Proposal Costs

You should ask the CO that signed the Letter Contract. Reference - FAR 31.205-18.

If FAR 52.216-25 is in the letter contract, yes. That clause requires you to submit a proposal and to negotiate toward a defintized contract. Because the proposal is required by the terms of a contract, the cost of preparing it cannot be charged to B&P in accordance with 31.205-18.

I checked the contract and that particular clause is not listed. However, there is clear language requiring the Contractor to submit a definitization proposal. Could this simply be an oversight by the PCO or could we be required to prepare the proposal at our own expense?

Read this: http://www.acq.osd.mil/dpap/policy/policyvault/usa002866-11-dpap.pdf

No one knows why the clause was left out of the contract. Pick up the phone, call the CO, and put your questions to him or her.

We need to distinguish between cost accounting and billing. In this scenario the contractor is required to charge proposal prep costs as direct contract costs, regardless of whether the customer will permit those costs to be billed.

The reason for this is what Retreadfed said. FAR 31.205-18 defines B&P costs as those proposal prep costs that are not required by a contract. Since the UCA requires definitization, costs of preparing the definitization proposal cannot be B&P.

You might argue that such costs could be UNALLOWABLE B&P rather than unbillable direct contract costs, but if so then the contractor must be consistent in treatment and always charge UCA definitization costs as B&P, even when a customer was willing to pay for them as direct contract costs. There's also the notion that as direct contract costs the proposal prep efforts absorb G&A whereas if the effort was B&P (even unallowable B&P) then that would not be the case.

We'd all be a lot better off if UCAs were not so common. But when they are used, the customers should understand that they will be paying for the costs of definitization.

H2H

H2H, the issue here is whether the proposal prep costs can be included in the proposed price for the definitized contract. Since the contract will be FFP, I don't see anything that would keep the contractor from including the costs in the proposed price.

Retread,

Agreed. I was trying to expand on the original topic since I know it's been an issue across industry.

H2H

You've gotten some very good advice here. H2H's comment about being consistent is very important and is likely based on CAS 402. See specifically interpretation no. 1 (9904.402-61) which states: "This interpretation does not preclude the allocation, as indirect costs, of costs incurred in preparing all proposals. The cost accounting practices used by the contractor, however, must be followed consistently."

Good luck

The following case illustrates the application of CAS 402 in situations like this.

http://openjurist.org/862/f2d/290/boeing-company-v-united-states

Some here believe this instance cannot be charged indirect because of the wording in FAR 31-205.18 - then that assumption makes CASB interpretation 1 to CAS 402 meaningless. I don't think that to be true. Allocability is the purview of the CASB.

Someone should have asked what is this contractor's disclosed practice for charging proposal preparation cost . That is more determinative of what may be consistent.

Gnatman,

Some here believe there is no conflict between 31.205-18 and CAS 402 Interpretation No. 1. If a proposal is required by a contract is cannot be claimed as allowable B&P expense. The contractor's disclosed or established practice does not make the costs allowable when the cost principle makes them unallowable. Moreover, the original question discussed costs associated with preparing a UCA definitization proposal and not costs associated with preparing a proposal for a follow-on contract.

I suggest you read the ATK decisions.

H2H