here_2_help

Did anybody read the recent DoD IG report on DCMA contracting officers' failure to follow procedure (DCMA Instruction) when they negotiated final billing rates with two of the largest DoD contractors? I did. Based on that report and DCMA's agreement with the findings/recommendations, I don't think DCMA contracting officers need much if any training in contracting matters. What they need is training in DCMA's very prescriptive Instructions, which tells them to go to Legal anytime there may be a question that touches on an interpretation of a judicial decision. Who needs training? Just do what Legal says and all will be fine. If you fail to consult with Legal and try to use any kind of professional judgment on your own, you will be soundly criticized by both the IG and your leadership. That's what I took away from the report, anyway.

My first thought was "no." When your company executed the Release of Claims, that's exactly what you did. You released the other party from any obligations to pay you in excess of what had been previously paid. In that line of thinking, the loss of ~ $3,500 is the price the company paid for an inadequate billing process. Sure you lost $3,500 but you saved so much more by not hiring trained staff and investing in reconciliation processes! So that's where I was. But then I thought, "the prime has [implicitly] rejected the prior Release of Claims and asked for a revision. What would keep the subcontractor from revising it even more than the prime had intended by adding $3,500 or so and also sending a new invoice along with it?" I can't think of anything that would prevent the revision except customer relationships. Or your company could eat the $3,500 and call it even.

As a contractor I have never liked overlapping PoPs because it makes figuring out where the costs get charged a bit of a challenge. But it's not just overlapping PoPs, it's FY-funded CLINs and related PoPs. Example: A contract for repair services. Services consist of inspect, repair/replace determination, obtain government approval, take the appropriate action IAW the determination. CLIN 001 is for 10/01/2010 through 09/30/2011. Funded with GFY 2010 current year funds. CLIN 002 is for 10/01/2011 through 09/30/2012. Funded with GFY 2011 current year funds. Government requests repair services for a widget on 08/30/2011. Contractor inspects and makes the R/R determination. Submits to government 9/26/2011, government agrees on appropriate action effective 11/02/2011. Contractor performs action IAW agreed-upon determination during the period 11/05/2011 through 03/15/2012. Subcontractor billings for their actions come in from 01/15/2011 through 06/30/2012. What gets charged where? The tendency is to charge where the funding is, but somehow I don't think that's the correct answer. What's the right answer? Does everything get charged to CLIN 001 because that's where the obligation was created? And then CLIN 002 is only for the costs of widgets received within the CLIN 002 PoP? Or do we charge the costs based on the date the costs were recorded, thus splitting the activity of repairing a single widget between the two CLINs? Even harder when the CLINs have overlapping PoPs. By "harder" I mean virtually impossible to get right unless there is a separate agreement between government and contractor regarding what gets charged where.

Vern, I recall you and I discussing this very point over a bottle of pinot one evening in Portland. I'll repeat now what I said then, which is: The False Statements Act compels contractors to answer questions forthrightly and honestly. We will certainly do that. However, nothing compels contractors to tell contracting officers, contract auditors, or analysts what questions to ask. And we will certainly not help you figure out what you need to know or how to get there. That's on you government folks. And I'll add that if you ask an ambiguous question, we will feel free to interpret your question in a manner most advantageous to us. The honest response will be based on our interpretation.

I would recommend that CHILINVLN consider reading this recent decision at the Federal Circuit. It involves a failure to provide GFP (rather than a delay in providing GFP) but it discusses the CO's role. Hope this helps.

Twenty years ago, I really thought the Courts had recognized that the FAR did not prescribe the universe of possible transactions between those acquiring goods/services and those providing them. Unfortunately my optimism was short-lived, as the Federal Circuit reversed. It would have been interesting to see how the rule-makers dealt with the situation, had the ASBCA decision been affirmed.

Or, perhaps, the contract could be awarded as a cost-reimbursement type, in which case labor costs, as well as indirect burden costs, would automatically true-up.

The only way this works is if the "employee" is an independent contractor (1099-type) and is hired to perform disparate functions/activities on the different cost objectives you list. Otherwise, I would suspect there is going to be an auditor concern with the integrity of the contractor's compensation system. If the employee is salaried and any of the contracts are cost-type, then it would be an auditor concern on steroids. A better way--and a more common way--is to pay the employee $XX/hour on all hours recorded to all cost objects and then establish a bonus plan that pays $XXX based on an objective and measurable set of criteria, so as to get the employee to the desired $100,000/year in compensation. I must say, you seem to run into the shadiest of contractors. Must be stressful trying to keep them on the straight & narrow. I hope it pays well.

My point was (as I suspect you know) that the contract type is not as relevant to the application of the cost principles as whether cost analysis is performed. The cost principles apply whenever the government performs cost analysis on the contractor's proposal. Your second sentence is true but not germane because that was not the point you were making in your previous post.

Did the OP state whether the contract was subject to cost analysis? If so, I must have missed that. Perhaps it was competed and price reasonableness was determined in relation to other offerors' prices.

31.205-7 discusses contingencies. Does FAR Part 31 apply to this solicitation and award? We don't know. But if it does, then contingencies ... (Emphasis added.) Thus, if the contractor can support its "padding" through reference to historical costs or to known/foreseeable risks (the effects of which can be quantified), then the "padding" is perfectly fine. Otherwise, not so much.

As most here know, I work at a contractor, not in the government. My interaction with contracting officers, contracting specialists, cost monitors, and government contract auditors is from the receiving end; I may be biased. I see a lot of hard-working people struggling to do the right thing within a broken acquisition system. There are multiple levels of review, and it seems the higher up one goes, the less knowledgeable the reviewer is. Why even have reviews/approvals if the people don't know what they are reviewing? Anyway ... I also see experienced, trained, people who don't know what they are doing. They've been to training; they have their DAWIA Level x Certification. They have years of experience. Yet they do not know what they are doing. They do not understand the clauses in their contract. They do not understand how to write an unambiguous SOW. They don't understand the basics of cost-reimbursement contracting. That tells me that the training system is as broken as the acquisition system is. Vern posted above that everybody should take responsibility for their own training and development. I think that's absolutely correct, not only within Federal acquisition, but also pretty much anywhere. Go to the office and grab a book from the bookshelf and then read it. One chapter a night. Or even one chapter a week. Just read it. Think about what you don't know, or what you want to know more about, and then follow your curiosity. My 30-year career in this business started because I was an bean-counter who wanted to learn how government contracts worked. That led to night school, one class at at time. That led to external training seminars, which led me to the books from which the instructors were teaching. One of my personal disappointments is that I have three bookshelves in my office filled with reference books, and nobody ever asks to borrow one. Ever. And I have a staff of 20. Do they think those books are just there for decoration? NO. I have read most of them. And they could (and should) do so as well. *Sigh*

In my experience the most efficient solution is to have the contractor fix it rather than argue with DFAS (or whomever) regarding the accuracy of the reconciliation to the point where they will admit that a mistake was made.

Gotta tell you this happens a lot. Good contractors perform periodic reconciliations to MOCAS or whatever contract payment system is being used. This issue should have been caught by the contractor, but perhaps they were waiting until the final contract closeout reconciliation -- which is not a good business practice. In fact, it may be an indication that the auditors should pay the contractor a visit and evaluate billing controls and related practices. Good KOs perform similar reconciliations as well (good on you Freyr). Another approach you may want to consider is to partner with the contractor and request submission of an adjustment invoice, where the contractor credits the amount of overpayment received and "reinvoices" against the proper CLIN/LOA. The net effect is a zero value invoice but it gets the payments correct in the system. Hope this helps.

Thank you all for the confirmation.

My impression is that facilities contracts are no longer a separate contract type. (I'm using the phrase "contract type" in the sense of what the government is acquiring: supplies, services, construction, R&D.) I base this impression on the elimination of FAR 31.106 from the FAR. However, that's just one data point and thus I am looking for some confirmation that facilities contracts, as a separate type of contract no longer exists in the regulations. Does anybody still deal with facilities contracts? If so, what part of the FAR is guiding you?

There should be no conflicts because 52.216-7 addresses the cost allowability and true-up requirements associated with any indirect cost rates applied to materials ("M") whereas 52.232-7 covers all the other payment areas.

A contractor is not required to use DCAA's "ICE" Model to submit its annual proposal to establish final billing rates (as required by 52.216-7). It may use its own spreadsheet if that makes sense, so long as the spreadsheet is similar to what DCAA is looking for and contains the required Schedules. That said, DCAA has a new "contractor submission portal" these days. I haven't used it and I don't know how it will handle contractor-unique submissions. Yes, a GAGAS-compliant audit by an independent qualified CPA, as documented via SF 1408, would be sufficient to determine for the contractor's interests whether it has gaps to be remediated. It's difficult to conclude that a CO would accept that as evidence that the contractor has an adequate accounting system (though a prime buyer might do so). Normally, a contractor submits a proposal to USG and the CO asks DCAA to perform an accounting system pre-award survey--and then relies on DCAA's audit report as evidence that the system is adequate. Also, I would assert that 52.216-7 is always required when a flexibly priced contract type is being awarded, whether prime or subK. If the clause is missing, how do the parties "true-up" rates from bid rates to actual billing rates? The submission of an "incurred cost" (final biling rate) proposal is a critical requirement in that area--so much so that one bid protest decision at the Court of Federal Claims held that the submission of an adequate final billing rate proposal was sufficient evidence to show that the contractor had an adequate accounting system. (See Footnote 14 of that decision.) That decision is relevant to that discussion, because it discussed how a CO could find that a contractor's accounting system to be adequate without an audit report from a federal agency contract auditor.

I'm more than a bit hesitant to weigh-in here, mostly because Vern doesn't need any white knights to come to his rescue. That said .... Contractors buy laptops all the time. Prices for new laptops range from $500 up to maybe $3,000 for top-end computers. I don't know how much the government is paying for its bulk purchases of laptops from Dell or whomever, but I would be shocked if the price for a new laptop were outside that corridor. No contractor I know, small business or not, would hesitate a moment to write a check to cover the loss of a government-provided laptop. Most contractors I know would be terrified that they were going to be called negligent for the employee's loss of the laptop (See the link I posted on February 3rd. Do you have any idea how much that lost laptop cost the contractor? Hint: Double-digit millions; possibly triple digits. Not to mention the $4.9 billion class-action suits (plural) filed against both TRICARE and the contractor. Not the same situation, I know. But still: a single lost laptop.) Vern is correct. Tell the contractor how much to write the check for, tell them the expense associated with the payment is unallowable as either a direct or indirect cost, and close the file. The contractor will be grateful. If the contractor pushes back at all (which I would find difficult to believe), then send the contractor's representative that link to the story of the lost laptop. That should end the discussion quickly.

Let's talk about The CARES Act: As a contractor concerned about things such as (but not limited to) the Truthful Cost or Pricing Data Act or the Cost Accounting Standards, I really do appreciate those five words.

I didn't say that. I said: Because these entities have received a cost-type subcontract, somebody had to conclude that the entities' cost accounting systems were adequate for cost-reimbursement contracting. (See FAR 16.301-3(a)(3).) A cost-type subcontract should not have been awarded until that evaluation/determination had been made. Yes, the SF 1408 documents the results of the evaluation. If an independent CPA (or better yet, a USG contract auditor) performed the evaluation, that would be sufficient. What if the "audit" were not performed with USG contract compliance in mind? Then how would it be applicable? I would be very hesitant about relying on one audit with its own objective/scope to support another type of audit concern. Apples & oranges, in my view. The sub's rates will never, ever, be "airtight." The SF 1408 documents an evaluation that the entity's written procedures and established practices should reasonably be expected to result in compliant accounting; however, the realty is the reality. People make mistakes. Management engages in "strategery" that ends up with a newspaper headline or two. That's why audits are performed. At the larger contractors, multiple audits are performed continuously. As I posted before, each contractor elects its indirect cost allocation structure. There is no "one size fits all" approach. See FAR 31.203(c): (Emphasis added.) Hope this helps

If your clients have received CPFF subcontracts and/or task orders, somewhere along the line somebody had to determine their accounting system was adequate. Hopefully that was DCAA or another contract audit agency or (less good) an independent CPA. Anyway, in order to have an adequate accounting system, somebody had to conclude that the entity was (among other things) adequately identifying and segregating unallowable costs, and allocating indirect costs on a logical and consistent basis. With that as context: 1. The auditor is free to look at whatever they wish to examine. Normally I would expect them to focus on unallowable costs but they may look at the pools/bases associated with indirect rates. Since the entity is not subject to CAS, the auditor will use FAR 31.201-4 and 31.203 as the "standards" that establish what the contractor may/may not do in that area. (However, note that several of the CAS are incorporated into FAR Part 31 cost principles as a condition of cost allowability.) Critically, these are not the only areas of audit risk. For example, DCAA has a list of dozens of audit programs. Even excluding the audits related to CAS compliance, DCAA can execute any of those audit programs that it wishes to. Also, don't forget the Mandatory Annual Audit Requirements that DCAA is required to perform annually at many contractors. Finally, don't overlook the fact that other contract clauses beside 52.215-2 give USG auditors access to the contractor's plants and records. For example, see FAR Table 15-2, Note 2. 2. Each contractor elects its indirect cost allocation structure. None of the items you mentioned is necessarily a major audit finding. Specifically, OH may be allocated to direct consultant labor when the entity's indirect costs benefit the consultant -- e.g., the consultant uses an office within the contractor's facilities. It is unusual, to be sure, but it's not necessarily a major audit finding. (BTW, if you meant temporary agency labor not consultants, then DCAA audit guidance expressly recognizes that OH may be allocated to that labor.) B&P in OH versus G&A may be a finding (since 31.205-18 makes compliance with CAS 420 a condition of cost allowability); but if the contractor can show that its (sub)contract costs are not significantly impacted by including B&P on OH versus G&A, they could wiggle out of it. If there is a material impact to (sub)contract costs from the issue, then yes, the entity may have to credit contract costs -- not because there is a CAS noncompliance, but because the B&P costs would be unallowable and therefore the rates would have to be recalculated. Finally, you say the entity doesn't have a Negotiated Indirect Cost Rate Agreement (NICRA). If it has a CPFF subcontract/task order, then it has 52.216-7 in its (sub)contracts. That clause requires submission of the "ICE Model" for government audit and eventual negotiation of indirect cost rates. If the contractor has complied with the requirements of 52.216-7 then it will soon have a NICRA. If it has not complied, then that's another (different) problem. Hope this helps.

Wow. It's tough to follow Vern's tour de force response with my small add, but here goes: Frequently auditors will opine in their report to a contracting officer on whether or not the cost or pricing data submitted by the contractor is "adequate to negotiate a fair and reasonable price." I wonder if something akin to that phraseology might suit Neurotic?

https://www.reuters.com/article/us-data-breach-texas/records-of-4-9-mln-stolen-from-car-in-texas-data-breach-idUSTRE78S5JG20110929

Thank you Vern and it's great to have you back. Deloitte was, apparently, smarter than its government customers: "Deloitte is the only contractor that can meet the project requirements, because configuration of the VAMS application is occurring using Deloitte's propriety GovConnect platform. Therefore, no other contractor has rights or access to leverage the system to carry out O&M activities, such as the administration of the system, change and defect management and end user support."