BAA Proposal with No Indirect Cost Rate Certificate

[Fishpaw]

I have a small business that has responded to a Broad Agency Announcement. They've performed some small work for the government under SBIR programs, but they've never established their indirect rates. The proposal came as FFP, but included "estimated" indirect costs of 10% and some separate costs for fringe. I suspect the owner/operator (a former professor) set it at 10% due to the allowance to do this under grants. 

Since this is a BAA, how could I proceed to issue an award? Send in an auditor to establish what the indirect rates should actually be? Can I accept an obviously low rate? The proposed costs (labor, materials) otherwise seem to be supported by my research.

[Neil Roberts]

You should comply with the requirements that control the specific BAA. For example, FAR 35.016.  In general, a sole source award does not seem appropriate at all to me for the purpose of a BAA.

[Fishpaw]

I'm sorry, I didn't go a good job of explaining. This is not a sole source. This proposal (and several others) was selected by the technical evaluation team for the BAA, so I suppose it's "competitive". The issue I have is that the proposal does not have an approved indirect rate. This specific item was not otherwise addressed in the BAA. Maybe this question belongs in the beginners forum. 

Can you issue an award to a company without an approved indirect rate (and they're claiming indirect costs)?

[Neil Roberts]

Thanks for clarifying. There are many other contributors on this site that can better respond to your situation regarding appropriate government contract types and source selection/award issues. While waiting, perhaps you can provide exact language in the BAA regarding proposal requirements and whether contract awards were contemplated from BAA responses and the basis for source selection (i.e., price. schedule, technical, etc)...information that would normally be included in a RFP/ITQ solicitation. Dollar value of each award  would be helpful.    

[Neil Roberts]

Are you a contracting officer and are these Government grants?

[joel hoffman]

On 12/15/2023 at 4:29 PM, Fishpaw said:

Since this is a BAA, how could I proceed to issue an award? Send in an auditor to establish what the indirect rates should actually be?

If you are referring to DCAA, will they actually establish indirect rates with or for the proposer? Or do they only review the proposed rates and audit (sample examination mostly) the basis for proposed rates? 

I occasionally reviewed the indirect pool info provided by small construction contractors and the “cost of sales” info to perform desk audits of sorts during contract negotiations. It probably wasn’t 100% accurate but was likely reasonably accurate for our purposes on smaller contracts (~under $3 million back then).

It was very difficult to get the DCAA to perform audits for Military Construction  contracts, let alone Civil Works contracts (we had to pay DCAA for CW audits). . They concentrated on big Defense contractors/contracts and had little time for construction or civil works construction.

———————————
DCAA audits for construction contracts were usually disappointing.

DCAA usually either didn’t understand or overlooked the quirks of FAR 31.105, including special treatment of construction direct and indirect costs for ownership, operating, maintenance and repair costs for contractor owned construction equipment.

The treatment of those costs could significantly affect G&A and overhead rates as well as result in duplicated direct costs.

I resorted to attaching primer instructions with every DCAA audit request from our District.

[formerfed]

7 hours ago, joel hoffman said:

I occasionally reviewed the indirect pool info provided by small construction contractors and the “cost of sales” info to perform desk audits of sorts during contract negotiations. It was very difficult to get the DCAA to perform audits for Military Construction  contracts, let alone Civil Works contracts (we had to pay DCAA for those audits). It probably wasn’t 100% accurate but was likely reasonably accurate for our purposes on smaller contracts (~under $3 million back then).

Fishpaw, this seems like a very practical approach unless the action has a significant dollar value.  If you are comfortable with the other costs like labor and materials you mentioned, it’s hard to go wrong with a 10% indirect rate.  I’ve found some websites that show typical overhead and fringe rates by industry.  That should provide you support as well.

One thing I would do is talk with the owner/operator and go over all the items included in the indirect rate.  10% seems very low so I would be comfortable with all the details.  Some agencies that have difficulty getting timely audit assistance from DCAA and use commercial CPA firms for proposal audits.  However if you feel 10% isn’t out of line, I wouldn’t bother.  You’re talking about a fixed price arrangement so it should be easy to justify the dollar value.

[joel hoffman]

Fishpaw, just curious-  do you have any cost analysts who are familiar with Part 31 cost principles, that could perform a desk review of the basis for the proposed, “estimated”  indirect cost rate(s)?

It really doesn’t take that long to do such a review, if you ask the proposer for the necessary information to perform the review.

[C Culham]

On 12/16/2023 at 6:17 PM, Fishpaw said:

Can you issue an award to a company without an approved indirect rate (and they're claiming indirect costs)?

Yes.

But you need to clarify your situation and your post.    You say "FFP" and "competition" so the question back to you is why are you doing cost analysis?  Further "no cost rate certificate"?  Does this mean you made a determination not to put 52.242-4 into the solicitation?  If you did not why doesn't FAR 42.703-2(c) apply?  Is the need at a value where certifed cost or pricing data is not needed?   And I might add what did the solicitation say about supporting indirect rates if anything?

Hopefully the questions will lead you to a answer on your own.

[Neil Roberts]

2 hours ago, C Culham said:

Yes.

But you need to clarify your situation and your post.    You say "FFP" and "competition" so the question back to you is why are you doing cost analysis?  Further "no cost rate certificate"?  Does this mean you made a determination not to put 52.242-4 into the solicitation?  If you did not why doesn't FAR 42.703-2(c) apply?  Is the need at a value where certifed cost or pricing data is not needed?   And I might add what did the solicitation say about supporting indirect rates if anything?

Hopefully the questions will lead you to a answer on your own.

Agree clarification is needed. Post appears to have alluded to the transaction possibly being a grant. Many FAR regulations common to "contracts" do not apply to grants although they may provide guidance in situations. Agencies have grant rules.

[joel hoffman]

If this is a competitive action and you have indirect rates to compare, then you may be able to determine if the proposed rate is reasonable. But is this rate binding after award? I don’t know what type of pricing is involved.

[Don Mansfield]

On 12/15/2023 at 2:29 PM, Fishpaw said:

I have a small business that has responded to a Broad Agency Announcement. They've performed some small work for the government under SBIR programs, but they've never established their indirect rates. The proposal came as FFP, but included "estimated" indirect costs of 10% and some separate costs for fringe. I suspect the owner/operator (a former professor) set it at 10% due to the allowance to do this under grants. 

Since this is a BAA, how could I proceed to issue an award? Send in an auditor to establish what the indirect rates should actually be? Can I accept an obviously low rate? The proposed costs (labor, materials) otherwise seem to be supported by my research.

Do you intend to do cost analysis?

[joel hoffman]

5 hours ago, Don Mansfield said:

Do you intend to do cost analysis?

I only mentioned cost analysts with respect to estimating indirect rates. If the action will be cost reimbursement and the proposed indirect rates aren’t binding, their office may be interested in estimating an expected realistic rate. If the rates are binding FFP, their office can use price analysis, comparing rates among the competitors. 

[C Culham]

29 minutes ago, joel hoffman said:

If the rates are binding FFP, their office can use price analysis, comparing rates among the competitors. 

I fear that without additional information the assumptions as quoted above are not being leveled with regulation.  Plesse read  42.703-1.

[joel hoffman]

4 hours ago, C Culham said:

I fear that without additional information the assumptions as quoted above are not being leveled with regulation.  Plesse read  42.703-1.

Thanks, Carl. I agree. 

[C Culham]

4 hours ago, joel hoffman said:

Thanks, Carl. I agree. 

 Thanks Joel....In truth there is a lot to unpack in the OP's two posts.   I did a vague first post as an attempt to get the OP to research more.  Unknown details count.  I say this as peeling the onion leads to lots of places that include or might include FAR 35.016, FAR 6.102(d)(2), 42.703,  FAR 15.4 and even into 2 CFR 200 along with agency policy and the solicitation itself to address the OP's situation regarding the indirect rate.   

[formerfed]

Lots of speculation here with no further OP background.  Until we know details of the BAA approach used, our responses aren’t that meaningful.

The way BAAs get implemented vary wifely - some have clauses defined upfront and others don’t, some have model contracts which may be not be given to offerors until after selection for award, some allow offerors to propose contract types and others contain the contract type in the BAA instructions, some allow for “competition of solutions” with wide variation of responses to a high level agency need while others have a specific and narrow focus of need, etc.

[C Culham]

35 minutes ago, formerfed said:

vary wifely

I too make typo's but this did put a smile on my face!!!🙂

[formerfed]

2 minutes ago, C Culham said:

I too make typo's but this did put a smile on my face!!!🙂

Ha.  I mistyped widely and spell check changed it to this.