Where to Book Cost Overruns

What do you mean by "budget"? Do you mean "the estimated cost specified in the Schedule," "the total amount so far allotted," or something else?

Hi Vern,

Meaning, the Total Estimated Cost (i.e. directs plus indirects). Exclusive of fixed fee.

Thanks!

govconconsult said:

... if a subcontractor overruns the budget of a CPFF completion (assuming they complied with the LOF and LOC clauses their prime included in the subK, but in an effort to complete the work, decided to eat some costs out-of-pocket), where do these costs get booked?

The costs get booked to the contract. The contractor has incurred costs that it cannot bill because they are in excess of available funding. They are unallowable costs--likely expressly unallowable.

See FAR 31.202(a). Also see 31.205-23, which I will quote below.

Quote

An excess of costs over income under any other contract (including the contractor’s contributed portion under cost-sharing contracts) is unallowable.

To do anything else but book the costs to the contract would be a very bad idea, in my view.

Hope this helps.

Thanks, H2H! Since they are unallowable, how do you book them to the contract? Do you mean book them to an unallowable Overhead or unallowable G&A GL code that is associated with the contract in question?

govconconsult said:

Thanks, H2H! Since they are unallowable, how do you book them to the contract? Do you mean book them to an unallowable Overhead or unallowable G&A GL code that is associated with the contract in question?

I don't know your accounting system. However, in my experience most contractors have a "nonbillable" WBS element on their contracts. Alternately, you can simply charge the costs the same way you would allowable/billable costs, but with an attribute that prevents billing.

Govconsultant, you need to read FAR 31.201-1, 31.201-6, and 31.203(d).

They got charged in your accounting system as any other costs on this project, but you have to somehow mark them as nonbillable or create a new charge code/WBS to collect them.

I have a two part question - would a subcontractor’s cost overrun be a charge to both the sub’s and the prime contractor’s accounting systems? Or just to the subcontractor’s accounting system, if the prime contractor will not be liable for such costs iI.e., it’s not a cost to the prime)?

joel hoffman said:

I have a two part question - would a subcontractor’s cost overrun be a charge to both the sub’s and the prime contractor’s accounting systems? Or just to the subcontractor’s accounting system, if the prime contractor will not be liable for such costs iI.e., it’s not a cost to the prime)?

It depends on the terms of the subcontract. The terms of the subcontract will determine whether the subcontractor can or cannot bill the prime.

here_2_help said:

It depends on the terms of the subcontract. The terms of the subcontract will determine whether the subcontractor can or cannot bill the prime.

Thanks, N. Here was the described scenario: 

On 5/3/2021 at 8:10 AM, govconconsult said:

...but if a subcontractor overruns the budget of a CPFF completion (assuming they complied with the LOF and LOC clauses their prime included in the subK, but in an effort to complete the work, decided to eat some costs out-of-pocket), where do these costs get booked?

I read it as though the prime isn’t liable for the overrun of the subcontract. The sub voluntarily completed the work at no extra cost to the prime. The sub overran it’s subcontract limit.