Profit and FCCOM

It can be treated as a cost.

Have you read FAR 31.205-10?  Also, profit is not an element of a cost reimbursement contract.  The non-cost element of what a contractor recovers is known as fee, which does not necessarily equate to profit.

For DoD, it is considered in the weighted guidelines method of estimating a profit factor. See the PGI and DFARS under 15.404-71.

I should have articulated my question a little better...was working a deadline and didn't do a good job coloring in the whole picture.

I understand FCCOM is considered a cost.  However, the reason I'm asking the question is that DD1547 adds both FCCOM and "Profit"  together to generate a "Mark-up Rate".  So, in spite of FCCOM technically being a cost, DoD seems to be treating it as profit when calculating the percentage.  This strikes me as odd.  And it's important because if I hear that a particular agency awards certain types of contracts in a particular range, or has never awarded a contract with a profit greater than X%, then I need to understand whether contracting officers traditionally include FCCOM when discussing mark-up ranges.  I work in an industry where FCCOM is a big number.  Hope that helps clarify my question.

The DD1547 asks for FCCOM as a dollar amount, not a percentage rate.  And it asks for profit in the same way.  Then, you add those amounts and divide by the sum of all costs + profit to get a mark-up rate, which is only shown as a percentage rate, not an amount.  

So, comparing someone’s profit rate with someone else’s mark-up rate will not be fruitful.  Some contracting officers and some industry players imprecisely confuse profit and mark-up and conflate the terms.  But let’s be clear:  there is no profit rate on the DD1547.

So, there is no good answer to your question.  When others speak of a profit rate, you might need to ask them what they mean by their use of that term.  Even mark-up on the DD1547 has a meaning that is widely divergent from the common definition in retail sales.  There are no universal definitions here.

ji20874 said:

The DD1547 asks for FCCOM as a dollar amount, not a percentage rate.  And it asks for profit in the same way.  Then, you add those amounts and divide by the sum of all costs + profit to get a mark-up rate, which is only shown as a percentage rate, not an amount.  

So, comparing someone’s profit rate with someone else’s mark-up rate will not be fruitful.  Some contracting officers and some industry players imprecisely confuse profit and mark-up and conflate the terms.  But let’s be clear:  there is no profit rate on the DD1547.

So, there is no good answer to your question.  When others speak of a profit rate, you might need to ask them what they mean by their use of that term.  Even mark-up on the DD1547 has a meaning that is widely divergent from the common definition in retail sales.  There are no universal definitions here.

Appreciate the input.

On 7/1/2019 at 9:17 AM, BostonStrong said:

I should have articulated my question a little better...was working a deadline and didn't do a good job coloring in the whole picture.

I understand FCCOM is considered a cost.  However, the reason I'm asking the question is that DD1547 adds both FCCOM and "Profit"  together to generate a "Mark-up Rate".  So, in spite of FCCOM technically being a cost, DoD seems to be treating it as profit when calculating the percentage.  This strikes me as odd.  And it's important because if I hear that a particular agency awards certain types of contracts in a particular range, or has never awarded a contract with a profit greater than X%, then I need to understand whether contracting officers traditionally include FCCOM when discussing mark-up ranges.  I work in an industry where FCCOM is a big number.  Hope that helps clarify my question.

I think that the reason FCCM is considered in the “profit” or markup is that FCCM has the nature of interest, or financing costs, which generally are not allowable “costs”. However, they are real and often necessary, so can be considered in other than direct and indirect costs. That’s what I was taught many years ago. 

The Corps of Engineers modified weighted guidelines method considered such capital financing costs in one of the individual factors and I think that our Equipment Guides for monthly and hourly operating costs of owned vehicles and construction equipment also took this into account.  It was covered in one or the other or both- I don’t have the guidance available anymore.