Situation: You price a product/job/contract based on best available information.  You submit your proposal.  Eureka, You Win!  You submit an invoice and your customer informs you that they will be paying by credit card.  You say great, we will get paid early.  And you know that any processing fees can be claimed as an allowable cost. 

However, did you consider this cost when you prepared your proposal?  Did you take into consideration that if the government decided to pay by credit card it would cost you between 1.5% and 4.0% in processing fees?

Why recreate the wheel when you can start with the wheel and adjust it to meet your mobility needs.

Codes of Business Ethics and Conduct Policies are typically very generic in nature.  Therefore they lend themselves to be used by almost any firm, especially within an industry.  This type of information is typically not proprietary nor confidential because most organizations want their customers and public to know their company philosophy on this. 

Why Unallowable G&A costs, excluded from the G&A Pool, SHOULD NOT be included in the G&A Base.  This issue has been brought to my attention more than once.  Therefore, let’s address it openly, honestly, and with common sense.  It is important for you the contractor to understand the guidance and what you should or should not be forced to do. 

All items that are part of a Total Cost Input Base, do not include unallowable G&A costs.  G&A costs, allowable and unallowable, do not have G&A costs reapplied to them.  There is no pro rata share of G&A costs that are allocated to G&A costs.  It does not make common sense!

INQUIRY Paul: I just reviewed part of your presentation to the audience at the American Legion.  I have a concern.  Your Indirect Costs include Fringe Benefits and Payroll Taxes.  In my experience, if I have a clerk assigned to a particular contract, I classify that clerk’s wages, H&W, payroll taxes, worker’s compensation and general liability as direct costs. This is ok as long as that clerk devotes his/her full work day to that contract.  Is there a problem here?

RESPONSE - Good question and it shows colleagues such as you are delving into the issues, statements and opinions.  We received great response on this overview presentation. Feedback, such as yours provide our members/readers with valuable insight from various points of view. 

First of all, there are various ways to classify cost and it depends on a company and industry.  In making presentations I strive to select what may be typically used as examples of a “concept”.  As a matter of fact, someone could look at the methodology in your inquiry and question it because it is different then there’s.  But read on and hopefully your question gets addressed. 

The Answer: It depends!  Either way could be okay, as long as the method results in a fair and reasonable assignment of the costs to final cost objectives (contracts) AND the method is consistently used.  It must also Not result in double charging of a cost to contracts.   Let's go deeper....

Pre-award versus Post-award - Survey versus Audit - Understanding the Intent and Letter of the law as it pertains to small prospective contractors accounting systems.  

Despite all of the various focus and opinions that are discussed on this topic, the following depicts my SME interpretation and preferred applicability of the current guidance and objectives to auditors, government procurement staff, and the small contractor as it relates to the pre-award survey of the accounting system, and the post-award audit option.   

The interpretation of the guidance and ensuring the customer requesting the review understands the options they have and the limitations of a small contractor are important to this process.  The post-award audit option is an important issue that the requesting customer should be aware of.  As a contractor, you should know what to share when supporting your opinion. 

According to the DCAA Audit Program and DCAAM 7640.1Guidance The major objectives of the pre-award audit are to obtain an understanding of the accounting system to appropriately complete the Pre-award Survey of Prospective Contractor Accounting System, SF 1408, and to opine as to whether the design of the contractor’s system is acceptable for the award of a prospective Government contract.

Let's break this down and explain what it means to you the contractor.....

Do you need them? Should they be documented? How do you start developing them? How detailed should they be? 

Yes you do and Yes you should move toward documentation!  Everyone has them.  That’s right, I said everyone has them.  You see, your policies and procedures are simply the methods you use day by day within your business to meet goals and objectives and to comply with guidelines and requirements as applicable.  

Everyone has policies and procedures in some form or another.  They may or may not be very good policies or procedures and they may or may not be documented, but they do exist. 

Unfortunately, most small businesses do not have policies documented, or documented adequately, nor do they know where or how to start! Policies and procedures are a roadmap of what you do and how you do it in your company.  They will help others in your firm and those looking in your firm to understand how you operate.  They will help your firm to be consistent in it’s’ operations and provide confidence to auditors, bankers, contracting officers, prime contractors, and customers in general.

Now lets address this in more detail and answer the other questions....

INQUIRY: What is the far clause for a lower tier subcontractor to deny audit access to the prime for competitive purposes?

RESPONSE: There is no FAR clause that provides for permitting a subcontractor's denial of a prime contractor audit access to the subcontractor's books and records.  A subcontractor is required to demonstrate its compliance with CAS and/or FAR (as applicable) in accordance with the applicable flow-down contract clauses.  If a subcontractor denies its prime contractor access to the subcontractor's books and records, the prime contractor will have to request assistance from the contracting officer to ensure the subcontractor's compliance with CAS and/or FAR.

FAR 15.404-3 states that the prime contractor shall conduct appropriate price or cost analyses to establish the reasonableness of proposed subcontract prices.  DFARS PGI 215.404-3 provides that if a prime contractor is unable to complete its required price or cost analyses of a subcontractor's proposal because the prime contractor has been denied access to the subcontractor's records, then the prime contractor may request assistance from the contracting officer to analyze and evaluate the subcontractor's proposal.

Yes.  When? Let’s discuss:

A common practice for a company is to identify its products using logos and emblems. Some contracting officers are concerned over the costs being incurred for contractors' logos and emblems being placed on Government systems. These contracting officers are treating the direct and indirect costs for logos and emblems produced by means of a special mold or casting (not simple stick-on adhesive decals) as unallowable advertising costs under FAR 31.205-1.

The contracting officers' position reflects an internal negotiating/contracting policy. This policy is enforceable to the extent that contracting officers obtain contractor concurrence and include a specific clause in contracts making such costs expressly unallowable or issue a notice of intent to disallow. Unless contracts...

What will make one small contractor/subcontractor stand out from others?  What will increase a firms chance of survival and success through various cycles of economic changes?  What will separate the corporate winners from the losers over the next 5 to 10 years?   

Three Key Factors: #1-Training; #2-Training; and #3-Training.  You would think that all organizations and managers recognize the importance of training.  But, they don't.  Why?  Managers and organizations fall prey to the five management myths of training. 

Inquiry: We have some employees that may incur indirect travel costs. Depending on who those employees are (corporate level or non-corporate level) those indirect travel charges are going against our G&A pool or our Overhead pool. My question is what should we do with indirect travel costs that exceed JTR? Granted it is indirect travel so if the company permits JTR to be exceeded that is fine. But for the amount that exceeds JTR limits, is it better to allocate those costs to unallowable or is it still acceptable to allow them to be charged against G&A or Overhead? As always, thanks for your help and advice. Response: Those costs that exceed what is considered reasonable are unallowable. Reasonableness depends on the situation, however, generally, the limitations set forth for travel under the JTR, FTR, or the SR, Section 925 for Foreign Areas can be used as a guide. FAR 31.205-45 should be your guide. In special circumstances, actual costs that exceed the above referenced maximum per diem rates are allowable

The following depicts a Formal List of Tips (Checklist) provided me by the CO when I was in the initial stages of preparing my GSA Schedule-69 proposal. It is for reference only and will most likely vary depending on the applicable Schedule. You may want to request something similar, if the CO will provide it, to assist in ensuring all requirements are met. This is just as I received it. Paul Sr

It is important to give the client what they want. But to do that, you have to know what that is. And how do you find out what your clients want? Well, you talk to them, and you listen. This is such a simple, fundamental task, and you'd think that more people would do it. But they dont. First, make sure you talk to the right people. Your client is usually a combination of people who will have input in the project planning and decision-making. Try to identify not only who will make the final decision but also who will have input into the final decision. Find out what roles they play. Unless you know who will participate in the decision, you can't develop a solution that meets all the clients needs. Listen carefully to what each member of the client's community says and give them credit for knowing what they want. Experts too often dont give their clients enough credit for knowing what they want. This is arrogant, and it shows. But read on

Let's talk about how advance agreements can protect you.  Due to the many different types of accounting systems and varying contract situations that arise, determining the reasonableness, allocability, and the allowability of certain costs may be difficult to determine.  So to avoid possible subsequent disallowance or dispute based on unreasonableness, unallocability or unallowability, contracting officers and contractors (you and I) should seek advance agreement on the treatment of special or unusual costs, especially if you are in construction or A&E.  It's just good business sense!  Let's talk about this a little more........... 

There are many differences of opinion and disputes about whether certain costs should be classified as direct or indirect. In addition, the use of ambiguous terms that are used interchangeably doesn't help the situation. For instance, overhead is used interchangeable in industry with burden, loading, add-on, management cost, general and administrative, factory expense, etc.  That is why I am always bugging you to document your companies definition of the terms it uses.  It helps you, your staff and anyone else who has to deal with the many ways people use these terms.  So let's get into the Direct Cost Definition in a bit more detail...