct costs and indirect costs to be allocated to the contract, task order, or delivery order will be considered relatively insignificant when the total unsettled direct costs and indirect costs to be allocated to any one contract, task order, or delivery order do not exceed $2 million, regardless of the total contract, task order, or delivery order amount.

I'm wondering whether there is a prohibition on quick-close by CLIN. Suppose one or more CLINs have been successfully performed, delivered, and accepted. May the contracting parties agree to close out those CLINs while leaving others open until completion?

Love it

Hmm. Fascinating.

Quote

Zafirov’s argument turns on whether the foregoing history requires a departure from the Supreme Court’s well-settled Article II jurisprudence. It does not. When the Constitution is clear, no amount of countervailing history overcomes what the States ratified. See Rahimi, 144 S. Ct. at 1912 n.2 (Kavanaugh, J., concurring); id. at 1908 (Gorsuch, J., concurring); Polansky, 599 U.S. at 450 (Thomas, J., dissenting); N.L.R.B. v. Noel Canning, 573 U.S. 513, 573, 613–14 (2014) (Scalia, J., concurring in the judgment, joined by Roberts, C.J., Thomas, and Alito, JJ.).  

Gonna put a stop to a lot of FCA cases if this decision is upheld.

2 hours ago, Deathdealer said:

Hi, pulled the below from a post in the beginner forum titled ODC's. Hope this is an acceptable form of question asking. H2H mentions CAS compliance on cost reimbursable contracts. I am assuming this violates CAS 401 in that it is inconsistent treatment of costs. I thought for a moment it would be CAS 402 but that relates to indirect costs, and in this case its 2 types of direct costs. Can someone explain or point me to the 52.216-7 Allowable cost & payments issue that could be created? 

My particular situation that lead me to this post is similar, we are the prime contractor, we have a subk vendor that invoices us for labor & odc's on a cost reimbursable contract, the government has asked us to bill all costs as ODC's. Not seeking specific advice on my situation just want to better understand the below. Thanks

 

Well.

1.  Yes, it would have been a CAS 401 noncompliance as the costs were proposed as labor then billed as non-labor (ODC). Inconsistent cost accounting practices.

2. The Allowable Cost and Payment clause (52.216-7) requires a contractor to submit an annual proposal to establish final billing rates (final indirect cost rates). The proposal must be submitted in the specified format. See 52.216-7(d)(2). In particular, note the descriptions of Schedules H and I. If a contractor incurs labor costs, presumably they will be burdened with labor overhead. Presumably those same costs, in billed as an ODC, would not be similarly burdened. This would set up a disconnect within the schedules, one that might well render the submission inadequate for audit.

3. You don't want advice on your issue. Got it.

Hope this helps.

TINA does not apply. Okay.

There is no mischarging if the contractor personnel are charging the correct CLINs based on the work actually being performed. Thus, I keep going back to the contractor proposal. What did the contractor say that led to the FFP CLIN price being established? Why did the government believe that price was fair and reasonable? If the determination was made at the contract level, not the CLIN level, then what was the basis for the determination? 

In other words, did the contractor make a misstatement or otherwise mislead the government into setting a price that was reasonable only if personnel charged the CLIN on a full time basis? If not--or if there is no way to know--then I don't think there is much that can be done. Holding up payment is not the way to go, in my view, as that may be a different breach.

On 9/27/2024 at 2:47 PM, Vern Edwards said:

Assuming they were not stupid, and did not document their intention, how would you prove that at the time of price agreement they knew they would not be charging full time? What if they did not decide to take that path until after performance began, or say that they did? If they were unethical enough to make such a plan, why wouldn't they lie if accused? What if there were no whistleblower? We're talking peanuts, not millions. You'd spend more trying to make your case than you would recover through defective pricing.

If they mischarged they mischarged, and the government gets its money back, with interest, defective pricing or no defective pricing, fraud or no fraud. I'd tell the auditors to look for misallocation and mischarging. If they find it, and if the money were large, then I might look for defective pricing, assuming they had to submit certified cost or pricing data.

All right. We get to the same place either way.

20 hours ago, Vern Edwards said:

Uh, it's not clear to me how that would be defective pricing. What's the defective data?

The defective data would be the labor plan that posited full-time charging when the contractor knew that would not be the case. I realize that cost data in support of a proposal is not necessarily cost & pricing data, but facts upon which an estimate is based would be. The fact is the labor plan that supports the proposed price. (Assuming there is one, of course.)

We don't know whether TINA applies, but if it does and the contractor bid the FFP CLIN assuming full-time key personnel charging while also knowing that they would not charge full-time, then you might have defective pricing. If I was the CO that's where I would focus the auditors.

Full-time = 40 labor hours per week where I come from, though the amount might be reduced to "productive labor hours" for holidays and other paid time off.

One of the few books I inherited from my father is Cybernetics: Or Control and Communication in the Animal and the Machine 

It was his college textbook when he took Professor Wiener's class at MIT.

Published in 1948.

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

14 hours ago, Tzarina of Compliance said:

Can anyone help with this?  A contractor plans to rent an office that belongs to one of the contractor's majority owners.  The market research has been conducted and the lease price is below the market that is offered by the owner.    Would this be an allowable indirect cost (this is the main office for the contractor) even though this is not an arm's length transaction?   Many thanks.  

58 minutes ago, Vern Edwards said:

Have you read FAR 31.205-36, Rental Costs, paragraph (b)(3)?

Also, see Government Contract Costs and Pricing, § 43:4, Case law interpretation—Leases between organizations under common control.

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

20 hours ago, KMN said:

We have a subcontractor that submitted a rate variance invoice to us in August 2024, for FY 2019 - FY 2023.  ...  When billing the customer, do we burden the Rate Variance invoice with our FY 2024 rates, since that is when the invoice was received?  Or, do we need to burden their rate variance for FY 2019 with our FY 2019 rates, their FY 2020 with our FY 2020 rates, etc.  The latter would be very complicated, so I am curious how others have handled such a situation.

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.

Quote

(h) Records and controls. The Contractor shall maintain records and controls adequate for administration of this clause. The Contractor shall have no entitlement to performance-based payments during any time the Contractor’s records or controls are determined by the Contracting Officer to be inadequate for administration of this clause.

(i) Reports and Government access. The Contractor shall promptly furnish reports, certificates, financial statements, and other pertinent information requested by the Contracting Officer for the administration of this clause and to determine that an event or other criterion prompting a financing payment has been successfully accomplished. The Contractor shall give the Government reasonable opportunity to examine and verify the Contractor’s records and to examine and verify the Contractor’s performance of this contract for administration of this 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.

On 8/7/2024 at 9:53 AM, BrandonB said:

As defined in 52.215-23 Limitations on Pass-Through Charges, Excessive pass-through charges: with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for 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).

Further, Blk 14F of the DD1547 WGL is for subcontracts... my takeaway is that there are those of us out there that do justify fee on subcontractors as not excessive.

ASK- Looking for scenarios where a sub adds value to justify the Prime charging Gov't fee for a subs work. 

I believe you are misinterpreting the requirements of the clause.

Quote

Excessive pass-through charge, with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for 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).

No or negligible value means the Contractor or subcontractor cannot demonstrate to the Contracting Officer that its effort added value to the contract or subcontract in accomplishing the work performed under the contract (including task or delivery orders).

Subcontract means any contract, as defined in Federal Acquisition Regulation (FAR) 2.101, entered into by a subcontractor to furnish supplies or services for performance of the contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders.

(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.

Quote

Added value means that the Contractor performs subcontract management functions that the Contracting Officer determines are a benefit to the Government (e.g., processing orders of parts or services, maintaining inventory, reducing delivery lead times, managing multiple sources for contract requirements, coordinating deliveries, performing quality assurance functions).

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:

1. The subcontract proposal has been approved by the appropriate subcontractor management.

2. 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

3. The subcontract proposal is adequate for examination based on the requirements set forth in FAR Subpart 15.4, Contract Pricing

4. 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.

2 hours ago, Vern Edwards said:

@here_2_help Your imagination needs a booster shot.

You don't need a lawyer to go to a board of contract appeals, and there is a small claims (expedited) procedure. See the ASBCA's 2023 nine-page decision, American Technical Services, iInc., ASBCA Nos. 6354 and  6355, in which the contractor sought $12,728.68 and the Government sought $36,661.93. (The government withdrew its final decision and claim and the Board declared it to be moot.)  The board denied the contractor's appeal.

It took me all of two minutes to find that online after I read your post. There are plenty of small claims.

Maybe, to borrow words from Bob Dylan, your imagination in this regard is "limited and underfed".

 

 

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.