Public Comments 2006-D057-J. Emery

1. Comments a. The government requires other than small businesses to subcontract to small businesses. This benefits the government in several ways. It reduces the number of contracts the government has to compete, issue, and manage. By default the management of the government?s subcontracting goals gets moved to the large business awards. The management of this for the government costs money. In the world of the large IDIQ contracts the best way to do this is to let subcontractors perform individual task orders that they are qualified to do. This often results in the subcontractor doing more than 70% of the effort. If a business cannot capture its allowable and allocable costs why should they do this for the government? b. The rule addresses excessive G&A costs, but does not define when it is excesive. We are experiencing from many contracting officers today that any G&A applied to subcontractors is excessive. We asked a question in regard to a solicitation at Ft. McCoy since the RFP stated G&A could not be added to other direct costs. The response was: all G&A was deemed unreasonable since the charge was included in the hourly rate. This shows an ignorance of basic procedures for allocating costs and it is dependent on how a company has set up its accounting system. c. This restriction will allow some contractors to capture these costs while excluding others from capturing it. It all depends on which method the contractor uses to allocate G&A and other indirect burdens. i. The FAR does not require a company to use any specific allocation method. CAS 410 and the DCAA Audit Manual list three methodologies for determining G&A allocation. 1. Total Cost which is the generally accepted method uses the total activity of the company to determine G&A. This results in a lower G&A on direct labor, but charges G&A on material and subcontractor costs when used. 2. Value added removes the costs from material and subcontractor from base. This does create a situation where no G&A is charged to the subcontractor costs, but it does result in a higher G&A on all direct labor. The G&A costs associated with subcontracting are captured with each labor hour billed, vice being associated with the actual subcontracting action. 3. Single Element method can be used in certain situations where a cause can be demonstrated to best show relationship to cost objectives. ii. Each method only allows the contract to capture its total G&A costs. By not allowing a contractor to charge G&A the solicitation is mandating what G&A allocation method a company must use to capture its costs. If a company has filed a disclosure statement, the method cannot be changed without getting government approval. The contracting officer does not have the authority to do either. The government must develop evaluation criteria to take into account the various scenarios and determine which proposal provides best value to the government while allowing the bidders to capture all allowable costs. d. This rule violates FAR parts 31.203 and 31.204 which states G&A costs are allowable and allocable by implying they are not an allowable cost i. There is not a universal method of determining how a company determines its base for allocating G&A. FAR 31.203(d) states ?? and an appropriate base has been accepted, the contractor shall not fragment the base by removing individual element.? By not allowing G&A for companies that use the total cost method, the solicitation is forcing the contractor to fragment the G&A base or not be allowed to collect allowable and allocable costs. If the contractor chooses not to charge the government their bid could be considered unbalanced since they could be seen as intentionally not accounting for all costs, thus trying to gain an advantage. ii. Depending on the method used to allocate G&A costs the restriction could cause the contract to violate several Cost Accounting Standards. The first two cited standards are required even under Modified CAS coverage. 1. CAS 401 requires contractors to be consistent in estimating, accumulating and reporting costs. If we cannot charge G&A to the government but yet our accounting procedures use a total cost G&A allocation base, then we are not following this standard 2. CAS 402 requires consistency in allocating costs incurred for the same propose. To be compliant with this standard we cannot treat the G&A associated with this contract differently than our other contracts. 3. CAS 410 requires a company the allocation of G&A expenses consistent with its accounting procedures.