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invoicing on cost-reimbursement contract


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On 7/12/2023 at 1:35 PM, Fara Fasat said:

Thanks. I think we have covered my question. You can't invoice the government for more than the costs you incur, and there are various ways of handling that when there is uncompensated overtime.

Yes. Now I would like to add something in case it has not become obvious.

1. You pay salaried employees a salary. The salary is independent of the number of hours worked and recorded. In a perfect world, a salaried employee will record 2,080 hours per year. (52 weeks x 40 hours per week).

2. Salaried employees fill out time cards (or they should, as Raytheon learned at the Federal Circuit in January of this year). Let's assume those are weekly time cards. On each time card, the salaried employee records the hours spent on each assigned cost objective. (To make it easier, let's say those cost objectives are either contracts, overhead, or some paid-time-off account such as vacation or holiday.) In a perfect world, the perfect 40 hours per week will be spread across whatever cost objects were worked. Maybe it's 40 hours to only one contract; but more likely the 40 hours are being charged to multiple things each week.

3. Each cost object "thing" has a code associated with it -- traditionally called "the charge number". So, when the employee turns in the weekly time card, there are hours associated with each charge number. There are many employees, so there are many time cards. The labor system aggregates all the time card data by employee each pay period.

4. Separately, the employee gets paid. Let's assume the employee is paid weekly -- i.e., annual salary divided by 52 equals the weekly paycheck. The paycheck is reduced for taxes and the cost of benefits to generate the net takehome pay for the week. That's what Payroll does.

5. Separately, the gross payroll (before taxes/benefits) is distributed to cost objects in accordance with the time card data. Thus, the time card is the method for distributing the salary costs. To the extent the charge numbers reflect "contracts" the distributed payroll shows up as a contract cost -- i.e., as direct labor dollars.

6. Yes, the world is rarely perfect. Sometimes more than 40 hours are recorded in a work week - UCOT. Sometimes less than 40 hours are recorded (LWOP - Leave Without Pay). There are various accounting methods for dealing with those issues.

The bottom line answer to the OP is that the contractor bills for the direct labor dollars that were distributed by the labor accounting system to the cost-reimbursable contract, based on the time cards submitted by salaried (and hourly) employees during the billing period.

NOTE: An adequate accounting system provides for reconciliations between the payroll system and the labor distribution system.

Hope this helps.

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On 7/10/2023 at 5:18 PM, Retreadfed said:

You've got to come off the notion of invoicing for hours.

Yes to this. When I was a consultant I used to have a similar discussion with my back-office accounting people regarding "rates" on an FFP vehicle.  They couldn't separate the estimating methodology (hours x rates = total price) from the contract terms (FFP).   You should have seen the smoke come out of their ears when I introduced the concept of what IBM used to call a "management challenge" (offering a bottom-line discount to the estimated hours x rates).

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