Level of Effort

[Voyager]

The government does not know how to properly administer (or award with administration in mind) anything.

Many COs are already familiar with the term "Direct Productive Labor Hour (DPLH)" in their contracts, but most contracts do not define it.

This type of cost is unregulated in FAR - the Cost Principle governing costs of idleness only seems to apply to supply purchases.  An Advance Agreement could tailor and extend its coverage to support services appropriately.

The implications of what you can do with this critical thought are astounding.  You can save your agency so much waste simply by writing into your level-of-effort RFPs a definition of "Productive".  Do it, I say!  And then administer your own award, so no one misinterprets your intent. 

Thanks for the idea, Vern!  Am I tracking with your reasoning here?

[Vern Edwards]

42 minutes ago, Voyager said:

Vern!  Am I tracking with your reasoning here?

Yes. If you are going to use "hour" as a unit of effort, I think you should specify what you mean by effort. Is it any activity done by anyone doing anything? Or is it activity in direct pursuit of the contract objective, excluding support activity? Or is it something else?

If you exclude support activity from the LOE you will still include it in the contract price or estimated cost, but you will not credit it against the LOE as service received.

There is more to this that I will write later.

[AlsoExDCAA]

Am I being too much of a literalist to respond with: "whatever is identified and agreed upon in advance" and then memorialized in the contract?

[Voyager]

19 hours ago, AlsoExDCAA said:

Am I being too much of a literalist to respond with: "whatever is identified and agreed upon in advance" and then memorialized in the contract?

The PCO should emphasize "productivity" during the meeting of the minds (e.g., Draft RFP, Industry One-on-Ones), but, if the contract crafts the DPLH definition well enough, the ACO always has its four corners including FAR 52.242-1:

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Notice of Intent To Disallow Costs (APR 1984)

(a) Notwithstanding any other clause of this contract—

(1) The Contracting Officer may at any time issue to the Contractor a written notice of intent to disallow specified costs incurred or planned for incurrence under this contract that have been determined not to be allowable under the contract terms; and

(2) The Contractor may, after receiving a notice under subparagraph (1) above, submit a written response to the Contracting Officer, with justification for allowance of the costs. If the Contractor does respond within 60 days, the Contracting Officer shall, within 60 days of receiving the response, either make a written withdrawal of the notice or issue a written decision.

(b) Failure to issue a notice under this Notice of Intent to Disallow Costs clause shall not affect the Government's rights to take exception to incurred costs.

During each invoice review, see also:

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FAR 31.201-2 Determining allowability.

(a) 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 conjunction with:

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FAR 52.216-7 Allowable Cost and Payment (AUG 2018)

(a) Invoicing. (1) 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...

[Retreadfed]

6 hours ago, Voyager said:

Many COs are already familiar with the term "Direct Productive Labor Hour (DPLH)" in their contracts, but most contracts do not define it.

What would be a productive hour?  One example of time expended in regard to performance of a contract is a contract requirement that the contractor will have employees attend a quarterly meeting with the government concerning performance of the contract.  The contractor sends appropriate people (3) to a meeting, however only 1 of the employees says anything at the meeting.  Would the time of the silent employees be a productive hour?  What about the travel time of the employees going to and from the meeting?

[Vern Edwards]

Here is one definition of "direct productive labor hour," quoted from Department of Commerce FAR Supp. 1352.216-71:

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DPLH is defined as actual work hours exclusive of vacation, holidays, sick leave, and other absences.

And the following is from the EPA FAR Supp. clause, 1552.212-70, Level of Effort-Cost-Reimbursement Term Contract (APR 1984):

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(b) Direct labor includes personnel such as engineers, scientists, draftsmen, technicians, statisticians, and programmers and not support personnel such as company management, typists, and key punch operators even though such support personnel are normal ly treated as direct labor by the Contractor. The level of effort specified in paragraph (a) includes Contractor, subcontractor, and consultant labor hours.

 

[Voyager]

16 hours ago, Retreadfed said:

What would be a productive hour?  One example of time expended in regard to performance of a contract is a contract requirement that the contractor will have employees attend a quarterly meeting with the government concerning performance of the contract.  The contractor sends appropriate people (3) to a meeting, however only 1 of the employees says anything at the meeting.  Would the time of the silent employees be a productive hour?  What about the travel time of the employees going to and from the meeting?

This question seems to come from a T&M/LH perspective.  The T&M payments clause paragraph (a) applicable to labor (vice (b) applicable to materials) says we pay the labor hours multiplied by the hourly rates.  No reference to allowability is made in (a), and I therefore warn readers this LOE discussion does not apply to T&M/LH contracts.  Besides, the T&M/LH payments clause calls for "best efforts", not a "level of effort".  And as ji and Don allude to above, they are wholly different from LOE contracts.  Allowability, at least of labor rates, is assumed to have been determined pre-award.

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FAR 52.232-7 Payments Under Time-and-Materials and Labor-Hour Contracts (NOV 2021)

(a) Hourly rate...(2) The amounts shall be computed by multiplying the appropriate hourly rates prescribed in the Schedule by the number of direct [Note: no word "productive" exists here in the T&M/LH clause - would need a deviation, and that would be ill-advised] labor hours performed.

* * *

(b) Materials...(4) Payment for materials is subject to the Allowable Cost and Payment clause of this contract. The Contracting Officer will determine allowable costs of materials in accordance with FAR subpart 31.2 in effect on the date of this contract.

* * *

(d) Total cost. It is estimated that the total cost to the Government for the performance of this contract shall not exceed the ceiling price set forth in the Schedule, and the Contractor agrees to use its best efforts to perform the work specified in the Schedule and all obligations under this contract within such ceiling price...

 

[Voyager]

@Retreadfed Each CR LOE contract's pre-award RFP development team should tailor the definition to its own program.

[uva383]

The term "level of effort" is not defined in the FAR. I searched to see if it was defined in either GAO decisions or a Court of Law decision. The only references I could find to this term were defined as "a number of hours or FTEs." The PMBOK defines "Level of Effort" as a specific project activity that does not yield a specific defined end product. Instead its a type of activity that represents discrete effort where time is the only way to measure the work/activity performed. 

In the context of a contract, a "level of effort" should be a defined unit of activity where a specific end product cannot be defined. The nature, duration, and who and how the activity should be performed should be part of the contract.  

[Retreadfed]

3 hours ago, Voyager said:

This question seems to come from a T&M/LH perspective. 

No my question was in response to your statement I quoted.  We are talking about "level of effort" as in level of effort contract.  I think most of us agree that a T&M/LH contract is not a level of effort contract.

[Vern Edwards]

19 hours ago, Retreadfed said:

What would be a productive hour? 

How about this?

Productive hour means an hour of physical or mental activity devoted to the achievement of the principal contract objective as described in the contract work statement, excluding all administrative and clerical support such as purchasing and document preparation.

[Retreadfed]

2 hours ago, Vern Edwards said:

Productive hour means an hour of physical or mental activity devoted to the achievement of the principal contract objective as described in the contract work statement, excluding all administrative and clerical support such as purchasing and document preparation.

That might work in some circumstances.  I suspect that the definition of "productive hour" would vary from contract to contract.  For example, I once worked with a contractor that had a contract to answer correspondence and prepare speeches for the Office of the Secretary of the Navy.  Document preparation would definitely be considered a productive hour under that contract.  A dispute arose under that contract concerning what the contractor was entitled to be paid and the Navy at first said the contract was a LOE contract but ultimately backed off that position and agreed with the contractor concerning payment.

[Vern Edwards]

16 hours ago, Retreadfed said:

That might work in some circumstances. 

Anything might work if the parties understand and agree to it.

The key is the ability to define terms and agreememt on definitions.

Thus, in order to conduct a transaction for the purchase of "effort" the parties should define it and agree to a method of measurement.

But in competitive procurements the government likes to enter into contracts without discussions.

Agreement without discussion is an interesting idea.

Socrates died in 399 B.C. The government doesn't seem to have learned much since then.

[Sam101]

On 3/13/2024 at 7:46 AM, Vern Edwards said:

Have the three men exerted nine hours of effort or 27 (3 x 9) hours?

The level of effort for this scenario is 9 hours, because those are the productive hours.

But the price of this work will not be $250 per hour multiplied by 9 hours (assuming each productive hour costs $250 per hour), it will be $250 * 9 hours plus some other cost of having the workers be on site waiting their turn, the main cost driver will be $250 * 9 though.