EE working half time On-Site, half-time Contractor-Site for 1.5 mos acceptable?

Well, fortunately after discussing this with higher ups in my company they agree with me that the switch between pools must be done cleanly, no half charging 2 pools at the same time. But I will leave my question up in case it ever arises for someone else.

The use of lower, off-site, rates is appropriate when the contractor does not provide facilities for the employee. If the contractor provides facilities then the employee should receive the full burdens.

As you say the employee cannot be in the base for each of the two pools at the same time. Looks like the employee's labor should get the full burden on the day your company provides facilities for him/her.

Hope this helps.

H2H, I agree that the same dollar cannot be in two different bases as a direct cost. However, I see no reason why different dollars representing labor from the same individual cannot be in two different bases if the dollars are incurred in different circumstances.

If the timekeeping portion of your accounting system has enough granularity for an employee to allocate his time between project cost codes, there should be no problem. Some weeks I used to charge my time to 3 dozen or so different cost codes, using the mantra, "Charge where you work, and work where you charge."

Retreadfed,

Can you please describe the "different circumstances" in which the labor hours are being incurred?

Cajuncharlie,

The problem is not the accounting system. The problem is the beneficial or causal relationship between the indirect cost pool (overhead) and the allocation base (direct labor). A contractor is not permitted to "fragment" the allocation base.

H2H

My answer was based on an allocation base that is properly reflected in the cost codes to which time is charged.

H2H seems to think the employee costs are included in an overhead pool, while Retreadfed seems to think Is the employee's time charged directly to the contract. I read the post as Retreadfed (the time is charged directly). SLK, can you clarify so that the discussion can focus on your (now mooted) situtation and then can determine what the difference might be between direct and indirect charging?

wvanpup,

My answer assumes the employee was direct-charging. You have one employee and one office for the employee. The labor is direct and the office-related expenses are indirect. You cannot fragment the base of the full burden pool by having the employee charge 1/2 his/her time to the base of the offsite pool. My point is especially valid when the rationale for splitting the labor is because the PM is worried about higher-than-budgeted overhead costs hitting his/her contract.

H2H

Hello,

I'm not sure if I'm posting this topic in the correct section, please move if necessary.

We have an employee who has been working On-Site for a year on a CPFF subcontract (ultimate customer is the Navy).

The current subcontract ends 11/30.

Meanwhile we bid on and were awarded another CPFF subcontract (again ult cust Navy), with this EE loaded at Contractor-Site rates as he is to begin working out of our own facility when this new effort starts.

The problem is, these two efforts overlap for about 1.5 months - we didn't anticipate this - so the current plan is he will work half time on the original subcontract as an On-Site ee, and half time on the new subcontract as a Contractor-Site EE. He would drive to work at the office for the Contractor-Site portion of his day.

Is this situation acceptable to the government?

In the past I was taught that Employees charging government contracts had to be fully in one pool or another, and that there should be a clean switch if they changed pools. I haven't seen this kind of overlap before.

My advice was have him move to working full time at the office the day he starts on the new Contractor-Site work (tentatively 10/23), and thus be Contractor-Site 100% from then on, for both efforts.

The program manager objects to my solution because then he will burn off the remaining original subcontract funding faster than anticipated (since it was budgeted at his cheaper On-Site rate), and they don't see why he can't spend half a day on-site, half a day contractor-site (as long as he is physically in one place or the other half the time each day).

Thoughts?

I have been fascinated lately by the subject of asking and answering questions. It's amazing how much has been written about that subject.

Here is the original question:

Is this situation acceptable to the government?

The OP follows that question with jibberish about (1) what s/he had been taught, (2) advice s/he gave before s/he knew what s/he was talking about, (3) and objections to that advice. The advice included this wonderful suggestion:

My advice was have him move to working full time at the office the day he starts on the new Contractor-Site work (tentatively 10/23), and thus be Contractor-Site 100% from then on, for both efforts.

S/he then follows up with another question:

Thoughts?

In my opinion, the only reasonable response to the first question would have been to ask three questions:

1. What "situation"?

2. What does "acceptable" mean?

3. Who is "the government"?

There is a fourth possibility:

4. Why aren't you asking "the government"?

The was no intelligent response to the OP's second question that would have been kind.

I can tell you that the OP, Post #2, and the responses thereafter provoked a lot of laughs and head-shaking.

Assuming the risk of Vern's laughter and head shaking ...

wvanpup,

My answer assumes the employee was direct-charging. You have one employee and one office for the employee. The labor is direct and the office-related expenses are indirect. You cannot fragment the base of the full burden pool by having the employee charge 1/2 his/her time to the base of the offsite pool. My point is especially valid when the rationale for splitting the labor is because the PM is worried about higher-than-budgeted overhead costs hitting his/her contract.

H2H

Perhaps this is a bit simplistic, but if an employee spends four hours a day working on the original subcontract, that subcontract is charged for four hours. The rest of the employee's time is charged to whatever effort it supports, such as the contractor's non-Government business, the contractor's fixed-price contracts, or the contractor's other cost reimbursement contracts (e.g., the new subcontract). Charging more or less than the four hours actually worked on the subcontract should end up in some kind of cost mischarging situaton. (NOTE: I do not think you are suggesting that a contractor employee must devote the entire work day exclusively to one contract.)

"The labor is direct and the office-related expenses are indirect. You cannot fragment the base of the full burden pool by having the employee charge 1/2 his/her time to the base of the offsite pool." I do not understand what is being fragmented, or why you cannot do that. The indirect office expenses are supporting four hours of effort on the original subcontract and four hours of effort on the new subcontract. Whatever the rate for the office related expenses, that rate should be applied to each hour and charged to the subcontract effort that is direct charged. Perhaps you can give me some made-up numbers to illustrate your concern.

BTW, I do not understand the program manager's budget concern. The original subcontract funding will not be burned up faster under this arrangement, it will be burned up slower because the monthly direct charges will be reduced by four hours per day for this employee. In addition, it will be charged at the on-site rate, since that is where the work will be performed.

wvanpup,

Respectfully, I disagree with your position. Have you reviewed the requirements of 31.203, especially ( c ), (d), and (f)? It seems to me your position is contrary to those requirements.

H2H

H2H, I don't understand your fragmentation argument either. Once a base is established, i.e., a policy developed and implemented that describes the costs included in a base, the contractor is not to take identified costs out of that base in order to calculate an indirect cost for discrete contracts. I am assuming that the OP's company has a policy that describes the costs to be included in the on-site and off-site overhead bases and the pools for each. If it follows that policy, it is not fragmenting the base. However, if it moves a cost from one base to another in contravention of its established accounting policy, it would be fragmenting the losing base.

Retreadfed,

I've said my piece. Sorry I didn't convince you.

H2H

Maybe working through a simple example could help.

There are two overhead (OH) pools (offsite and onsite). There is not a separate fringe OH pool. In a year a particular Exempt Employee works:

A. 600 hours on various direct off-site contracts

B. 600 hours on various direct on-site contracts

C. 880 hours of non-productive time (holiday, vacation, sick, training, other)

What is a common way to account for this time and what assumptions do we need to make? Is the below approach incorrect?

A. 600 hours becomes part of off-site OH base and is burdened with offsite OH expense pool.

B. 600 hours becomes part of on-site OH base and is burdened with onsite OH expense pool.

C. 440 hours becomes part of off-site OH expense pool and 440 hours becomes part of on-site OH expense pool

Whynot,

Your example is inapposite because it assumes that "contracts" are assigned to off-site and to on-site pools. I guess that's possible, but it is far more likely that labor dollars are the allocation base for each indirect cost pool. If I'm correct, then direct labor is assigned to either one of the two distinct allocation bases, and then allocated to one or more contracts based on labor distribution (timecards).

My problem is that there is only one employee and that employee has an office. That means the employee's labor must be assigned to the allocation base of the indirect cost pool where the costs of the office are accumulated. When the employee charges time to a contract, it comes burdened with the appropriate indirect (overhead) rate.

And that's the way you do that.

H2H

Makes good sense.

Then in my example, with your assumptions, A and B are treated the same, the exempt employee’s direct time is all accounted for (1200 hours) as part of the onsite OH base and is burdened with the onsite OH expense pool. Then all direct contracts worked (onsite and offsite) are allocated cost with the onsite OH burden.

Then likewise, for C, 880 hours becomes part of on-site OH expense pool.

So, if I understand correctly, the only direct labor eligible to receive offsite OH burden would be that direct labor that is not assigned to a facility or the like

Whynot,

Exactly so.

H2H

H2H, I'm still having trouble with your analysis. A cost is allocable to a contract if there is a causal or benificial relationship begtween the cost and contract. I have a problem seeing a beneficial relationship between the cost of an employee's "office" (what ever that means) and a contract where the government is providing that employee an "office."

Retreadfed,

I'm having trouble understanding your point because I never said that there was a beneficial or causal relationship between the cost of the employee's office (which is shorthand for facility cost including utilities, etc.) and a contract where the government is providing that employee an office. Indeed there is not such a relationship, which is why there are presumably two indirect cost pools -- one that contains facility costs and one that does not. Direct labor recorded by employees for whom the contractor provides an "office" are in the allocation base for the former pool, while direct labor recorded by employees for whom a customer provides an "office" are in the allocation base for the latter pool.

You don't fragment the allocation bases by having the some of the direct labor of an employee for whom the contractor provides an "office" in the allocation base of the latter pool.

That is pretty much my sole point, which I have made consistently since my post #3.

H2H

I think what H2H is saying is, if Harry has been assigned an office, the indirect costs don't go away for the office when he spends half his time out of the office on the govt site. Otherwise, I am also confused

I don't necessarily agree that it is reasonable for the govt contract to pick up the increased cost for a newly assigned office for Harry to use on another contract, if that is what H2H is saying.

Is the following scenario analogous to the one under discussion?

There is a company with an Armored Vehicle Engineering Division and an Aircraft Engineering Division. Each division has its own facility and its own facility indirect cost pool, and both allocate facility costs to contracts on the basis of direct engineering labor hours.

Now suppose that Jane is a senior project engineer assigned to the Armored Vehicle Division, where she has an office, and that her time is charged directly to the projects on which she works. The V.P. of the Aircraft Division asks to borrow Jane for 20 hours each week for the next year, and the V.P. for the Armored Vehicle Division agrees, since that division has just lost a competition for a big contract and is looking for ways to keep Jane with the company. Both V.P.s understand that the 20 hours that Jane spends working on aircraft will be charged to Aircraft contracts. The Armored Vehicle V.P. insists that the Aircraft V.P. give Jane a suitable office in its facility. Jane splits her time between her two offices.

If that scenario is analogous to the one under discussion, shouldn't the 20 hours that Jane spends at the Aircraft Division be included in the Aircraft Division's facility indirect cost allocation base, instead of in the Armored Vehicle Division's allocation base?

Would that violate any cost principle or cost accounting standard?

If so, which one(s)?

Vern,

Your hypothetical is not analogous because you have two separate divisions, each with equivalent indirect cost pools. I think that you also omitted the requirements of 31.205-26(e) in your hypothetical cost accounting.

In the original scenario we have one division, not two. The division has two indirect cost pools. One includes the cost of facilities and the other does not. The allocation base for the former is the direct labor recorded by personnel who use the facilities. The allocation base for the latter is the direct labor recorded by personnel who do not use the facilities.

H2H

Help:

Thank you.

So, going back to the original post, the employee will spend half of his time on site and half of his time off site. His labor will be charged direct accordingly, but for the purposes of the allocation of indirect costs, all of his time must be included in the on-site allocation base.

All hours of the employee's labor belong in the on-site base because of the causal-beneficial relationship between his labor and the cost of maintaining his office. Right?

If I have it right, then the reason for this is the prohibition in FAR 31.203(d) against fragmentation of an allocation base. Right?

Can the employee's labor also be used in allocation bases for off-site indirect cost pools?

Vern

Vern,

There are several things going on. The most obvious issue (in my mind) is that the company maintains an office for the employee whether the employee uses it or not. Companies don't (as a rule) assign offices on a part-time basis. For example, the company maintains the employee's office even if the employee takes 3 weeks of leave. It is the relationship between the indirect cost in the cost pool and the direct labor in the allocation base that drives the allocation.

CAS 418 and 406 are also in play.

In the original post, the company did not provide facilities for the individual, so it was appropriate that an abated "off-site" rate be used. When the situation changed and the company subsequently provided facilities cost, it was no longer appropriate to use the "off-site" rate. At that point, the employee's labor -- all of it -- should be recorded to the allocation base for the full "on-site" rate.

Separately, the contract to which the employee was recording time was bid and budgeted assuming the employee had a lower overhead rate on labor. When the employee was reassigned to the "on-site" pool, the labor became more expensive. Too bad for the contract.

Look at it this way: If the employee didn't absorb the "on-site" overhead, then the other employees in that allocation base would receive proportionately more overhead and their labor would be that much more expensive. When they recorded time to the contracts they performed on, those contracts would bear (slightly?) more overhead expense then they otherwise would have.

Of such scenarios are qui tam relators and FCA cases born.

Hope this helps.

Help:

I hope this doesn't sound dumb, but if the employee works both on site and off site, can the employee's labor be included in more than one allocation base? For instance, in the base for on-site indirects and in a base for off-site indirects?

Vern

H2H, I'm glad you brought up CAS 418. It says "Pooled costs shall be allocated to cost objectives in reasonable proportion to the beneficial or causal relationship of the pooled costs to cost objectives." You have already said that there is no causal or beneficial relationship between the cost of providing an employee an office and a contract (cost objective) where the government provides that employee an office. If that is the case, how can you burden that employee's labor with an indirect cost rate that includes the cost of the office without being in non-compliance with 418 (assuming the contract is CAS covered)? If the contract is not CAS covered, you have the same issue with FAR 31.201-4.

Vern,

What you described is called "fragmenting the base". It's a problem. Assuming the employee's "office" is maintained, then 100% of the employee's labor must go into the allocation base of the cost pool that contains the cost of the facilities. I don't know how to explain it any more clearly than that.

Retreadfed,

It is the labor that receives the indirect cost burden, not the contract. The contract is charged labor and the labor carries with it the appropriate burden. The theory is that the relationship is between the labor and the contract. In other words, CAS 418 says that you can use direct labor as your allocation base because there is a relationship between the indirect costs in the pool and the direct labor of the employees, and when labor is charged to contracts that is a reasonable representation of the benefits provided by the indirect costs to the contract. I.e., the more labor, the more indirect costs are absorbed.

A contractor does not have to have two indirect cost pools (one with facilities and one without facilities) but the FAR says that structure may be appropriate. If the contractor elects to have two cost pools, then it has to define each pool's allocation base and follow that definition consistently. The definition of one pool is "direct labor for employees for whom we, the contractor, provide facilities," and the definition of the other pool is "direct labor for employees for whom our customer provides facilities." Once those bases are defined, you cannot then split the bases.

At this point, either I've made my case or I haven't.

You've made your case. Thanks, Help.

Vern

H2H, your next to last paragraph is the point that I have been driving at. The answer to the OP's question depends on what their policy is for accounting for facility costs. Thus, if their policy is to allocate facility costs as described in your last paragraph, the employee could split time between the two locations when performing under the two contracts and have the off-site rate applied to one contract and the on-site rate applied to labor under the other contract.

Considering DCAA's penchant forf squeezing contractors, I suspect that DCAA would question costs if a contractor attempted to change the way it allocated facility costs to a contract when an employee is working part time on-site at a government facility and part time at the contractor facility with the change resulting in more cost being allocated to the on-site contract.

Retreaded, I agree with you in principle. However, if we are discussing the 1 1/2 month overlap period, I don't think that the difference in cost would attract the attention of the DCAA. It might cost more to take any action than the difference would amount to.

A contractor does not have to have two indirect cost pools (one with facilities and one without facilities) but the FAR says that structure may be appropriate. If the contractor elects to have two cost pools, then it has to define each pool's allocation base and follow that definition consistently. The definition of one pool is "direct labor for employees for whom we, the contractor, provide facilities," and the definition of the other pool is "direct labor for employees for whom our customer provides facilities." Once those bases are defined, you cannot then split the bases.

H2H, your next to last paragraph is the point that I have been driving at. The answer to the OP's question depends on what their policy is for accounting for facility costs. Thus, if their policy is to allocate facility costs as described in your last paragraph, the employee could split time between the two locations when performing under the two contracts and have the off-site rate applied to one contract and the on-site rate applied to labor under the other contract.

Considering DCAA's penchant forf squeezing contractors, I suspect that DCAA would question costs if a contractor attempted to change the way it allocated facility costs to a contract when an employee is working part time on-site at a government facility and part time at the contractor facility with the change resulting in more cost being allocated to the on-site contract.

Maybe the issue is the definition of "fragment" ("split"). If the contractor is charging four hours direct to on-site, with its Pool A/Base A, and four hours direct to off-site, with its Pool B/Base B, maybe that kind of charging/allocating does not constitute "fragmenting." Maybe "fragment" means something else.

Is there any published guidance that provides a definition, explanation, or example of fragmenting a base? FAR 31.203 is not helpful in this regard.

Vern, whether you consider it helpful, there is some discussion of this in Preamble A to CAS 405, paragraph 4. Also, see Martin Marietta, ASBCA No. 35895 decided June 5, 1992, reversed in part in 13 F.3d 1563. This latter decision also adresses H2H's statements that indirect costs are allocated to base costs.