Hi Paul, I wanted to let you know that I’m really glad I was able to attend your class.  It cleared up a lot of things for me.  Now that I’ve had some time to soak in some of the material we covered in your class, I have two questions for you based on something I think I heard you say in class.

 

1)    INQUIRY: B&P labor – didn’t you say something about recording B&P labor as direct labor?  If so, where can I look that up online to make sure we’re doing it right?

 

RESPONSE: The FAR at 31.205-18 provides that all contracts (whether CAS covered or not) are partially subject to CAS 420, more specifically those provisions pertaining to the cost identification and accumulation provisions of CAS 420.

CAS 420 requires that contractors identify and accumulate B&P costs by individual project.  The CAS also requires that B&P projects be accounted for in the same manner as contracts, and include costs that would be treated as direct costs of that contract, if incurred in like circumstances, and All Allocable Indirect Costs (such as Overhead), with the exception of G&A expenses (since B&P costs generally go into the G&A Pool anyway).

As a general rule, B&P shall be allocated to contracts on the same basis as the G&A expenses.

Some of the provisions of CAS 420 apply only to Major Contractors so for now we are focusing on how to identify and accumulate B&P costs.

 

2)    INQUIRY:  Unallowables – I remember you saying something about splitting our unallowables between OH and G&A.  Where can I look to get a clear understanding of how this should be broken down?

 

RESPONSE:  This is referred to, somewhat indirectly, in several FAR clauses with one at the FAR 31.203(c) provision as it reads, indirect costs shall be accumulated by logical cost groupings with due consideration of the reasons for incurring such costs.  This means costs should be identified and accumulated in the same manner under like circumstances, regardless of their allowability.

If a cost would normally be considered Overhead but is excluded from the Overhead Pool because it is unallowable, then that cost would be considered an unallowable Overhead costs.  If a cost would normally be considered G&A but is excluded from the G&A Pool, then that cost would be considered an unallowable G&A costs.  If a cost would normally be considered a Direct Cost but is excluded from being billed because it is unallowable, then that cost would be considered an unallowable Direct costs.  And so the concept applies across the board.

Once you have identified unallowable costs as Direct, Overhead, or G&A, then the calculation of Indirect Rates will follow the process of excluding appropriate unallowable costs from the appropriate pool (i.e. Unallowable Overhead from Overhead Pool, etc.).  

You will also have to remember that if any Cost is included as part of the BASE of another Pool, that cost must include all allowable and unallowable parts of the cost.  For example, if you have an Unallowable Materials Cost AND Materials Cost is included in your G&A base, then you would include the Unallowable Materials in your G&A Base.  This ensures that the provision that states, all costs should carry their fair share of related costs is complied with.

There you have it.  The devil is in the details, so contemplate and review as you think on it.   By the way, good questions!