carrying costs FFP

[Retreadfed]

10 minutes ago, joel hoffman said:

I doubt that it would have been included in a CPFF,

Joel, never underestimate the capacity of a contracting officer to do the wrong thing.

[here_2_help]

On 3/22/2023 at 12:19 PM, general_correspondence said:

Is there a rule of thumb, or an accounting standard that the prime should use to negotiate the costs being claimed by the subcontractor?

Yes, there is such a rule of thumb and it's very straight-forward.

Make the subcontractor provide detailed support for each of the costs being claimed. Make the subcontractor show you how those costs were incurred solely because of the delay, and not for any other reason. Make the subcontractor show you how the costs could not have been avoided with respect to your subcontract.

There. That's it. Everything else in this thread is, in my opinion, not responsive to your question.

[Retreadfed]

GC, H2H provided you with some advice that you should consider.  Further, remember, that you have a cost reimbursement contract.  That means the costs you incur and claim for reimbursement from the government must be an allowable cost.  If you agree to include an unallowable cost in a price adjustment to the FFP subcontract, assuming the adjustment is warranted, the government may reduce the amount it reimburses you for your subcontract costs.

[joel hoffman]

By the way, the prime contractor has characterized this issue as a subcontractor claim due to government responsibility for a six month (at least) delay .

On 3/24/2023 at 8:52 AM, here_2_help said:

Yes, there is such a rule of thumb and it's very straight-forward.

Make the subcontractor provide detailed support for each of the costs being claimed. Make the subcontractor show you how those costs were incurred solely because of the delay, and not for any other reason. Make the subcontractor show you how the costs could not have been avoided with respect to your subcontract.

There. That's it. Everything else in this thread is, in my opinion, not responsive to your question.

I disagree that everything else in this thread is non-responsive. The actual scenario is different than stated in the original post.

The OP characterized it as “Permit delays, neither party liable for damages (which parties prime and sub? Government and contractor?), considered an excusable delay (probably true).

The sub and the prime are going to have to establish entitlement to an adjustment to a FFP subcontract and justify a cost (no “fee” or profit) adjustment. I agree with H2H’s bolded statement but there is more to it.

GC asked: 

“Is there a rule of thumb, or an accounting standard that the prime should use to negotiate the costs being claimed by the subcontractor?”

Yes, establish entitlement, allowability, reasonableness etc.

“The delay has been well beyond 6 months, The subcontractor has told me they have "diverted" most of the field labor during this delay so the costs are FTE, likely OH and G&A type mostly, including Fee.  (Fee may be prohibited?) “

I’m assuming that the sub will claim unabsorbed overhead. It can otherwise only claim overhead/G&A on the direct costs, which would be relatively low due to the delay.

GC must understand the required criteria and specific methodology for unabsorbed home office overhead and other overheads.

He didn’t know if subcontract  “fee” (profit) and perhaps prime fee are prohibited.

The sub claims there is a change but the action doesn’t fall under the subcontract’s changes clause.

It’s also not a change under the prime contract clauses.

It’s a government delay of the contract work.

By the way the courts have stated that unabsorbed home office overhead isn’t applicable under a changes clause. It is a remedy under a suspension of work clause for a delay that interrupts the work.

There are clauses in the prime contract for the contractor to use for an adjustment for cost and time. They are 52.242-17  and 52.249-14 . 

I believe all this was necessary to discuss and ferret out.

“Is there a process to use to baseline negotiations?” 

Yes -

establish and understand the basis for entitlement;

“Make the subcontractor provide detailed support for each of the costs being claimed. Make the subcontractor show you how those costs were incurred solely because of the delay, and not for any other reason. Make the subcontractor show you how the costs could not have been avoided with respect to your subcontract.”

Then develop your negotiation objectives.

What hasn’t been discussed is that this is a FFP subcontractor claim with the prime, which would eventually require some government acknowledgement and response pursuant to the above mentioned clauses. It isn’t simply just a cost increase within the current contract amount or contract cost. It is an additional cost to the government for an actionable event beyond the original work, irrespective of whether or not the current funded amount is exceeded.

EDIT: I agree with Vern’s assessment below.

The prime will have to justify to the government entitlement to the additional costs and that they are reasonable, allowable and allocable and for any time impacts.

[Vern Edwards]

@general_correspondence

On 3/24/2023 at 6:52 AM, here_2_help said:

Make the subcontractor provide detailed support for each of the costs being claimed. Make the subcontractor show you how those costs were incurred solely because of the delay, and not for any other reason. Make the subcontractor show you how the costs could not have been avoided with respect to your subcontract.

I suppose you could call that a rule of thumb. But that can be more succinctly yet more formally and comprehensively stated in the language of contracting as follows:

Require the contractor or subcontractor to prove entitlement (liability), causation, and quantum (amount of injury).

See SERVIDONE CONSTRUCTION CORPORATION v. The UNITED STATES, 931 F.2d 860, United States Court of Appeals, Federal Circuit. April 24, 1991:

Quote

To receive an equitable adjustment from the Government, a contractor must show three necessary elements—liability, causation, and resultant injury. Wunderlich Contracting Co. v. United States, 351 F.2d 956, 968, 173 Ct.Cl. 180 (1965).

See also WUNDERLICH CONTRACTING COMPANY, a Nebraska Corporation, Curlett Construction Company, a California Corporation, and Chas. H. Thompkins Company, a District of Columbia Corporation v. The UNITED STATES, 351 F.2d 956, United States Court of Claims, Oct. 15, 1965:

Quote

A claimant need not prove his damages with absolute certainty or mathematical exactitude. Dale Construction Co. v. United States, No. 134—57, Ct.Cl., December 11, 1964; Houston Ready-Cut House Co. v. United States, 96 F.Supp. 629, 119 Ct.Cl. 120 (1951). It is sufficient if he furnishes the court with a reasonable basis for computation, even though the result is only approximate. F. H. McGraw & Co. v. United States, supra; Locke v. United States, 283 F.2d 521, 151 Ct.Cl. 262 (1960). Yet this leniency as to the actual mechanics of computation does not relieve the contractor of his essential burden of establishing the fundamental facts of liability, causation, and resultant injury. River Construction Corp. v. United States, supra; Addison Miller, Inc. v. United States, 70 F.Supp. 893, 108 Ct.Cl. 513 (1947), cert. denied, 332 U.S. 836, 68 S.Ct. 217, 92 L.Ed. 408 (1947); J. D. Hedin Construction Co., Inc. v. United States, supra, 347 F.2d at pp. 246—247.

Retread said:

On 3/24/2023 at 7:46 AM, Retreadfed said:

GC, H2H provided you with some advice that you should consider.  Further, remember, that you have a cost reimbursement contract.  That means the costs you incur and claim for reimbursement from the government must be an allowable cost.  If you agree to include an unallowable cost in a price adjustment to the FFP subcontract, assuming the adjustment is warranted, the government may reduce the amount it reimburses you for your subcontract costs.

For a formal statement of those propositions, see the payment clause for cost-reimbursement contracts𑁋FAR 52.216-7, Allowable Cost and Payment (AUG 2018), subparagraph (a)(1):

Quote

The Government will make payments to the Contractor when requested as work progresses, but (except for small business concerns) not more often than once every 2 weeks, in amounts determined to be allowable by the Contracting Officer in accordance with Federal Acquisition Regulation (FAR) subpart 31.2 in effect on the date of this contract and the terms of this contract. 

and then see FAR 31.201-1, Determining allowability, paragraph (a):

Quote

A cost is allowable only when the cost complies with all of the following requirements:

(1) Reasonableness.

(2) Allocability.

(3) Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances.

(4) Terms of the contract.

(5) Any limitations set forth in this subpart.

In short, if you agree to a settlement with your sub that the contracting officer for your cost-reimbursement contract considers unjustified, he or she might declare the cost of the settlement to be unallowable and refuse to reimburse your company in whole or in part.

[Retreadfed]

GC, hopefully what you have been told above demonstrates the necessity for precisely defining what you mean by "carrying costs" because such costs have to be allowable under the cost principles of FAR 31.2.  If you cannot define the costs, I don't see how you can determine their allowability.