How to recover material handling costs on customer furnished material?
Started by canberra07 · Feb 11, 2016 · 9 replies
- cOriginal post
canberra07
Feb 11, 2016 · 10y ago
I am looking to see if anyone has dealt with a similar situation and how they went about recovering cost:
We are wrapping up pricing for a contract with a substantial amount of customer purchased material which will be drop-shipped off to our facility. As there will be no base associated with customer furnished/purchased material, we are concerned with how we will capture/recover material handling costs on this material (our OH rate will not be captured). The employees handling the items/material are indirect charging and with no base we are not sure how to capture this cost (aside from just incorporating it into the fee).
Has anyone else encountered this? Any recommendation for recovering costs OTHER than just increasing the fee? Any feedback is greatly appreciated!
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Guest Vern Edwards
Feb 11, 2016 · 10y ago
It is a direct cost. Charge it accordingly
- c
canberra07
Feb 11, 2016 · 10y ago
How would you track it as such if it is not getting captured in an ERP system? Would you estimate? Assign a monthly cost to charge based on some type of historical cost?
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here_2_help
Feb 11, 2016 · 10y ago
"The employees handling the items/material are indirect charging" is why I disagree with Vern's suggestion. You've already baked the cost of those employees into your forward pricing and provisional billing rates. If you direct charge them then the government is paying twice. That's not good.
From my viewpoint, you have two options: (1) change the allocation base so that all affected contracts get a share of indirect costs that is reasonably proportionate to the benefit received, or (2) use a special allocation to ensure that the contract receives its equitable share of indirect costs.
Hope this helps.
- R
Retreadfed
Feb 11, 2016 · 10y ago
Canberra07, do you have a separate material handling rate or is this part of your G&A? Also, will the contract be a cost reimbursement or T&M contract?
- G
Guest Vern Edwards
Feb 12, 2016 · 10y ago
I agree with help. I missed that the employees were indirect charged.
- c
canberra07
Feb 12, 2016 · 10y ago
Retreadfed, we do have a separate material handling rate and I am not sure whether it will be T&M or Cost-Reimbursable at this time.
- R
Retreadfed
Feb 12, 2016 · 10y ago
How are you wrapping up pricing if you do not know how the contract will be priced?
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govtacct02
Feb 12, 2016 · 10y ago
You might want to read the Sikorsky COFC case on CAS 418 - selection of an allocation base for material handling that involved government property ($0 value on the books) was part of the debate.
No. 09-844 ¶¶ 45-50; Sikorsky Aircraft Corp. v. United States, 105 Fed. Cl. 657, 674 (2012) (“Sikorsky II”)
- h
here_2_help
Feb 13, 2016 · 10y ago
All you need is a dictionary ...