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here_2_help

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  1. I would review the proposed subcontract language de novo, without regard to whether the clause is in the prime or if it is a mandatory flowdown. Identify the clauses that drive risk or other concerns. Then look those clauses up in the FAR Smart Matrix to see when they would be required to be in a prime contract. Review the clause language to see if a flowdown is required.

    Then negotiate.

  2. Quote

    For Track 1, the Solicitation stated: “CBP has a requirement for consulting and providing technical support to advise and assist the Government as the Subject Matter Expert (SME) for strategic planning, risk assessment and mitigation, cost analysis, data management and analysis strategies, and senior program management.” The Solicitation also noted “CBP requires vendor support to recommend enhancing and supporting CBP’s emerging technology, data management, reporting and analytical capabilities.” For Track 2, the Solicitation stated: “CBP requires a wide range of services and business disciplines supporting innovation and digital transformation. CBP’s overarching objective is to sustainably improve the total experience and to achieve business agility by integrating people, processes, data, and technology.” When asked at oral argument to provide more concrete detail regarding the Solicitation, the government responded the broad purpose of the contract is to support CBP’s data-related endeavors, including processing customs information, scanning license plates, patrolling the border, and developing language interpretation tools. (“[GOVERNMENT]: So CBP has a whole broad host of responsibilities that generate[] a ton of data, and they are trying to leverage AI and machine learning to better perform their duties.”), (“[GOVERNMENT]: They do license plate scanning. They patrol the borders, . . . [and] when they stop somebody from crossing the border, . . . [they] collect information. . . . [They also collect] information about Customs duties [such as from] cargo ships coming in with lots of both legal goods and illegal goods, and then the legal goods may or may not be properly admitted into the United States because of patent disputes and things like that, or they have to be subject to certain tariffs. . . . [They also frequently have to work] with a person who doesn’t speak the language that the officer speaks at the border.”). CBP intends to incorporate novel applications of AI into these tasks. (“[GOVERNMENT:] [T]his is the type of work that the agency is looking to procure in the future as emerging technology, so novel applications of AI.”). CBP’s team of technical experts reviewed all quotes with this broad purpose in mind, given the highly technical nature of the contract.

    (Emphasis added; internal citations omitted.)

    Based on the above, I'm hard-pressed to imagine how one might evaluate offerors. I guess based on general AI expertise? It seems to me that CBP is looking to hire a guide or two to lead it down the path of implementing AI. Track 1 will augment existing agency resources to manage the contractor(s) who execute Track 2, I guess.

    But the nature of the awards means that work will be handled on an individual order basis. The Track 1 contractors will have difficulty establishing long-term partnerships with the CBP staff because of the nature of how the work is managed. The Track 2 contractors will have difficulty seeing the bigger picture because of the nature of how the work is awarded.

    Conclusion: The agency would have been better off awarding one long term Track 1 contract on a CPFF basis and one or more Track 2 contracts to selected AI experts with a proven track record of deploying AI. The Track 2 contracts should have specific requirements in mind. You could even go CPIF with the incentive fee tied to quantitative or qualitative performance enhancement in Track 2. BPAs with pools of contractors and individual orders was not the way to go, in my view.

  3. It is not mandatory to have a Forward Pricing Rate Agreement (FPRA). Oftentimes they are more trouble than they are worth.

    The contractor should propose its best estimate of future indirect rates to be incurred during contract performance and be prepared to support its estimate during a proposal fact-finding or audit just like any other estimate. That said, normally DCAA likes to see detailed budgets for the upcoming year with outyear adjustments based on known events/trends, such as award of large contracts.

    If you read 52.217-6, it is clear that the provisional billing rates should be the contractor's expected actual rates, and that the billing rates should be adjusted as necessary (either prospectively or retroactively) to prevent any significant under or over billings.

    In my experience, a NICRA covers audited, negotiated rates. It is the document that establishes final billing rates, not provisional or interim billing rates. To be clear, I'm not saying that a NICRA cannot be used to establish provisional billing rates; I just haven't experienced that scenario.

    There is another set of rates, which is what the contractor uses to establish contract costs during performance, prior to receiving audited/negotiated final rates. Those rates may be linked to an FPRA or a NICRA, or they can be the contractor's best estimate of actual indirect cost rates to be incurred during the current year. Note that these rates are not subject to government approval, but they are critical because they help establish contract Estimates at Completion and thus drive tracking of costs incurred against funds provided.

    So ... there can be overlap between actual rates, billing rates, and forward pricing rates--especially for the current or upcoming year. A contractor with cost-type contracts should understand where the sets of rates overlap and where they differ. That contractor should be monitoring variances and proposing adjustments to provisional billing rates as required by 52.216-7. That contractor should be updating its (internal) forward pricing rates based on what it sees in the future, especially if those same rates are also used to estimate fixed-priced contracts.

    Frankly--and without meaning to condescend--understanding the interaction of indirect rates between actual, provisional, final, and forward pricing is fundamental to managing cost-type work, regardless of whether you are on the contractor or government side. I'm frequently surprised how many people--especially those in contracts--don't understand the interplay. I strongly recommend a thorough read of 52.216-7 for any individual who wants to better understand billing rates. For forward pricing rates, see Table 15-2.

  4. I also own an S-Corp. I don't need any Form 1099's. They are not required for an S-Corp.

    If you do your bookkeeping, it is not hard to figure out your corporate income. For me, it is basically all funds I deposit into my business checking account. I have a spreadsheet that I update about every 60 days that helps me to track income and expenses. I don't even use accounting software.

    In summary, your clients aren't required to provide you with a 1099, nor should you need one to accurately report income and file tax returns.

  5. My first question is: have the parties reached price agreement? If so, how was the R&R cost treated in the agreed-upon price? 

    If no agreement then I would then ask what the contractor's normal practices are for the cost. I assume the contractor will follow its policies consistently.

    If this is the first time occurrence and precedent is being established, then my opinion is that leave costs are leave costs and should be treated as the contractor's other leave costs are treated, which I assume would be indirect. (But not always.)

    You could argue that the R&R costs are distinguishable from other "normal" leave costs because of the circumstances. In normal TDY travel, the employee returns home, but not in this case.

    So, it depends. There is no bright line answer here that I can think of.

  6. 3 hours ago, joel hoffman said:

    So, is it reasonable for the taxpayers to pay extra costs for contractor employee “perks”?

    Joel, with respect, I think you miss the thrust of the conversation. When the government enters the commercial marketplace to acquire commercial goods and services, it should be prepared to accept costs that are customary in relation to what is being acquired. That is why I worded my response the way I did. If the contractor's policies permit business class travel and business class travel is provided to all employees in similar circumstances--regardless of customer and/or contract type--then it is, almost by definition, reasonable. 

    Quote

    31.201-3 Determining reasonableness.

    (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer’s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

    (b) What is reasonable depends upon a variety of considerations and circumstances, including-

    (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance;

    (2) Generally accepted sound business practices, arm’s-length bargaining, and Federal and State laws and regulations;

    (3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and

    (4) Any significant deviations from the contractor’s established practices.

     

  7. I have unfortunate experience with these types of contracts. From what I've seen, they are proposed, priced, budgeted, managed, billed, and paid as if they are T&M contracts. But then the auditors come in and it turns out they are cost-type contracts. Painful.

    In this case, the parties seemed to have reached early agreement that the original labor rates would be used to price future Task Orders, and to establish the basis for the fixed fee in each new TO. Now the contractor is pointing out that the original labor rates are too low. The contractor wants to update the labor rates for more accurate pricing.

    The contractor's position makes some sense to me, notwithstanding the prior agreement. Use of labor rates--rates that both parties know are too low--to price future work seems incorrect. The program is obligating insufficient funds and it knows that. Not good, in my view. At a minimum, additional contract mods will be required to bring the funding up to where it needs to be once performance starts.

    With respect to the fixed fee, is there some reason that value can't be negotiated? From the government's point of view, the pre-negotiation objective would be based on the original labor rates. From the contractor's perspective, the fixed fee would be based on more current rates. This distance between the positions, it seems, could be negotiated.

     

  8. I'll add a word or two in support of Don's position. You have a project ETC and EAC now with the part(s) being purchased. The customer wants to provide the part(s) as CFM. Great. Now redo the ETC and EAC (excluding profit), assuming no purchase of the part(s). What's the difference? Don't forget to look at ripple effects that may offset the cost decrease. One I can think of is the labor cost associated with handling the CFP and preventing it from being commingled with other parts.

  9. My read of the OP is that the contract has not yet been awarded and the parties are negotiating price. If I'm correct, then I believe the contractor has a valid reason for trying to obtain a higher profit that the government initially established in the pre-negotiation objective. The tax costs are unallowable and the contract is going to pay them on behalf of its employees (similar to a relocation tax gross-up). The unallowable costs will come out of expected profit. Seems reasonable to me.

    Alternate approach: the contractor rotates staff to avoid paying taxes, which will require a larger staff from which to draw on. Further, the transitions between employees may cause inefficiencies. Suboptimal. So: pay the higher profit rate.

  10. 1 hour ago, CFO said:

    I've read the rfp.  it is not a FFP LOE, it is not a FFP economic price adjustment.  It states it is a FFP period.  It has a clause for an adjustment annually for SCA wages and benefits.  It has a clawback exercised on an annual basis for labor hours less than planned by x% by LCAT type.  The contract from this administration does not reference any FARs in the contract.  

    CFO,

    The FAR only applies if there is a contract term in your contract (or RFP) that invokes it. Are you asking whether the government is permitted by the FAR to reduce the contract price based on a contractor's failure to deliver (for whatever reason) the contractually required labor hours? 

  11. 18 minutes ago, On to Consulting said:

    Do you by any chance have any example of a contract term that would govern what happens when the rates are trued-up? By that I mean, an example that would potentially impact across contracts, i.e. the true up of G&A on one contract impacts the G&A billed to another? I don't see how the impact of truing up rates on one contract could potentially lead to how the true up of another contract would be handled.

    No. The rates must be trued-up for all contracts but whether the customer sees the impact of the true-up depends on the individual contract terms

  12. Let me see if I understand.

    The government provided the contractor with equipment or some other item of government-furnished property (GFP). The GFP is currently in used but serviceable condition.

    The contractor would like the government to abandon the GFP "in place" so that the contractor can then take title, then use the (now former) GFP for a trade-in credit to reduce the cost of acquiring new equipment, which it would then own.

    Is that right?

    If so, your question "should the government allow this?" is hard to answer without knowing the circumstances. For example, can the current contract or future contracts be performed without the need for new equipment? Are there cost savings associated with using new (versus used) equipment, and will the government see those cost savings (if any) reflected in current and/or future contract prices? 

    I would also like to know why the government felt the need to provide the original items of GFP to the contractor. Was the contractor unable to perform without the GFP? What happens if the GFP is taken away by the government? What does the contractor do then?

    Also, is the GFP capable of being used on any other contract or just on this contract (or series of contracts) for just this one particular government customer? In other words, if the government gives the contractor title, does that lead to the contractor using the GFP on commercial contracts?

    Lots of questions over here, with no way to give you a good answer until some clarity is provided.

  13. From what I gather, there are two processes in play here: (1) annual "true-up" between budgeted (or "target") and actual G&A rate to clear any over/under variance (which may be carried on the balance sheet); and (2) whether the impact of the true-up (either debit or credit) can or should be passed on to a customer.

    With respect to (1), if the contractor has any contract that includes 52.216-7 or any CAS-covered contract, then this process must be executed at least annually.

    With respect to (2), contract terms and conditions will govern whether any resulting impacts from the true-up process may (or must be) passed on to the customer.

  14. The ability to negotiate such a payment clause out of a subcontract depends on several factors. One important factor is prime contract type. If the prime contract contains 52.216-7, then the prime's ability to enforce a "pay when paid" clause may run afoul of--

    Quote

    (b) Reimbursing costs. 

    (1) For the purpose of reimbursing allowable costs (except as provided in paragraph (b)(2) of this clause, with respect to pension, deferred profit sharing, and employee stock ownership plan contributions), the term "costs" includes only—

    (i) 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;

    (ii) When the Contractor is not delinquent in paying costs of contract performance in the ordinary course of business, costs incurred, but not necessarily paid, for-

    (A) Supplies and services purchased directly for the contract and associated financing payments to subcontractors, provided payments determined due will be made–

    (1) In accordance with the terms and conditions of a subcontract or invoice; and

    (2) Ordinarily within 30 days of the submission of the Contractor’s payment request to the Government;

    (B) Materials issued from the Contractor’s inventory and placed in the production process for use on the contract;

    (C) Direct labor;

    (D) Direct travel;

    (E) Other direct in-house costs; and

    (F) Properly allocable and allowable indirect costs, as shown in the records maintained by the Contractor for purposes of obtaining reimbursement under Government contracts; and

    (iii) The amount of financing payments that have been paid by cash, check, or other forms of payment to subcontractors.

    In other words, the clause requires the prime contractor to pay its suppliers within 30 days after submitting its invoice to the Government.

  15. Thought I would post to let people know that the original author of the LinkedIn post has now resigned from the NCMA Board of Advisors. As I posted earlier, I know the guy. I think it's a shame that NCMA lost a resource because some people didn't like either the message or the delivery.

  16. 4 hours ago, Jamaal Valentine said:

    I know the Congressionally mandated Section 809 panel had some commentary on the budget process.

    I have personal relationships with several people who served on the Section 809 Panel. The Panel did some good work and some changes were made as the result of the Panel's reports. That said, there were not enough changes. No substantive changes resulted. A lot of work by some very smart people for ... not very much, in my view.

    The truth is that when you touch the budget process you are also touching the political process. You are in essence asking the same people who use the current process to their advantage to also spearhead reforms that might tend to reduce the influence they currently have. Not something many individuals will be eager to champion.

    Again, all my opinion.

  17. On 8/4/2023 at 11:23 AM, REA'n Maker said:

     I can run circles around 99% of my colleagues with my contract cost analysis skills, but I have no clue whether (for example) state and local contracts can be included in a federal contract indirect cost base.  (I actually wouldn't be averse to learning how to do corporate-level rate determinations, but I would also need relief from about 95% of my contracting workload). 

     That 3 hours of FAR Part 31 'training' I received as part of my FAC-C Level III cert doesn't really qualify me for this kind of thing.  As Dirty Harry used to say, "A man's gotta' know his limitations".

     

    Sorry for being late to this party: I just wanted to address the above question.

    The answer is provided (in detail) in CAS, not the FAR. See CAS 418. However, there is also a higher-level answer in FAR Part 31, at 31.203-3 ("Indirect Costs").

    Quote

    (d) Once an appropriate base for allocating indirect costs has been accepted, the contractor shall not fragment the base by removing individual elements. All items properly includable in an indirect cost base shall bear a pro rata share of indirect costs irrespective of their acceptance as Government contract costs. For example, when a cost input base is used for the allocation of G&A costs, the contractor shall include in the base all items that would properly be part of the cost input base, whether allowable or unallowable, and these items shall bear their pro rata share of G&A costs.

    So, yes. The contractors' indirect cost pool allocation bases should--and must--contain all contracts being performed, if those contracts receive benefit from the activities in the pool.

    Being provided three hours to learn FAR Part 31 is like me being provided three hours to learn FAR Part 15.

     

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