52.216-8 Fee Withholding Question

[mpproc]

All,

I'd like to get your opinion on a disagreement we are having with one of our DCMA folks. We have been performing under a CPFF contract since 1/1/14 which includes the 52.216-8 clause, and our KO has not withheld any payment of fee to date. DCAA recently audited the contract records, and deferred the question to DCMA on whether or not things have been handled appropriately. Our DCMA POC's answer was simply an e-mail stating "15% fee withhold is mandatory. The contractor has overbilled and no more billing is permitted. It is mandatory, that 15% of the fixed fee be withheld until such time as the Contractor's 2014 Incurred cost proposal is deemed adequate." I contacted the DCMA POC and stated that I don't disagree that the KO should withhold payment up to the 15% or $100K as the FAR clause indicates, but I contested the fact that he is claiming that "contractor has over billed and no more billing is permitted", stating that the onus is on the KO to withhold payment rather than for us to withhold billings (as an aside, our KO expressly told us not to do so). Am I crazy here? In the past, we automatically retained 15% on all CPFF jobs we had which contained that clause, and our DCAA auditors dinged us for doing that and our KOs got angry - it's like we can't win! Please let me know what you think.

Thanks for the help!

[here_2_help]

1. If the CO says no fee withholding is necessary, then no fee withholding is necessary.

2. If the CO implements 15% fee withholding, then you are subject to fee withholding.

3. The clause says (in part) -- "The Contracting Officer shall release 75 percent of all fee withholds under this contract after receipt of an adequate certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements. The Contracting Officer may release up to 90 percent of the fee withholds under this contract based on the Contractor’s past performance related to the submission and settlement of final indirect cost rate proposals." I'm not sure it's a fair reading to say that fee must be withheld solely because the contractor has not yet submitted an "adequate" final rate proposal, but that may be simply semantic nitpicking on my part.

Hope this helps.

[Guest Vern Edwards]

mpproc:

Which version of 52.216-8 is in your contract -- APR 1984 or JUN 2011?

[BZMANINTEXAS]

In the June 2011 version it states " Payment of the fixed fee shall be made as specified in the Schedule; provided that the Contracting Officer withholds a reserve not to exceed 15 percent of the total fixed fee or $100,000, whichever is less, to protect the Government’s interest."

To me, it would appear to mean that the CO is obligated to withhold some type of reserve (.01 - 15% but no more than $100k) to protect the Government's interest, even if it is a fraction of a percent. If they choose to not withhold, I would assume some type of determination is in the file as to why they feel there is no risk.

That said, I think it is on the CO to either reduce the Fixed-Fee invoiced and state as to why the payment has been reduced, or give direction prior to billing on the contract that "x%" of Fixed-Fee is being withheld until the final audits and the contractor can only bill for fixed fee (minus withhold) during the term.

[mpproc]

Thanks, all! Vern - the clause in our contract is the 2011 version of the clause. I should have mentioned, there is no schedule of withholding or anything of the like in the contract. Any retainage we do from a billings perspective would be solely determined by us, the contractor, which seems counterintuitive to the purpose of the FAR clause itself (to protect the government's interest). I'd even go a step further and argue that if we were to "under bill", we would be in non-compliance with our approve accounting system and be billing inadequately same as we had "over billed".

[Guest Vern Edwards]

The 2011 clause appears to me to make some withholding mandatory. The amount is left to the CO, up to the limit. The clause does not require that the amount be 15 percent. However, that might be DOD policy. It is up to the CO to withhold. "Withhold" means that the contractor requests the payment, but the CO withholds part of the payment until a later time. It does not mean that the contractor "under bills". If the CO does not withhold, the contractor has no obligation to "under bill" on the Government's behalf.

I don't know why DCMA has told you that your company has "over billed". It might just be careless expression, which is rampant in our business.

[mpproc]

Thanks, Vern! You echo my sentiments exactly, and that is almost to a word what I responded back with. For some reason, DCMA is adamant that we should be unilaterally "under billing" in order to compensate for the CO not withholding payment, with which I wholeheartedly disagree. When I brought up the fact that if we were to do so, WE would be determining as the Contractor the justifiable risk percentage withheld on behalf of the Government, which does not seem right. He basically said that since they can't count on the KOs to do it, the responsibility is the Contractor's - not true.

[Guest Vern Edwards]

Tell them to get lost.

[BZMANINTEXAS]

I ran across this old blog from Apogee Consulting - - even quotes the great "Don Acquisition" concerning Fee Withholding and related rulings by the ASBCA

http://apogeeconsulting.biz/index.php?option=com_content&view=article&id=583:what-is-the-contract-value-of-an-idiq-type-contract&catid=1:latest-news&Itemid=55

[mpproc]

Thanks, BZMAN! The kicker on this one is, I actually am not even arguing with DCMA and DCAA the fact that the KO may/should be withholding payment in accordance with 52.216-8 - I'm just telling them that the KO is choosing not to (Government's problem - not mine!), and they are telling me we should be under billing by 15% (so, doing our OWN fee withhold arbitrarily - completely contradictory to the clause language) to compensate for the fact that the KO is not withholding payment. It's truly unbelievable...

[chuparosa]

Is there a precedent for a CO withholding a percentage of an incentive fee following the issuance of a modification awarding the full incentive fee amount? The contract includes the subject FAR clause which allows a Fixed Fee withhold.

[here_2_help]

chuparosa,

The full incentive fee would be determined at contract completion, yes? The contract is physically complete, right? The contract mod that establishes the incentive fee is typically the final contract mod before closure, yes? If so, I'm unclear why the CO would fee the need to protect the government's interest by withholding a percentage of the incentive fee.

Perhaps others can explain the thinking better than I can.

H2H

[1102newbie]

Thanks, BZMAN! The kicker on this one is, I actually am not even arguing with DCMA and DCAA the fact that the KO may/should be withholding payment in accordance with 52.216-8 - I'm just telling them that the KO is choosing not to (Government's problem - not mine!), and they are telling me we should be under billing by 15% (so, doing our OWN fee withhold arbitrarily - completely contradictory to the clause language) to compensate for the fact that the KO is not withholding payment. It's truly unbelievable...

I know I'm late to the party, but I thought I would throw my 2 cents in.

There is no way for DCMA to "do the withhold" in the way you are talking about. Vouchers are paid by DFAS, usually directly by them with only a random voucher reviewed by DCAA once in a while. The voucher could be submitted and paid before DCMA would have a chance to review it.

The PCO should have included instructions in the contract on how the withhold will be done, along with the withhold percentage. As others said, the clause is "no more than 15%", but KOs seem to always go with 15%.

When no instructions are provided in the contract, then it is up to the ACO to provide them. They could either tell you to 1) withhold 15% for each fixed fee payment starting with the first payment (or not more than $100,000 of the total fixed fee), or 2) bill the full fee until 85% of the total fee is reached.

Instructions on how to submit an interim voucher showing the fee withhold is included in DCAA's "Information for Contractors" manual.

[Retreadfed]

Newbie, direct billing to DFAS stopped around 2012. Now DCAA reviews vouchers based on a risk assessment of the contractor. Here, it was stated that DCAA audited a voucher and bucked it over to DCMA who told the contractor it had overbilled and was required to withhold 15% of fee. This is very possible since DCAA has to approve interim vouchers on cost reimbursement and T&M contracts.

[1102newbie]

Right. What I was referring to as "direct bill" were the vouchers that are not sampled by DCAA.