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Labor & ODC cost treatment


Deathdealer

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Hi, pulled the below from a post in the beginner forum titled ODC's. Hope this is an acceptable form of question asking. H2H mentions CAS compliance on cost reimbursable contracts. I am assuming this violates CAS 401 in that it is inconsistent treatment of costs. I thought for a moment it would be CAS 402 but that relates to indirect costs, and in this case its 2 types of direct costs. Can someone explain or point me to the 52.216-7 Allowable cost & payments issue that could be created? 
My particular situation that lead me to this post is similar, we are the prime contractor, we have a subk vendor that invoices us for labor & odc's on a cost reimbursable contract, the government has asked us to bill all costs as ODC's. Not seeking specific advice on my situation just want to better understand the below. Thanks
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  On 10/27/2022 at 3:22 PM, Contractor500 said:

My question is whether the Prime can actually pay us less for an hour of on-call duty which should be labor. They want us to bill this as an ODC, but since this is labor, can I say that we must bill this to labor and not as an ODC? Is there something in the FAR that backs this up? Not sure if something like this is allowed. So, would like your thoughts on this. Thanks. 

First of all, yes. The prime can ask you to bill less than you actually incur. (This assumes that you actually incur $102.31/hour for your employee's labor. See ji20874's post.) You don't have to agree, but the prime can ask.

Second, if you were CAS-covered I would say that you have to be consistent in your cost accounting practices. Labor over there must be treated as labor everywhere. But you're not CAS-covered. Are there burdening differences between labor & ODC? I don't know your accounting system so I couldn't say. But if the transformation from labor to ODC changes the burdening, and your are required by 52.216-7 to submit a final billing rate proposal at the end of the year, then you may have an argument as to why that's a bad idea.

I would suggest you get a consultant in to assist you with these types of questions ...

 

 

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2 hours ago, Deathdealer said:
Hi, pulled the below from a post in the beginner forum titled ODC's. Hope this is an acceptable form of question asking. H2H mentions CAS compliance on cost reimbursable contracts. I am assuming this violates CAS 401 in that it is inconsistent treatment of costs. I thought for a moment it would be CAS 402 but that relates to indirect costs, and in this case its 2 types of direct costs. Can someone explain or point me to the 52.216-7 Allowable cost & payments issue that could be created? 
My particular situation that lead me to this post is similar, we are the prime contractor, we have a subk vendor that invoices us for labor & odc's on a cost reimbursable contract, the government has asked us to bill all costs as ODC's. Not seeking specific advice on my situation just want to better understand the below. Thanks

 

Well.

1.  Yes, it would have been a CAS 401 noncompliance as the costs were proposed as labor then billed as non-labor (ODC). Inconsistent cost accounting practices.

2. The Allowable Cost and Payment clause (52.216-7) requires a contractor to submit an annual proposal to establish final billing rates (final indirect cost rates). The proposal must be submitted in the specified format. See 52.216-7(d)(2). In particular, note the descriptions of Schedules H and I. If a contractor incurs labor costs, presumably they will be burdened with labor overhead. Presumably those same costs, in billed as an ODC, would not be similarly burdened. This would set up a disconnect within the schedules, one that might well render the submission inadequate for audit.

3. You don't want advice on your issue. Got it.

Hope this helps.

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Thank you H2H. This was very helpful, especially #2, always value in additional explanation but figured the first 2 would help me better understand my situation.  I try not to over ask, I could read the forums and ask questions all day. Appreciate the response.

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