Price Negotiation Memorandum, and Contractors access to it

Are you in a pre-contract mode or have the contracts/orders been issued?  If pre-contract, the government may be asserting that they are pre-decisional and cannot be released at this time.  On the other hand, if the contracts have been awarded, I see no reason why they cannot be released.  I know they are available through discovery in litigation without a protective order.

The PNM is an internal pre-decisional Government document, and I would assert that it is privileged from release under FOIA.

You want proof that your cost/price is fair and reasonable?  The mere fact that the contract was awarded at that cost/price is proof that the contracting officer found the cost/price to be reasonable.

ji20874 said:

You want proof that your cost/price is fair and reasonable?  The mere fact that the contract was awarded at that cost/price is proof that the contracting officer found the cost/price to be reasonable.

That is a correct statement.  However, DCAA frequently questions costs that were specifically negotiated prior to contract award.  This is particularly true with regard to labor rates.  In this regard, I can see why a contractor would want to obtain a PNM to support the reasonableness of costs.

If the contract has been awarded, what harm is there in releasing the PNM to the contractor covered by the PNM?  After all, the contractor was a party to the contract award process.  Under current FOIA doctrine promoting transparency of government operations, if there is no harm to the government or a third party from release of a document, that document should be released even if it does technically fall within a FOIA exception.

The Contract, and multiple negotiated Delivery Orders against the contract have already been awarded.  Retreadfed is correct in that DCAA is the one questioning fair and reasonableness of negotiated costs.  I did use the fact that the contract was awarded as my basis for saying costs were already determined to be fair and reasonable.  However, now even the Contracting Officer is taking DCAA's side.  It is a very interesting discussion we are having with both DCAA/DCMA/PCO....

We were not given a reason why they cant release it to us....So Im guessing FOIA would be the next step.  Thanks for the information.

Well, then, ask for the PNM under FOIA.

Let us know if you do or do not get it.

But you might be barking up the wrong tree.  You must not conflate the overall estimated cost (or price) of the contract (which is found reasonable at the time of contract formation) and the incurred costs for any individual parts or pieces of the contract (which are found allowable during contract performance).  That the contracting officer found the overall estimated cost to be reasonable (explained in the PNM) does not mean that any or all incurred costs are allowable for reimbursement during contract performance.  So to me, any incurred cost may most certainly be challenged during contract administration, and the PNM is irrelevant to that challenge of proving allowability.  The burden is on the contractor to prove the allowability (incl. reasonableness) of any and all incurred costs during contract administration (absent any pre-contract cost advance agreement (FAR 31.109)).

On 1/24/2019 at 9:29 PM, sprice11 said:

DCAA is the one questioning fair and reasonableness of negotiated costs.

Really?  Is DCAA questioning the established estimated cost of the contract, or is DCAA actually questioning incurred costs?  I suspect it is the latter.

ji, in my experience, specific areas of cost, such as labor rates, are negotiated prior to the award of a contract.  As a result, the PNM addresses those costs and explains why they were determined to be reasonable and accepted.  If those same labor rates are used in contract performance, the PNM is evidence of the reasonableness of those labor rates.

I'm getting the sense that the OP has not provided us with sufficient info to help out. Apparently there is an ID/IQ with multiple Delivery Orders.

What is the contract type of the Delivery Orders? CP, FP, T&M -- what?

Is DCAA questioning the D.O. price or something else? Normally, DCAA does not question contract prices unless the auditors are alleging defective pricing. Is DCAA alleging defective pricing?

Is DCAA alleging that the contractor acquired materials in performance of the D.O.'s, and the contractor cannot establish that those prices were fair & reasonable? If the D.O. is CP, then this may be a valid assertion.

So much we don't know; how can we give advice?

I agree H2H. I started to post this morning with similar questions, then decided that the only question that OP asked was whether they could obtain a copy of a PNM for some unclear objective.  

Years ago we provided copies and asked contractor to sign those over $100,000 (when threshold was $ 100k). That was our local District’s policy.  It should be noted that our pre-negotiation objectives were always separate documents and often consisted of marked up proposals for small changes.

My next District used memoranda of agreement or memoranda of understanding to document mutual understandings and agreements. 

I used those throughout my subsequent career. 

We don’t know what was “negotiated”, whether competitive or non-competitive, what the auditors are questioning, etc. 

For instance, Is it pricing or costs? Post awRd, pre-award, incurred costs, questioned costs, unsupported costs, etc.? 

If they are questioning a negotiated cost, then they would probably be questioning the KO’s basis of settlement.  Of course the KO would have determined something to be fair and reasonable - probably the overall settlement. It may have involve the contracting officer non-concurring with some of the audit results, prior to negotiations.

Who here can know?

Now days, when price negotiation memoranda contain details of the prenegotiation objectives, I would say that somebody’s going to have to legally force me to turn over a copy of the overall price negotiation memorandum.

 And then I would redact out my prenegotiation objectives. In this instance, it appears that the contractor wants to know what the contracting officer thought was fair and reasonable.

On 1/25/2019 at 9:49 AM, Retreadfed said:

ji, in my experience, specific areas of cost, such as labor rates, are negotiated prior to the award of a contract.  As a result, the PNM addresses those costs and explains why they were determined to be reasonable and accepted.  If those same labor rates are used in contract performance, the PNM is evidence of the reasonableness of those labor rates.

If specific areas of cost are mutually agreed to before award of the contract, those agreements should be captured in the contract or in a bilateral advance agreement (FAR 31.109) — not in a unilateral PNM.  If the parties talked about specific areas and then did not formalize anything, then there is no agreement.  Remember, a PNM only records one party’s side to a negotiation.

One could say they discussed specific areas solely for understanding and to come to agreement on the overall estimated cost for the contract.

Besides, the contractor should have its own PNM with its own objectives and understandings of the give-and-take and final negotiated result.

I wholly object to releasing PNMs to contractors.

if the contractor wants an advance agreement covering treatment of certain costs, it should insist on one.

ji20874 said:

Besides, the contractor should have its own PNM with its own objectives and understandings of the give-and-take and final negotiated result.

ji20874: Did you do this when you were a contractor? 

Current contractors: Do you do this?

Sprice, I presume you have an attorney.  If you are dealing with a DoD contract, have him/her look at 32 CFR 97, particularly the definition of "litigation" and DoD policy on release of official DoD information.  Also, read FAR 33.204 and ask him/her to advise accordingly.

ji20874 said:

Well, then, ask for the PNM under FOIA.

Let us know if you do or do not get it.

But you might be barking up the wrong tree.  You must not conflate the estimated cost (or price) of the contract (found reasonable at the time of contract formation) and the incurred costs for any individual parts or pieces of the contract (found reasonable during contract performance).  That the contracting officer found the overall estimated cost to be reasonable (explained in the PNM) does not mean that any or all incurred costs are reasonable for reimbursement during contract performance.  So to me, any incurred cost may most certainly be challenged during contract administration, and the PNM is irrelevant to that challenge.  The burden is on the contractor to prove the reasonableness of any and all incurred costs during contract administration (absent any pre-contract cost agreement).

Really?  Is DCAA questioning the established estimated cost of the contract, or is DCAA actually questioning incurred costs?  I suspect it is the latter.

JJ, first off, thanks for your replies.  However, I do disagree with you here.  1) The contracting officer found that our estimated costs to be fair and reasonable.  Meaning we provided them the exact methodology we would be using to when billing the costs that DCAA has since found to be "unreasonable".  2) yes, the burden is on the contractor to provide that any an all costs are reasonable.  We have done so.  We have done so b y showing other contractors charge the same or more for similar "incentives", have done so by showing that the contracting officer/DCAA has found these costs to be reasonable going back over at least three different contracts, and over 20 Delivery Orders.  We didnt all of a sudden change our methodology.  We provide the company plans and procedures that clearly show these are/have been company policy for years.  3) Finally, DCAA is questioning the incurred cost, and questioning the costs based on something that is not in our contract (DSSR).

Now, I could understand if our incurred cost differed wildly, and were incurred in a way inconsistent with our estimated cost.  However, this is not the case.

You also said the following "Remember, a PNM only records one party’s side to a negotiation.".  Well, the PNM must show, as required by FAR 15.406-3 - Documenting the Negotiation "(11) Documentation of fair and reasonable pricing."  -  This is what I am getting at.  We, as a contractor, have no say on this documentation.  The fact they let the contract shows it to be fair and reasonable.

here_2_help said:

I'm getting the sense that the OP has not provided us with sufficient info to help out. Apparently there is an ID/IQ with multiple Delivery Orders.

What is the contract type of the Delivery Orders? CP, FP, T&M -- what?

Is DCAA questioning the D.O. price or something else? Normally, DCAA does not question contract prices unless the auditors are alleging defective pricing. Is DCAA alleging defective pricing?

Is DCAA alleging that the contractor acquired materials in performance of the D.O.'s, and the contractor cannot establish that those prices were fair & reasonable? If the D.O. is CP, then this may be a valid assertion.

So much we don't know; how can we give advice?

Here to help:

1. Contract type IDIQ with CPFF Delivery Orders placed against it.

2. DCAA is not alleging defective pricing.  Instead they are questioning costs based on unreasonableness.....which they are basing on a requirement not included in our contract

3. That is all that is being questioned.

I hope this helps clear up some of your questions.

joel hoffman said:

I agree H2H. I started to post this morning with similar questions, then decided that the only question that OP asked was whether they could obtain a copy of a PNM for some unclear objective.  

Years ago we provided copies and asked contractor to sign those over $100,000 (when threshold was $ 100k). That was our local District’s policy.  It should be noted that our pre-negotiation objectives were always separate documents and often consisted of marked up proposals for small changes.

My next District used memoranda of agreement or memoranda of understanding to document mutual understandings and agreements. 

I used those throughout my subsequent career. 

We don’t know what was “negotiated”, whether competitive or non-competitive, what the auditors are questioning, etc. 

For instance, Is it pricing or costs? Post awRd, pre-award, incurred costs, questioned costs, unsupported costs, etc.? 

If they are questioning a negotiated cost, then they would probably be questioning the KO’s basis of settlement.  Of course the KO would have determined something to be fair and reasonable - probably the overall settlement. It may have involve the contracting officer non-concurring with some of the audit results, prior to negotiations.

Who here can know?

Joel....I just answered some of the questions H2H had.  Now, I can answer some of yours.

1)  non-competitive .  We provided our cost and pricing data, methodologies, etc....technical review was conducted by govt, and seeing as contract was released found to be fair and reasonable

2. It was post award, questioned costs.  And the basis of their questioning the costs is reliant on a regulation that is not in our contract.

That is the reason we are looking for the PNM.  To show that the Contracting Officer found our proposed costs/pricing to be fair and reasonable.  We did not change the way we account for these costs, or incur these costs.....

My question for you now is why would you be reluctant to release the PNM?  You said "And then I would redact out my prenegotiation objectives"...I already have a govt produced spreadsheet showing our position, their position, all counter offers, and the final negotiated amount.  However, this is not the same as a completed PNM.

sprice11 said:

Here to help:

1. Contract type IDIQ with CPFF Delivery Orders placed against it.

2. DCAA is not alleging defective pricing.  Instead they are questioning costs based on unreasonableness.....which they are basing on a requirement not included in our contract

3. That is all that is being questioned.

 

I hope this helps clear up some of your questions.

Thanks for the additional information. There have been some recent cases (last 6 months) on cost reasonableness. Are you aware of them?

Additionally, generally all DCAA can do is question a cost (though of course it depends on circumstances). It is normally up to a warranted contracting officer to decide whether or not to sustain the questioned costs. At some point, you need to give up on persuading DCAA to change its position and concentrate, instead, on the contracting officer -- reminding the KO that the price was found to be F&R and what was disclosed, discussed, and agreed-to as part of that finding.

On 1/25/2019 at 6:03 PM, sprice11 said:

Well, the PNM must show, as required by FAR 15.406-3 - Documenting the Negotiation "(11) Documentation of fair and reasonable pricing."  -  This is what I am getting at.  We, as a contractor, have no say on this documentation.  The fact they let the contract shows it to be fair and reasonable.

That's right -- and that's why you don't need the text of the government's PNM to demonstrate that the contract's estimated cost is fair and reasonable.  The contract's bottom-line estimated cost was found fair and reasonable at the time of contract formation.

Now, during contract administration, all of that is irrelevant -- now, during contract administration, you must justify to the contracting officer's satisfaction each incurred cost for which you are seeking reimbursement in that particular voucher (or invoice).

Generally, an incurred cost is determined reasonable AFTER the cost is incurred.  The exception is if the parties have a pre-contract cost an advance agreement (FAR 31.109) -- but it seems you don't have one, so you have to justify the reasonableness of each incurred cost with the voucher where the reimbursement is claimed, amenable to the allowable cost and payment clause of your contract.

You err by conflating (1) the bottom-line estimated cost agreed to at the time of contract formation and (2) incurred costs for which reimbursement is sought during contract administration.  You err in suggesting that the contracting officer, before awarding the contract, already found your [incurred] costs to be reasonable [for reimburement] -- that is impossible, as there were no incurred costs at that time, and generally, incurred costs are determined reasonable after they are incurred.  

Your responsibility now (during contract administration) is to justify the incurred costs included in your most recent voucher for which you are seeking reimbursement.  The Government's PNM is irrelevant.  Follow the allowable cost and payment clause of your contract.  If you are unable or unwilling to do so, the costs must be disallowed.  Pointing to the PNM is irrelevant to the question of cost allowability for reimbursement.

For your next cost-reimbursement contract, maybe you should consider a pre-contract cost an advance agreement.  It is discussed in the FAR and would cover your situation.

ji20874 said:

That's right -- and that's why you don't need the text of the government's PNM to demonstrate that the contract's estimated cost is fair and reasonable.  The contract's bottom-line estimated cost was found fair and reasonable at the time of contract formation.

Now, during contract administration, all of that is irrelevant -- now, during contract administration, you must justify to the contracting officer's satisfaction each incurred cost for which you are seeking reimbursement in that particular voucher (or invoice).

Generally, an incurred cost is determined reasonable AFTER the cost is incurred.  The exception is if the parties have a pre-contract cost agreement -- but it seems you don't have one, so you have to justify the reasonableness of each incurred cost with the voucher where the reimbursement is claimed, amenable to the allowable cost and payment clause of your contract.

You err by conflating (1) the bottom-line estimated cost agreed to at the time of contract formation and (2) incurred costs for which reimbursement is sought during contract administration.  You err in suggesting that the contracting officer, before awarding the contract, already found your [incurred] costs to be reasonable [for reimburement] -- that is impossible, as there were no incurred costs at that time, and generally, incurred costs are determined reasonable after they are incurred.  

Your responsibility now (during contract administration) is to justify the incurred costs included in your most recent voucher for which you are seeking reimbursement.  The Government's PNM is irrelevant.  Follow the allowable cost and payment clause of your contract.  If you are unable or unwilling to do so, the costs must be disallowed.  Pointing to the PNM is irrelevant to the question of cost allowability for reimbursement.

For your next cost-reimbursement contract, maybe you should consider a pre-contract cost agreement.  It is discussed in the FAR and would cover your situation.

We have discussed using the pre-contract cost agreement for future contracts/delivery orders.

Now,  how is it that the costs proposed, and the methodologies used to arrive at those costs, followed consistently (FAR when followed exactly as proposed, are somehow now questioned when incurred in the exact fashion as we proposed they would be?   Since cost and pricing data were required, wouldnt FAR 15.404-1(A)(3) apply (ie. evaluate the reasonableness of individual cost elements)?  

Also, payments were never questioned.  All invoices we submitted were paid in full.  The issue is that DCAA, after performing the required yearly audit, has now come back and is questioning reasonableness of the specific costs.  And they are using a regulation that is not included in our contract (DSSR) to base their finding on.

I do appreciate the responses, but I believe that we might have a misunderstanding of what is actually being asked about.   And this may be due to the fact that I am not making myself clear.  

The issue I have is that the Contracting Officer found these costs to be fair and reasonable based on 1) past cost/pricing for same exact services, 2) other contractors offer similar costs.......DCAA didnt say these were expressly unallowable, or say they are unallocable, they say that no reasonable contractor would charge more than the DSSR rate.  Then used the DSSR as a basis for their finding, even though DSSR does not apply/is not required per our contract.

here_2_help said:

Thanks for the additional information. There have been some recent cases (last 6 months) on cost reasonableness. Are you aware of them?

Additionally, generally all DCAA can do is question a cost (though of course it depends on circumstances). It is normally up to a warranted contracting officer to decide whether or not to sustain the questioned costs. At some point, you need to give up on persuading DCAA to change its position and concentrate, instead, on the contracting officer -- reminding the KO that the price was found to be F&R and what was disclosed, discussed, and agreed-to as part of that finding.

I have given up on trying to persuade DCAA.  I am now going directly to the PCO/ACO.  However, they seem to be extremely reluctant to go against the advice of another agencies recommendation.  I do truly wish I go into further detail without DOXXING my company/myself.   There have definitely been some quotes by DCAA, and KO that made me wish I recorded the meetings.

sprice11 said:

The issue I have is that the Contracting Officer found these costs to be fair and reasonable based on 1) past cost/pricing for same exact services, 2) other contractors offer similar costs.......DCAA didnt say these were expressly unallowable, or say they are unallocable, they say that no reasonable contractor would charge more than the DSSR rate.  Then used the DSSR as a basis for their finding, even though DSSR does not apply/is not required per our contract.

Okay, isn't this basically the same issue as asked in another thread? Now I GET that you weren't asking about the same issue. You asked specifically about the contracting officer's documentation of negotiations. Different vector; same issue. In the other thread I posted an ASBCA opinion that might be relevant to your issue, or perhaps not.

If I were in your situation (and I am, frequently) I would be bringing that ASBCA opinion to the attention of the KO and not-so-subtly suggesting that they go talk to Legal about the likelihood of success when you appeal the COFD. I would be talking about summary judgment, which is typically a cheaper form of litigation. I would be working hard to make the KO realize that the DCAA position was not going to be well regarded by the courts.

Forget the PNM or Negotiation Memo. All that stuff will be discoverable when the appeal is filed. And all those comments you wish you had recorded? You'll get a chance to recite them in your deposition. And the other folks will get a chance to defend their remarks in their deposition, while under oath.

Those are the points I would be making to your KO in trying to resolve this issue now.

sprice11, I should have said that I would   Not willingly release my pre-negotiation objectives if part of the PNM as is now part of that format (more bureaucratic repetition by requiring a PNO then requiring it to be repeated in the PNM).

At any rate, from the limited information provided, I empathize with your situation. I think you are indicating that there were no oral negotiations, you submitted a detailed prooosal indicating how you were going to pursue the effort, somebody theoretically performed a price and cost analysis and then the KO simply acccepted it.  

Now they are questioning the methodology or the amount of the incurred costs, based upon review by DCAA.

That pre-award ineptitude no longer surprises me, unfortunately. 

In Cost reimbursent contracts, your responsibility is to make a “best effort” to complete the effort within the budget and  time allotted but you don’t guarantee that.

at any rate, you supposedly told them how you were going to pursue the effort, etc., etc., you performed consistent with it, nobody questioned the reasonableness of approach or the amounts during performance and now the DCAA is questioning the reasonableness but not necessarily the allowability of the elements (?).

i agree with H2H.  Good luck.

Another point -- 16.301-3(4) talks about government surveillance during performance. I would suggest that sprice11 gently ask where that surveillance was, and why no government official ever questioned uplifts in excess of DSSR limits during performance, or during invoice reviews.

With regard to h2h's ideas maybe this too....noting the imperative "shall".

42.301 -- General.

When a contract is assigned for administration under Subpart 42.2, the contract administration office (CAO) shall perform contract administration functions in accordance with 48 CFR Chapter I, the contract terms, and, unless otherwise agreed to in an interagency agreement (see 42.002), the applicable regulations of the servicing agency.

FAR 42.3 might hold some other gems too!

On ‎1‎/‎25‎/‎2019 at 7:37 PM, ji20874 said:

Now, during contract administration, all of that is irrelevant -- now, during contract administration, you must justify to the contracting officer's satisfaction each incurred cost for which you are seeking reimbursement in that particular voucher (or invoice).

ji, consider this language from a hypothetical PNM:  "The contractor proposed an hourly labor rate of $X.  We verified this labor rate with DCAA.  Further, this same labor rate was proposed and agreed to under other contemporaneous competitively awarded contracts.  Based on these facts, I have determined that $X per hour is a reasonable amount for the labor proposed."

During contract performance, the contractor paid $X per hour of labor.  Do you believe that this statement from the PNM is not evidence of the reasonableness of the cost incurred during contract performance?

Retreadfed,

No.

This hypothetical text from a PNM suggests that the proposed element of cost, during the cost analysis exercise, was seen as reasonable for purposes of forming the contract and establishing the overall estimated cost of the contract.  It is not dispositive evidence that a cost incurred during contract performance is allowable (incl. reasonable) for purposes of reimbursement.

ji20874 said:

It is not dispositive evidence

Ji, note that I asked if it was evidence.  Evidence and dispositive evidence are not necessarily the same.  Also, can you provide some rationale for your position?

Retreadfed said:

ji, consider this language from a hypothetical PNM:  "The contractor proposed an hourly labor rate of $X.  We verified this labor rate with DCAA.  Further, this same labor rate was proposed and agreed to under other contemporaneous competitively awarded contracts.  Based on these facts, I have determined that $X per hour is a reasonable amount for the labor proposed."

During contract performance, the contractor paid $X per hour of labor.  Do you believe that this statement from the PNM is not evidence of the reasonableness of the cost incurred during contract performance?

Yes,  indeed, if that level of detail, in fact, was captured in price negotiation memorandum. From the description provided I’m not even sure that there were any negotiations before award.

Regardless, as H2H has stated, the PNM information should be discoverable in a claim. 

In another thread, sprice11 stated the DCAA was applying restrictions or comparisons with DSSR rates, which are not applicable to the contract. I think that this is a continuation of or related to the other thread. 

/threads/4904-dcaa-using-dssr-rates-as-cap-for-hazardous-duty-pay

 I am getting the sense that the government award team did not object to the methodology nor incentive package that the contractor proposed and the contracting officer awarded the contract or task order. Now, DCAA has raised the DSSR issue during its invoice reviews. I may be wrong.

joel hoffman said:

I am getting the sense that the government award team did not object to the methodology nor incentive package that the contractor proposed and the contracting officer awarded the contract or task order. Now, DCAA has raised the DSSR issue during its invoice reviews. I may be wrong.

1

I'm thinking the same way.

If this goes to a board of contract appeals, it will be interesting to read the decision.  Can a pre-award finding of reasonableness for an element of cost by the Government during contract formation establish a perpetual presumption in the contractor's favor regarding the reasonableness portion of post-award incurred cost allowability reviews, and estop the Government from questioning or disallowing the incurred costs during contract administration?  Some here would say YES, but I would say NO.

ji20874 said:

Some here would say YES, but I would say NO.

So are you in favor of the government potentially misleading a contractor as to what would be an allowable cost?  Would a prior course of dealing allowing the cost on previous contracts have an impact on the allowability of the cost?  Would you say the the PNM is not admissible as evidence in a BCA proceeding?

I’ll have to find some time to review my Nash and Cibinic books. 

 Here is my take on it. The contract doesn’t restrict compensation to that for government employees.

The contractor expressly proposed and explained its planned approach. The government had clear knowledge of that plan.  The government evaluated and accepted the proposed approach. The KO has the responsibility to determine whether or not the proposed approach was fair and reasonable before awarding the task order.

The government apparently did not seek field pricing support from DCAA during proposal review.

There may not have been any negotiation before award - at least concerning the proposed compensation and incentive plan.

Edit: I reread the other thread. The OP did mention that the incentive and hazard allowances were negotiated and agreed upon. 

The contractor executed its plan accordingly. 

The government made no objection to the reasonableness during contract performance.

Another agency now decides to redefine what is reasonable after the fact, based upon an inapplicable cost ceiling - that wasn’t in the contract. 

Can the government redefine what is fair and reasonable after the fact, based upon the other agency’s later judgement of what is fair and reasonable?  

Should the contracting office have obtained DCAA field pricing assistance and input prior to accepting the proposal?  FAR contemplates that. It used to be standard practice in our organization to obtain audit support for non-competitively negotiated contract actions. This is a perfect example of why field pricing support should be sought and provided. 

Should those performing cost and price analysis be qualified and/or seek advice as necessary? 

Where fair and reasonable isn’t specifically defined in the contracti, it is supposedly based upon judgement.

I don’t think that the government can get away with redefining it after performance by basing it upon something that wasn’t  contractually binding or even mutually known or raised until after performance.

i may be wrong.

DuplicTw

Retreadfed said:

So are you in favor of the government potentially misleading a contractor as to what would be an allowable cost?

No.  It is professionally discourteous of you to so suggest.

If the parties had come to agreement on how particular costs were to be treated, they would have executed an advance agreement (FAR 31.109) -- that is the express purpose of an advance agreement.  But they didn't execute an advance agreement (or at least, the original poster hasn't mentioned one); therefore, they did not agree on future treatment of incurred costs.  FAR 31.109(h)(1) points specifically to this subject of contractor employee compensation.

Let me ask you if you agree with any or all of the following statements, all drawn from FAR Subpart 15.4--

1. In a pre-award negotiation based on cost analysis for a cost-reimbursement contract, it is not necessary for the parties to agree on every element of cost; rather, it is only necessary that they agree on the bottom-line estimated cost.  AGREE  DISAGREE
2. In such a pre-award negotiation, and having agreed on the bottom-line estimated cost, the parties are free to retain their own understandings of the several cost elements.  AGREE  DISAGREE
3. The PNM reflects the Government's record of the negotiation -- it is not a joint record.  AGREE  DISAGREE

And one last question:  Can a pre-award finding of reasonableness for an element of cost by the Government during contract formation establish a perpetual presumption in the contractor's favor regarding the reasonableness portion of post-award incurred cost allowability reviews, and estop the Government from questioning or disallowing the incurred costs during contract administration?  YES  NO

By the way, I think the original poster will win its DSSR case at a board of contract appeals, but not for the reason discussed in this thread -- it will win based on the reason discussed in the other thread (that DSSR doesn't apply to contractor employees).

joel hoffman said:

The government made no objection to the reasonableness during contract performance.

Para. (g) of the Allowable Cost and Payment clause specifically allows for audits, and resulting reductions or adjustments in previous payments, after the contracting officer has approved the invoice and up to the point of final payment.  I have no objection to DCAA looking at invoices that I have already approved and paid.

joel hoffman said:

Another agency now decides to redefine what is reasonable after the fact, based upon an inapplicable cost ceiling - that wasn’t in the contract. 

Can the government redefine what is fair and reasonable after the fact, based upon the other agency’s later judgement of what is fair and reasonable?

1

DCAA's imposition of DCAA rates as a ceiling is error, in my opinion.  I hope the contracting officer does not accept DCAA's position (if the DCAA position is solely premised on the contractor's rates exceeding DSSR rates).  However, if the DCAA position is supported by other evidence, well, that's different.

ji20874 said:

Para. (g) of the Allowable Cost and Payment clause specifically allows for audits, and resulting reductions or adjustments in previous payments, after the contracting officer has approved the invoice and up to the point of final payment.  I have no objection to DCAA looking at invoices that I have already approved and paid.

Sure they can audit after approval of an invoice. However, can they make a determination for the government that a cost is unreasonable, simply based upon a standard or requirement that doesn’t apply to the contract? They can question a cost. In this case, the basis of those questioned costs was proposed, evaluated, negotiated and, presumably accepted. From the other thread by the OP under contract pricing:

“1) we negotiated the ODC/TDY/Hazard Rates with the government with our proposal, and costs were accepted by the Contracting Officer to be fair and reasonable before the contract was let. 

2)  the DSSR does not apply to our contract.  3)  FAR 31.205-6 -- Compensation for Personal Services (f) Bonuses and Incentive Compensation.......as these costs are considered, in our opinion, to be incentive pay in order to get people to deploy to the parts of the world they do...”

“1)...In negotiations with the government we made perfectly clear how we pay for hazard, incentive, etc pay, and provided the plans and policies to back this up.  We even showed that other companies charge much higher %'s.

2. The Contracting Officer already negotiated this pricing structure with us.”

If the contracting officer (KO) had no independent basis of estimate (I.e., had no clue) as to what would constitute fair and reasonable incentive/hazardous duty compensation for contractor employees, the KO should have sought out field pricing support from DCAA or other qualified cost/price analysts during the proposal evaluation and pre-negotiation procedures in accordance with FAR Part 15.4.  For a second bite of the apple, the KO could have also consulted with others during negotiations, before determining that the proposed price was fair and reasonable, 

Here, I’m guessing that the KO did not express reservations or any disagreement with the proposed compensation approach during negotiations of the overall proposal.

So, DCAA is questioning incurred costs by expressing an OPINION of what it considers to be a reasonable limit or comparison for incentive/hazardous duty contractor employee compensation. 

For purposes of answering the basic question in this thread, as others have stated, if the KO won’t voluntarily release any information concerning the relevant portions of the record of negotiations, I believe that the contractor can obtain access to it if it submits a claim.  

I recommend face to face (recorded, if possible) meeting with the KO to confirm that the government both understood and did not take any exception to the proposed compensation basis prior to awarding the task order and during execution of the task order, while the costs were being expended with the understanding that they were “fair and reasonable”. 

Yes, under 31.201-3 (a), “...[if] an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer's representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

And the cost principles in FAR 31.205 also apply.

It appears that the contractor met its burden and fulfilled it’s part of the bargain.

Assuming that 31.205-6 or other CONTRACTUALLY APPLICABLE cost principles aren’t in question here, how many “initial reviews” is the government allowed and when are they REASONABLY allowed?

Is it REASONABLE for the government to re-formulate an OPINION of what would be a reasonable compensation plan late in the game - after opportunities  and prescribed procedures for “initial review” by the appropriate personnel, explained in the Federal Acquisition Regulations , allow and require the KO to determine that the contractor’s PROPOSED compensation plan is fair and reasonable? 

The KO awarded the task order with the full knowledge of the proposed compensation plan and the KO or its authorized representative were or should have been well aware of the costs being expended for that effort with the mutual understanding and agreement that this was fair and reasonable.

The DCAA expressed an opposition OPINION, based upon non-applicable comparison criteria.

In case it isn’t evident, I get riled up when the government doesn’t have the knowledge or skips vital processes such as field pricing support and audits of proposals to award task order or contracts- especially cost reimbursable awards, with full knowledge of the intended plan.

Then the government observes - or worse, fails to observe - the execution, letting the. contractor expend costs in execution of its plan. 

Then the KO thinks it can rely upon auditor’s opinion of what is “fair and reasonable” approach to deny approval of those same costs.

Its not the contractors fault or responsibility that DCAA or the KO don’t have the necessary resources to properly review a clearly stated cost and method proposal before accepting it under the guise that it is fair and reasonable.

In a cost reimbursement contract, when a cost principle is not in question, after plenty of opportunity for “initial review”, the government should advise, object or just plain tell the contractor that it’s spending is too high - during performance.

The government has some contractual and good faith responsibilities too!!!

Going back and re-reading this thread the issue is the government has stated a position and Sprice is looking for ways to defend his/her entities position specifically with regard to obtaining the agency's price negotiation memorandum.  The answer seems, and I agree, that it depends on the who, when, etc. of whether the agency will, or has to provide the memorandum.   Beyond this need it would seem there is a process that both the agency and Sprice needs to follow with regard to a direct cost being questioned, negotiated and possibly and ultimately disallowed by the agency.  Noting this I uncovered this memorandum that may be helpful to Sprice......

https://www.dcma.mil/Portals/31/Documents/Policy/DCMA-INST-128.pdf

ji20874 said:

No.  It is professionally discourteous of you to so suggest.

If the parties had come to agreement on how particular costs were to be treated, they would have executed an advance agreement (FAR 31.109) -- that is the express purpose of an advance agreement.  But they didn't execute an advance agreement (or at least, the original poster hasn't mentioned one); therefore, they did not agree on future treatment of incurred costs.  FAR 31.109(h)(1) points specifically to this subject of contractor employee compensation.

Let me ask you if you agree with any or all of the following statements, all drawn from FAR Subpart 15.4--

1. In a pre-award negotiation based on cost analysis for a cost-reimbursement contract, it is not necessary for the parties to agree on every element of cost; rather, it is only necessary that they agree on the bottom-line estimated cost.  AGREE  DISAGREE
2. In such a pre-award negotiation, and having agreed on the bottom-line estimated cost, the parties are free to retain their own understandings of the several cost elements.  AGREE  DISAGREE
3. The PNM reflects the Government's record of the negotiation -- it is not a joint record.  AGREE  DISAGREE

And one last question:  Can a pre-award finding of reasonableness for an element of cost by the Government during contract formation establish a perpetual presumption in the contractor's favor regarding the reasonableness portion of post-award incurred cost allowability reviews, and estop the Government from questioning or disallowing the incurred costs during contract administration?  YES  NO

There is a lot to unpack here but let me try.

First, I was not being discourteous.  You made a statement of principle and I was attempting to explore the scope of the principle you were asserting.  This question was based on experience with government contracting officers.  I have had situations where the contractor stated its pricing assumptions in its proposal.  However, the government was aware that the contract would require much more than the contractor assumed.  However, the government never made the contractor aware of its erroneous assumptions.  This failure to disclose government superior knowledge misled the contractor into underpricing the contract.

The parties would not necessarily have executed an advance agreement.  Many contractors would expect the government to abide by agreements concerning price reached in negotiations.  Further, in my dealings with contracting officers, I doubt that most of them would go to the trouble of drafting an advance agreement to cover what was agreed to in negotiations.

As for the three questions you asked, I would agree if the negotiations were all on a bottom line basis.  However, I would disagree if there was a negotiation concerning specific elements of costs. 

As for your last question, I have to resort to my favorite answer concerning government contract questions - it depends on the facts that are present at the time of the negotiations.