here_2_help

Yelena, 1. Vern is right. The Fixed Fee is expressed as a dollar amount. Most times, contractors develop their fee estimates as a percentage of estimated total costs, but the fixed fee amount is a fixed amount of dollars. 2. I'm confused. You have a cost plus fixed fee contract, yet "The fee would be used to cover legitimate expenses that were budgeted too low ..." Is there some reason your contract doesn't permit you to recover costs in excess of the estimated costs that were negotiated 10 years ago? A cost-reimbursable contract that doesn't permit recovery of allowable costs incurred isn't tremendously different than a firm fixed-price contract, in my view. Hope this helps.

Hi Yelena, The fixed fee is generally expressed as a percentage of estimated total costs, which is the sum of direct and indirect costs less any applicable credits. A cost plus fixed fee contract has statutory limits on the fee percentage, which can be found in the FAR. I'm quite sure that 3% is below the ceiling, so no need to look it up unless you want to ask for more than 10%. You do not need to justify your fee percentage. But be aware that the Government contracting officer will be using a "structured approach" to setting his/her pre-negotiation objectives with respect to the fee percentage. If DOD is the contracting agency, the CO will be using the "weighted guidelines" approach, which utilizes a DOD form to compute the amount of profit/fee to which a contractor should be entitled. You can google the DOD form, or perhaps wait for someone to post after me who knows the form number by heart. (DD 1663? I forget.) My point is that, while you don't need to justify the percentage, you will need to negotiate it with a CO who will have some support for his/her position. So you might want to review the form/approach and do some preparation, in order to be in a position to counter the CO should you be selected for award. I have done some work with NFP contractors and many times the Government takes the position that, since the company is NFP, it should not get ANY profit/fee for its efforts. That's nonsense, of course. For one thing, you will need some fee to cover your unallowable costs that you incur. For another thing, some of that fee might go towards projects in line with your mission statement. Don't let the contracting officer tell you that NFPs aren't entitled to profit/fee, because they are. Finally, when you calculate your estimated total costs, you will need to calculate indirect cost rates based on applicable regulations. Most NFPs follow OMB Circular A-122 and get a NICRA, but some choose to follow FAR Part 32 principles. In any case, make sure you spend time figuring out your cost allocation structure and calculating the resulting indirect cost rates. Hope this helps.

Don, In response to your questions. 1. Sure, go ahead and make that assumption. There are dozens or scores of assumptions that are already part of the impact analysis. What's one more? My point is, the process is so unwieldy that nearly everybody takes shortcuts. For example, the majority of cost impacts are not taken to the contract price level -- regardless of what the regs or the CAM says. Why? Too hard. Too hard to calculate, too hard to audit. Now, if somebody is alleging fraud, that's a different story. But for the run-of-the-mill voluntary change in cost accounting practice, the goal is to protect the government from paying increased costs "in the aggregate" more than it is to calculate the exact quantum of change, by contract, by contract type, by agency. So nearly everybody cuts corners, including the contractor, the auditors, and the CFAOs. They have to; it's too expensive and time-consuming to adhere to the straight and narrow methodology prescribed by CAS and FAR and CAM. 2. See my answer above. In practice, neither matter very much. As to why DCAA would differentiate the two, your guess is as good as mine. Why not ask 'em?

Don, From my perspective, the cost impact process is complex enough as it already is without adding to the complexity. We have to try to ascertain what negotiated FFP prices would have been, had compliant practices been used (even when negotiation memoranda indicate a haircut taken at the bottom line. We have to ascertain what target and incentive fee ranges would have been. We have to look at EACs by program and often by individual task order. In the case of T&M contract types, FAR 30.602 says we have to bifurcate the contracts into their fixed and flexibly priced portions and calculate separate impacts. No sir, let us not add to the complexity of this already unwieldy process by trying to guess what AF pools would have been negotiated and apply the AF ratings to the new pools in order to make a guess at how much award fees were affected. No sir, thank you very much. Look the underpinning of CAS is materiality. You cannot have a CAS noncompliance for an immaterial amount of costs. Given the process and dollars already involved, the AF deltas are immaterial or should be considered to be so. Take it from me, the Government does NOT want to go there, unless you want to double the size of the DCAA audit staff.

Don, I know better than to discuss property issues without the FAR and DCMA guidance close at hand. I have neither at the moment, so I pass.

"Contractor-acquired property" means property acquired, fabricated, or otherwise provided by the contractor for performing a contract, and to which the Government has title. (Ref: FAR 45.101, Definitions.) Don, it is not the same as facilties, as the definition encompasses all items acquired by the contractor to perform the contract to which title passes to the Government, such as directly charged equipment, personal protective gear, etc. There's quite a bit to be said about title passage and contract type, but this probably isn't the place for such a discussion. So in other words, this proposed rule intends to eliminate proposed profit/fee on contractor-acquired items that are necessary to perform a contract. I agree with Vern's take on this -- it is a serious attempt to reduce profits. I hope the correct interpretation is that this affects only prenegotiation objectives, allowing room for the contractor to negotiate a fair return on its expenditures. Hope this helps.

Weno2, According to the DCAA, "An accounting system is adequate if its procedures are adequate to protect the Government's interest, and is suitable if it is in substantive compliance with CAS." The adequacy of a prospective contractor's accounting system is documented on SF 1408 (Preaward Survey of a Prospective Contractor's Accounting System). Typically, DCAA completes this form upon Contracting Officer request to do so and, based on that form, recommends whether an adequacy determination should be made. Further, the Contracting Officer may request a post-award DCAA accounting system review at any time during contract performance. Generally, once a contractor's accounting system has been determined to be adequate, it is considered to be adequate until the next review. Accounting system reviews are peformed periodically (usually every 3 years if I remember correctly). Accounting system adequacy may be impacted if the contractor changes some aspect (e.g., implements a new system or makes signficant changes to its procedures) -- at which point the Contracting Officer should request a post-award audit by DCAA to determine if the system is still adequate. DCAA performs multiple types of audits/reviews on DOD contractors, and may find something during an audit that implicates the adequacy of the accounting system. If so, they will issue a "flash" report and open a limited scope audit to quickly evaluate whether the accounting system is in fact still adequate. If the limited scope audit determines it is not, then DCAA will recommend to the ACO that the accounting system be determined to be inadequate. It will stay inadequate until the contractor remediates the problem and DCAA reperforms a full system review. I did not answer your questions directly, but trust this provides sufficent background for you to answer your own questions. If I missed something, I'm sure others will let me know! Hope this helps.

sm2jones, Just a small reminder that, according to the DOD's PBP User's Guide, PBPs values should not be tied to contractor costs incurred. Instead, the PBP events should facilitate meaningful performance measurement and the values assocated with those events are negotiated based on any rational means of doing so. The only real proscription is to avoid front-loading PBP values to the point that they become, in effect, advance payments. My point is that, once negotiated, PBP values should have no relationship to actual costs incurred, unless somebody has decided to ignore DOD guidance.

CAS 401 (48 CFR 9904.401) requires that the "cost accounting practices" used to estimate costs must be consistent with the cost accounting practices used to accumulate and report costs (and vice versa). The Standard has been interpreted to permit use of estimating techniques that summarize costs at a higher level than the contractor will account for them, but prohibits use of more detailed estimating techniques than the contractor's accounting system will use to accumulate costs. CLINS and WBS codes are not cost accounting practices (which is a term of art defined by the CAS regulations). So unless there are more facts to discuss, I don't think CAS controls the situation you describe. That said, if the contract requires reporting by CLIN, the cost accounting system must be able to accumulate and report costs by CLIN. In general, a properly established WBS/OBS structure will facilitate the proper crosswalk between estimating, accounting, and reporting. I think you are right to be concerned by the situation, but it doesn't seem to be a CAS issue ... more of an estimating system issue or even a potential defective pricing issue (in that the contractor may not be able to tie its actual costs back to its cost estimate). I think Vern wants to know contract type because costs may not be relevant if each CLIN is FFP. In that case, you bill the FFP price regardless of costs incurred, so it wouldn't be an issue (except for a potential TINA issue as I noted above). It might be more of an issue if the contract type was "flexibly priced" or if the Government had awarded an undefinitized contract action (UCA). (If it's FFP with progress payments based on costs, that could generate an issue.) So contract type is relevant to the discussion ... and you should of course confirm that the contract in question is subject to CAS. There is quite a bit more to be said on this topic, but hopefully this will suffice. Hope this helps.

Bob posted a link to this article in his blog, but I figure it's too important not to also post here. DCAA says DCMA is soft on contractors and the relationship between both agencies is called "dysfunctional." The suggested course of action? Merge DCMA into DCAA so that the contractors won't get a free pass anymore. No, seriously. http://www.govexec.com/story_page.cfm?arti...mp;oref=rellink

You know, I've been to several "Government Contracting" seminars and classes over the past years, and these posts are absolutely the most clear and direct explanation of contract type vs. delivery type that I've ever experienced. It may seem like Contracting 101, but when such a clear explanation is so rarely put forth, one begins to wonder just how fundamental such an understanding is. Thanks to all because I learned something useful this week. It was helpful.

My reading of the above is that it EXEMPTS from the rules all contractor activities except for those prime contracts where the contractor adds no, or negligable, value (the excessive pass-thru costs contracts). I think it's okay to be cautious but -- dang it -- the carrier needs to get built! Why contractors are afraid of commercial item determinations, or determining that contract actions are exempt from TINA requirements, is beyond me. H2H

Hi Garth, Let me venture into these rough waters with some trepidation. First, I assume you are a contractor and not a Government contracting officer. If I'm wrong, ignore this post. 1. Revisions to the FAR and DFARS are interesting and worthy of note. But for contractors, there is little if any effect unless a solicitation or contract clause has been revised. The FAR and agency supplements provide guidance to acquisition personnel of the executive branch; contractors agree to comply with clauses including in their contracts. 2. Regardless of regulatory changes -- or even clause revisions -- contractors must comply with the version of the clauses in effect at the time their contract(s) are executed (the contract effectivity date and execution date need not be the same, but commonly are the same). 3. As always, unless a specific clause directs otherwise, contractors operate according to their policies and procedures (including when applicable their CASB Disclosure Statements). Periodically, many contractors have their purchasing policies and procedures reviewed by Government officials as part of a Purchasing System Review (CPSR). One can assume that contractor policies and procedures comply with FAR/DFARS requirements but one might also argue that, unless there is a violation of specific statute or contract requirement, the contractor's policies and procedures can be whatever they are, so long as they are disclosed and followed consistently. 4. Consent to subcontract is a requirement of most contracts. So, my position would be that the contractor makes its commercial item determinations in accordance with its policy and procedures. Specific commercial item determinations may be reviewed as part of the consent to subcontract actions. Policies and procedures, as well as a review of a sample of commercial item determinations, are reviewed as part of the CPSR and any findings affect whether the contractor has an adequate purchasing system. Other than that, changes to FAR and DFARS guidance to executive branch acquisition officials would seem to be interesting events viewed somewhat from afar. The foregoing is a combination of experience and regulatory guidance. I can provide some citations if necessary but your post indicates you can already read the regulations. Hope this helps.

Vern, I agree my language was imprecise. I still feel, however, that my questions are valid. It would be nice if we had some continuation.

Joel, I agree that it would be nice if our interlocutor came back to see what feedback the initial question generated. I must say, however, that I can't fully agree with your interpretation of the situation. It's not clear to me when the contractor discovered the faulty government estimate, or when the government knew its estimate was inaccurate. The government could have known anytime between issuance of the RFP and time now, while the contractor could have discovered the problem anytime between price negotiation and time now. The problem is, neither you nor I nor Vern know how "time now" correlates to the contract. Is time now contract year 1, year 5, or sometime in beween? Budgets and EACs get revised frequently; it does not necessarily follow that the contractor would discover the overrun only after it was incurred. Hope this helps.

I'm interested in the timing. When did the Government first learn that it had provided a defective estimate to offerors in its RFP? If it learned of the defective estimate prior to negotiating the target cost and incentive fee values, did it have an obligation under the "good faith and fair dealing" standard to inform the successful offeror at that time? Was the offeror aware that the Government's estimate was subject to some uncertainty but chose to submit a bid anyway, using its known limited knowledge to price as accurately as it could, or could the situation be called a mutual mistake, wherein both parties thought the estimate was accurate, but it turned out not to be? I should think the answers to the above questions would help to frame the proper course of action. Hope this helps.

I must be misinterpreting the payment clauses found in government contracts. Excerpts from relevant contract payment clauses: -- For fixed-price contracts in which performance-based payments (PBPs) are utilized, the PBP contract clause (52.232-32) states that PBPs may be reduced or suspended by the Contracting Officer when "The Contractor is delinquent in payment to any subcontractor or supplier under this contract, in the ordinary course of business." Each PBP request must have an accompanying certification, which includes the statement "[Except as reported in writing on], all payments to subcontractors and suppliers under this contract have been paid, or will be paid, currently, when due in the ordinary course of business." -- For fixed-price contracts in which cost-based progress payments are utilized, the progress-payment clause (52.232-16) states that "The amount of financing and other payments for supplies and services purchased directly for the contract are limited to the amounts that have been paid by cash, check, or other form of payment, or that are determined due and will be paid to subcontractors -- (i) In accordance with the terms and conditions of the subcontract or invoice; and (ii) Ordinarily within 30 days of the submission of the Contractor's payment request to the Government." Moreover, the clause also requires the contractor to exclude from progress payment calculations "Payments made or amounts payable to subcontractors or suppliers, except for -- (i) Completed work, including partial deliveries, to which the Contractor has acquired title; and (ii) Work under cost-reimbursement or time-and-material subcontracts to which the Contractor has acquired title." Similar to PBPs (as noted above), progress payments can be reduced or suspended by the Contracting Officer when "The Contractor is delinquent in payment of the costs of performing this contract in the ordinary course of business." -- For cost-type contracts, the Allowable Cost and Payment clause (52.216-7) states that allowable (and billable) costs can only include "Those recorded costs that, at the time of the request for reimbursement, the Contractor has paid by cash, check, or other form of actual payment for items or services purchased directly for the contract. When the Contractor is not delinquent in paying costs of contract performance in the ordinary course of business [it may include] costs incurred, but not necessarily paid, for -- Supplies and services purchased directly for the contract and associated financing payments to subcontractors, provided payments determined due will be made (i) In accordance with the terms and conditions of the subcontract or invoice; and (ii) Ordinarily within 30 days of the submission of the Contractor's payment request to the Government." -- For T&M contracts, the payment clause (52.232-7) states that "... the Government will reimburse the Contractor for allowable cost of materials provided the Contractor -- (i) Has made payments for materials in accordance with the terms and conditions of the agreement or invoice; and (ii) Ordinarily makes those payments within 30 days of the submission of the Contractor's payment request to the Government and such payment is in accordance with the terms and conditions of the agreement or invoice." I'm not getting how paying subs after receipt of payment from the government is compliant with the clause language above. In jeffh's situation, what he is describing was arguably a false claim for which the DCAA auditor should have made a Form 2000 referral to the DOJ.

Okay, I'm getting off the soapbox now. I will just add a final thought: Your company is "held" to the agreement it strikes with its customers. Your agreement (contract) contains clauses and your company must comply with the requirements of those clauses. I would assert that your company does NOT need to comply with clauses that are excluded by statute and/or regulation from your contract. In particular, the idea that CAS-compliant practices represent "best" or "core" practices that apply to ALL Federal cost-type contracts is an assertion that is not supported, nor is it supportable. In fact, it's demonstrably false. I'm guessing EPA is a customer based on your comment about FMRs. I would advise you to not let them push your company down the road of CAS compliant cost accounting practices before you are required to go there. But I also note that you're not paying me for this advice, so it's probably not worth too much. Hope this helps.

Contractor 2589, Believe me, I'm a big fan of CAS. It provides a good set of "rules of the game" and protects the contractor as much as the government. That said, small businesses are exempt from CAS for a reason. The reason is that CAS is a burdensome set of rules that causes untold headaches between accountants, contract administrators, and management. If you are not required to comply with CAS 410, why volunteer? Seriously, you are handicapping your company when you don't need to. Now, if you are a year away from full CAS-coverage, then of course complying now is the easier course ... but if not, then please erase the thought that "CAS represents solid accounting strategies." No, it doesn't. It represents compromises between lawyers and accountants, driven by DOD politics and interpreted by judges who have never made a journal entry in their lives. CAS is Rickover's revenge on GD and NNS. Now that I've roiled the waters, I will also advise you to look at your G&A pool to make sure that what you are calling G&A is truly the cost of managing the business "as a whole." If not, consider moving the costs out of G&A and into an overhead pool. As a small business, you are not bound by the CAS limits on changes to cost accounting practices either ... but watch out for TINA. Hope this helps.

Just in case you're not quite done -- a couple of points. 1. If you are truly a small business, then you are exempt from CAS. 2. Depending on the size of the award, consider changing your G&A allocation methodology so as not to allocate G&A on a Total Cost Input (TCI) base. CAS 410 permits several allocation methods, including use of a single cost element, such as direct labor dollars, when appropriate. Hope this helps.

JLchief55, The Government frequently uses outside expert witnesses in litigation. I assume the witnesses receive remuneration from appropriated funds--how else would they get paid? But I confess I don't know that for a fact. Joel or Vern may have a more definitive answer for you.

Well, I guess there's no school like the old school. I've met the man and he is quite impressive. With respect to his involvement in A-12 litigation, it appears that, at some point in the past 10 years, his firm's involvement faded away. I see from a Google search, however, that he was involved in the RIM (BlackBerry) patent litigation of a few years ago -- another huge case with millions if not billions riding on the outcome. http://www.msnbc.msn.com/id/10989832 We often tell posters that they should seek the advice of a skilled attorney who has experience and knowledge in government contracting matters. There really aren't that many; it's a fairly exclusive club. Herb is a senior member in good standing of that club, really kind of an elder statesman.

I agree with Vern's comment regarding use of contract type to control cost risk. It's a lesson more people need to learn. I thought I would add this link to Herb Fenster's 1999 article on the subject, originally published in USNI's Proceedings. (The litigation hadn't even hit its first decade when the article was written.) Fenster essentially argues that the US Navy had unclean hands to the point where it fraudulently induced General Dynamics and McDonnell Douglas into bidding on the fixed-price contract. I like the title -- "It Wasn't an Airplane, It Was a Trainwreck". Enjoy. http://www.d-n-i.net/fcs/comments/c235.htm

Vern, you are correct. Credits are neither allowable nor unallowable. I was trying to move NptAcq off the belief that credits are unallowable costs, and in my attempt to communicate with that poster, I erred on the technical side. That said, from the contractor's perspective, unallowable costs and credits both do the same thing on a cost-type contract. They both reduce otherwise billable cost amounts. They both reduce project margins from what they would have been, had the costs been otherwise allowable or had the credits not been allocated to the contract. Example: Cost plus Fixed Fee contract type. Fixed Fee is 10% of estimated costs, contractor is currently within cost/funding limitations. A. Contractor incurs $1,000,000 in total costs, fully allowable, and submits an invoice for $1,100,000 to the Government (total allowable cost plus 10%). B. Contractor incurs $1,000,000 in total costs of which $100,000 is unallowable. Contractor submits an invoice for $990.000 (total allowable cost plus 10%). From the contractor's perspective, reduction in billings is equal to $1,100,000 less $990,000 or $110,000. C. Contractor incurs $1,000,000 in costs but there is a credit allocated to the contract in the amount of $100,000, so total cost is equal to $900,000. Contractor submits an invoice for $990,000 (total allowable cost plus 10%). From the contractor's perspective, reduction in billings is again $110,000.

Why do you say that the cost recoveries are not allowable costs? What FAR cost principle or contract provision makes those recoveries unallowable? Credits, per se, are allowable costs. They act to reduce billings, as do unallowable costs, but they are not the same thing. Hope this helps.