here_2_help

1. No, except for T&M types. 2. There is no definition of "profit on profit" but profit on inter-organizational transfers between affiliated entities under common control is prohibited by 31.205-26(e), unless an exception applies. You may be thinking about that prohibition, which does not cover subcontractor costs. Fundamentally, a prime should be entitled to profit on subcontractor work, because it is responsible to the government for the subcontractor's compliance and performance. Any problems are addressed at the prime level. Because it has that risk, it should be entitled to a profit. But perhaps that's just an opinion and not directly responsive to your questions .... Hope this helps.

George, I don't think you've provided enough information to reach a conclusion one way or the other. You say, "the employee ... has been reimbursed for duplicate home owners costs," but then cite to a provision related to a limitation on a sale of a residence. I suspect there is more to the story. If not, and that's all there is, then I cannot answer your question. Perhaps others will venture in where I fear to tread. H2H

Don, I agree that it's a bit harsh to bash DPAP for what is essentially a typo. On the other hand, those Memos go through several levels of review, and it would be nice to think that somebody would have noticed the typo during one of the reviews. To your point that "a competent policy staff is sufficient," I need to disagree somewhat. DPAP is, for better or worse, the home of acquisition "thought leadership" at DOD. The Directorate navigates and, quite literally, directs the DOD acquisition workforce in the eternal quest for efficiency and effectiveness. I don't think anybody is served by having merely competent people at the helm of the ship. Personally, I've been disappointed with a number ofpolicy decisions over the past few years, as I feel they betrayed a lack of deep knowledge coupled with experience. My "favorite" example is the FAR Part 30 rewrite, but other examples could be named. You might even have a few of your own. My point is that we need the best and brightest at all levels, but especially at the policy-setting level. H2H

Vern, we agree. See my other posts. My point was, if DPAP or DCMA or DCAA have any evidence that they are paying more than the contractor is entitled to receive, then they should publish it. Better yet, they should take the contractor to court. Otherwise, the contractor's actual profit is irrelevant to the decision as to use T&M types, or not. Which is a statement you have previously posted. See--we agree! H2H

Now you are just speculating. Right? And if we're discussing "commercial items" and commercial services, then Cost-type contracts are prohibited, I believe. And if we are discussing commercial items, who cares what profit a contractor makes, since the market has already determined that the alleged excessive profit is fair & reasonable? By definition, commercial rates are fair and reasonable, regardless of what profit rate the provider makes. And in any case, how would the government be harmed, since it can only pay for "all labor performed on the contract that meets the labor qualifications specified in the contract"? (See 52.212-4(i)(1)(i)(A).) If you're telling me that Mr. Assad is upset because commercial entities are making a profit in excess of what his defense contractors have been beaten down over time into accepting as "reasonable," and thus would like to eliminate use of T&M contracts altogether so that commercial entities no longer obtain a market-derived profit rate, then I don't know what to say. What ever happened to the idea of a free market? Vern is right (as usual). The problem -- if there is a problem, and neither you nor Mr. Assad have provided any evidence to support that assertion -- has nothing to do with contractors making a profit on qualified services they provide to DOD. Nope. The problem lies elsewhere, right where Vern says it does. H2H

Hi napolik, Thanks for your response. My initial thought is that anybody can say anything, but it's nice to have some evidence to back up assertions. I say this to you and I would say it to Mr. Assad, if I ever met him. I know from first-hand experience that DCAA routinely questions costs that a Contracting Officer or ACO eventually determines to be fully allowable, and that DCAA routinely questions proposed costs that are eventually negotiated into a contract price. That's not to say that contractors are blameless--they are not--but in my view assertions based on nothing are worthless, and assertions based on DCAA audit findings aren't much better. The DOD has remedies available to it under the Truth-in-Negotiations Act as well as the False Statements Act. Until I see contractor settlements related to false or misleading statements in their Bases of Estimates related to proposed T&M rates, or contractor settlements under TINA (or even the False Claims Act) related to defective cost or pricing data (or false claims), then I'm going to ignore what DCAA and DPAP have to say on this matter. I suggest others way want to consider doing the same. Hope this helps

Hi napolik, I have not seen any reports or studies that show such large unanticipated contractor profits. Can you provide a link or a reference citation to any such, please? Thanks H2H

Vern, You would agree that one of the five tests for allowability includes compliance with contract terms & conditions, correct? You would agree that another one of the five tests for allowability is compliance with CAS, when applicable; otherwise compliance with GAAP, correct? You would agree that the contracting officer has the authority to disallow costs he/she believes to be unallowable pursuant any one of the five tests, correct? You would agree that the contractor has the ability, under the Disputes clause, to challenge a contracting officer cost disallowance that it believes was incorrectly determined, correct? Then we are in complete agreement. H2H

Among the information missing from the above scenario is a discussion of direct vs. indirect cost allocation. I have to assume that the contractor is charging labor (and perhaps travel) cost associated with certain employee training activities as a direct contract cost, and expects to get reimbursed. During contract performance the government customer decided that such costs were unallowable as direct contract costs and refused to pay for them as such. I also have to assume that if the costs were charged as indirect costs, the government customer would have no problem with paying the resulting indirect cost (overhead) rates. With respect to direct costs and your theory that the intent of the parties at the time of contract formation controls subsequent interpretations, I would ask whether the contractor included such direct costs in its original proposal? Did the parties negotiate estimated costs that included such costs as direct costs? Was the historical practice (or future intent) to charge such costs direct disclosed in the submission of cost or pricing data? With respect to direct vs. indirect, does the contractor have any policies or procedures that support its position? What are its established practices? Are training costs treated consistently amongst all contracts? What does its CASB Disclosure Statement say about treatment of labor and other costs associated with employee training? These are some of the questions I would be asking. In any case, I believe the CO has authority to disallow costs incurred during contract performance -- see 42.803. Hope this helps.

I don't have a problem with any of Vern's replies on this thread. To the latest one, quoted above, I would reword as follows-- Our contractor told one of its employees to stay home pending the outcome of an investigation. They continue to pay the employee's salary while he is at home. 1. Are those continuing labor costs allocable to my contract as a direct cost? 2. If so, are such costs allowable and should I approve the contractor's invoice for payment? Or should I disallow those costs? 3. Are those costs allocable to my contract as indirect costs? How can I find out if the contractor should treat the costs as direct or indirect? 4. If indirect, are such costs allowable? How would I find out? What should I be looking at to make the proper determination? 5. What is the role of my auditors in this issue? What is the role of my Administrative Contracting Officer? Am I on my own, or do I have resources who might be able to help me? Hope this helps.

Jacques, As you may know -- but others may not -- the Tecom case addressed the allowability of a contractor's settlement of a legal matter. It did not address the allowability of legal expenses per se, nor did it address the allowability of labor hours/employee compensation incurred and/or paid during an investigation. Just to clarify. Hope this helps.

I'm having a hard time understanding the situation. How does a contract employee get put on government paid admin leave? How does Part 31 come into play? Does it involve the employee's employer's contract? What else does that contract say? Based on your initial input, I would hazard a very speculative guess that the cost incurred by the contractor in paying the employee is allowable right now. But it may turn out that the investigation leads to a conclusion that some or all of the employee's labor charges are unallowable, because there is some sort of violation involved. But we don't know that yet. So I would guess you keep paying the contractor so long as its employee is on admin leave "pending the outcome of an investigation." Admin leave ... for a contractor employee? What am I missing here? Oh well, I'm sure somebody will set me straight soon enough. Until then, hope this helps.

Hi ktr1999, Consider this point of view: cost or pricing data includes all facts that would reasonably be expected to significantly affect price negotiations. "All facts" includes factual information such as vendor quotes, but is not limited to only vendor quotes. Cost or pricing data is certified and penalties exist for defective certifications. "Information other than cost or pricing data" includes "any type of information" that the Contracting Officer believes is necessary to determine price reasonableness or cost realism. "Any type of information" includes factual information such as vendor quotes, but is not limited to only vendor quotes. So there is obviously going to be some overlap. The critical distinction is that "information other than cost or pricing data" is not certified and therefore you cannot be penalized for a defective certification. (But note that the False Statements Act may apply ....) Basically, the C.O. is prohibited from requiring submission of cost or pricing data where there is adequate competition, but is encouraged to obtain sufficient information in order to determine price reasonableness. Just because there is competition does not automatically mean that the C.O. can conclude an offeror's price is reasonable. Note that FAR 15.305(a)(1) says "Normally, competition establishes price reasonableness [but] in limited situations, a cost analysis ... may be appropriate to establish reasonableness of the otherwise successful offeror?s price." From my point of view, you need to give the Contracting Officer whatever he/she says is necessary. So long as you're not certifying, your downside risk is limited. Moreover, you want the contract award, don't you? Hope this helps.

I sighed when I read this post. I bet others did as well. Let's break it down -- 1. Yes, most times DCAA uses the DRI/Global Insight values to establish its position(s) on the reasonableness of estimates of future costs. Generally, contracting officers use that position to establish pre-negotiation objectives. 2. If your company has a history of providing employees with raises larger than that used by Global Insight and -- more importantly -- if it has budgetary projections showing it intends to award those larger raises in the future, then those facts need to be given to the contracting officer during negotiations. At that point, it's simply a matter of negotiation. Let me reemphasize that: it is NOT a matter of index vs. index; it is a matter of negotiating skill. Period. 3. You say, "The Govt should have no say in what kinds of increases [my company] pays its employees." True, and so what? The Government has a say in the price it wants to pay its contractors. If you keep giving out raises in excess of the industry average, eventually you will price yourself out of the market. The bottom-line here (excuse the pun) is that you are negotiating a price, of which labor escalation is but one element. I'm willing to bet that your indirect rates affect the contract price as much as -- if not more -- than direct labor escalation. Moreover, if you don't like the Government's escalation value, then jack-up proposed fee/profit to cover the difference. Finally, if this is a cost-reimbursement contract, then you're not even negotiating a price; you're just negotiating an estimated cost value. The Government is going to pay actual, allowable, costs in any case. I feel your frustration, but you should understand how the process works, and be well-prepared to negotiate when you're at the table. Because that's where the rubber meets the road, not at the issuance of an audit report. Hope this helps.

I recall the FAR Councils had some tough words for contracting officers who put CAS clauses into contracts when they were not applicable, using the excuse that they were self-deleting. Somebody might want to look at the promulgating comments from the revisions to 30.6 from a few years ago. My recollection is that the Councils said such an approach was expressly prohibited with respect to CAS clauses. I'm thinking the logic would apply to other clauses as well. That said, the Councils were talking about Government contracting officers not prime contractor subcontract managers/administrators. I guess primes can do pretty much what they want (as ji20874 said). It would be nice to think somebody aspired to a higher standard, but I can't think of any express requirement that says primes cannot use self-deleting clauses.

(From Karen Manos' Government Contract Costs & Pricing 2d. Ed.)The point being, that (exceptions aside) tax payments are in fact costs and must be accounted for in order to calculate total contract costs. Disputes have arisen regarding allocabilty of such costs, but there have been very few disputes regarding the allowability of tax payments when properly allocated. Hope this helps.

Yes, that was the original question. To which I replied "No. No it is not." Because it isn't a bad debt. Hope this helps.

No. Not at all. FYI, any expense the contractor records (or has recorded) is unallowable because the employee "voluntarily" terminated within 12 months. See the cost principle on relocation. On a somewhat related note, this contractor sounds like a "sharp operator" to me, and I mean that in a pejorative sense. I have never in my career seen a voluntary termination conflated with a termination for cause. And I have never seen a relocation agreement packaged as a loan. It seems to me that the main reason for doing so would be to avoid recording an expense (which would be a charge against income) and instead record an asset on the balance sheet (employee receivable). Somebody ought to get DCAA to perform a financial capability audit on this company, stat. Hope this helps.

Another resource to consider would be Karen Manos' article, "Caveat Contractor: DCAA?s New Audit Guidance on the Sarbanes-Oxley Act and Contractor Internal Controls,? 80 FCR 19, Nov. 25, 2003. In that article, Ms. Manos discussed US v. Newport News, 837 F.2d. 162 (4th Cir. 1988), U.S. v. Westinghouse, 788 F.2d. 164 (3rd Cir. 1986), and US v. MIT , 129 F.3d. 681 (1st Cir. 1997). A more recent (May 2010) article in West's Government Contract Costs, Accounting & Pricing Report discussing DCAA audits of contractor ethics and business conduct programs cited the same cases, and noted: "... courts generally have held that DCAA?s power to compel production of documents is limited to financial and cost records, and 'other objective factual information concerning contract costs, such as invoices, vouchers, and time logs, rather than ? subjective assessments.' The power of the DOD IG to compel document production has been accorded more deference, however. The DOD IG?s 'broad powers to seek out fraud and waste in agency operations and programs' was deemed sufficient to compel production of a contractor?s internal audit reports." Hope this helps.

Hi govtacct02, The situation as you describe it is simply a matter of (a) your company making a business decision on how hard it wants to push back, and ( your ability to negotiate a better outcome with the Contracting Officer(s) who are taking this unsupported position. I'm sure most everybody here agrees that when a CO directs the contractor to book only nonrefundable air fares, then s/he should also expect to pay for unused air fares when circumstances lead to a trip being changed or not taken at all. That's not unreasonable; it's simply common sense. We could delve further into whether the CO has authority to direct such a thing as you describe, or whether such micromanagement is actually interference and disruption--but why bother? Either your company will push back or not. Either the CO will back-off the position, or not. If you push back and the CO doesn't start allowing otherwise allowable air fares, then will you be filing a claim for the disallowed costs? If your company is not willing to push back to the point of threatening to file a claim -- and is actually willing to file the claim -- then I'm thinking "move on to another problem". Hope this helps.

Don, This is one of your better blog posts. The FAR Councils need to clear up confusion, in terms of both TINA and CAS administration. In particular, what is the contract award value of an ID/IQ with respect to CAS administration? The DCAA says it's the ID/IQ ceiling value but that's a puerile position, particularly when there are multiple ID/IQ awards being made. Will you be submitting a request to open a FAR Case?

Cajuncharlie, Perhaps others are better researchers than I am, but I don't think you can find what you're looking for in the FTR, JTR or DSSR. I am only aware of two types of travel -- Temporary Duty (TDY) assignments and Permanent Changes of Station (PCS). Many contractors have developed a third type of travel, e.g., Long-Term Temporary Assignment (or some similar name) for assignments of between 60 days and one year. But so far as I know, the official Government travel regulations don't recognize it. I look forward to somebody else providing more info.

The situation you describe is not right. First of all, there is no such thing as "DCAA actuals". The contractor submits its proposed final indirect cost rates -- and certifies to them -- and DCAA audits the submitted rates. Some work may be done on direct costs, or not, depending on how DCAA approaches its audit. The ACO then uses the DCAA audit report to establish a negotiating position. (Granted, sometimes rates are established unilaterally.) Second, in today's environment a contractor might be waiting for--literally--years before getting to the negotiating table with its ACO to finalize indirect cost rates for any given year. And even then, it's 50/50 or worse regarding how many Boards of Review the ACO will have to go through to obtain management approval of the rates s/he negotiated. Third, does this contract contain the Limitation of Cost clause and, if so, how does the contractor intend to comply with it if the additional billable cost pushes it over the contract's estimated cost? Fourth, this is just plain stupid from a contractor's cash flow point of view. Bill the costs now and process the credit later. I now see where you're coming from. This contractor needs help.

Hi woops85, CAS compliant has nothing to do with it. Accounting system adequacy has nothing to do with it. The only correct answer is that you should expect to pay for costs incurred through the end of the POP whenever they are recorded to a contract that has not yet been closed-out. Reasons for "late" charges might include: correction of inadvertent mischarges, late vendor invoices, etc. The government expects its contractors to process credits related to the contract even after close-out. See, for example, 31.201-5, Credits. Why should the contractor not expect to get reimbursement for allowable and allocable contract costs incurred up to the end of the POP, even if they are recorded "late"? Hope this helps.

The correct answer is to use the lodging and M&IE rates for the locality where the person has been assigned, regardless of where the lodging is located. Where there are multiple locations in a single day (e.g., when there is a stopover point en route) then use the location where the individual is at midnight. ?301-11.7 What determines my maximum per diem reimbursement rate? Your TDY location determines your maximum per diem reimbursement rate. If you arrive at your lodging location after 12 midnight, you claim lodging cost for the preceding calendar day. If no lodging is required, the applicable M&IE reimbursement rate is the rate for the TDY location. ?301-11.102 What is the applicable M&IE rate? For days of travel which require lodging Your applicable M&IE rate is the M&IE rate applicable for the TDY location or stopover point. Do not require lodging, and travel is more than 12 hours but less than 24 hours. Your applicable M&IE rate is the M&IE rate applicable to the TDY site or the highest M&IE rate applicable when multiple locations are involved). Travel is 24 hours or more, and you are traveling to a new TDY site or stopover point at midnight. Your applicable M&IE rate is the M&IE rate applicable to the new TDY site or stopover point. Travel is 24 hours or more, and you are returning to your official station. Your applicable M&IE rate is the M&IE rate applicable to the previous day of travel. Hope this helps.