here_2_help

Scenario Unit Cost Fee Fee on unit $ 100.00 15% $ 15.00 $ 90.00 15% $ 13.50 $ 1.50 Credit Savings $ 10.00 75% $ 7.50 Raytheon Share Net $ 6.00 Hi Query, I hesitate to respond because VECP is not my area of particular expertise. So keep that in mind, okay? That being said, I would want to understand (1) the basis on which the original 15% fixed unit "fee" per unit was negotiated and put on contract. Is there a Fixed Price per Unit (fee included)? Is the costing truly per unit or (perhaps) per lot or production run? (2) How did you allow the contractor to participate in the VECP savings? I see that you are saving 10 percent cost per unit. What does the contractor see? Does it see a piece of the 10 percent? What I'm driving at in the above is you use the term "fee" which does not normally apply to vanilla Fixed-price contracts and implies a certain negotiability. If the profit rate was built into the contract price then I can certainly see the contractor balking at giving you a refund on prices already paid for units delivered ... unless you've incentivized said contractor elsewhere. (This is a good example lesson regarding negotiating price deltas at the price level not the cost level ...) I would also ask how come it took so long to negotiate the savings to the taxpayer, but I'm afraid I can already guess the answer to that one. I hope this helps but, as I said, not really my area. Best wishes!

Hi govtacct02, Let me recap my understanding. You are contracting with a sister division -- you are incurring an inter-organizational transfer cost -- never mind the contract type. Because you must comply with 52.216-7 (Allowable Cost and Payment) you must follow the Part 31 Cost Principles. One of the Cost Principles (31.205-26(e)) requires that inter-organizational transfers must be made on the basis of actual allowable costs, unless the transaction qualifies for an exception. This transaction does not qualify. You want to know if the sister (performing) division must adjust the costs it is transferring to the buying (responsible) division, to reflect actual, allowable direct and indirect costs calculated in accordance with Part 31 Cost Principles? You want to know if the performing division must do this even though it doesn't do flexibly priced billings, never calculates allowable costs, and never submits a final indirect cost rate proposal for Government audit? Yes. It must do so. You also want to know what costs should be included in the responsible division's indirect cost allocation base(s)? Should the reponsible division include the original billings or the final, adjusted billings? That is a more complex question. First, what does the Disclosure Statement say? Do inter-organizational costs received get a full, reduced, or zero share of indirect costs? What about inter-organizational costs transferred out from the performing division--do such costs get fully burdened or no? The cost accounting practices you choose, and disclose, will impact the answer to your question. The more burdens that get applied, the more adjustments will need to be made. Second, there is a timing issue involved. The responsible division might not know the performing division's actual, allowable costs for up to six months after the books close for the year. You need to think through what costs qualify for this year's rate calculations (e.g., what is the definition of current period "cost input" for compliance with CAS 410). You could put yourself into a CAS 410 or even 406 noncompliance if you're not careful. Once you have a policy position, make sure it is consistently followed. Finally, the FFP billings can't be the right answer. As indicated above, there is a spectrum of "right" answers, but that one ain't among 'em. The FFP billings are a budgetary answer, not an actual cost answer. Hope this helps.