Two Questions: (1)I’m trying to decide on 2 Pools or 3 Pools. Some in our company feel that having 3 Pools (FOG) makes us appear better organized and that the government prefers to see 3 Pools. Others feel that 2 Pools (O-including Fringe and G&A) is adequate. Does the government actually have a preference?  (2) If we go with the 3 Pools can we “double dip” the direct labor as a base for Pool 1 and Pool 2? Could this “double dipping” be a good reason to use 2 Pools instead of the 3?

So when our employees travel we give them a travel debit card to use for all expense which hits our travel expense bank account. Some of the employees are putting everything on it including meals. Then they hand in a travel voucher which has the per diem rate for meals based on location of travel. The issue we have is we cannot reconcile with them the per diem amount and the amount they have already spent on the debit card in a timely manner and we end up paying for both already charged meal expense and then the per diem on the voucher. We would like to control this better.

Why do you pay them twice? If they are charging the meals, along with all other travel cost on a debit card, then why not change your policy for reimbursement to a later time once the voucher and debit card charges are reconciled. It should not be a hardship on the employees since it sounds like most of the expenses are charged and paid up-front by the company.

Fact: It is very important that you know the foundational concepts of many key aspects of government cost and pricing. There is no way around this. Yet, once you get past the foundational concepts the issues become related to fewer and fewer contractors. With confidence gained from the foundation, firms now move on to more complicated issues as they arise and become applicable to them. And they hopefully begin to learn how to negotiate and tactfully interact with ego's and inefficiencies often surrounding them. Including our own...smile

I would like to confirm if there are any A/E rates that are standardized which I should be aware of. I have been proceeding with an overhead rate based on my business operations and bookkeeping and I have heard from one engineer that the Federal Government may have a limit on the overhead rate.

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. 

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!

Inquiry: Can a subcontractor add Overhead and Profit to Per Diem costs?

Response: For Indirect Cost -Yes, typically a firm (prime or subcontractor) can add Overhead or G&A to its' Direct Travel cost because allowable cost include both Direct and Indirect. The caveat is that this method must be the subcontractors normal policy AND the direct travel cost must be part of the BASE used to calculate their Indirect Rate.  Profit/Fee must be evaluated separately.

Under FAR, is it permissible for a wholly owned subsidiary to bill the parent company for work subcontracted on the parents contract with the government (including normal markup)?  Also, can the parent company add their normal markup?

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.

Where can you assign the cost for your FSO? 
The best place would generally be to Overhead.  Depending on the type of function performed the cost could also go to G&A or Both.

Keyperson insurance is allowable with restrictions.  It depends on who pays for it and how it is recorded for tax purposes.  The following is the auditors guidelines on how allowability might be determined.

Marketing and New Business Development! So necessary to survival and growth yet such an illusive, confusing and oft-times expensive function. And we all know it. My thoughts and plans on this issue follow:

Without effective marketing and new business development, especially in government contracting, a firm cannot fairly compete in the marketplace. In my opinion, there continues to be....

We have always operated on the premise that under a cost-type contract that we cannot charge a fee on our G&A costs. Is this correct? It seems that in the "Application of Indirect Rates to Bases" that I downloaded from your website that a fee was applied to G&A in addition to Direct Labor and to Overhead.

Before submitting rates for 2009 where the G&A is quite high, we wanted to find out more about changing this back.  One option that someone suggested is that we have material handling pool with a base of materials, and then also include materials in the base for G&A – same with subs handling and subs.

The Executive Compensation Cap was reduced for contracts awarded on or after June 24, 2014 to $487,000.

INQUIRY 1: 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...........

INQUIRY 2: 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,.......

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.

You never know if/when you may have to defend your Fee/Profit Objective. I recommend utilizing the information below to develop your documented policy. Utilize those excerpts below that apply to your company as a whole but more importantly on each specific contract. This is because contract type determines fee/profit limits and factors that may apply. I have highlighted in various colors/bold/underline those items that are of particular importance. The following is what the government is instructed to follow so why not incorporate the applicable elements into your companies’ process and supporting data.

A lot is being said about the DCAA moving to providing only a Pass/Fail option for a firms accounting system.  Along with this misinformation are many scare tactics designed to influence the small business to invest large sums into the design, setup and implementation of their accounting systems and related controls.