G&A not allowed on Travel

It's a common thing, not so much with regard to contracts with Federal agencies, but more with state/local government contracts. And -- to be clear -- the G&A expense must be allocated to all costs in the input base. The G&A allocated to travel cost is not billable; it is unallowable by the terms of the contract.

Contractors who don't want to accept those contract terms should not bid on the work.

Or -- and this is a piece of advice I normally charge for -- they could consider changing their G&A expense pool allocation base.

H2H:

The anti-G&A thing has fascinated me, but not enough to prompt me to investigate its origins. Do you know anything about the history of the movement to include contract terms that make G&A unallowable?

Vern Edwards said:

H2H:

The anti-G&A thing has fascinated me, but not enough to prompt me to investigate its origins. Do you know anything about the history of the movement to include contract terms that make G&A unallowable?

Sorry I do not -- maybe ask Jim Nagle?

From my (biased) point of view, it's part of a long-standing attempt to cut contractor costs, piece by piece. But I don't know the origins of that movement.

Thanks, Help. I'll let you know if I find out anything interesting.

Vern

Here's a hypothesis: the Government may assume that travel costs for contractors should be no different than travel costs for the Government.  Since Government employees don't typically see the G&A behind their personal travel costs (they merely see the direct travel costs: airfare, rental car, hotel, per diem, etc.) the use of that as a baseline would result in the disconnect discussed here when trying to determine what travel costs the Government should or should not reimburse.

A more likely hypothesis is that many government contracting officers merely do not understand G&A.  For example, I once had to deal with a contracting officer who did not understand why he should pay G&A for every year that a contract was in existence.  He thought that once he paid for G&A in the first year of the contract, that was all the government should pay.  In addition, some contracting officers do not believe that G&A is a real cost, but a hidden form of profit.

PepeTheFrog agrees with both Matthew Fleharty and Retreadfed as possible reasons.

Here's another example of the government getting travel costs  wrong. Have a written travel policy. Understand the JTR applies to federal employees, not contractors. Be willing to push back. 

The Joint Travel Regulations (JTR) apply to federal employees, not to contractors. 

FAR 31.205-46, Travel Costs, states that travel costs incurred are reasonable and allowable up to the maximum per diem rate according to the JTR or other sources applicable to federal employees. It also states that FAR 31.205-46 does not: 

"incorporate the regulations cited in subdivisions (a)(2)(i), (ii), and (iii) of this subsection in their entirety. Only the maximum per diem rates, the definitions of lodging, meals, and incidental expenses, and the regulatory coverage dealing with special or unusual situations are incorporated herein"

Yet one of PepeTheFrog's amphibious clients faced the following situation. Government conference, requiring travel, serves a crappy lunch. Many choose not to eat the lunch, many don't even get to eat the lunch because the conference runs out of food! Contractor bills the maximum per diem per the terms of the cost-reimbursement contract and the contractor's travel policy. Government demands a reduction for the meals served at the conference. Contractor explains this creates a lot of unnecessary work and that their standard travel policy is XYZ. Government bullies contractor into giving up. Similar situation, except government now demands meal reduction for meals served, even on travel days. Read this FAQ below. You will see one of the reasons for the 75% per diem rate on travel days is specifically to avoid complications with such matters on travel days. So, the government will not only hold contractors to the wrong standards, they will also apply those standards incorrectly.

"9. Why was the M&IE computation for first and last days of travel changed to 75%?

To simplify travel by eliminating times and meal-by-meal construction on vouchers."

http://www.defensetravel.dod.mil/site/faqflday.cfm

http://www.defensetravel.dod.mil/site/faqctr.cfm

Matthew Fleharty said:

Here's a hypothesis: the Government may assume that travel costs for contractors should be no different than travel costs for the Government.  Since Government employees don't typically see the G&A behind their personal travel costs (they merely see the direct travel costs: airfare, rental car, hotel, per diem, etc.) the use of that as a baseline would result in the disconnect discussed here when trying to determine what travel costs the Government should or should not reimburse.

I believe that the bases for overhead/G&A in my (former) Govt agency is direct labor, not including travel and other direct costs. 

Believe me, employees in my agency generally were aware of the multipliers used to determine our hourly labor rates.

Joel, G&A is to be computed using a base that best represents total activity of the contractor.  Under the CAS, there are three acceptable bases.  Total cost input is one of those bases and is the base most commonly used by contractors.  That base consists of all costs except G&A cost.  Obviously, travel would be a part of that base.  Another base is the value added base that excludes subcontracts and material from the base.  Travel could be included in that base.  The FAR does not address these bases but merely defines G&A and states in part that "G&A expense does not include those management expenses whose beneficial or causal relationship to cost objectives can be more directly measured by a base other than a cost input base representing the total activity of a business unit during a cost accounting period."  For many contractors, travel is a part of the G&A base.  Thus, for those contractors, if they incur travel costs, those travel costs will attract G&A to the contracts under which the travel was performed.  If the contract prohibits the contractor from claiming G&A costs on travel, the contractor will have incurred allowable costs that it cannot recover.

Retreadfed said:

If the contract prohibits the contractor from claiming G&A costs on travel, the contractor will have incurred allowable costs that it cannot recover.

That's not true. The contractor will have incurred costs that, pursuant to the terms of the contract, are expressly unallowable, because the contract forbids the allocation of G&A to travel costs, a limitation to which the contractor assented. See the definition of "expressly unallowable cost" in FAR 31.001 and see FAR 31.201-2(a)(4).

Retread, I was merely responding to Matthew’s comment that seemingly assumes that G&A is charged on travel for all government employees. 

Im not an accountant and don’t necessarily know all accounting terms.  However, I taught training classes from 1991 through 2017 for USACE, to USACE, non-USACE, non DoD and non-Government students,  where the cost of the courses, including the labor and travel instructor costs, were reimbursed by the students’ organizations.

We also charged the various programs and other government organizations for our labor and travel costs, as applicable to programs and projects on which we worked. 

In fact, as a consulting engineer in private industry before joining the civil service in 1980, my firm charged our clients for fully burdened labor costs plus reimbursement for direct travel costs. 

So, at least for services, I wouldn’t say that “everyone” charges indirect costs on travel costs.

Some questions come up again and again. Check out this thread from more than three years ago. Check out the names of the participants:

/threads/2860-g-a-and-profit-to-travel-costs

Vern Edwards said:

Some questions come up again and again. Check out this thread from more than three years ago. Check out the names of the participants:

/threads/2860-g-a-and-profit-to-travel-costs

Vern the other thread concerned a modification to a firm fixed price construction contract with a determinable amount of travel by a subcontractor for a specific  work item.  There should be no legal reason to prohibit either general and administrative overhead costs or profit in such a situation  

 This thread concerns separate travel line item for an indeterminate amount of travel, presumably.  The reason that profit is not allowed for this separate line item, in my opinion, is that it could amount to a cost-plus percentage of cost situation, which is prohibited by law.

I have seen  where, but cannot remember the case, a decision discussed where adding G&A or other indirect costs to actual direct travel costs could also amount to CPPC.  That situation might be a reason for reluctance to alllow G&A on indeterminate amount of travel costs. I think that the question concerning whether allowing G&A on reimbursable travel costs  amounts to a cost plus percentage of cost situation has been discussed in a previous thread in this forum.  However, I do not have time to research the whole forum archive history

Vern Edwards said:

That's not true. The contractor will have incurred costs that, pursuant to the terms of the contract, are expressly unallowable, because the contract forbids the allocation of G&A to travel costs, a limitation to which the contractor assented. See the definition of "expressly unallowable cost" in FAR 31.001 and see FAR 31.201-2(a)(4).

So I am going out on a limb here but had this quick thought (conclusion) with admittedly no research and limited expertise to defend it.  

FAR 31.201-2(a)(4) says "Only those CAS or portions of standards specifically made applicable by the cost principles in this subpart are mandatory unless the contract is CAS-covered (see Part 30)."   Further 31.203 Indirect costs states " (a) For contracts subject to full CAS coverage, allocation of indirect costs shall be based on the applicable provisions. For all other contracts, the applicable CAS provisions in paragraphs (b) through (h) of this section apply."  CAS standards are incorporated into the FAR.  

Conclusion (reaching admittedly) - Before an agency can provide that G&A does not apply to direct travel they must first seek a deviation to make it so.

joel hoffman said:

This thread concerns separate travel line item for an indeterminate amount of travel, presumably.  The reason that profit is not allowed for this separate line item, in my opinion, is that it could amount to a cost-plus percentage of cost situation, which is prohibited by law.

I have seen  where, but cannot remember the case, a decision discussed where adding G&A or other indirect costs to actual direct travel costs could also amount to CPPC.  That situation might be a reason for reluctance to alllow G&A on indeterminate amount of travel costs. I think that the question concerning whether allowing G&A on reimbursable travel costs  amounts to a cost plus percentage of cost situation has been discussed in a previous thread in this forum.  However, I do not have time to research the whole forum archive history

Joel, if you could find that case I would be very interested, because that conclusion would surprise me. In my view, adding an indirect burden does not create a CPPC situation. It simply adds more costs.

C Culham said:

Conclusion (reaching admittedly) - Before an agency can provide that G&A does not apply to direct travel they must first seek a deviation to make it so.

Carl, I think the issue here is that the agency is saying that G&A allocated to travel costs is unallowable, not that it is unallocable.

here_2_help said:

Carl, I think the issue here is that the agency is saying that G&A allocated to travel costs is unallowable, not that it is unallocable.

h2h - I understand and won't push my thought but the FAR references I used in my post (as also provided by Vern) regard allowable and not allocable.

joel hoffman said:

Vern the other thread concerned a modification to a firm fixed price construction contract with a determinable amount of travel by a subcontractor for a specific  work item.  There should be no legal reason to prohibit either general and administrative overhead costs or profit in such a situation

My point was that the question about applying G&A to travel has come up before. I understand the differences in the situation.

here_2_help said:

Joel, if you could find that case I would be very interested, because that conclusion would surprise me. In my view, adding an indirect burden does not create a CPPC situation. It simply adds more costs.

Yes, I was surprised, too. I believe that what I read is based upon using pre-determined overhead rates.  See the following general info on CPPC, and more specifically, discussion of using pre-determined OH multipliers, starting at page 39.

http://www.dtic.mil/dtic/tr/fulltext/u2/a147779.pdf

i haven’t read the entire paper yet. However, if everyone is wondering why some agencies decided not to allow simple pre-determined OH rates to be added to direct costs, this AFIT Thesis research report  may explain it.

C Culham said:

Conclusion (reaching admittedly) - Before an agency can provide that G&A does not apply to direct travel they must first seek a deviation to make it so.

Yes, reaching, and I disagree. By declaring G&A charged to travel to be unallowable (or unbillable), the parties would not be making it unallocable.

Vern Edwards said:

My point was that the question about applying G&A to travel has come up before. I understand the differences in the situation.

Vern, it has come up before in the Forum in the same context of disallowing certain G&A mumltipliees on direct cost under a reimbursable travel CLIN. I don’t have the time to fully research the issue now. I found an AFIT student’s Thesis paper that included discussion on whether allowing a predetermined G&A rate to be added to direct costs on a reimbursable Line item constitutes Cost Plus Percentage of Cost contracting.

Vern Edwards said:

The contractor will have incurred costs that, pursuant to the terms of the contract, are expressly unallowable, because the contract forbids the allocation of G&A to travel costs, a limitation to which the contractor assented.

I see what Carl was talking about. What I should have said was "because the contract forbids the allowance of allocable G&A costs to travel costs...." The agreement cannot limit the allocability of it.

Thanks, Carl.

See also the recommendations concerning predetermined overhead rates for cost reimbursable contracts on pages 107 and 108.  I DONT know how current the paper is.

joel hoffman said:

See also the recommendations concerning predetermined overhead rates for cost reimbursable contracts on pages 107 and 108.  I DONT know how current the paper is.

See FAR 52.216-15.

So, are you saying that this clause or something similar to it would have to be used in order to allow G&A percentage on direct travel costs for a reimbursable travel CLIN on a FFP or T&M contract?

if the Thesis reflects current legal principles concerning avoidance of CPPC contracting, then it would appear to me  that an agency should not and cannot allow use of predetermined overhead rates for reimbursement of travel cost line item on an FFP or T&M contract unless they are subject to adjustment.  Thus-   an answer to the G&A debate herein.

joel hoffman said:

So, are you saying that this clause or something similar to it would have to be used in order to allow G&A percentage on direct travel costs for a reimbursable travel CLIN on a FFP or T&M contract?

Uh... no. I was saying see FAR 52.216-15. I said it because you were talking about predetermined rates and didn't mention it. I thought you might like to look at it.

😊

Vern Edwards said:

Uh... no. I was saying see FAR 52.216-15. I said it because you were talking about predetermined rates and didn't mention it. I thought you might like to look at it.

😊

Vern, Thanks.

 It would seem that the procedures in the clause would be consistent with the discussion in the Thesis  of  including G&A as a markup on direct costs in a reimbursable CLIN for travel costs.  Such a CLIN is presumably included in a contract because it isn’t practicable and/or possible to pre-price the cost and/or amount of travel using an FFP approach.  

Simply allowing reimbursement at a predetermined G&A rate on incurred costs without redetermination/adjustment would seem to be CPPC where the more the direct travel costs are, the higher the amount of G&A  is paid... CPPC isn’t limited to Fee or profit as far as I can tell.

PepeTheFrog said:

PepeTheFrog agrees with both Matthew Fleharty and Retreadfed as possible reasons.

Here's another example of the government getting travel costs  wrong. Have a written travel policy. Understand the JTR applies to federal employees, not contractors. Be willing to push back. 

The Joint Travel Regulations (JTR) apply to federal employees, not to contractors.

A few years ago, when I first ran into "no G&A on travel" from a Gov't client, the CO's position was "JTR doesn't permit G&A on travel, and per Agency counsel opinion, we won't pay it."

This was during contract negotiation. We pushed back. Of course JTR doesn't address contractor G&A--it wasn't written for contractors. We were met with dug-in heals. The CO had no issue negotiating hours and scope, but G&A travel was apparently the third rail. 

At the end of the day, it was an insignificant portion of the total contract value, so we made the business decision to let the issue drop, rather than spend more money to negotiate it than we'd actual recoup in G&A billings. But on principle, it was an annoying "loss."

Joel, note that the us of 52.216-15 is limited to R&D contracts with educational institutions.  As I recall, congress has permitted the use of predetermined indirect cost rates by educational institutions.  This is an exception to the prohibition against the use of CPPC contracts.

Vern Edwards said:

That's not true. The contractor will have incurred costs that, pursuant to the terms of the contract, are expressly unallowable, because the contract forbids the allocation of G&A to travel costs, a limitation to which the contractor assented. See the definition of "expressly unallowable cost" in FAR 31.001 and see FAR 31.201-2(a)(4).

Vern, I have to disagree with this statement.  Indirect cost rates, such as G&A, are not costs, but a vicarious way of allocating various costs to cost objectives that benefit from those costs.  The costs that are included in the G&A pool for calculation of the G&A rate for reimbursement on government contracts are allowable costs.  Thus, if a contractor cannot bill for the G&A that is allocated to contracts because of incurrence of allowable base costs,  the contractor is not being permitted to recover allowable indirect costs that it has incurred.  An agreement not to seek reimbursement for some G&A allocated to a contract does not make the costs that are included in the G&A rate expressly unallowable.  If this were the case, the contractor would have to figure out some way to exclude those costs from its proposal to establish final indirect cost rates.  I do not think the FAR requires such a result

Retreadfed said:

Joel, note that the us of 52.216-15 is limited to R&D contracts with educational institutions.  As I recall, congress has permitted the use of predetermined indirect cost rates by educational institutions.  This is an exception to the prohibition against the use of CPPC contracts.

Retread, I saw the prescription for use of the clause.  I am saying that the procedures there seem to be compatible with the AFIT Thesis recommendations on pages 107 and 108 to avoid CPPC contracting.

In addition, I am saying - if the referenced 1984 AFIT Graduate Study Thesis is 1) correct and 2) consistent with current statute and case law, then it would appear that an agency SHOULD NOT allow G&A at a predetermined rate to be applied to direct travel costs for reimbursement on a cost reimbursement type contract line item for travel - unless the contract requires appropriate procedures to audit and retroactively revise the rate.  

Quote

http://www.dtic.mil/dtic/tr/fulltext/u2/a147779.pdf

REPORT NO.  AFIT/CI/NR 84-83T 

Controlling Office: AFIT/NR WPAFB OH'4 5433 

Sept 1984

_Co_st-Plus-Percentage-of-Costs in  Government Contracts
by Samuel Joseph Roser

B.A. with honors, May 1968, Brigham Young University
J.D. June 1971, University of Oregon
A Thesis submitted to The Faculty of The National Law Center of the George Washington University in partial satisfaction of the requirements for the degree of Master of Laws
September 30, 1984

Thesis directed by Ralph Clarke Nash, Jr. .Professor of Law 

From Pages 107-108

"Predetermined Overhead Rates in Cost Contracts

If you want to avoid potential CPPC headaches in a cost environment, avoid predeterminid overhead rates. Restricting the rates with ceilings or maximums may not cut the mustard at least with the Court of Appeals for the Federal Circuit. 322  If predetermined overhead rates must be employed make sure they are provisional, i .e, subject to audit and retroactive revision."

Note 322: Urban Data Systems, Inc. v. United States, I FPD I 69, 699 F.2d 1147 (1983).

IF this is still consistent with the law, then it may answer why agencies have not allowed G&A to be included in cost type CLIN's for reimbursement of travel costs on FFP or T&M contracts.

Retreadfed said:

If the contract prohibits the contractor from claiming G&A costs on travel, the contractor will have incurred allowable costs that it cannot recover.

Retread,

I don't see how the costs would be allowable under the contract if the contract says that the parties have agreed that they are expressly unallowable.

Are you taking the Manos position that the parties should agree that the costs are allowable, but not billable?

I just remembered that my agency didn't allow me to include any G&A or other overhead in my cost reimbursement for travel during the period between my retirement and when I was hired back as a re-employed annuitant.  During that period I was a contracted to teach design-build construction classes and was a subcontractor  managing and maintaining a Model Design-Build RFP for the Army Transformation Program Office.

Vern Edwards said:

Are you taking the Manos position that the parties should agree that the costs are allowable, but not billable?

I do not know what the Manos positon is or the rationale for it.  Therefore, I cannot respond to this question.   

However, in response to the first part of your last post, let me try to be clearer in what I am saying.  A G&A rate is established as a way of allocating costs incurred for the overall management and operation of the contractor to contracts.  Such costs frequently include compensation of management, state taxes, rental of facilities and general insurance costs.  None of these costs is expressly unallowable, although there may be limits on the amount that is considered allowable.  When the G&A rate is established, these costs will be allocated to contracts in proportion to base costs that are allocated to those contracts.  Thus, if the contractor uses a total cost input (TCI) base, all costs except G&A will be in that base.  Therefore, G&A will be allocated to a contract as a stated percentage of base costs allocated to that contract, which would be all costs other than G&A for a contractor using a TCI base.  If a contract contains a clause saying that a contractor using a TCI base will not be reimbursed for G&A on travel, G&A will still be allocated to that contract and the contractor reimbursed for it because of other allowable base costs, such as direct labor being incurred on that contract.  Thus, the contractor is recovering part of the allowable costs included in the G&A pool because it is being allocated to the contract because of the allowable direct labor incurred on the contract.  The fact that G&A allocable to the contract because of the allowable travel does not make exec comp or facilities rental expressly unallowable under that contract although a portion of those costs that are properly allocable to the contract will not be reimbursed.  When the contractor submits its certified proposal to establish final indirect cost rates, the contractor will not have to eliminate the unreimbursed portion from its proposal as an expressly unallowable cost.

Retreadfed said:

When the contractor submits its certified proposal to establish final indirect cost rates, the contractor will not have to eliminate the unreimbursed portion from its proposal as an expressly unallowable cost.

Yes it will. Schedule H will show the full amount of G&A being allocated to the contract and it will show the amount claimed as allowable contract-absorbed G&A being less than the full amount allocated. The difference will be the amount of G&A allocated to travel, because the contract made those allocated costs unallowable. As Vern correctly noted, the G&A allocated to travel is "expressly unallowable" by contract terms.

Retread:

Thanks for the detailed response. The response is very complicated, and I confess that I'm not sure that I understand it or what it's got to do with my disagreement with you, although I have read it several times. Truth to tell, I'm not interested enough in this topic to devote any more time to trying to figure out what you said.

Let me ask you---how does it gel with FAR 31.201-6, Accounting for unallowable cost, paragraph (a), which states:

Quote

(a) Costs that are expressly unallowable or mutually agreed to be unallowable, including mutually agreed to be unallowable directly associated costs, shall be identified and excluded from any billing, claim, or proposal applicable to a Government contract. A directly associated cost is any cost that is generated solely as a result of incurring another cost, and that would not have been incurred had the other cost not been incurred. When an unallowable cost is incurred, its directly associated costs are also unallowable.

(b) Costs that specifically become designated as unallowable or as unallowable directly associated costs of unallowable costs as a result of a written decision furnished by a contracting officer shall be identified if included in or used in computing any billing, claim, or proposal applicable to a Government contract. This identification requirement applies also to any costs incurred for the same purpose under like circumstances as the costs specifically identified as unallowable under either this paragraph or paragraph (a) of this subsection.

The contract will state that the parties agree that, pursuant to the terms of the contract, any G&A allocable ( or allocated) to travel is expressly unallowable and will not be reimbursed. The parties will have to calculate that amount. To me, that seems pretty straightforward.

Finally found time to access my Manhattan Project library to accurately quote one of my favorite government audit stories. From the book "Now It Can Be Told," by General Leslie Groves:

Quote

Du Pont refused to accept our first letter of intent because it contained the standard proviso that, in addition to being reimbursed for costs, it would receive a fixed fee to be computed in accordance with the usual government procedures. ... Du Pont did not want any fee or profit of any kind for this work, and wanted furthermore to be certain that the company would receive no patent rights. ... Du Pont expressed a desire to have it [the revised letter of intent] approved by the Comptroller General, particularly with respect to the provisions covering reimbursement and indemnification, in order to make certain that the basic intent of the contract to provide full reimbursement of expenses without profit would not at some later date by upset by his office. ... One of his principal assistants ... opposed the idea very strongly, pointing out that it was contrary to all existing procedures, that it would open the door to similar requests in the future and thus would completely upset the orderly conduct of business in his office ... Without further ado, Mr. Warren [Comptroller General] replied: 'I promised General Groves to do it and I see every reason why we should and none why we should not.'

At du Pont's request, Dr. Bush forwarded a letter to the President outlining the circumstances surrounding the assumption by the United States of all responsibility for the unusual hazards involved in this work. Mr. Roosevelt initialed his approval on the latter and a photostatic copy of it was given to du Pont. ...

For purely legal reasons, provision was made for a fee of one dollar.

Although the expected duration of the contract was stated, as is usual, soon after V-J Day du Pont was paid the entire fee of one dollar. This resulted in a disallowance by government auditors, since the entire time of the contract had not run out. Consequently, du Pont was asked to return thirty-three cents to the United States.

here_2_help said:

Finally found time to access my Manhattan Project library to accurately quote one of my favorite government audit stories. From the book "Now It Can Be Told," by General Leslie Groves...

👍Thx, Help.