Government Contracting Process

1. Do remember to “get it in writing.”

6.   Don’t for a moment think that subcontractors are not “Government contractors” – just read the flow downs if you ever think otherwise.

The H&W new rate is $4.98 per hour and is required in all government contract bids, or other service contracts awarded on or after June 27, 2023.  More details.......

QUESTION: Paul, I'm confused about how to determine what our pool(s) and base(s) should be for our proposal writing. We have both commercial and non-commercial rates for many types of services. These rates vary greatly depending on what we do, how we do it, how long we do it, and even for whom we do it. Our pricing policy is written down but there are always special agreements and our non-commercial rates are generally lower. All of our direct and indirect costs are built into our rates. How do I determine what our labor costs are? What could I possibly use as a base? What do you think? 

RESPONSE: Wow! A lot of questions on your mind - let's begin with an important concept.......

Are you a Prime or Subcontract doing business or hoping to do business with the government?

Well, there are several important checklists you should have in your Tool Chest, alongside the tools we provide.  There are others, but we must start somewhere.  And they’re free!   

Really Free? Well, since your tax dollars paid for them, “technically” they aren’t free!

The DDP memorandum states that costs incurred for ineligible dependent health care are unallowable under FAR 31.201-3 and violate the selected cost principle at FAR 31.205-6(m);

However, these unallowable costs are not expressly unallowable. Therefore, auditors should not pursue application of penalties under FAR 42.709 to the questioned ineligible dependent health care benefit costs. Accordingly, auditors also should not cite contractors that fail to exclude these costs from Government contracts for noncompliance with CAS 405.

Are government accounting system requirements only applicable for Cost Reimbursement Type Contracts? This is a widely misunderstood concept. Many contractors feel that they do not have to worry about audits since they do not have any cost plus fixed fee (CPFF) type contracts. Others feel that since their contract(s) are small they are okay. Boy do they find out the hard way that this is not true. Let me tell you how it generally works...

Paul, in setting up accounting systems, I always recommend that the company have a lag between the timesheet cutoff date and the payday, so that the employee’s hours can be collected and paid based on timesheets.  However, if a company chooses to keeps its payday, and if all their employees are salaried, are they technically forecasting time.  Example, they have to send payroll data on Friday, August 10 for hours thru August 15th.  So to me, they are forecasting Monday Aug 13 to Wednesday August 15.

For several years now, many contractors have objected to the DCAA requiring the use of the Incurred Cost Electronic (ICE) model to submit what the DCAA considered an adequate incurred cost submission (ICS). Those complaints can now be directed towards the FAR Councils because, in FAC 2005-52, effective June 11, 2011, they have incorporated the ICE model into the Allowable Cost and Payment clause, FAR 52.216-7

Before discussing the changes made by the FAC, a few words about 52.216-7 are in order. That clause is the only FAR clause that requires submission of an ICS. Thus, if 52.216-7, or a non-standard clause requiring the submission of an ICS, is not in a contract, the contractor has no obligation to submit an ICS.

Few like to talk about this issue because they may secretly want to be, or are trying to be one of those firm who are unfairly enriched. If you can’t say Amen then just say Ouch!  By the way, the information gleaned here can be applied to other certification types such as SDVOSB and WOSB.  And it is also important to those who intend on teaming with a firm for their certification value. So I would encourage everyone to read the articles I reference from the Bloomberg news link toward the end of the full article.  Many who are 8(a) certified are concerned about the difficulty for a “very small” business to get a competitive 8(a) contract, let alone a sole source set-aside.  Others who are thinking about getting 8(a) certified or are going through the application process are frustrated at the difficulty of obtaining the certification.  Well there are reasons to be concerned...

Can we propose lower indirect rates than our projected rates and how would we go about doing it?

RESPONSE: Generally YES. There are important issues and guidance you should be aware of and follow as applicable. Understanding these guidelines will minimize questions and concerns later on. 

The very first issue to consider is the financial impact on your bottom line of making such a choice.  But there is valuable guidance as follows......

The term "Comp Time" is often overused and can mean different things to different people. When DCAA uses the term comp time, they are referring to the excess hours

Most contractors follow total time accounting but even with total time accounting the contractor can institute a compensatory time policy whereby exempt employees can accumulate excess worked hours and use these hours in the future as additional time off.

In your experience what do contractors do as a rule about Travel? Is there usually some kind of administrative markup applied or not? What would you say is the norm? Is there a range of markup %’s that might be reasonable?

What is reasonable can be so subjective. I can say that whatever I choose is reasonable...smile! But that won't fly. So let's look at one simple application to address your inquiry:  Typically, a firm charges G&A to travel, when their G&A Base is Total Cost Input (TCI) and therefore travel is part of the G&A BASE.  However there are other things to consider...

In accordance with Federal Acquisition Regulations (FAR) 52.215-23, any indirect costs and associated profit applicable to subcontract costs where the contractor does not provide “added value” (e.g., subcontract management functions) are considered excessive pass-through costs which are unallowable.

Learn how the DCAA guidance to their auditors define "added value" and what is considered excessive pass-through costs. 

AASHTO (American Association of State Highway and Transportation Officials)

The key changes to the new requirements pertaining to compensation, and by the way most of the other changes, is that they are now in accordance with FAR principles. More specifically, 31.205-6. 

How interesting. Other agencies and audit organizations continue the move to come in line with FAR PART 31 cost principles. Why? They offer broad standard guidelines that can be consistently applied, most of the times.

No More Audits? There appears to be a shift from DCCA audits of proposals to DCMA under what is considered field pricing analysis typically performed by their price/cost analyst. Bear in mind that they all generally follow the guidance under FAR on cost and pricing. And if someone wants to have you audited, you will be! Just a note of caution for those who may think they don't have to move forward to meet requirements due to new thresholds. You will want to read this entire article. It is very informative!

The legality of the FAR is daunting and oft-times takes significant judgement and experience in determining how to apply the guidelines based on Intent versus Letter of the law. There even appears to be conflict between DCAA and DCMA application of missions! What are the missions of each? Who has the authority for making the decision on a small businesses ability to perform? Who determines if a cost is allowable or not? Who else can override an Auditor or Contracting Officers decision that your accounting system is inadequate? In my opinion, this article has an excellent explanation of these and related issues and is a must read for every small business contractor. This article alone is worth the annual subscription!

Since the Federal telework program and policies cover only Federal employees, Federal contractors are not governed by OPM and GSA telework guidance or by individual agency policies, and are not counted in the annual Telework Report to Congress. However, this does not prohibit – and should not prevent – contract employees from actually teleworking, as appropriate.

Telework arrangements for contractors should be negotiated with both the contractor’s own employer and with the appropriate Federal agency official,

Inquiry: Some Large Firms say it's okay that they only record and charge 8 hours per day/40 hours per week for their exempt direct people, regardless of how many hours they work.  What do you think?  Is it okay to charge/bill more than 40 hours per week for exempt employees?  Response: Yes you can.  There is clear guidance provided to the auditors through the DCAAM that you can verify this.

We are in negotiations with a large business partner for a new task order, and we have run into a requirement from that business partner which we have not encountered in the past. They are requiring things that appear to negate the exemption that “small businesses” have from DCAA’s CAS rules, referenced in DCAA Audit Manual, Chapter 8. 103.2 CAS Exemption. We are looking for a way to convince our prime contractor that we, as a small business, can be awarded cost contracts. Do you have any suggestions on how to resolve this issue? RESPONSE: I SURE DO and you actually provided the answer........

Hi, Mr. Gunn, I come from the private industry and have not done government accounting outside of what I learned in school some time ago.  We are trying to get in compliance with DCAA and I was working on setting up the chart of accounts.  Would the chart of accounts I have attached be in compliance with the DCAA?  I did watch your Cost and Pricing Workshop Part 1 DVD and what a great tool!  I am trying to ensure that I am going in the right direction so that we will be in compliance with the next audit.