CPFF IDIQ w Multiple TTOs

[Tamika]

Greetings,

I am new to the forum and am hopeful to receive sound guidance. I am the CFO for a small government contractor. We have a CPFF contract now in its 2nd OY. The contracting staff changed mid OY1. The CPFF IDIQ has max unburdened labor ceiling rates. Currently we have approx 60 open TTOs on the contract and they each have varying PoPs. When OY2 was excercised we gave increases to coincide with the OY all still below the OY2 max ceiling rates. They recently said they would be rejecting our invoices for the current month becuase we are charging OY2 rates on TTO's that started in OY1 and we can't do that. So in otherwords they want us to charge to differnt salaries for the same person in the same month because one PoP may have started in Jan 2022 and the other one in Mar 2022. So for March 1-31 Susan worked on TTO 1 with a PoP of Jan - June 2022 and TTO 3 with a PoP of March - August 2022. The new OY started March 2022 and the March labor on both TTO's we charged her rate as of March 1, 2022. Am I correct in doing this? Any FAR guidance?

Thanks in advance for all your help....

[here_2_help]

You say the TTOs are each CPFF, but have contractual limits on the (unburdened) labor costs (per labor hour, I assume) that may be billed. 

You say that all (unburdened) labor rates at which you want to bill are below the ceilings (whether OY1 or OY2).

I don't see how the customer CO can disallow labor costs if that's the case ... but now is the time to consult a good attorney because it looks like you may have a dispute developing.

Best of luck

[ji20874]

Tamika,

You said it was a CPFF contract.  So, forget the cost projections you used to arrive at the estimated cost.  And, since all of your rates are less than the ceiling rates, forget the ceiling rates, too.  

Your reimbursements should be based on billing rates, which are not found in your contract.  For information developing and using billing rates, see FAR 42.701 and 42.704.

Are you and/or your agency confused, and treating your contract like a T&M contract?  You said it was CPFF, so you should treat it like CPFF.

What is a TTO?

[Tamika]

@here_2_help The unburdened rate is above OY1 and belwo OY2 as OY2 began March 1. They are saying we should bill max unburdened rate for task orders that began OY1 and run well into OY2 and current (in line with OY2) for task order that began OY2. I told them I cannot bill two different salaries for the same person on the same contract in the same month. CPFF means I bill them what I am paying the employee. The agency disagrees and is rejecting the 14 task order invoices in question.

[Tamika]

@ji20874 TTO is the abreviation the agency uses for task order. The IDIQ states the max unburdened salaries for each year. So its not the indirects that are in question just the salary before loads. The task order began in OY1 and runs into OY2. Effective OY2 we gave increases in salary. They are rejecting the increase even though its is in line with the current OY. Are there any FAR clauses I can quote against their practices?

I appreciate you both trying to help me!

[joel hoffman]

11 minutes ago, Tamika said:

@ji20874 TTO is the abreviation the agency uses for task order. The IDIQ states the max unburdened salaries for each year. So its not the indirects that are in question just the salary before loads. The task order began in OY1 and runs into OY2. Effective OY2 we gave increases in salary. They are rejecting the increase even though its is in line with the current OY. Are there any FAR clauses I can quote against their practices?

I appreciate you both trying to help me!

Is there language in the contract requiring you to pay or not exceed the rates that were applicable in the ordering period if the task order extends into a following period.?

This is a cost reimbursement contract. I suggest that you challenge “they”/them to justify not paying the applicable rates for the periods worked. 

[ji20874]

Use billing rates on top of actual direct costs.  The agency is not paying you, but is reimbursing you -- CPFF, right?

As long as your costs are within the ceilings you agreed to in the contract, all should be well.  For Susan's work, the agency will reimburse you her direct labor costs for March plus indirect costs for March, whether she is working on TTO 1 or TTO 2; provided, the direct labor costs (unburdened hourly rates) amount is within the agreed-upon ceilings.  The hourly rates you proposed before contract formation are irrelevant now, except to the degree they act as ceilings.

[here_2_help]

1 hour ago, Tamika said:

@here_2_help The unburdened rate is above OY1 and belwo OY2 as OY2 began March 1. They are saying we should bill max unburdened rate for task orders that began OY1 and run well into OY2 and current (in line with OY2) for task order that began OY2. I told them I cannot bill two different salaries for the same person on the same contract in the same month. CPFF means I bill them what I am paying the employee. The agency disagrees and is rejecting the 14 task order invoices in question.

Okay. You have not said, but I will assume, that you have max unburdened labor rates that are specified in either the ID/IQ or else in the TTO. The contract limits the amount of labor cost that is reimbursable by your customer. There is one maximum for OY1 and another maximum for OY2.

The TTOs awarded in OY1 are subject to OY1 rates for the life of the TTO (i.e., the Period of Performance). That's the interpretation your customer seems to have. And, if the contract specifies the max rate, then I tend to agree with your customer's interpretation. The max rate is the one that the parties agreed to when they priced and executed the TTO, regardless of when the work is performed.

Now if the contract is actually silent on the max rates, then I would disagree with your customer.

Hope this helps.

[Tamika]

@here_2_help Yes each OY has max unburdened rate ceilings at the IDIQ level. The IDIQ runs from March - February. Each task order runs independently and very often extends well into the next OY. The problem is at at any time we may have 20 - 60 open tasks order with varing PoPs. In a CPFF environment I am not able to offer multiple salaries for an individual based on the task order work. Escalation from year to year is less than 3%. So salary increases happen Mar 1 at the start of the OY. I don't see how we maintain under both years ceilings when the markup isn't there. The thought was that worked performed in OY2 iwe just need to be under the OY2 ceiling not carry OY1 for the life of the TTO as there are too many with varying dates... I am just not sure I see a path forward... I did challenge them and I am waiting to hear back. 

Also note that this was not a problem from base year to OY1 as the previous CO/CS were in agreement. This is now an issue for OY2 due to staff changes.

 

[Tamika]

@ji20874 We are in OY2 and the rate is above the OY1 ceiling but below the OY2 ceiling. The task order PoPs cross years so they are rejecting the invoices where we used OY2 (current OY) salaries wven though they are under the OY2 ceiling. 

[Tamika]

@joel hoffman "The IDIQ says that the maximum unburdened rates as specificed below are ceiling rates for the life of the contract. Contractos shal not exceed for any reason." The rates are listed by IDIQ OY. It does not specifiy or talk to PoPs at the task order level or those that cross year.

 

[ji20874]

Tamika,

I think your answer is going to have to come from your contract. 

• Does your contract say that a task order issued in a particular year carries that year's ceilings throughout the task order life?  If so, maybe the agency is right. 
• Or, does your contract say that the ceilings apply to the year of actual performance, regardless of when the task order was issued?  If so, maybe you are right. 
• If the contract is silent or ambiguous, well, you are going to have to solve it with the agency (or as a dispute).

[Tamika]

@ji20874 The contract is silent... So I guess I will just have to keep trying with the agency. Thanks!

[Retreadfed]

Tamika, are any of the labor categories subject to the SCA?  Is FAR 52.216-7 in the contract?

[here_2_help]

3 hours ago, Tamika said:

In a CPFF environment I am not able to offer multiple salaries for an individual based on the task order work. Escalation from year to year is less than 3%. So salary increases happen Mar 1 at the start of the OY. I don't see how we maintain under both years ceilings when the markup isn't there. 

Also note that this was not a problem from base year to OY1 as the previous CO/CS were in agreement. This is now an issue for OY2 due to staff changes.

Okay -- so two more thoughts.

1. You don't pay your people any differently based on the contract maximums. You pay what you pay. The max rate limits the amount of labor costs that will be reimbursed. To be clear, if you are paying over the max rate, then what's in excess is unallowable, by contract terms.

2. You may have a "course of dealing" argument because you and the customer agreed on application of the ceilings with respect to the Base Year and Option Year 1. That is a legal argument. You should really consider consulting with a sharp, experienced, government contracts attorney. I don't know how many dollars are at stake here, but consider the cost of a legal consultation to be an investment in a possible recovery of what's at stake. And, so long as you haven't filed a claim, that consultation is allowable because you're talking about contract administration matters. At least, that's how I would code the legal expense.

[Needforspeed]

As a potential retort to the government CO/CS, absent any contract language that says otherwise, I wonder if the CO/CS simply picked up the contract file and, having not much experience manage cost plus agreements, determined the direct labor rates in the final proposal revision are binding for the duration of the periods quoted? I have seen that where the government's interpretation of how they should be charged under a cost plus agreement is just not correct. The same thought ji20874 had earlier in the thread. Explaining to the CO/CS their interpretation is too literal and lacking a FAR reference, after you have fully heard their side of the story, may be helpful. 

I found myself wondering what the point of ever adding unburdened labor rate ceilings would be in a cost plus agreement? Even for the government's interests, wouldn't this be penny wise and pound foolish, if there were not an associated indirect cost ceiling? Arguably the indirect costs will be far greater than the direct labor wages paid to an employee, like several times greater. And if there were not a method to control the indirect costs I don't see this as a constructive way for the government to surveil the contractor's costs. 

[ji20874]

47 minutes ago, Needforspeed said:

I found myself wondering what the point of ever adding unburdened labor rate ceilings would be in a cost plus agreement?

Even in a cost-reimbursement contract, the parties may agree to cap any individual cost.  The difference between the contract cap and the contractor's incurred cost becomes an unallowable cost (not an indirect cost) that the contractor has responsibility for.  Sometimes, it makes sense to cap certain elements of direct cost (or even indirect costs) as part of coming to agreement on a reasonable estimated cost.

[Needforspeed]

Understood ji. I could see this making sense in the use of non-labor items perhaps. But doesn’t seem worth the trouble in a contract for services when there are easier ways to cap costs. Administratively it is possible but as OP indicated it is problematic on the bookkeeping side for a small business.   

[joel hoffman]

8 hours ago, Tamika said:

@joel hoffman "The IDIQ says that the maximum unburdened rates as specificed below are ceiling rates for the life of the contract. Contractos shal not exceed for any reason." The rates are listed by IDIQ OY. It does not specifiy or talk to PoPs at the task order level or those that cross year.

 

 

7 hours ago, ji20874 said:

If the contract is silent or ambiguous, well, you are going to have to solve it with the agency (or as a dispute).

As others have pointed out , the contract may be ambiguous.  However, you said that you and the government have had prior course of dealings on this very contract where both parties agreed with your original and current interpretation (I’m agreeing with H2H). Indeed, this is not a FFP contract, it is cost reimbursement.  Your current rates are within the current ceiling cap. You say there is no explanation of how each year’s rate caps apply to an order.

Which leads me to another question. You say there are numerous task orders. How are they priced and issued?? Do you submit a task order priced proposal, identifying the estimated hours and applicable rates for each proposed position and  indicate some hours being performed in one contract year and some hours being performed in subsequent year(s)? Or does the government determine the pricing and issue unilateral orders? 

[joel hoffman]

Also- you said there have been government personnel turnover. Is it possible to contact or ask the current government personnel to contact the previous government staff thst you worked with in order to verify the government's original contract interpretation?? It seems to me that the current government staff should justify their new interpretation. . 

[Retreadfed]

1 hour ago, joel hoffman said:

You say there are numerous task orders. How are they priced and issued?? Do you submit a task order priced proposal, identifying the estimated hours and applicable rates for each proposed position and  indicate some hours being performed in one contract year and some hours being performed in subsequent year(s)?

This raises the question of what impact paying the higher rates for OY 2 for orders issued in OY 1 has on the estimated cost of the order.  In this regard, the Limitation of Cost clause (FAR 52.232-20) applies to each individual order as well as the contract as a whole.  Thus, if paying the higher rates will result in an overrun on an order, the government may be justified in not paying the increased costs.

[joel hoffman]

1 hour ago, Retreadfed said:

This raises the question of what impact paying the higher rates for OY 2 for orders issued in OY 1 has on the estimated cost of the order.  In this regard, the Limitation of Cost clause (FAR 52.232-20) applies to each individual order as well as the contract as a whole.  Thus, if paying the higher rates will result in an overrun on an order, the government may be justified in not paying the increased costs.

The estimated cost of an order commencing in one period and extending into a subsequent ordering period should reflect when the work will be performed. The maximum rates are pre-established.

EDIT: I just re-read the initial post. It’s unclear to me now how these task orders were initially priced for work that extends across ordering periods. The OP stated: “When OY2 was excercised we gave increases to coincide with the OY all still below the OY2 max ceiling rates.” Was this contemplated in the establishment of the basis of estimated cost for the task orders or not? 

[here_2_help]

3 hours ago, Retreadfed said:

This raises the question of what impact paying the higher rates for OY 2 for orders issued in OY 1 has on the estimated cost of the order.  In this regard, the Limitation of Cost clause (FAR 52.232-20) applies to each individual order as well as the contract as a whole.  Thus, if paying the higher rates will result in an overrun on an order, the government may be justified in not paying the increased costs.

If that transpires, would you say that the contractor would be justified in stopping work at the point at which authorized funds have been spent?

[Retreadfed]

14 hours ago, here_2_help said:

If that transpires, would you say that the contractor would be justified in stopping work at the point at which authorized funds have been spent?

Here is what FAR 52.232-20(d)(2) says "Except as required by other provisions of this contract, specifically citing and stated to be an exception to this clause-The Contractor is not obligated to continue performance under this contract (including actions under the Termination clause of this contract) or otherwise incur costs in excess of the estimated cost specified in the Schedule, until the Contracting Officer (i) notifies the Contractor in writing that the estimated cost has been increased and (ii) provides a revised estimated total cost of performing this contract. If this is a cost-sharing contract, the increase shall be allocated in accordance with the formula specified in the Schedule."  We don't know how this language applies to the contract in question because we do not have the contract.  However, it raises questions as to the rights and obligations of the parties based upon the limited facts we have.

[Tamika]

On 4/19/2022 at 4:32 PM, joel hoffman said:

 

As others have pointed out , the contract may be ambiguous.  However, you said that you and the government have had prior course of dealings on this very contract where both parties agreed with your original and current interpretation (I’m agreeing with H2H). Indeed, this is not a FFP contract, it is cost reimbursement.  Your current rates are within the current ceiling cap. You say there is no explanation of how each year’s rate caps apply to an order.

Which leads me to another question. You say there are numerous task orders. How are they priced and issued?? Do you submit a task order priced proposal, identifying the estimated hours and applicable rates for each proposed position and  indicate some hours being performed in one contract year and some hours being performed in subsequent year(s)? Or does the government determine the pricing and issue unilateral orders? 

We submit estimates based in the current year's rate for each task order.