Jump to content

Recommended Posts

We have a firm fixed price 8(a) contract that states a combined 36% overhead, G&A, and profit rate.  Within the contract, it does not state what rate applies to subcontractors.  We have over 70% of the work done by a subcontractor (they are similarly situated, so we are in compliance with FAR).  When providing the staffing plan for the year, should we apply the 36% rate to the subcontractor costs too?

Link to comment
Share on other sites

What is the wording of the 36% stipulation? Please quote it. My inclination is that it doesn’t apply to subcontracts but please quote the stipulation in the contract.,

Link to comment
Share on other sites

4 hours ago, mgovcon said:

We have over 70% of the work done by a subcontractor (they are similarly situated, so we are in compliance with FAR).

Perhaps you can elaborate on this...you are in compliance with what FAR requirements, what does similarly situated mean, did you have a proposal from the subcontrator and if so, what did it propose.

Link to comment
Share on other sites

mgovcon,

Are you sure you have a firm-fixed-price contract?  Because if you do, your question makes no sense.  You can pay your subcontractor whatever price you can negotiate.  Isn't the OH/G&A/Profit rate used in the negotiation of the prime contract irrelevant to the formation of the subcontract?  Indeed, isn't that rate relevant only for the formation of the prime contract?  There seems to me to be no reason for the rate to be included or mentioned in the prime contract, and certainly no expectation that it be flowed down.

Are you sure you have a FFP contract?  

 

Link to comment
Share on other sites

23 hours ago, mgovcon said:

We have over 70% of the work done by a subcontractor (they are similarly situated, so we are in compliance with FAR).

Are FAR 52.215-22 and 23 in your contract?  If so, your statement may not be correct.  You need to check it out,

Link to comment
Share on other sites

Sorry, I tried to reply yesterday, but the reply box wouldn't let me type, so I have to reply on my phone.

We do have a FFP prime contract, and we make the subcontractor FFP as well.  I understand we can negotiate how ever we want with the sub, but when we are drafting our FFP plan for the year to the government, is this how we draft our FFP schedule:

Our labor at negotiated rates

Plus the subcontractor labor

Obtain a subtotal

Multiple by 36% indirect rate

Total for FFP contract for the year

Link to comment
Share on other sites

Do you have a separate contract for each year of performance? A separately priced Option? Why do you need to make an annual "schedule" for an FFP prime contract, if what you are submitting is only a staffing plan? I'm really not clear on what you and your customer have agreed to.

Second, the contract should not "state" a combined rate, except perhaps for estimating and/or billing purposes. Your company's actual indirect cost rates are not subject to government customer approval.

With respect to your original question, you haven't disclosed the indirect cost rate allocation base used by your combined indirect cost rate. Does your company, in fact, have separate rates for actual costing purposes? If so, what rates apply to subcontractors? Those are the rates that you should burden your subcontractors with when proposing your annual staffing plans.

Given the lack of clarity in your posts, my best advice is to hire a government contract accounting consultant--of which there are many to choose from. Let them help you.

Link to comment
Share on other sites

31 minutes ago, here_2_help said:

Do you have a separate contract for each year of performance? A separately priced Option? Why do you need to make an annual "schedule" for an FFP prime contract, if what you are submitting is only a staffing plan? I'm really not clear on what you and your customer have agreed to.

Second, the contract should not "state" a combined rate, except perhaps for estimating and/or billing purposes. Your company's actual indirect cost rates are not subject to government customer approval.

With respect to your original question, you haven't disclosed the indirect cost rate allocation base used by your combined indirect cost rate. Does your company, in fact, have separate rates for actual costing purposes? If so, what rates apply to subcontractors? Those are the rates that you should burden your subcontractors with when proposing your annual staffing plans.

Given the lack of clarity in your posts, my best advice is to hire a government contract accounting consultant--of which there are many to choose from. Let them help you.

To help provide more context, this company is a start-up and were awarded an IDIQ 8(a) contract for engineering services.  It contains term options for 4 years.   The wording in the IDIQ contract states "This CLIN includes the combined Rate for G&A, Overhead, and Profit for a total of 36%".  The wording in the IDIQ is quite vague.   

I am also confused on what the combined rate means in the contract.  It seems weird that it would be combined, because those different components involve different allocation pools and bases...  Interally, we are accounting for indirect costs with different allocation bases.  The G&A and the profit would apply to the subcontractor according to our current methodology.

For the OY1 last year, they asked for a "staffing plan" to determine the firm fixed price amount that we would be invoicing from.  Is that not normal for a FFP contract with option years? They told us how many staff they thought were needed for the year.

I am going to speak with a govcon consultant next week, as it is apparent I was dropped into this contract without a lot of experience in govcon.   

Link to comment
Share on other sites

On 5/29/2024 at 6:32 PM, Neil Roberts said:

Perhaps you can elaborate on this...you are in compliance with what FAR requirements, what does similarly situated mean, did you have a proposal from the subcontrator and if so, what did it propose.

52.219-14 Limitations on Subcontracting

This clause says no more that 50% of what you bill to the government should be for subcontractors that are not similary-situated.  Similar-situated means the sub has the same small business program status as the prime contractor and is considered small for the size standard under NAICS code the prime contractor assigned to the subcontract. 

 

 

Link to comment
Share on other sites

5 hours ago, mgovcon said:

To help provide more context, this company is a start-up and were awarded an IDIQ 8(a) contract for engineering services.  It contains term options for 4 years.   The wording in the IDIQ contract states "This CLIN includes the combined Rate for G&A, Overhead, and Profit for a total of 36%".  The wording in the IDIQ is quite vague.   

I am also confused on what the combined rate means in the contract.  It seems weird that it would be combined, because those different components involve different allocation pools and bases...  Interally, we are accounting for indirect costs with different allocation bases.  The G&A and the profit would apply to the subcontractor according to our current methodology.

For the OY1 last year, they asked for a "staffing plan" to determine the firm fixed price amount that we would be invoicing from.  Is that not normal for a FFP contract with option years? They told us how many staff they thought were needed for the year.

I am going to speak with a govcon consultant next week, as it is apparent I was dropped into this contract without a lot of experience in govcon.   

I think you really need to get with your consultant. Something is not right here.

I am reminded of a contractor I worked with about 20 years ago. The contractor had never had a real US Government prime contract before; all it had was a GSA schedule. One day, they woke up with a $500 Million CPFF contract from a civilian agency.

Along the way, they were asked to propose a G&A rate. They asked the CO what a reasonable rate would be, and received an answer that 15% would be a reasonable amount. So that's what the contractor proposed in its priced offer. It was accepted.

"What is your actual G&A rate?" I asked the contractor's CFO.

"What's a G&A rate?" was the response.

Good times.

Link to comment
Share on other sites

1 hour ago, here_2_help said:

I think you really need to get with your consultant. Something is not right here.

I am reminded of a contractor I worked with about 20 years ago. The contractor had never had a real US Government prime contract before; all it had was a GSA schedule. One day, they woke up with a $500 Million CPFF contract from a civilian agency.

Along the way, they were asked to propose a G&A rate. They asked the CO what a reasonable rate would be, and received an answer that 15% would be a reasonable amount. So that's what the contractor proposed in its priced offer. It was accepted.

"What is your actual G&A rate?" I asked the contractor's CFO.

"What's a G&A rate?" was the response.

Good times.

Well at least I know how to calculate that.  I think this is so confusing, because the base year was invoiced as T&M, and then for the second year the government wanted FFP, so we had to come up with a number for that.  That's another question i have for the consultant - is it normal on an firm fixed price IDIQ contract to start out as T&M and then switch to FFP?  I have more questions than answers at this point, so definitely looking forward to meeting up with the consultant. Sorry if I havent been able to provide enough context for my question.  

 

 

Link to comment
Share on other sites

On 5/29/2024 at 1:03 PM, mgovcon said:

e have a firm fixed price 8(a) contract

 

15 hours ago, mgovcon said:

Well at least I know how to calculate that.  I think this is so confusing, because the base year was invoiced as T&M, and then for the second year the government wanted FFP, so we had to come up with a number for that.  That's another question i have for the consultant - is it normal on an firm fixed price IDIQ contract to start out as T&M and then switch to FFP?  I have more questions than answers at this point, so definitely looking forward to meeting up with the consultant. Sorry if I havent been able to provide enough context for my question.  

 

 

As I followed this discussion thread lots of things ran through my mind.  Consider them as you wish.

I would voice concern that the agency has put you at risk by not operating within the regulatory conditions of the 8(a) program.   As a 8(a) participant have you reached out to your designated servicing SBA office to discuss this situation especially in consideration of the regulations at 13 CFR 124 and most specifically ....

13 CFR 124.404

13 CFR 124.505(a)(4)

13 CFR 124.510(b)

13 CFR 124.514 - Think about priced and unpriced options.   Seems like the latter to me just based on the basic information provided.

13 CFR 124.704

 

Link to comment
Share on other sites

1 hour ago, C Culham said:

As a 8(a) participant have you reached out to your designated servicing SBA office to discuss this situation especially in consideration of the regulations at 13 CFR 124 and most specifically ....

13 CFR 124.404

13 CFR 124.505(a)(4)

13 CFR 124.510(b)

13 CFR 124.514 - Think about priced and unpriced options.   Seems like the latter to me just based on the basic information provided.

The OP has not said that this was a MATOC or a competitive set-aside contract.

Carl,

1. What is your concern about 13 CFR 124.404?

2. 13CFR 124.505(a)(4): 

“(a) What SBA may appeal. The Administrator of SBA may appeal the following matters to the head of the procuring agency:

(4) The terms and conditions of a proposed 8(a) contract, including the procuring activity's  NAICS cod designation and estimate of the fair market price.”

The contract is already awarded. We don’t know what the agency solicitation/RFP for the 8(a) IDIQ engineering contract stated the possible pricing methods could be.

3.  13 CFR 124.510(b)?  The OP already said that the subcontractor is a similarly situated entity. The limitation on subcontracting is not applicable to a similarly situated subcontractor here, is it? 

4.  13 CFR 124.514: I don’t necessarily see a problem with pricing options,  post award, here. 

“…(2) If the concern is still a  Participant and otherwise eligible for the requirement on a sole source basis, the procuring activity contracting officer may negotiate price and exercise the option provided the option, considered a new contracting action, meets all regulatory requirements, including the procuring activity's offering and SBA's acceptance of the requirement for the 8(a) BD program.”

Link to comment
Share on other sites

On 5/29/2024 at 3:03 PM, mgovcon said:

We have a firm fixed price 8(a) contract that states a combined 36% overhead, G&A, and profit rate.  Within the contract, it does not state what rate applies to subcontractors.  We have over 70% of the work done by a subcontractor (they are similarly situated, so we are in compliance with FAR).  When providing the staffing plan for the year, should we apply the 36% rate to the subcontractor costs too?

What I don’t understand is, unless this was a competitive (8a), single award ID/IQ , it should have initially been negotiated for at least the Time and Material base year. And you are obviously negotiating an option year price.

Why hasn’t anyone asked the procuring agency during the initial negotiation or now during the current negotiation how to apply the set “combined rate”? Was the rate initially negotiated?

If the rate is “vague” I would (have) certainly discuss(ed) it with the agency during negotiations… I don’t think anyone here can answer your initial questions but the agency should be able to.

Assuming this is a sole source negotiated contract with negotiated option year pricing, it could justifiably be set-up as T&M base year followed by FFP option years.

We dont know what type of “engineering” effort or products are involved. 

Link to comment
Share on other sites

21 hours ago, joel hoffman said:

Carl,

Joel - In a nutshell this is my concern - 

 

On 5/31/2024 at 9:22 AM, mgovcon said:

this company is a start-up

that then extend to the questions you have posed and much, much more.   

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

×
×
  • Create New...