here_2_help

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.

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.

17 minutes ago, Vern Edwards said:

52.216-7, Allowable Cost and Payment (AUG 2018), paragraph (a):

What's the "date of this contract"? The date signed or the effective date? I don't know the answer. Might be good idea to include a stipulation in the contract, eh?

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.

I'm over here wondering whether the contractor's costs, incurred after award date but prior to effective date, are allowable costs? Do they meet the definition of "pre-contract cost" found in FAR 31.205? If not, what are they?

On 6/18/2024 at 10:54 AM, Fara Fasat said:

Just attended a webinar presented by an established government contracts practice, and the subject of an NDC and the DoD memo came up. Here is their take:

A prime can determine whether a sub is an NDC, but the prime must submit this determination to the CO, who then decides whether to accept the determination and allow the prime to treat the NDC's products and services as commercial items.

Re-reading the memo, this sounds right. It's poorly worded, but the concluding paragraph does say that the CO uses his or her discretion about the treatment of NDCs, both at the prime and sub level. So ultimately, it's the CO who decides whether an NDC, either prime or sub, gets treated as a commercial item supplier. I also read this as saying that an NDC determination, and the treatment as a commercial item, are two different decisions. A prime or sub may meet the definition of an NDC, but the CO still has discretion on whether to treat the products or services as commercial.

I don't disagree. Seems like a good, reasonable, interpretation.

On 6/12/2024 at 12:28 PM, Jordan Good said:

Currently, my office is in the middle of creating a follow-on contract. This contract will be a sole source contract. The contractor has the RFP right now and is working on developing their proposal. A question that they had for me was who pays for GFP Maintenance throughout the duration of the contract? I am trying to figure that out and no one in my office seems to know the answer to this question. I wanted to throw this question out here in order to get a discussion going to figure this out. Any advice with this would tremendously be appreciated.

I don't believe the question has been answered. We know who is responsible for seeing maintenance is performed as required, but we haven't addressed who pays for the maintenance. Should the maintenance costs be charged as direct costs of the contract that is accountable for the property? Or should the contractor treat the costs of maintenance as an indirect ("overhead") cost?

The answer depends on the contractor's established practices and what the contract says. Right now, the contractor is preparing its follow-on proposal and wants to know whether to include the costs in its cost volume as direct costs.

If there is no benefit to any other contract, I would accept "charge as direct costs" as a compliant answer.

Hope this helps.

17 hours ago, DawnS said:

Two suppliers were sent a competitive solicitation for an FFP Best Value criteria award. One was the best value winner. Program is asking to split the award at 75% to best value winner and 25% to the other supplier to add depth to the supplier pool.

Maybe I'm cynical, or maybe I'm just experienced. Either way, before doing anything I would thoroughly explore the ownership of the "losing" firm to see if there are any ties to the program personnel requesting the split.

2 hours ago, Vern Edwards said:

So, what are you reading?

https://en.wikipedia.org/wiki/1177_B.C.:_The_Year_Civilization_Collapsed

Nothing to do with professional growth; simply intellectual curiosity.

5 hours ago, mgovcon said:

To help provide more context, this company is a start-up and were awarded an IDIQ 8(a) contract for engineering services.  It contains term options for 4 years.   The wording in the IDIQ contract states "This CLIN includes the combined Rate for G&A, Overhead, and Profit for a total of 36%".  The wording in the IDIQ is quite vague.   

I am also confused on what the combined rate means in the contract.  It seems weird that it would be combined, because those different components involve different allocation pools and bases...  Interally, we are accounting for indirect costs with different allocation bases.  The G&A and the profit would apply to the subcontractor according to our current methodology.

For the OY1 last year, they asked for a "staffing plan" to determine the firm fixed price amount that we would be invoicing from.  Is that not normal for a FFP contract with option years? They told us how many staff they thought were needed for the year.

I am going to speak with a govcon consultant next week, as it is apparent I was dropped into this contract without a lot of experience in govcon.   

I think you really need to get with your consultant. Something is not right here.

I am reminded of a contractor I worked with about 20 years ago. The contractor had never had a real US Government prime contract before; all it had was a GSA schedule. One day, they woke up with a $500 Million CPFF contract from a civilian agency.

Along the way, they were asked to propose a G&A rate. They asked the CO what a reasonable rate would be, and received an answer that 15% would be a reasonable amount. So that's what the contractor proposed in its priced offer. It was accepted.

"What is your actual G&A rate?" I asked the contractor's CFO.

"What's a G&A rate?" was the response.

Good times.

Do you have a separate contract for each year of performance? A separately priced Option? Why do you need to make an annual "schedule" for an FFP prime contract, if what you are submitting is only a staffing plan? I'm really not clear on what you and your customer have agreed to.

Second, the contract should not "state" a combined rate, except perhaps for estimating and/or billing purposes. Your company's actual indirect cost rates are not subject to government customer approval.

With respect to your original question, you haven't disclosed the indirect cost rate allocation base used by your combined indirect cost rate. Does your company, in fact, have separate rates for actual costing purposes? If so, what rates apply to subcontractors? Those are the rates that you should burden your subcontractors with when proposing your annual staffing plans.

Given the lack of clarity in your posts, my best advice is to hire a government contract accounting consultant--of which there are many to choose from. Let them help you.

14 hours ago, Jamaal Valentine said:

Is hiring a specialist and charging the customer more an option? 

Mic drop.

1 hour ago, joel hoffman said:

If the government will suffer damages for late delivery - which is your apparent concern, you could alternatively study FAR subpart 11.5 and consider liquidated damages for a commercial item or supply contract.

One has to be careful in how they implement such an approach.

For a positive incentive, do you want to pay more (is there any benefit) for early performance?

If so, then a delivery performance incentive (16.402-3) (plus and minus) could be the answer.

Do you want to pay a performance bonus for on-time performance?

Joel, I thought about liquidated damages when I saw this question. All I can say is that when my company saw a liquidated damages clause in a proposed contract, we always proposed an incentive clause as well. Our thinking was that the door needed to swing both ways.

Also, it is okay to structure a contract to pay a bonus (other than award fee) for completing the work on-time? Isn't that the parties' expectation?

Early delivery bonus/incentive? Yes, I can see that. But on-time? I don't see what the government gains for incentivizing a contractor to comply with the delivery terms of the contract.