The Treasury Secretary has set a rate of 3.125% for the period July 1 through December 31, 2003. The new rate is a decrease from the 4.250% rate applicable in the first six months of 2003. The Secretary of the Treasury semiannually establishes an interest rate that is then applied for several government contract-related purposes. Among other things, the rates apply to (1) what a contractor must pay the government under the “Interest” clause at FAR 52.232-17 and (2) what the government must pay a contractor on either a claim decided in its favor under the Contract Disputes Act or payment delays under the Prompt Payment Act. The rate also applies to cost of money calculations under Cost Accounting Standards 414 and 417 as well as FAR 31.205-10 and when a discount factor is used to calculate the present value of future payments (e.g. deferred compensation). (Fed. Reg. 39185)
The FAR Council has issued the Federal Acquisition Circular 2001-15 where notable changes to the FAR includes amendments to the compensation and selling cost principles and the requirement of agencies to input information regarding multi-agency contracts in an on-line directory.
Compensation. FAR Part 31.201 has added a definition of compensation for personal services that tracks the FAR 31.205-6 compensation cost principle as “all remuneration paid currently or accrued, in whatever form and whether paid immediately or deferred, for services rendered by employees to the contractor.” A phrase “closely held corporations” has been added to FAR 31.205-6(a)(6) which requires special consideration for individuals employed by limited liability companies, sole proprietorships or other similar entities. The FAR Council has also reinstated the section addressing severance pay allocations in a new FAR 31.2056(g)(4).
The FAR Council considered and responded to comments that were submitted on the proposed rule:
1. Reasonableness of compensation should be based “solely” on the contractor’s total compensation without consideration of individual employees or their job classes. The FAR Council disagreed saying while contractors should be able to determine their own mix of wages, bonuses and benefits the government’s right to review individual compensation for reasonableness will not be waived.
2. A global compensation policy statement should be employed in lieu of more specific language to determine what costs are allowable. The Council said the current language is needed to avoid situations where costs made unallowable by other cost principles are considered allowable “merely because it meets the criteria for allowable compensation.”
3. Consideration of specific compensation costs should be eliminated and replaced only by the reasonableness factors listed in FAR 31.201-3. The FAR Council said both criteria should be used.
Selling Costs. The changes are not substantive for contracts but the paragraphs of FAR 31.205-38 have been restructured and “duplicative” language eliminated. A comment was considered that stated the cost principle should be eliminated because it merely defined the term and expressly states that selling costs are allowable referring the reader to other cost principles for allowability determinations. The Council disagreed stating the selling cost principle “disallowed and should continue to disallow” selling costs not made specifically allowable by it or other cited cost principles.
Online Database for Multi-Agency Contracts. To provide contracting officers and program managers online sources of information for multi-agency procurements, a new FAR Part 5.6 requires contracting activities to, within 10 days of award, to enter information into a database at www.contractdirectectory.gov for all multi-agency contracts, Federal Supply Schedule contracts and other procurement instruments intended for multi-agency use. The final rule requires COs to consider sources of supplies and services and encourages use of the database to establish market research information for prospective acquisitions (Fed. Reg. 43853).
(Editor’s Note. The following will hopefully provide the impetus to close out old contracts and especially help contractors collect additional amounts due.)
The Defense Department directed all its agencies and military departments to provide necessary funds to facilitate speedy closeout of old contracts. The joint letter by Procurement head Deidre Lee and Deputy CFO JoAnn Boutelle stresses that contract closeouts are a major DOD-wide priority and since a significant number of contracts cannot be closed because of lack of funds, resource managers are told to quickly respond to contracting officers’ requests for additional funds. Additional funding may be needed because unanticipated events such as material and labor increases, schedule slippages and other difficulties creating an imbalance between requirements and funding. The letter states greater vigilance should be focused on providing funds during contract performance when, for example, contractors inform the government under the Limitation of Cost and Limitation of Funds clauses of cost type contracts that additional funds will be required to complete the contracts.
The Defense Contract Audit Agency issued internal guidance on changes to two of its audit programs:
Preaward surveys. The audit program has been tailored to address the requirements of Standard Form 1408. SF 1408 is essentially a checklist of accounting requirements a contractor needs to demonstrate it can comply with before starting work on a contract that requires reporting of contract costs – e.g. segregation of costs, direct costs by contract, proper allocation of indirect costs, adequate timekeeping, exclusion of unallowable costs, etc. The new guidance explains that (a) the survey is an examination of the contractor’s accounting system before contract award (b) it is initiated by a request from the CO and (c) a financial capability audit should not automatically be set up but should be conducted only if the CO requests it.
Postaward Audits of Nonmajor Contractors. The guidance explains that (a) this audit of the accounting system at a nonmajor contractor will be conducted after contract award (b) the major objective is to determine whether the contractor’s accounting system is adequate for accumulating and billing costs (c) the audit is usually performed at the request of the CO when either a follow-up to the preaward survey is requested or when a preaward survey was not conducted but the CO has decided one is now needed to support contract requirements (d) auditors may self-initiate an audit if it believes there is sufficient audit risk (e) completion of the audit will determine whether the contractor is eligible for direct billing (i.e. submitting interim vouchers directly to the disbursing office). Though quite similar to the preaward audit where, for example, reported expenditures are traced through the system to source documents, the post award audit focuses on the accuracy of billings. Auditors are told that the scope of the postaward audit is not sufficiently detailed to express an opinion on the contractor’s adequacy of accounting or billing internal controls (MRD 03-PAS-059(R).
In the last issue of the GCA Report we reported on recent changes to the Office of Management and Budget Circular A-76 which is the principle guidance governing the way federal agencies go about determining whether a current activity should be performed by the public or private sector. The revisions were primarily intended to streamline the way public versus private competitions are conducted to lesson the time and effort involved once an activity is identified as an outsourced candidate. Since industry stands to gain from the greater outsourcing of goods and services currently provided by the government while federal workers stand to lose jobs if the changes are implemented several responses to the A-76 revision and outsourcing in general have become a hot topic.
(1) GAO head David Walker testified to Congress the revisions’ emphasis on permitting greater reliance on FAR-based procedures and basing selection decisions on tradeoffs between technical and cost factors were laudable. He said there were “implementation challenges” including (1) difficulty in meeting the goal of 12 months from public announcement to performance decision (2) the streamlined cost comparison process for activities using less than 65 full time equivalents would lead agencies to arbitrarily split up functions to meet the 65 FTE threshold (c) the revisions that prohibit federal unions to challenge cost comparisons provided “less accountability” and (d) the new requirement that in-house awardees must re-compete every five years is inconsistent with contractors who need not re-compete.
(2) Insisting the revisions to A-76 tilt the rules in favor of private contractors at the expense of federal employees, the House voted 220-198 for language prohibiting the use of funds to implement the May 29 revisions. The amendment to funding the Departments of Transportation and Treasury will affect only a limited number of agencies while a more far reaching proposal was narrowly defeated. The President has promised to veto the measure.
(3) The Administration has informed Congress it is abandoning its initial government-wide goals for competitive outsourcing and is replacing them with customized agency-specific plans which are expected out soon.
The Cost Accounting Standards Board has issued an Advance Notice of Proposed Rulemaking (ANPR) which is part of the process required to change the CAS. The amendment addresses how the costs of Employee Stock Ownership Plans (ESOPs) will be recognized under Government cost-based contracts and subcontracts where criteria will be provided for measuring the costs and assigning the costs to accounting periods. Basically, the proposed changes modify CAS 415 covering deferred compensation and states that ESOP costs should be measured by the contribution made to the ESOP not by the value of compensation received by the employee. Also, the costs should be assigned to the cost accounting period in which ESOP awards are made to employees. The allocation of the assigned ESOP costs to contracts and subcontracts are addressed in other standards (e.g. CAS 410, 403, 418).
The ANPR follows an earlier discussion paper addressing numerous ESOP issues such as whether they should be accounted for under CAS 412, Pension costs or CAS 415, deferred compensation. ESOPs are individual stock bonus plans designed specifically to invest in the stock of the contractor’s company. An ESOP can be structured as a form of pension plan if it offers participants benefits for life (“pension plans”); otherwise, they are “deferred compensation ESOPs.” The Board concluded that neither Generally Accepted Accounting Principles nor current CAS provide adequate guidance on how to treat these sometime pension-sometime deferred compensation costs. Several cases (e.g. Ball Crop. ASBCA 49118; Ralph M. Parsons Co. ASBCA 37931) have concluded CAS 415 should govern the measurement of ESOPs for government costing purposes and the CAS Board has decided to amend CAS 415 so that ESOP contributions are treated like deferred compensation while CAS 412 will be amended to exclude coverage of ESOP costs that meet the definition of a pension plan.
Several industry groups have been urging the Department of Homeland Security (DHS) to implement the July 11 proposed Support Anti-Terrorism by Fostering Effective Technologies (SAFETY) Act. The Act is intended to encourage wide participation against terrorism by limiting claims and damages potentially faced by companies providing anti-terrorism products and services in federal, state, local and private contracts. The act authorizes DHS to designate “qualified anti-terrorism technologies” (QATTs) and to “certify” a list of “approved” products and services. Once certified a variety of protections against liability to third parties goes into effect such as (1) lawsuits arising from the deployment of that technology may be brought only against the seller and only in federal court (2) claim liability is limited to the amount of seller’s insurance coverage to be specified by DHS for each individual technology and any recovery is to be reduced by any collateral compensation such as insurance and government benefits (3) a seller can only be liable for that percentage of non-economic damages (e.g. pain and suffering) which is proportionate to its responsibility for the harm and (4) punitive damages and prejudgment interest are barred. In addition, special liability protection for QATTs that DHS certifies is so entitled to provides a rebuttable presumption that the “government contractor defense” shields a seller from product liability claims. It will cover sales of both federal and non-federal customers and can be rebutted only if the seller acted fraudulently when submitting product information to DHS.
The proposal defines QATT as “any product, equipment, service (including support services), device or technology…designed, developed, modified or procured for the specific purpose of preventing, detecting, identifying or deterring acts of terrorism or limiting the harm such acts might otherwise cause.” To qualify as a QATT, the seller must submit an application to DHS through the mail or at http://www.dhs.gov . Once submitted, the DHS will determine whether to qualify the technology based on eight criteria: (1) prior government use or demonstrated substantial utility and effectiveness (2) availability for immediate deployment (3) the existence of “extraordinarily large or extraordinarily unquantifiable” risk to the seller (4) it being likely the technology will not be deployed without the Act’s liability limitation (5) the risk to the public if the technology is not deployed (6) evaluation of all scientific studies that can “feasibly” be conducted (7) the effectiveness of the technology and (8) any other factor DHS considers relevant. The original SAFETY ACT proposal can be found at Federal Register 41420.
House and Senate subcommittees on Small Business have approved a new Small Business bill to expand opportunities for small businesses to receive a larger share of the federal contract expenditures. The SBA Reauthorization Act (1) opens up SBA loan programs to “fast growing contributors of the economy” (2) limits contract bundling by providing small business better access to federal contracts (3) strengthens oversight and enforcement of small business subcontracting plans and ensures small business subcontractors are not neglected (4) improves the Historically Underutilized
Business Zone (HUBZone) program and (5) specifies the government-wide goal for small business participation in any multiple award contract to be not less than 23% of the total dollar value of all awards under that contract.
The new act, which amends the Small Business Act, will change the term “bundling” contracts to “consolidating” contracts (where small contract requirements are combined into a larger contract frequently preventing small business from competing) and require an agency conduct market research, identify alternative contracting approaches and determine if consolidation is justified for any defense contract over $5 million or $2 million for other agencies. Where the SBA Act provides that consolidation “is necessary and justified” when the benefits of consolidation substantially exceed the benefits of alternative approaches the amendment states “savings in administrative or personnel costs alone” do not amount to sufficient justification for a contract consolidation. Also, the amendment provides that contracts between $2,500 and $1 million may be set aside for competition limited to small business concerns if the CO is able to obtain offers from two or more small business who are competitive in market price, delivery, schedule and quality. In addition, the bill not only emphasizes a 23% government-wide goal but instructs individual agencies to establish separate small business contracting goals.
The Cost Accounting Standards Board announced September 10 it had decided to discontinue developing a cost accounting standard for accounting treatment of post retirement benefit (PRB) plans under cost-based contracts and subcontracts. The decision was based on numerous reports showing PRBs are decreasing due to the substantial increase in health benefits and contractors need to remain flexible in how they recognize the liability. Many commentators to the recent CAS Board proposals argued the accrual accounting under existing accounting rules are the best way to measure and assign costs for PRBs that create a firm liability.
DOD Can Acquire More Items at the Same Price
The Department of Defense has issued an interim rule authorizing acquisition of a higher quantity of end items than specified by law as long as the dollar value is not exceeded. The possibility of acquiring more end items without additional funding can occur when production efficiencies or other cost reductions occur or the parties agree to do so (Fed. Reg. 43331).
Effective August 21, the Department of Defense has issued an interim rule amending the Defense Federal Acquisition Regulation Supplement that would restrict use of multi-year contracts for supplies to those long lead items necessary to meet a planned delivery schedule for completion of major end items (Fed. Reg. 2003).
Tsai was on temporary duty in Bangkok when her agency asked her to fly direct to Beijing for government business rather than return home to Washington D.C. On her way to Beijing she purchased some warmer clothes (e.g. 2 sweaters, pants and a coat) because her clothes for the hot Bangkok weather would not be sufficient. When challenged for reimbursement she argued (1) the clothes purchase was necessitated by the change in her travel itinerary (2) the change in travel was solely for the benefit of the government (3) the cost of the winter clothes was substantially less than returning to the U.S. to pack suitable clothing for China and (4) she should not be personally liable for the clothes since they were not the type she would ordinarily buy.
The Appeals Board expressed sympathy but refused reimbursement stating no statute or regulation permitted reimbursement. The Board said the Federal Travel Regulation (FTR), which implements statutory authority, identifies reimbursable travel expenses as lodging, meal, transportation and “miscellaneous expenses” but the clothing is not listed as one of the miscellaneous expenses in 301-12.1 of the FTR. It cited earlier ruling that also excluded clothing as a reimburseable cost (GSBCA 16058 TRAV).
Rather than exercise options under R&W’s contract the Army decided to award a new contract and sought bids. When requested under the Freedom of Information Act (FOIA), the government divulged R&W’s bid prices for the option years to other bidders. After awarding the new contract to SKE, R&W brought suit arguing that FOIA disclosed information involving trade secrets and other proprietary data was protected from disclosure under FOIA’s exemption 4 and the release of data prejudiced (i.e. harmed) R&W because it enabled SKE to underbid R&W for new work.
A lower Court ruled the information released under FOIA was not improper because the publicly opened bids to the incumbent contract put the information into the public domain but the CO acted improperly because it had an “overriding” duty under FAR 1.602-2 to prevent “competitive prejudice” to the incumbent. The Appeals court agreed the FOIA exemption number 4 did not apply but reversed the ruling against the CO. Noting that a regulation (FAR 1.602-2) that contravenes a statute (FOIA) is invalid, the appeals court ruled FOIA obligates the government to disclose non-exempt information and the CO’s “general” regulatory duty to ensure a fair competition is trumped by FOIA (R&W Flammann GmbH v. U.S. 2003 WL 21804843).
Under a “best value” ship repair solicitation with two evaluation factors – past performance and price – the Navy awarded the contract to a firm having a past performance rating of neutral but whose price was lower. The solicitation stated a past performance evaluation of neutral would be evaluated “neither favorably nor unfavorably.” Though the awardee referenced contracts, they were considered irrelevant and thus it received the neutral rating. The Navy indicated it had no doubts about the firm’s ability to perform and concluded the other offeror’s very good past performance rating did not justify a higher price. The GAO sustained the decision (Gulf Copper Ship Repair Inc. GAO 292431).
(Editor’s Note. The following shows the need to segregate all costs that can possibly be grounds for a claim.)
Propellex held a fixed price Army contract to produce primers for artillery shells. During production the Army found the black powder used in the shells contained excessive moisture and Propellex conducted extensive tests on the shells but did not separately record or otherwise segregate the testing costs from its general production costs. Ultimately Propellex determined and the Army agreed that the government was at fault and Propellex filed a claim for the testing costs. Since it did not segregate the excess costs of the testing it used a modified cost method to compute its entitlement that identified total production costs, subtracted non-government caused extra costs and payments with the remainder representing the test costs. Citing Servidone Const. Corp. v U.S. (a modified total cost method must prove it was impractical to segregate its costs related to government caused extra costs) the Court denied the claim, asserting Propellex could not use the modified total cost method because it was unable to establish it was impractical to segregate the costs. The facts it was able to segregate non-government caused costs and efforts (though not costs) for the testing were identifiable made it clear that is was not impractical to keep proper records of the testing costs (Propellex Corp., v Brownlee, 2003 WL 22076597).
(Editor’s Note. With expanding public versus private competitions, you need to consider what the government is likely to estimate, especially when staffing levels are not specified in the solicitation. Lower staffing estimates by the government are a likely source for competitive pricing advantage and the following indicates the difficulty in challenging these estimates.)
Remtech was selected to compete against the government’s most efficient organization (MEO) proposal for information services work under an OMB Circular A-76 competition. When it lost, Remtech’s appeal asserted the MEO’s proposed staffing for quality control and program management was insufficient. The GAO disagreed, ruling that Remtech’s proposed staffing did not establish a “threshold of acceptability”, the proposed work scope did not specify any staffing or hour requirements and the MEO’s proposed staffing, though lower than Remtech’s, was reasonable considering the government’s greater “experience and subject matter expertise” (Remtech Services, Inc., GAO, B-292182).
(Editor’s Note. The following demonstrates the need to identify potential government caused actions that tend to increase the costs of a contract, not only to substantiate claims, but also to maximize recovery of termination settlements. The documentation of increased costs raises the ceiling of potential recovery because the settlement cannot exceed the contract price plus changes and government caused changes can mitigate assertions of loss adjustments.)
The contract to supply 1,171 guidance sections and related services was plagued by substantial change orders, many related to defects in the government’s data package, and rather than continue to pay for increased costs the government terminated the contract for convenience. DCAA issued a report indicating Raytheon would have lost money had it completed the contract so the government reduced the termination proposal by adjusting it for the anticipated losses. Citing M.E. Brown (ASBCE 40043) that ruled the FAR’s loss adjustment requirement does not apply if the government substantially contributed to the increased costs and it is not possible to segregate that loss from the contractor’s loss, the Board sided with Raytheon. The Board ruled the significant changes caused by the defective data package resulted in the government substantially causing the increased costs and hence the lost adjustment was inappropriate (Raytheon Co. ASBCA 51652).
The Army limited a contract to overhaul helicopter engines to Rolls Royce Corp (RRC) based on RRC’s contention the engines could not be overhauled without access to “secret information” only it possessed. HEROS protested the sole source award claiming the Army failed to properly plan the procurement – it failed to (1) update its overhaul manuals (2) determine if other vendors could do the job and (3) investigate reports that other agencies were successfully overhauling engines using commercially available manuals.
The GAO sided with HEROS noting full and open competition is required unless the agency proves only one source exists; under no circumstances can a solicitation be sole source when the restriction results from an agency’s failure to properly plan the procurement. The GAO found the failures asserted by HEROS to be true and hence ruled the sole source decision was improperly based on deficient advanced planning (HEROS, GAO, B-292043).
(Editor’s Note. The following leaves room for cost realism type analyses under fixed price contracts.)
Eurest protested an $850 million award to Marriot for a fixed price nationwide foodservices contract for the U.S. Marine Corps. Eurest asserted the USMC could not reasonably conclude Marriott’s bid represented the lowest cost to the government because they did not conduct a price realism analysis. USMC asserted such an analysis addressing the likelihood of Marriot meeting its target price would have essentially violated FAR 15.404-1 which prohibits the adjustment of fixed price contracts based on the results of a cost realism analysis (which are commonly conducted for cost type contracts only).
The GAO ruled for the protester saying USMC could not meaningfully evaluate the realism of the proposed price without determining whether offerors were likely to meet their target costs. It further stated though the FAR precludes adjustments to fixed prices as a result of a cost analysis, it does not preclude agencies from performing “ a critical price evaluation” that considers whether a propose price “reflects the ultimate cost to the government.” This was particularly important because Marriott reduced its proposed staffing in its final proposal revisions without providing a rationale for the reduction (Eurest Support Services, GAO, B-285133.3).
Reasoning its contract was a fixed price contract because it included several general fixed price contract clauses, Dawkins claimed its was owed the difference between the contract’s fixed price and what it was actually paid after the contract was cancelled. NASA rejected the claim asserting it was a time and material (T&M) contract and hence Dawkins was entitled to what it had been paid. The Board sided with the government ruling though the contract erroneously included some clauses applicable only to fixed price contracts the Order of Precedence clause provides the contract schedule takes precedence over contract clauses and the Schedule began with a list of labor categories Dawkins was to supply at stated hourly rates plus a subcontract handling fee and a materials markup. The Board concluded the contract, reasonably interpreted, was T&M and hence the T&M payments clause was incorporated into the contract by operation of law under the Christian Doctrine (i.e. mandatory clauses are deemed incorporated into government contracts whether or not they are explicitly stated) (Dawkins General Contractors and Supply Inc., ASBCA No. 48535).
Contractors quite commonly find themselves in positions where they would like to alter the magnitude of costs included in their various indirect cost pools to achieve their cost and pricing objectives. For example, one may want to shift costs to overhead to maximize recovery on direct labor or to lower their other rates because they are facing strict ceilings on their contracts; other may want to reassign costs to G&A to increase recovery on material, subcontracts or other indirect costs or their other rates may be perceived to be too high. It used to be a good idea to minimize G&A costs since Defense Department profit guidelines excluded profit from G&A costs when computing an acceptable fee but that has recently changed since the profit guidelines now provide for profit on G&A.
Last issue we addressed a question from a client who wanted some pros and cons for establishing a new indirect cost rate – material handling. In this issue we will address how certain costs in one pool may properly be reallocated to another pool without creating a new indirect cost rate. Our client had an established practice of two indirect cost rates – overhead applied on a direct labor base and general and administrative (G&A) costs applied on a total cost base – and was not interested in considering an alternative indirect rate structure. They asked us to examine some of its G&A costs and tell them if some of the costs could properly be reallocated to overhead because it considered its G&A rate excessive while its overhead rate was on the low side. The following is an edited version of a short memo we sent them.
Practices for what costs are included in overhead versus G&A vary widely by contractors and you have a great deal of flexibility even if you are CAS covered (they are not). The basic requirement is to have a reasonable rationale for your requirement and follow the practice consistently. It is also a good idea to have your practices in writing (this is mandatory if you are CAS covered). Though disputes may arise and auditors may become aggressive in attempting to minimize allocable costs to government work, it is not up to the auditor to tell a contractor how to treat a cost – rather their job is to evaluate the reasonableness of the contractor’s decision and ensure the practice is followed consistently.
As to your request for me to examine what costs can be reassigned from G&A to overhead the general criteria is that overhead costs are considered expenses in support of two or more projects while G&A is considered costs for operating the company as a whole. Contractors commonly follow the above criteria for overhead and then consider G&A as “everything else.” Many costs that you are charging to G&A such as contract administration, marketing, IR&D, legal expenses and accounting may properly be considered overhead.
Contract Administration. Your contracts administration expenses consist of three people’s salary who are involved in administering contracts as well as purchasing primarily direct materials and supplies. These tasks are closer to supporting projects and can easily be considered overhead.
Marketing and Sales. Marketing and sales are usually considered to be effort to expand the business base and hence are quite properly G&A. However, my examination of the types of activities that you charge to marketing indicates the majority of expenses should be charged to other accounts which can then be assigned to overhead. For example, much of the time not charged direct by normally direct employees are identified as “sales and marketing” when they are really kind of idle time. Though “sales and marketing” seem somehow more productive than idle time, idle time is not considered unallowable and would more properly be assigned to overhead. Or, for example, non-direct time spent with the client need not always be considered “sales and marketing” even though the effort hopefully results in expanded work on a contract. The nature of this effort is usually discussions of either technical matters or various administrative matters where such costs can plausibly be charged to overhead.
Independent Research and Development. IR&D is also commonly a G&A cost but many of the “IR&D” efforts you classify can be considered support of existing contracts (e.g. designing new technical solutions applicable to current jobs) and hence overhead. I have included a detailed account of the activities you charge to IR&D and identified which ones can be considered overhead and what is clearly G&A IR&D costs (not included here).
Legal Fees. Many of the legal fees you incur can be properly assigned to overhead when they support projects (e.g. employee issues, opinions related to contracts, suits resulting from contract work, etc.) while those legal costs in support of the company as a whole (e.g. support of Board work, finance related, etc.) are charged to G&A. It is quite common for contractors to erroneously assume that the same categories of costs must always be charged to the same pool. Stemming from CAS 402, the criteria for consistent treatment is “costs incurred for the same purpose in like circumstances” need to be charged either direct or indirect. There is no requirement to charge costs to the same pool. Further, one can argue that legal costs related to administering contracts are not “like circumstances” to legal expenses for corporate board work.
Accounting. Many accounting costs are chargeable to overhead – it is common, for example, to include senior finance and accounting personnel in G&A (e.g. CFO, corporate controller, corporate audits) while all other accounting expenses are included in overhead, reasoning they primarily support contract work including employees.
Of course reassignment of the personnel costs from G&A to overhead discussed above would also entail a corresponding shift of fringe benefits, taxes as well as a proportionate share of “Other Operating Expenses” (primarily facilities and utilities related expenses).
Q. We are preparing a claim (which our firm is working on) and in addition to all the costs we have identified we want to assert the government-caused delay made our employees less efficient. Is this a valid item to include in our claim and how should we quantify it?
A. A recent article in the September issue of the Nash and Cibinic Report addresses this topic. Whether caused by delays, interruptions, differing site conditions, different specifications or requirements to accelerate work, loss of productivity is common and several texts and a case approve use of the “measure mile” technique for quantifying this loss. The measured mile technique compares the productivity of labor in the period that was impacted by the delays or other causes with the productivity in some period where normal productivity was accomplished (hence, “measured mile”).
Two considerations for using the measured mile are key: (1) the compared work must be “equivalent” – since work is rarely identical “equivalent” has been ruled sufficient; if not equivalent but in some way comparable, adjustments for the two periods to achieve comparability has been ruled valid and (2) data must be reliable – though the best data to use is from the same contract comparisons with other contracts and use of industry statistics have been held to be acceptable. Expert industry opinions have also been held to be valid but opinions are useless unless the data is credible.
Q. What are the senior executive ceiling for the last few years.
A. 2003 – $405,273; 2002 – $387,783; 2001 – $374,228; 2000 – $353,010; 1999 – $342,986; 1998 – $340,650.
Remember, these are ceilings applicable to larger companies since they are benchmarked compensation levels of publicly traded companies with revenue exceeding $50 million – acceptable compensation for smaller companies are likely to be less where the burden of showing reasonableness falls on the contractor..
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