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Contractor Telework - Billing Rates


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Hello. I just inherited a contract from a colleague and have a question.

Services contract (staff augmentation) was awarded in 2019 with a 5 year PoP. Contractor had onsite (Government facility) rates and off-site (Contractor facility) rates. Contractor began teleworking in 2020 and continues to telework routinely. We discovered that contractor has been billing telework hours to off-site facility (more expensive) rather than on-site rates. We are working with Legal and DCAA to determine allowability but currently no resolution. PWS states the following: 

"F.3.1 Onsite (Government Facility):  The primary place of performance for this TO shall be at Aberdeen Proving Ground, MD. Some customer support functions will be performed at the Government customer sites around the National Capital Region as indicated in the PWS Attachment 0001 Level of Effort (LoE).

F.3.2 Offsite (Contractor Facility):  To allow the Contractor more flexibility, some work may be performed at the CONUS Contractor facility as indicated in the PWS Attachment 0001 (LoE). If the contractor chooses to perform work at a location other than the Government facility, the resulting travel to and from the Government’s facility would not be reimbursable as a direct charge under this contract.

F.3.3 Work Locations:  The LoE listed in Section J Attachment 0001 has locations listed for the places of performance, such as but not limited to:  Aberdeen Proving Ground, MD work will be performed off site; Work performed in the National Capital Region are performed on site."

 

Curious on your thoughts on allowability of contractor billing telework hours to Off-site rates?  

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I don't think your situation is unique. There are a lot of support contracts that didn't contemplate the amount of telework that we have seen since 2020. That doesn't mean that there is a clear answer. I would not be surprised to see a board or court decision on this issue in the near future.

If I were a CO, I would be interested in knowing if the contractor's standard practice for allocating indirect costs to direct telework labor before the pandemic was consistent with how they are allocating it now. If it was standard practice to charge the off-site rates, then I might try to negotiate an agreement for "telework" rates. It seems unreasonable to charge the contractor site rate for an employee who would otherwise be working at the Government site. However, that doesn't necessarily mean the Government site rate is appropriate for telework. I wouldn't start with a DCAA Form 1 and I wouldn't lawyer up at the outset.

I'm assuming that the Government authorized the telework and that you are referring to a cost-reimbursement contract.

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9 hours ago, Don Mansfield said:

It seems unreasonable to charge the contractor site rate for an employee who would otherwise be working at the Government site.

Given:

(1) A choice between two rates and only two rates; and

(2) The rate to be used is dependent on the location where the work is actually performed; and

(3) The PWS expressly gives the contractor discretion to determine the work location.

Then I don't see how did you reached your conclusion, Don.

What about the situation makes use of the contractor's facility offsite rate "unreasonable"? Please cite to FAR 31.201-3 in your response.

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2 hours ago, here_2_help said:

What about the situation makes use of the contractor's facility offsite rate "unreasonable"?

I thought I'd hear from you. I think you're interpreting my post as an indictment of the contractor. That's not what I intended. I'm assuming the parties did not contemplate the present work arrangement. If the contractor is billing at a rate that is likely to differ significantly from actual rates, then it may be time to revise the billing rate (see FAR 42.704(c)).

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21 hours ago, TylerACC said:

Services contract

 

13 hours ago, Don Mansfield said:

I'm assuming that the Government authorized the telework and that you are referring to a cost-reimbursement contract.

Clarification of these facts would be helpful with regard to the discussion.

21 hours ago, TylerACC said:

We discovered that contractor has been billing telework hours to off-site facility (more expensive) rather than on-site rates.

For how long?  Or in other words how many payments have been made with regard to the matter?   Again contract type would help dictate a better response.  

1 hour ago, TylerACC said:

So, the employee's home would be considered a contractor-provided platform?

 

21 hours ago, TylerACC said:

, such as but not limited to

I suspect F.3.3 is not quoted exactly.  If so it seems to cover every place except that which is defined as "on-site".   If the wording is not exact as provided in the thread I would just offer that one would look to the whole of the contract to answer if home is a contractor provided platform.  If unclear time to clarify and negotiate! 

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Even more, if the work is not physical, why care where it’s done? I’m sitting in a plane enroute to New Bedford MA for the Moby Dick Marathon Read this weekend. It’s a five hour flight. I just finished an article for which I’ll be paid. Where was I when I typed each word? Who cares? Why pay different amounts for the same work done in different places if the place does not affect the work?

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49 minutes ago, Vern Edwards said:

Even more, if the work is not physical, why care where it’s done? I’m sitting in a plane enroute to New Bedford MA for the Moby Dick Marathon Read this weekend. It’s a five hour flight. I just finished an article for which I’ll be paid. Where was I when I typed each word? Who cares? Why pay different amounts for the same work done in different places if the place does not affect the work?

You know, the FAR addresses this point (somewhat).

Quote

31.203 Indirect costs.

      *****

      (c) The contractor shall accumulate indirect costs by logical cost groupings with due consideration of the reasons for incurring such costs. The contractor shall determine each grouping so as to permit use of an allocation base that is common to all cost objectives to which the grouping is to be allocated. The base selected shall allocate the grouping on the basis of the benefits accruing to intermediate and final cost objectives. When substantially the same results can be achieved through less precise methods, the number and composition of cost groupings should be governed by practical considerations and should not unduly complicate the allocation.

      *****

      (f) Separate cost groupings for costs allocable to offsite locations may be necessary to permit equitable distribution of costs on the basis of the benefits accruing to the several cost objectives.

The theory is, when the government provides facilities then it's duplicative for the contractor to allocate to that same contract indirect costs that contain the contractor's facility expenses.

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13 hours ago, Vern Edwards said:

I think services should be priced for the work to be done. If there are separate location-related costs they should be identified and negotiated separately.

Good point.  So with regard to this thread one would need to see the CLIN's to see how they align with the quoted PWS terms stated in the OP as we are seeing only one part of the puzzle.

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14 hours ago, Vern Edwards said:

I think services should be priced for the work to be done. If there are separate location-related costs they should be identified and negotiated separately.

You want all service CLINs to be parents, priced with two subCLINs: one for costs of the work assuming government site only, and one for exclusively the estimated additional costs of contractor site?

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Forest for the Trees question:  How much money are we talking here?  Have you already burned through more Government resources than you could possibly save by puzzling out this thorny semantic scenario that comes down to the meaning of "offsite"?  They clearly weren't "onsite".

Maybe this is one of those times where the CO should provide sound business advice rather than trying to find a way to drop the boom on a vendor because of a scenario neither party saw coming?

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36 minutes ago, TylerACC said:

130K. Mission partner wants to them to issue credit invoice. Contractor doesn't agree. Just curious on opinions. Don's statement earlier is true. This situation is not unique. I was curious if anyone else has run into this situation.

If they overbill their indirect costs, the Government would be credited. However, you're not going to know that until the final indirect cost rates are determined. I would let that process work itself out.

In the meantime, I would consider revising the billing rates (see FAR 42.704(c)). I see this as a billing rates issue--not a cost allowability issue.

 

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41 minutes ago, Don Mansfield said:

If they overbill their indirect costs, the Government would be credited. However, you're not going to know that until the final indirect cost rates are determined. I would let that process work itself out.

In the meantime, I would consider revising the billing rates (see FAR 42.704(c)). I see this as a billing rates issue--not a cost allowability issue.

Don, I find myself in the position of once again disagreeing with your advice. Unless the contracting officer with cognizance over this contract is also the same contracting officer with cognizance over the contractor's final billing rate proposal and negotiation of final billing rates (see 42.705-1), I don't believe they have authority under 42.704 to issue a unilateral indirect rate determination. I base my position on the language at 42.704(a).

Quote

The contracting officer (or cognizant Federal agency official) or auditor responsible under 42.705 for establishing the final indirect cost rates also shall be responsible for determining the billing rates.

I note that the original poster used the term "telework" which seems ambiguous. Does telework mean the contractor's employees are working from their own homes, or does it mean they are working from their offices at the contractor's facilities? I don't know. I also don't know whether the contractor is maintaining office space for its employees since they are not working at the government's facilities. That is a key unknown fact. If the contractor maintains office space for its employees then it would be reasonable and appropriate for it to bill the contract at higher indirect rates that include its facilities costs.

To me, this issue should have been raised and addressed by the parties back in 2020, when the contractor began teleworking routinely. Now, here we are, two or three years later, trying to fix something that I'm not even sure is a problem.

The contract appears to be silent regarding the ratio of onsite and offsite work -- though the parties must have had a notion as to what that ratio was when they negotiated the contract's estimated cost. At this point, given the facts presented, I don't see a way for the contracting officer to force the contractor to change its billing rates. What's likely to happen is that the contractor will burn through its funding quicker than the parties intended ... and the contracting officer will then have leverage to force a change in contract terms (i.e., a third billing rate for teleworking employees) as a condition of either providing more funding or exercising the next Option Year. There will also be an opportunity in the CPARS rating to make any displeasure known.

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