Contractual Remedies-mischarging?

GAAP have nothing to do with your issue. Neither do CAS if CAS do not apply to the contract. Look instead to the contract cost principles in FAR Part 31, especially 31.201-4, Allocability.

FAR does not define mischarging, but it would likely include charging test manager work allocable to the FFP CLIN to the CPFF CLIN. Deliberate mischarging is considered contract fraud. You might need an audit to prove cost mischarging. I don't think the mere fact that the FFP test manager performed and billed for also doing other work and charged it to the CPFF CLIN would necessarily constitute cost mischarging.

If the other work was not test manager work and if it did not prevent the test manager from putting in "full time" as test manager, then it's probably okay. Does the contract clearly specify what constitutes test manager work? Does the contract define "full time"?

Vern Edwards said:

Does the contract clearly specify what constitutes test manager work? Does the contract define "full time"?

The contract does not define "full time". Not only that, just found out there is no actual requirement in the contract for Key Personnel to be full-time. The contractor may have "promised" full time in their proposal but if it's not in the contract I would say is meaningless now. So what I see is a contractor performing on an FFP, which includes a Key Person, whose effort is not clearly defined, and that is also working and charging a CPFF CLIN. We would have to have the time records audited or reviewed to see whether there's actually a double charge. If they are double charging it would be an allocability issue and like you say , if deliberate, mischarging.

Vern Edwards said:

Deliberate mischarging is considered contract fraud.

Neurotic said:

We would have to have the time records audited or reviewed to see whether there's actually a double charge.

Why would you have a double charge?  For the FFP work, you are paying a specified price that is not based on the costs the contractor incurs.  The government's concern is whether the work is being accomplished whether it takes the contractor one hour or one hundred hours to do it you will pay the contract price.  On the other hand, if the same employee did work under a CPFF CLIN why couldn't the contractor charge the government for the employee's time for that work?  Take this example, the employee works 30 hours a week on a FFP CLIN and 10 hours on a CPFF CLIN.  If the FFP CLIN is performed satisfactorily, under your scenario where there is no requirement for "full-time" effort under that CLIN, the contractor can charge the full CLIN price for that week regardless of the costs allocated to that CLIN.  At the same time, the contractor actually incurred a cost under the CPFF CLIN that it is entitled to be reimbursed for. 

  If the employee is FLSA exempt and the contractor does not have a policy of paying exempt employees for each hour they work, you may have an issue of uncompensated overtime and whether the CPFF work should be charged at an abated rate.  For example, if the employee is paid $100 a week and the normal work week is 40 hours, that is an effective hourly rate of $2.50.  However, if the employee works 50 hours a week and is paid the same $100 that is an effective rate of $2 an hour.  Looking at you situation, if the employee worked 40 hours on the FFP CLIN and 10 hours on the CPFF CLIN, the contractor probably should have charged the government the 10 hours at the $2 rate instead of the $2.50 rate.

We don't know whether TINA applies, but if it does and the contractor bid the FFP CLIN assuming full-time key personnel charging while also knowing that they would not charge full-time, then you might have defective pricing. If I was the CO that's where I would focus the auditors.

Full-time = 40 labor hours per week where I come from, though the amount might be reduced to "productive labor hours" for holidays and other paid time off.

here_2_help said:

We don't know whether TINA applies, but if it does and the contractor bid the FFP CLIN assuming full-time key personnel charging while also knowing that they would not charge full-time, then you might have defective pricing. If I was the CO that's where I would focus the auditors.

Uh, it's not clear to me how that would be defective pricing. What's the defective data?

I’ve seen this 3 or 4 times.  The only difference with this situation is the CLIN structure is Labor Hour instead of cost reimbursable.  In one instance, the COR inquired.  The contractor’s response was each time they are tasked for work under the LH CLIN, they decide who’s best to perform the work with staffing availability and knowledge of the job considered.  So they decided to use the person designated as key under the fixed price task as the best choice.  As Retrofed noted, as long as the fixed task is being performed properly, it shouldn’t be a concern.  

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The contract does not define "full time". Not only that, just found out there is no actual requirement in the contract for Key Personnel to be full-time. The contractor may have "promised" full time in their proposal but if it's not in the contract I would say is meaningless now. So what I see is a contractor performing on an FFP, which includes a Key Person, whose effort is not clearly defined, and that is also working and charging a CPFF CLIN

In the absence of additional information, what is wrong with it? We don’t even know what the contractor said in the proposal.

Vern Edwards said:

Uh, it's not clear to me how that would be defective pricing. What's the defective data?

The defective data would be the labor plan that posited full-time charging when the contractor knew that would not be the case. I realize that cost data in support of a proposal is not necessarily cost & pricing data, but facts upon which an estimate is based would be. The fact is the labor plan that supports the proposed price. (Assuming there is one, of course.)

here_2_help said:

The defective data would be the labor plan that posited full-time charging when the contractor knew that would not be the case.

Assuming they were not stupid, and did not document their intention, how would you prove that at the time of price agreement they knew they would not be charging full time? What if they did not decide to take that path until after performance began, or say that they did? If they were unethical enough to make such a plan, why wouldn't they lie if accused? What if there were no whistleblower? We're talking peanuts, not millions. You'd spend more trying to make your case than you would recover through defective pricing.

If they mischarged they mischarged, and the government gets its money back, with interest, defective pricing or no defective pricing, fraud or no fraud. I'd tell the auditors to look for misallocation and mischarging. If they find it, and if the money were large, then I might look for defective pricing, assuming they had to submit certified cost or pricing data.

On 9/27/2024 at 2:47 PM, Vern Edwards said:

Assuming they were not stupid, and did not document their intention, how would you prove that at the time of price agreement they knew they would not be charging full time? What if they did not decide to take that path until after performance began, or say that they did? If they were unethical enough to make such a plan, why wouldn't they lie if accused? What if there were no whistleblower? We're talking peanuts, not millions. You'd spend more trying to make your case than you would recover through defective pricing.

If they mischarged they mischarged, and the government gets its money back, with interest, defective pricing or no defective pricing, fraud or no fraud. I'd tell the auditors to look for misallocation and mischarging. If they find it, and if the money were large, then I might look for defective pricing, assuming they had to submit certified cost or pricing data.

All right. We get to the same place either way.

On 9/26/2024 at 10:53 AM, Neurotic said:

We would have to have the time records audited or reviewed to see whether there's actually a double charge. I

What authority would the government have to audit the FFP CLIN?

Retreadfed said:

What authority would the government have to audit the FFP CLIN?

If the contractor were required to submit certified cost or pricing data, then see FAR contract clause 52.215-2, Audit and Records - Negotiation, paragraph (c).

Vern Edwards said:

If the contractor were required to submit certified cost or pricing data, then see FAR contract clause 52.215-2, Audit and Records - Negotiation, paragraph (c)..

 Found this case while researching the topic. See HPM Corporation v. Department of Energy, CBCA 7559. The CBCA held that because the cost reimbursement portion of the contract required a year-end incurred cost audit (to establish indirect rates and verify claimed costs), the government may reasonably audit the FFP contract portion as well to ensure the contractor is not improperly claiming reimbursement for costs covered by FFP line items or trying to recoup FFP losses through indirect costs. However, I don't think the data needs to be certified to include _52.215-2 i_n the contract. See also the attached.20231114-nash--cibinic-report--can-government-auditors-do-that1749955851.pdf

On 9/26/2024 at 8:02 PM, here_2_help said:

We don't know whether TINA applies, but if it does and the contractor bid the FFP CLIN assuming full-time key personnel charging while also knowing that they would not charge full-time, then you might have defective pricing. If I was the CO that's where I would focus the auditors.

Full-time = 40 labor hours per week where I come from, though the amount might be reduced to "productive labor hours" for holidays and other paid time off.

TINA does not apply.

On 9/26/2024 at 8:21 AM, Vern Edwards said:

GAAP have nothing to do with your issue. Neither do CAS if CAS do not apply to the contract. Look instead to the contract cost principles in FAR Part 31, especially 31.201-4, Allocability.

FAR does not define mischarging, but it would likely include charging test manager work allocable to the FFP CLIN to the CPFF CLIN. Deliberate mischarging is considered contract fraud. You might need an audit to prove cost mischarging. I don't think the mere fact that the FFP test manager performed and billed for also doing other work and charged it to the CPFF CLIN would necessarily constitute cost mischarging.

If the other work was not test manager work and if it did not prevent the test manager from putting in "full time" as test manager, then it's probably okay. Does the contract clearly specify what constitutes test manager work? Does the contract define "full time"?

If the contract was indeed CAS covered, would it be a 401 issue then?

Neurotic said:

Found this case while researching the topic. See HPM Corporation v. Department of Energy, CBCA 7559.

I don't think that the HPM case does you much good.  Note that it relates to an audit to establish final indirect cost rates.  Look at FAR 52.216-7 for the description of what a contractor has to submit in order to establish final indirect cost rates.  HPM does not stand for the general proposition that the government can audit costs for FFP CLINs under a mixed contract at any time where no certified cost or pricing data was required for the contract.

TINA does not apply. Okay.

There is no mischarging if the contractor personnel are charging the correct CLINs based on the work actually being performed. Thus, I keep going back to the contractor proposal. What did the contractor say that led to the FFP CLIN price being established? Why did the government believe that price was fair and reasonable? If the determination was made at the contract level, not the CLIN level, then what was the basis for the determination? 

In other words, did the contractor make a misstatement or otherwise mislead the government into setting a price that was reasonable only if personnel charged the CLIN on a full time basis? If not--or if there is no way to know--then I don't think there is much that can be done. Holding up payment is not the way to go, in my view, as that may be a different breach.

Lots of missing information here.  @Neurotic why don’t you just ask the contractor why they think the billing is proper?  Is there contractual language restricting the key person to the fixed price task.  You mentioned you didn’t know what the proposal says in terms of price/costs and technical.  How about looking and reporting out?  This is the simplist way out rather than looking up legal decisions.    

Edit:  I see I’m duplicating some of HTH’s questions

🙄

formerfed said:

why don’t you just ask the contractor why they think the billing is proper?

Stop making sense.

formerfed said:

Lots of missing information here.  @Neurotic why don’t you just ask the contractor why they think the billing is proper?  Is there contractual language restricting the key person to the fixed price task.  You mentioned you didn’t know what the proposal says in terms of price/costs and technical.  How about looking and reporting out?  This is the simplist way out rather than looking up legal decisions.    

Edit:  I see I’m duplicating some of HTH’s questions

Indeed, we advised the CO to ask the contractor and were waiting to hear back. The contractor stated:

1/the scope of the work performed under the FP and CPFF CLINs is different.

2/labor hours billed on the CPFF CLIN for individual identified as Key Personnel are for effort under the CPFF CLIN in connection with the scope of the work under such CLIN. Therefore, correctly billed. 

3/The government is receiving the services it contracted and pays for under the FFP CLIN. The gov did not procure Key personnel as a deliverable. 

The contractor's proposal (Basis of Estimate) identified the Key Personnel by name under the FFP CLIN working 1,746 productive hours annually (each FTE). However, the proposal is not part of the contract and the contract does not specify a level of effort. The contract identifies Key Personnel by name but does not specify a CLIN either. 

So, they promised (proposed) something but the government did not make it a requirement. No way this individual is able to work full time under the FFP CLIN and also charge the hours billed under the CPFF. But I don't see how this is enforceable now if it's not a contract requirement.

The contractor's explanation makes sense.

This story sounds like some suspicious and/or disgruntled COR making a mountain out of a molehill.

Neurotic said:

No way this individual is able to work full time under the FFP CLIN and also charge the hours billed under the CPFF.

Why not?  I agree with Vern's last post.  Also, note you can always verify the hours worked under the CPFF CLIN.

Vern Edwards said:

The contractor's explanation makes sense.

This story sounds like some suspicious and/or disgruntled COR making a mountain out of a molehill.

It does. This is a nothinburger.

Retreadfed said:

Why not?  I agree with Vern's last post.  Also, note you can always verify the hours worked under the CPFF CLIN.

We can and will verify the hours on the CPFF. I just don't think the person is putting a full time effort in the FFP...but that's irrelevant. Thanks

On 9/26/2024 at 7:53 AM, Neurotic said:

The contract does not define "full time".

Neurotic said:

I just don't think the person is putting a full time effort in the FFP...

The contract doesn't define it, but you think the contractor's not delivering it.

From a Google search:

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What is a full-time job?

A full-time job typically implies a set work week, usually with eight-hour days and 40 hour weeks, although this can vary depending upon the industry and the nature of the position. The assumption is also a five-day workweek although this especially can vary for some professions.

That being said, while full-time employment is indeed defined by a 40-hour workweek (or at least a schedule of no less than 32 hours), there are no set parameters for when those hours have to occur. 

The U.S. Department of Labor does not list an exact definition of full-time employment, generally leaving the details up to individual employers. The idea of a "9 to 5" generates a common understanding of a full-time job or "business hours," with much of office and corporate culture keeping hours of Monday through Friday between the hours of 9:00 a.m. and 5:00 p.m., with some variation on the hours depending on the company's culture and industry.

https://www.indeed.com/career-advice/finding-a-job/full-time-job#:~:text=A full-time job typically,can vary for some professions.

@Neurotic Are you that COR I wrote about?

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This story sounds like some suspicious and/or disgruntled COR making a mountain out of a molehill.

Time to move on.

Vern Edwards said:

The contract doesn't define it, but you think the contractor's not delivering it.

From a Google search:

@Neurotic Are you that COR I wrote about?

Time to move on.

Yes it is. I am not a COR, and actually always disagreed with the CO and COR's position but presented the issue here from their perspective. I know what a full time employee is, and I don't think the individual is working full time. Still, that again is not relevant to the issue because is not defined in the contract so is not a requirement. What I know or think is separate from what the contract says but that should be clear to everyone. Thanks, always appreciate everyone's input.

Neurotic said:

I don't think the individual is working full time.

Well, "full time" is nebulous. It might mean 40 hours per week or it might mean as many hours as necessary to get the job done properly, whether 40 hours 60 hours. Most "full time" business people work a lot more than 40 hours per week.

Let me ask: Do the CO and the COR think that the test manager's performance is unacceptable, i.e., that it does not conform to contract quality requirements? If so, then the CO should seek corrective action, no matter how many hours per week the test manager is working. Or is quality just a matter of hours worked?

On 10/1/2024 at 2:11 PM, Neurotic said:

So, they promised (proposed) something but the government did not make it a requirement. No way this individual is able to work full time under the FFP CLIN and also charge the hours billed under the CPFF.

The contractor disclosed the basis of estimate in their proposal, which cannot be conflated with contract type. All service contract prices are estimated by hours * rates, but that doesn't mean the contract is not FFP. As a consultant, that was an endless source of frustration on my part - my company would disclose hours/rates on an FFP proposal which then flowed through to award, so we ended up with an FFP contract that looked like cost-type. What most people on the Federal side miss is that even though a proposed FFP is estimated based on cost, in the FFP world a vendor can make a top-line decrement to the total price for competitive purposes. IBM used to refer to it as "management challenge".  

CORs always hate FFP because it requires them to manage performance and results, not count butts in seats.

REA'n Maker said:

my company would disclose hours/rates on an FFP proposal which then flowed through to award, so we ended up with an FFP contract that looked like cost-type.

I don't understand what you mean. How does an FFP contract "look like" a cost type? Please explain. Are you saying that the customer expects the outcome to match the estimate?

On 10/3/2024 at 1:14 PM, Vern Edwards said:

I don't understand what you mean. How does an FFP contract "look like" a cost type?

I mean it's not overtly set up as a vehicle to accomplish an objective at a FFP, rather, the contract schedule and PWS is a detailed collection of labor categories priced by hours * rates added up to a total price. The result is that CORs "manage" by counting the hours of whoever they have a petty gripe with at any given time and decrementing the invoice accordingly.

What you describe does not sound like a "cost-type" contract. It sounds like a fixed-price arrangement to provide specified types of labor in estimated quantities (hours) at specified hourly rates to do specified work. The COR for each type of labor counts hours delivered to determine what the government should pay for.

On 9/26/2024 at 7:00 AM, Neurotic said:

The agency requested, and the vendor proposed named Key Personnel for various labor categories within this CLIN, to include a full time "Test Manager" (for Quality Assurance*). The Key Person's names were incorporated into the contract.

*Does the contract require full time quality assurance? What is the role of a quality assurance test manager?

On 9/26/2024 at 9:53 AM, Neurotic said:

The contract does not define "full time". Not only that, just found out there is no actual requirement in the contract for Key Personnel to be full-time*.

On 9/26/2024 at 9:53 AM, Neurotic said:

The contractor may have "promised" full time in their proposal but if it's not in the contract I would say is meaningless now. So what I see is a contractor performing on an FFP, which includes a Key Person, whose effort is not clearly defined, and that is also working and charging a CPFF CLIN.

I don’t believe that the contractor incurred any additional cost for the person who performed the additional tasks, assuming that you have verified who performed the task and that the tasks were performed during normal duty hours. You have the right to find out who performed the tasks.

The contractor proposed and is essentially charging you in the FFP contract price for a full time employee. Is that correct? 

Now the contractor is charging you again for some of that same person’s time. That is double charging in my opinion.

Under cost reimbursement, the contractor has to be able to show that it incurred a cost to perform the task.

I don’t think that the contractor can prove that there is any additional cost incurred to perform those reimbursable tasks if it is already paying the person and charging it to the contract in its accounting system.

Is the person an hourly or salaried employee? If salaried, it (probably?) already incurred a cost to the contract that it supposedly included in the contract price.

Did you say whether the employee is working full or part time on the job? Is this an on-site or off-site employee? I may have missed that

For a cost reimbursement CLIN, It is the contractor’s responsibility to justify the additional cost to the contract to be reimbursed. You didn’t say that it is a time and material CLIN. I didn’t see where you or the COR/KO required the contractor to or where the contractor substantiated the additional cost to be reimbursed.

On 10/2/2024 at 3:15 PM, Neurotic said:

I know what a full time employee is, and I don't think the individual is working full time. Still, that again is not relevant to the issue because is not defined in the contract so is not a requirement. What I know or think is separate from what the contract says but that should be clear to everyone. Thanks, always appreciate everyone's input

Is the QA function required to be full-time when work is being performed and is the work being performed on-site or off-site?

Edit: One point is that, regardless of the limitations of the contract language, if the employee’s  full cost of salary and fringes, etc. is being charged directly to the FFP portion of the contract in the company’s accounting system, there is no extra COST to the company for performing the cost reimbursable tasks. Then the company is double charging…