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SpendLogic has received an award from DARPA to research the government's calculation and application of profit objectives, as they relate to R&D contracts. Currently, this is accomplished using the Weighted Guidelines. In industry, the Weighted Guidelines is generally regarded as a game - a subjective set of rules that have little or no bearing on reality. Similarly, in a conversation with one Contract Specialist recently, it was noted that the WGL "uses magic to come up with a profit value." This comment was tongue-in-cheek, but the point made aligned with the position of Industry: The values resulting from a Weighted Guidelines analysis are generally arbitrary and mysterious with little or no obvious relation to the work being completed. I'm looking for anyone that might have knowledge on how the WGL calculations came to be. For example, WHY is the standard value for performance risk 5%? Why not 4.72% or 6.39%? I'm familiar with the regulatory history, but would like to know more about the origins of the calculations themselves. Anybody have this knowledge or source material tucked away somewhere?
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Hello all, Senario: The requirement is an 8(a) sole source for construction and a FFP type contract is contemplated. the estimated value is 3-5million. The ktr has an OH rate of 14.95%. We normally see overhead in the range of 6-10%. The ktr has a 10% fee on top of all the subcontractor's markup. All of the proposal backup for subcontracted work only has the lump some numbers on the quotes provided. Question: 1. Is the 14.95% allowable can this be negotiated? 2. Can a prime (8(a)) get profit on profit? Im looking for a dumb down answer on this one. I have seen that some say this is allowable however I need a FAR reference to validate. I have seen some post on this topic but none are plainly clear or easily spelled out with a clear yes/no and have a direct reference provided. Also, I have seen some site the excessive pass-through clause, this only applies to cost reimbursement type contracts for civilian agencies. 3. Can the Excessive pass-though rationale be used for an FFP construction contract in a civilian agency? Would this be a deviation since far only says it can be used for cost reimbursement?
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Can someone help clarify contract language and how that applies to markup? The language says "Trade contractor markup for Overhead is 10% and 4% for Profit. Trade contractor shall be limited to a 5% fee on its lower tier contractors." So if I am the trade contractor and I have a proposal from a lower tier contractor for materials and labor totaling $250,000. How do I calculate my markup? Is it +5% ($12,500.00). So now I am at $262,500 and add 10% for Overhead ($26,250.00) totaling $288,750. Now do I add the 4% ($11,500.00) so my final proposal is $300,250.00? So my markup total is $50,250? Or is there another way to interpret the language? Is this a standard for federal contracts to limit pass through costs? Any help would be greatly appreciated. Thanks.
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Just stopping by to share an interesting read (via Politico) regarding the current pricing environment in the Department of Defense. Enjoy and looking forward to the discussion! http://www.politico.com/story/2016/04/defense-pentagon-spending-assad-221776
- 66 replies
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- pricing
- cost and pricing data
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Hi All, My company submitted a CPFF proposal (~$3.5M) to a major university as a sub. The solicitation was a DOD BAA which provided that contracts, grants, or other instruments may be awarded. We've been informed that the university was selected for award, and that a grant will be used by DOD rather than a contract. The university claims that, because it is a grant, fee is not allowed, but that we can "absorb" the fee amount originally proposed in other areas. I've done a fair amount of reading and cannot find any reference to a prohibition on fee under a grant. However, I've never dealt with grants before, so perhaps I've missed something somewhere. Does anyone have any information or insight regarding prohibiting fee on grants to awardees and sub-awardees?
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Here is a scenario. A contracting activity releases a competitive solicitation for a requirements / firm-fixed price, materials reimbursement type contract. The solicitation also includes a performance incentive in which the winning contractor has the ability to receive a quarterly fixed amount if the contractor meets specific performance goals in that quarter. The contractors proceed to bid on the effort with either no or negative profit/fee. This is based on the intent that they will pass the performance goals and receive the performance incentive. In the follow-on competitive solicitation, the contracting activity decides to remove the performance incentive. Is there a process in place, either policy or regulation, or some instance in which a minimum profit/fee was included in the solicitation to prevent a contractor from bidding either no or negative profit/fee? Is it possible to establish a minimum or is it the contractor's business decision to bid that particular way?
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Are cost-reimbursement contract types supposed to include "profit"? I read in the JAG Deskbook that the answer is no. It says that, for cost-reimbursement contract types, if it is just a cost contract, no award fee/incentive fee, then "The government pays the contractor's allowable costs plus a fee (often erroneously called profit) as prescribed in the contract. What does that mean? If a contract is just a cost-reimbursement contract, no award fee/incentive fee, then it looks to me like only the "allowable costs" are allowed. And those allowable costs DO NOT include profit. Can anybody explain this to make sense?
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Help! I am a prime contractor working on a (competitively bid, edwosb set-aside) FFP Air Force construction project in NW Florida. I am processing a change order and the government contracting officer is indicating that I will not be able to add overhead and profit markups on my subcontractor’s markups. I AM permitted to account for my additional labor, materials, and supervision hours (with markups), and normal OH and profit markup to the subcontractor’s direct cost, but NO OH or profit markup on the portion of my total subcontractor’s price that result from his OH and profit markup. These costs are a part of my subcontractor’s price and are my “direct cost” (as I read FAR 43.203( b )(2)). Further, there is no place on the AF Form 3052 to segregate these costs as subcontractor costs would be added as a direct cost in column 9. The subcontractor effort will probably be less than 70% of the change, but this isn’t relevant since FAR clauses 52.215-22 or 52.215-23 “Limitations on Pass-Through Charges” are NOT included in the contract and, as I understand them, are intended for cost reimbursable type contracts anyway. The contract does include standard limitations on subcontracting that apply to the total value of the contract (labor, as this is a construction project), not to a specific change order. Can anyone give me a definitive source that I can reference for this Contracting Officer confirming that a prime contractor’s overhead (and profit) markup on subcontracted efforts (based on total subcontract price) is allowable? Of course, I am willing to negotiate in good faith if they return the same. If it helps, like most small business, CAS is not applicable and we do not have separate G&A and Overhead pools, only one comprehensive overhead rate. Thanks
- 6 replies
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- FFP
- construction
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Help! I am a prime contractor working on a (competitively bid, edwosb set-aside) FFP Air Force construction project in NW Florida. I am processing a change order and the government contracting officer is indicating that I will not be able to add overhead and profit markups on my subcontractor’s markups. I AM permitted to account for my additional labor, materials, and supervision hours (with markups), and normal OH and profit markup to the subcontractor’s direct cost, but NO OH or profit markup on the portion of my total subcontractor’s price that result from his OH and profit markup. These costs are a part of my subcontractor’s price and are my “direct cost” (as I read FAR 43.203( b )(2)). Further, there is no place on the AF Form 3052 to segregate these costs as subcontractor costs would be added as a direct cost in column 9. The subcontractor effort will probably be less than 70% of the change, but this isn’t relevant since FAR clauses 52.215-22 or 52.215-23 “Limitations on Pass-Through Charges” are NOT included in the contract and, as I understand them, are intended for cost reimbursable type contracts anyway. The contract does include standard limitations on subcontracting that apply to the total value of the contract (labor, as this is a construction project), not to a specific change order. Can anyone give me a definitive source that I can reference for this Contracting Officer confirming that a prime contractor’s overhead (and profit) markup on subcontracted efforts (based on total subcontract price) is allowable? Of course, I am willing to negotiate in good faith if they return the same. If it helps, like most small business, CAS is not applicable and we do not have separate G&A and Overhead pools, only one comprehensive overhead rate. Thanks
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- FAR 52.215-22
- FFP
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