G&A on Travel (Again)

Avaricious COs?  I'm not sure that adjective fits.

But I think you are correct that many contracting officers do not fully understand Alt. I to the clause at FAR 52.212-4, used for T&M contracts for commercial items.  Many contractors don't, either.  

Maybe if you were to write an article to help educate the community of practice?

But still, if your competitors are willing to accept zero as the fill-in, maybe you simply have no negotiation leverage.  That's not necessarily unfair; rather, it may be a simple fact of life in your segment of the marketplace.

ji20874 said:

But still, if your competitors are willing to accept zero as the fill-in, maybe you simply have no negotiation leverage.  That's not necessarily unfair; rather, it may be a simple fact of life in your segment of the marketplace.

Corduroy Frog said:

Comments?  Tell me to quit whining, if you wish, but this is still an issue.

Maybe discussed in previous discussions on this matter but maybe not but renewed discussion in the infancy of two posts to the thread raise a thought for me.  No doubt the thread will role on otherwise but........   In the context of best value, maybe fair dealings, maybe FAR 1.102(b)(3) and of course the cost principles of FAR part 31 the real question is if it reasonable, allowable, allocable is G&A on travel really the cost to hang ones hat on ( on either side) for saying yes or no?  After all is it not things like profit where the risks of doing business are acknowledged or not?

FAR 15.405 "....A fair and reasonable price does not require that agreement be reached on every element of cost..."

All said understanding the dilemma but I am not sure that the habit of the Federal government to out right deny the G&A on travel that is rightfully calculated based on cost principles will ever be overcome.

C Culham said:

...but I am not sure that the habit of the Federal government to out right deny the G&A on travel that is rightfully calculated based on cost principles...

Rightfully calculated?  But do the cost principles of FAR part 31 apply to the original poster's situation?  I think not* -- and if the cost principles don't apply, then it seems to be error to insist that they be "rightfully" calculated and applied.

* See FAR 31.103(a).  Based on this original posting and earlier threads, I think we're talking about T&M contracts for commercial items using Alt. 1 to FAR 52.212-4.  If this is true, then the original poster errs in asserting a right to a percentage rate for G&A on travel.

ji20874 said:

Rightfully calculated?  But do the cost principles of FAR part 31 apply to the original poster's situation?  I think not* -- and if the cost principles don't apply, then it seems to be error to insist that they be "rightfully" calculated and applied.

* See FAR 31.103(a).  Based on this original posting and earlier threads, I think we're talking about T&M contracts for commercial items using Alt. 1 to FAR 52.212-4.  If this is true, then the original poster errs in asserting a right to a percentage rate for G&A on travel.

I believe the basic problem of charging a percentage rate on travel costs is that it has held to be a form of the cost plus percentage of costs method, prohibited by law.

ji20874 said:

I think not*

????  Is not the poster talking about contracting with commercial organizations rather than educational or non-profits?   Commercial item acquisition is different than FAR 31 reference to contracting with "commercial organizations".  I am not in alignment with your thinking.

ji20874 said:

I think we're talking about T&M contracts

Well I did not see T&M anywhere in the OP so I did not go that direction.   But if I had I am still confused as 52.212-4 Alt 1 clearly allows for travel as a Material Other Direct cost.  Now I could be crazy but based on the cost principles one could reasonably draw the conclusion that the "actual cost" for  Material Other Direct cost for travel not only must be actual but be in accord with the guiding cost principles of FAR part 31.

The original poster referenced an earlier discussion, and I recall that it was T&M contracts for commercial items.  For this sort of contract, indirect costs (such as G&A) on ODCs (such as travel) are paid only as specified in the fill-in for para. (i)(1)(ii)(D)(2).  That fill-in calls for a fixed amount (not a percentage rate) for indirect costs.  The principles of FAR Part 31 do not apply.

Let's let the original poster enlighten us.

Frog, Are you talking about T&M contracts for commercial items?  Or are you talking something else?  Please be specific.

Corduroy Frog said:

Tell me to quit whining, if you wish, but this is still an issue.

Quit whining.

https://cavuadvisors.com/no-ga-on-odcs-really/

http://info.redstonegci.com/blog/why-cant-i-charge-ga-on-direct-travel

Vern Edwards said:

Quit whining.

Vern, this is exactly what I expected from you - it was just a matter of time.  Be that as it may, your links were good reading material.

It would be different if contractors were cashing in big time by charging G&A.  The sad truth, however, is the G&A doesn't even cover the additional time required to account for travel, with advances, repayments, IRS-approved expense reports, and per diem administration.

Perhaps to insult contracting officers (some of who may be posting on this forum), I believe many of them don't understand the Alt I in the FAR clause.  If contractors wise up and start proposing fixed dollar amounts as allowed, I believe some of them will just say "We're not going to pay it, period, and we don't care what's in Alt I".  It seems to be a consensus opinion that the negotiating power of the contractor is a big factor.

I have been asked whether my experience is with T&M, FFP, or CT contracts.  My experience is that this abuse is going on everywhere, although personally the CT contracts seem to have dried up for small contractors that I have dealt with as an accounting consultant.

Corduroy Frog said:

Perhaps to insult contracting officers (some of who may be posting on this forum), I believe many of them don't understand the Alt I in the FAR clause.

What is it that you think they don't understand?

Corduroy Frog said:

Perhaps to insult contracting officers (some of who may be posting on this forum), I believe many of them don't understand the Alt I in the FAR clause.

I would rephrase this to state that some contracting officers do not understand G&A.  I know of some who do not believe it is a real cost, but is a hidden form of profit.  Others do not realize that G&A is a period cost.  I once had to negotiate with a contracting officer who thought he should pay G&A on only the first year of a multi-year contract not realizing the contractor incurred G&A expenses every year.  For others, it simply is a matter of cost.  They use G&A on travel as a way to squeeze a contractor on cost.

Vern and Retread and others, thanks for your discussion.

For virtually the entire Federal contracting environment, if indirects such as Overhead and G&A were not available to the contractors, they would go broke.

In the commercial world (non-govt), contractors bid high enough to hopefully have some profit left over, and this is usually their expected cost plus 18-20%.  Contrast to the govt world, Fee as high as 8-10% is considered exorbitant.  And the administrative costs of running a govt contractor are almost always more than in the commercial world.  So without indirect costs being added, a contractor would go broke.  Adding G&A and Overhead or M/H simply raises the margin to the same level as that encountered in the commercial bidding.

Corduroy Frog,

Overhead and G&A are available to contractors on all federal contracts.  For fixed-price contracts, the contractor needs to account for indirect costs in its price proposal.  In T&M contracts not for commercial items and for cost-reimbursement contracts, the clause at FAR 52.216-7 governs.  For T&M contracts for commercial items, Alt. I of the clause at FAR 52.212-4 governs.  And, or course, the realities of competition and negotiation leverage govern.

ji20874 said:

The principles of FAR Part 31 do not apply.

Let me explore.

T&M Contract - FAR 16.601 

Material means other direct costs such as travel and applicable indirect costs.  FAR 16.601(a) definitions.

Material Handling costs may be included as part of material costs.   FAR 16.601(c)(3). 

And if the solicitation/contract provides that material handling costs can be included then this applies  -  "Material handling costs may include all appropriate indirect costs allocated to direct materials in accordance with the contractor's usual accounting procedures consistent with part  31."   Again FAR 16.601(c)(3).

Now I may be completely off base but it would seem in a full read that reference to FAR "part 31" invokes that its principles may apply and I read no exclusion with regard to a commercial item acquisition.

Carl,

You need to read Alt. 1 to FAR 52.212-4 for T&M commercial item contracts -- everything else one reads about G&A in FAR 16.601 or Part 31 or the clause at 52.216-7 is irrelevant to T&M contracts for commercial items -- the only relevant text is in Alt. I to FAR 52.212-4.  It requires a fixed amount for any and all indirect costs -- that is the amount the contractor will receive for indirect costs.  The contractor does not mark up actual direct costs with a percentage rate -- rather, the contractor bids a fixed amount.

The original poster can have all the G&A on travel that he wants, if he bids it (as a fixed amount) and/or bargains for it.  It sounds like he does neither, and yet he expects the G&A as a free gift.  But if he doesn't bid it up front, or if he bids it but lets it go away during negotiations, then he has no entitlement for payment after award.

C Culham said:

Now I may be completely off base but it would seem in a full read that reference to FAR "part 31" invokes that its principles may apply and I read no exclusion with regard to a commercial item acquisition.

ji20874 said:

You need to read Alt. 1 to FAR 52.212-4 for T&M commercial item contracts -- everything else one reads about G&A in FAR 16.601 or Part 31 or the clause at 52.216-7 is irrelevant to T&M contracts for commercial items -- the only relevant text is in Alt. I to FAR 52.212-4.  It requires a fixed amount for any and all indirect costs -- that is the amount the contractor will receive for indirect costs.  The contractor does not mark up actual direct costs with a percentage rate -- rather, the contractor bids a fixed amount.

In order to verify that ji20874 is right—in addition to reading the plain language of FAR 52.212-4, Alt. I—read FAC 2005-15, 71 FR 74667, Dec. 12, 2006, which authorized the use of T&M contracts for commercial items.

From the responses to public comments:

Quote

Comment: Exclude indirect costs from the definition of material costs to eliminate the two contradictory methods for reimbursing indirect costs. The proposed rule permits reimbursement at a fixed amount but also defines indirect costs as an element of material costs that can only be reimbursed at actual costs unless the material meets the definition of commercial item.

Response: The Councils revised the rule to eliminate the contradictory methods. Instead of excluding indirect costs from the definition of materials, the Councils revised the provisions in the alternate clause at FAR 52.212-4, Alternate I (i)(1)(ii)(D)(2) to exclude indirect costs from being reimbursed at actual cost.  [Emphasis added.]

Quote

Comment: Agree with the provisions that permit reimbursement of indirect costs at a fixed price on a pro-rata basis over the period of contract performance but recommend clarifying that the fixed price could be adjusted as new work is added and also allowing contractors to be reimbursed at the Government approved percentage mark-up for non-commercial contracts. Cost Accounting Standards (CAS) covered contractors are required to allocate material handling in accordance with their approved accounting practices. Material handling rates are well-recognized in Federal and commercial markets. The Councils are proposing to reimburse indirect costs at a fixed price because of concerns over violating the cost-plus-a-percentage-of-cost prohibition. Material handling rates do not add fee or any other price component to cost and therefore could not be considered a cost-plus-a-percentage-of-cost violation. Recommend revising the coverage to permit contractors to recover material handling provided it is excluded from the hourly rates.

Response: If new work is added, a fixed amount may be added for indirect expenses if appropriate. Nothing in the rule prevents contract changes. The approved percentage mark-up for non-commercial contracts is subject to the allowability provisions of FAR Part 31. The Councils believe it is more appropriate to reimburse indirect costs without imposing the requirements of FAR Part 31 to be consistent with commercial practices. While the commenter disagrees, the Councils believe use of a fixed rate violates the cost plus percentage of cost contract prohibition. CAS covered contractors already allocate material handling and other indirect costs to commercial and non-commercial FFP contracts in accordance with their disclosed accounting practices. While the costs are allocated to those FFP contracts, the allocation may be different from the amounts recovered under the contracts for those elements of cost.  [Emphasis added.]

FAR Part 31 does not apply to the determination of indirect costs like G&A under T&M contracts for commercial items.

What I believe that is being missed in this conversation is that Material is defined as travel and as such travel as material can include a material handling cost or in other words travel handling costs that are Indirect Costs not included in the labor hours costs.   As such when computing the the Indirect Costs fixed price material (travel) handling costs would not be used in determining the Indirect Cost fixed price.  Further if the CO felt that rates for labor and materials (inclusive of travel) adequately accounted for all indirects the CO would then enter "$0" in the Indirect Cost  paragraph of the Alt 1. 

This is akin to the fact that fixed hourly rates of a TM include indirects and as such the indirect included in the labor hour fixed hourly rates would not be a basis for computing the Indirect Costs fixed price of a commercial item contract.

The choices are - 

Indirects in labor and material therefore no Indirect Cost or a Indirect Cost that picks up any of the indirects that are reasonable, allocable and allowable and that were not included in labor or material rates such as material handling (travel indirect) if not included in the material (travel) rate already.

To clear up and define what my involvement is:

I am an Accounting Consultant for small contractors.  My involvement in contracts administration is limited to exposure only, and that's why I bring questions to this forum.

My customers, whether knowledgeable or not, are having no luck when COs insist (rightly or wrongly) that they are not going to pay G&A on travel.

C Culham said:

What I believe that is being missed in this conversation is that Material is defined as travel and as such travel as material can include a material handling cost or in other words travel handling costs that are Indirect Costs not included in the labor hours costs.

What I believe is missed is that the application of G&A to travel under a T&M contract is a matter of negotiation.

If a company cannot get a deal it can live with it should walk away. And don't tell me how hard that is on small businesses. Business is hard. Period.

On 10/25/2021 at 7:59 PM, ji20874 said:

But still, if your competitors are willing to accept zero as the fill-in, maybe you simply have no negotiation leverage.

Vern Edwards said:

What I believe is missed is that the application of G&A to travel under a T&M contract is a matter of negotiation.

My belief is aligned with the negotiation aspect buffered by the sad fact  a fill-in derived by the Government that fails to recognize travel G&A, or the Government otherwise does not accept that travel is a "material" and therefore can have "material handling costs' attributed to the material price in a TM commercial item contract does not understand the reality of business.  

And with this opportunity of continued discussion I want to address this - 

Vern Edwards said:

FAR Part 31 does not apply to the determination of indirect costs like G&A under T&M contracts for commercial items.

By example -

TM commercial item contract for reforestation services.

Contractor proposes labor rate.

Government questions rate and contractor provides breakdown and notes in the break down that there is factor in the rate for employee recognition that is a beer party after completing all projects government or otherwise.   An expense captured in the  contractor's usual accounting procedures.  If FAR Part 31  does not apply what would be the governments negotiation position regarding the beer?  Sorry no beer cost in the rate?  If so the contractor just simply removes the word "beer" and the government is happy?   

I am honestly on Frog's side and the stereotypical CO statement that negatively addresses a true cost of a contractor to a contract as it is this way or the highway has their head in the clouds and in part is at odds with conducting the governments business with integrity and fairness.  But then that is just me!

I am a little sympathetic to Frog as well, but still, the reality is the reality.  And pointing to FAR 31 for indirects on commercial T&M is inapt.  The pointing should be to Alt. I of FAR 52.212-4, para. (i)(1)(ii)(D)(2).  There, Material Handling is treated as an indirect cost.  If an offeror wants compensation for indirect costs on travel, it needs to bid it in its proposal in the fill-in to para. (i)(1)(ii)(D)(2) for Alt. I of FAR 52.212-4.  If the offeror becomes the successful contractor and accepts the contract with $0 as the fill-in, then $0 is the payment.  Period.  The contractor got what the contractor bargained for.  That's fair.

I get that some contractors and some contracting officers may not fully understand Alt. I of FAR 52.212-4.  I hope this discussion can be helpful.  But the original poster's desire of getting G&A on travel as a percentage rate simply doesn't fit within the construct of T&M contracts for commercial items.

Regarding the T&M reforestation services example:  A labor rate is not an indirect cost on materials, so the example is not germane to the discussion in this thread.

C Culham said:

If FAR Part 31  does not apply what would be the governments negotiation position regarding the beer?  Sorry no beer cost in the rate?  If so the contractor just simply removes the word "beer" and the government is happy?

@C CulhamIf you are buying a commercial service, why are you asking questions about what is included in the rates? Why aren't you doing a price analysis of the rates, instead of a cost analysis? Why should you care whether beer is included if the rate is fair and reasonable based on market pricing?

See, this is why reforms don't work. People who learned old techniques cannot let them go.

ji20874 said:

Material Handling is treated as an indirect cost.

It is exemplified as a possible indirect if it is not allowed to be in the material cost.  If the wording is definitive then under your premise only "material handling costs" and "subcontract administration" are the only indirects allowed.

ji20874 said:

it needs to bid it in its proposal in the fill-in to para. (i)(1)(ii)(D)(2) for Alt. I of FAR 52.212-4.

The fill in is by its very nature and wording a fill in that the CO is to complete.   Note especially the word "provided" along with the other emphasized wording.   "Insert a fixed amount for the indirect costs and payment schedule. Insert "$0" if no fixed price reimbursement for indirect costs will be provided. (If this is an indefinite delivery contract, the Contracting Officer may insert "Each order must list separately the fixed amount for the indirect costs and payment schedule or, if no reimbursement for indirect costs, insert ‘None’)."  I will give you that it can be negotiated once offers are received

ji20874 said:

Regarding the T&M reforestation services example:  A labor rate is not an indirect cost on materials, so the example is not germane to the discussion in this thread.

Yes it is because you and others have stated FAR part 31 is not applicable.  And as to your insistence that material and material handling is not applicable in the context of travel and commercial item acquisition I refer you specifically to the Alt 1 which includes this -

"Definitions. (1) The clause at FAR 52.202-1, Definitions, is incorporated herein by reference. As used in this clause-"

Vern Edwards said:

CulhamIf you are buying a commercial service, why are you asking questions about what is included in the rates? Why aren't you doing a price analysis of the rates, instead of a cost analysis? Why should you care what is included in the rates?

See, this is why reforms don't work. People who learned old techniques cannot let them go.

Poor word choice.   But I will say "Analysis of data other than certified cost or pricing data (as defined at 2.101) provided by the offeror."

I think I have learned new techniques and your "Why should you care what is included in the rates?" seems to point back at you and ji.   I mean after all why should you care ( critically argue)  if a contractor has G&A on travel in their Material payment item of the contract especially when adequate price competition has occurred.

The mixed metaphors of this thread are over the top by us all in my view as to Commercial Item TM contract.    If a CO is questioning  G&A on travel in a Commercial Item TM contract as ji implies, and Frog seems to agree, the CO should excommunicated.  And maybe ji, you and me too for extending this thread!

On 10/25/2021 at 8:15 PM, Corduroy Frog said:

Contracting officers not wanting to pay G&A on travel.

OK, CO's aren't avaricious. They are risk-averse.  

Pro Tip 1: If we are talking about a commercial contract, don't call it "G&A."  As others have noted, very explicitly cite 212-4 Alt 1.

Pro Tip 2:  When conducting price analysis for a competitive commercial contract, which includes travel as part of T&M line item, nobody cares about your "G&A" rate on travel.  Honestly, just make it zero, and mark up some other T or M element (legally and following the rules, of course), so net change is zero.

For the record, CO here who dislikes travel as ODC in my commercial contracts.  Because:

1. The line item including travel is now T&M, which

• triggers some rather onerous procedures per 12.207 (b).  In particular, getting HCA approval if the PoP > 3 years.  
• makes the contract no longer fixed price.  Executive dashboard KPI needles move, in the wrong direction.

2. If the conditions of 12.207 (b) (1) (i) - basically, it must be competitively awarded - cannot be met, then T&M, and therefore travel, is verboten, or its not commercial.

3. I do not like dealing with, and know very little about, indirect costs.  For example, G&A vs. Material Handling.  What's the difference?  Do I even need to care for competitive commercial contracts?  I'd rather not think about it at all.

4. My customer, the requiring activity hates, just hates, both

• obligating money upfront for theoretical travel which may never occur AND
• not obligating money upfront for actual travel which needs to happen but for which there is no longer sufficient remaining money.

Maybe an example can clear the water:

Assume "Starving Tech" - a small contractor has been awarded a T&M contract, with CLIN001 for $600,000 to fund and accommodate T&M billings, and a Cost-plus CLIN002 for Travel for $20,000.  The contract contains the infamous Alt I.

Starving Tech is somehow aware of the perils of Alt I, and negotiates $2000 in indirect add-ons, leaving $18,000 in direct travel.  If this were a G&A rate, it would be 11.11%.  The contracting officer didn't really want to pay this, but it was negotiated.

But after the option is over, the valid direct charges to CLIN002 Travel is only $2500.  But according to the fixed price allowance for indirect, Starving Tech is entitled to $2000 as negotiated.  Had the CO agreed to a G&A rate, $278 would be all the G&A that could be billed.

Total for CLIN002 is $4500, instead of $2778.  Has the Govt shot itself in the foot with this strategy?

Corduroy Frog said:

...a Cost-plus CLIN002 for Travel...

If CLIN002 is "Cost-plus," as you say, then use of Alt. I to FAR 52.212-4 is error.  Alt. I is only for T&M contracts (or CLINs), not cost-reimbursement contracts (or CLINs).  They are not the same.  And Alt. I is further only for T&M contracts for commercial items, and your contract cannot be for commercial items since cost-reimbursement is prohibited in commercial item contracts.

Your example fails to make your case.

Since your contract has both T&M and cost-reimbursement CLINs, it should have c ntract clauses appropriate for both.  Sloppy contracts make for sloppy outcomes.  Using the proper clause (such as FAR 52.216-7) for a cost-reimbursement CLIN would allow for the floating G&A rate you desire.  Maybe your client should negotiate for cost-reimbursement clauses for cost-reimbursement CLINs?

BTW, it seems the contractor in your example should be happy.  It came out pretty good, and didn't have to maintain the expensive records system normally required for cost-reimbursement contracts.  And the agency didn't have to go through the indirect costs audits normally required for cost-reimbursement situations. In your example, sloppy as it is, the contractor received exactly what it bargained for -- what is the problem?

Corduroy Frog said:

Maybe an example can clear the water:

Assume "Starving Tech" - a small contractor has been awarded a T&M contract, with CLIN001 for $600,000 to fund and accommodate T&M billings, and a Cost-plus CLIN002 for Travel for $20,000.  The contract contains the infamous Alt I.

Starving Tech is somehow aware of the perils of Alt I, and negotiates $2000 in indirect add-ons, leaving $18,000 in direct travel.  If this were a G&A rate, it would be 11.11%.  The contracting officer didn't really want to pay this, but it was negotiated.

But after the option is over, the valid direct charges to CLIN002 Travel is only $2500.  But according to the fixed price allowance for indirect, Starving Tech is entitled to $2000 as negotiated.  Had the CO agreed to a G&A rate, $278 would be all the G&A that could be billed.

Total for CLIN002 is $4500, instead of $2778.  Has the Govt shot itself in the foot with this strategy?

@Corduroy FrogIt's a good thing for your consulting practice that you are not posting under your own name, because you clearly don't know enough about the issue to provide advice to anyone, especially not for money. That "example" is absurd. If it's real, cite the contract number.

If your point is that COs are not negotiating fair deals with contractors, you have made it. Enough from you is enough.

And read the article about contract line items that was posted to Wifcon a few days ago.

I appreciated the  @General.Zhukov post as I was headed down the same road when it appeared.  Yet I am not in 100% agreement on the risk adverse comment.   Unfortunately I am more inclined to echo a much stated opinion in Forum that is something to the effect about a acquisition workforce that has lost its direction which is to an extent agreement with @Corduroy Frog.

As to the example presented by @Corduroy Frogbeing absurd I am not so sure.   Acknowledging that I discarded a post that was similar to @General.Zhukov I took some time this morning - like an hour - and plowed through some internet searches and SAM.gov.   At this point in this topic I just shake my head, in part even at me. 

Some may and some may not but I do invite you to glance at the following and use a "Find" tool to drill down to the see what caught my eye. 

 https://www.transit.dot.gov/funding/procurement/third-party-procurement/time-materials-contracts    This is a website to give advice to Federal Transit third party entities that would contract for needs with Transit's money.   I understand referenced updates are dated but I believe this is the most current.  No tool use needed, it is just an interesting read.

The following are examples of three different entities TM solicitations -

https://sam.gov/opp/c2278d7a7d834a8db8e67ae2fe6164eb/view   DOD.  Pull up the solicitation Find 52.212-4 (absent Alt 1) and its "addendum".

https://sam.gov/opp/ac1f624c56adff21b270582d0fa65e14/view  Homeland Security.  Pull up the .pdf for the work statement and payment schedule and Find travel.  Also look at the reference to 52.212-4.

https://sam.gov/opp/8bd770ec632db2d54265c6fe720a2bc3/view  Department of Interior.  Find 52.212-4 and its addendum, and indirect.   PS the laser light show on the dam is actually kind of cool.

Confusion and absurdity exists!

C Culham said:

Confusion and absurdity exists!

Right!  So let's use this forum to teach correct principles...

C Culham said:

As to the example presented by @Corduroy Frogbeing absurd I am not so sure.

Not sure? Really?

So a contracting officer writes a T&M contract for commercial items and includes a cost-reimbursement CLIN for travel? Why on earth would a CO do that? To get around the pro-rata fixed amount in 52.212-4, Alt. I? And that would not be a FAR deviation?

And then, in connection with the cost-reimbursement CLIN, the fool of a CO negotiates a fixed lump sum amount to cover indirect costs?

And you are not sure that's absurd?

C Culham said:

Confusion and absurdity exists!

Yes. In confused, absurd, and ignorant minds.

Vern Edwards said:

Not sure? Really?

You might have taken my comment wrongly but if not I will be more forthcoming.  Your challenge to Frog as his example as being absurd is not in my opinion and quick research as far fetched a you exclaim it to be.   No doubt you did not take time to explore the references I provided  but in my casual search of SAM.gov this morning I randomly looked at 3 of over 2,000 hits I got.  Point blank not one was in alignment with the essentials of the posts you have made about TM contracts in this thread.  

ji20874 said:

Right!  So let's use this forum to teach correct principles...

On my part I continue to try but truthfully in using this specific thread as an example the correct principles are just what people make them to be.  By example in specific discussion I have heard nothing, with references, whether a contractor rather the CO is to "fill in" the information in 52.212-4 Alt 1.   It is just what people (me included) make it to be because in truth the FAR is both silent and confusing on the topic leaving it to ones imagination.   Confusing!  Confusion that leads to the absurd.  Absurdity not because of ignorant minds but of closed minds that would rather challenge and then not accept true examples because, well by their own profession they do not have to!

C Culham said:

By example in specific discussion I have heard nothing, with references, whether a contractor rather the CO is to "fill in" the information in 52.212-4 Alt 1.

The parties must AGREE to a pro-rata fixed dollar amount in paragraph (i)(1)(ii)(D)(2) for indirect costs and a schedule of payments, rather than a percentage rate. (The FAR councils thought that inserting a percentage rate would violate the cost-plus-a-percentage-of-cost prohibition. The frog seems to be ignorant of that prohibition.) The amount might be $0. It doesn't matter who proposes the amount—contractor or CO. They ultimately must AGREE to an amount if they want a contract. (That's Contract Law 101 for professionals.)

There is no reason for a professional to be confused. As a CO conducting a procurement for a commercial item T&M contract, I would invite the prospective contractor(s) to propose an amount and a schedule of payments. If I were determined not to pay any amount, I would insert "$0" and tell the prospective contractor(s) that the amount is non-negotiable.

As for accepting "true examples," even if the frog's example is "true," which I question, there is no reason to accept it. Only a fool of a CO would do or agree to do such a thing. And if the CO's agency has a competent review function they would reject any attempt to do it and cancel the CO's warrant after stamping it FOOL.

As for the sources of confusion, much of the confusion in this thread has been caused by people who wrote sentences like this:

Quote

My belief is aligned with the negotiation aspect buffered by the sad fact  a fill-in derived by the Government that fails to recognize travel G&A, or the Government otherwise does not accept that travel is a "material" and therefore can have "material handling costs' attributed to the material price in a TM commercial item contract does not understand the reality of business.

Such writing is not associated with any reality of which I am aware.

Carl,

You searched for and found some examples that might show a lack of understanding of correct principles by some contracting officers.  I don't want to argue whether there are bad examples out there (there are) or whether the frog's example is bad (it is).  I want to help teach correct principles.

Please over-look all the bad examples our there, and let's focus on correct principles for the benefit of our reading audience.  I think the following is a good list of correct principles regarding indirect costs on Materials for T&M contracts for commercial items--

• A T&M contract for commercial items will include the clause at FAR 52.212-4 with its Alt. I.
• The Alt. I allows for a fixed amount fill-in for indirect costs on Materials.
• If an offeror wants payment for G&A costs (or any other indirect costs) on Travel (or any other Materials), it should include a fixed amount for that purpose in its proposal as a fill-in for Alt. I.
• If an offeror does not make such a proposal, or if the offerer accepts a contract with $0 as the fill-in, then the offeror has zero post-award entitlement to such payment.

Do you see any error in my list of correct principles?  I am presenting them as "correct" as my professional opinion, with a hope of being helpful to our reading audience.

• A T&M contract for commercial items MUST include the clause at FAR 52.212-4, Alt. I.
• Paragraph (i)(1)(ii)(D)(2) requires (1) a pro-rata fixed amount and (2) a payment schedule as the basis for payment of indirect costs. The parties can agree to $0.
• COs who insist on $0 are taking a tough, perhaps unreasonable, stance in negotiations. But they are within their rights.

@ji20874 thank you for a possible fix.  Please consider my professional opinion along the others provided or to be provided.

• A T&M contract for commercial items MUST include the clause at FAR 52.212-4, Alt. I.
• Paragraph (i)(1)(ii)(D)(2) provides for (1) a fixed amount and (2) a payment schedule to reimburse that amount on a pro-rata basis for Indirect Costs should Indirect Costs not be included in the Hourly rate or Material payment item (CLIN). The parties can agree to $0 if applicable Indirect Costs are otherwise included in the Hourly rate/Material payment items (CLIN).
  • Per FAR 12.302(b) Paragraph (i) of the Alt I cannot be tailored; fill-ins are permissible as noted by Alt I.
• If an offeror wants payment for G&A costs (or any other indirect costs) not included in the Hourly rate and/or Materials, the offeror should propose a fixed amount for that purpose in its proposal as a fill-in for Alt. I Paragraph (i)(1)(ii)(D)(2).
• If an offeror does not make such a proposal, or otherwise does not negotiate an amount, for the fill-in and the offeror accepts a contract with $0 as the fill-in, then the offeror has zero post-award entitlement to a pro-rata fixed amount for in-directs.
  • Note that acceptance has different meanings for a quote versus a firm offer and the offeror should be aware of this difference when proposing and negotiating with regard to the fill-in.
• COs who insist on $0 if in-directs are not otherwise included in Hourly rate and/Materials are taking a tough, perhaps unreasonable, stance in negotiations. But they are within their rights.
  • Unreasonable may be where the offeror’s usual practice is to not have indirect costs in its proposed price for hourly rates and/or materials as supported by the offeror’s usual accounting practices.

Carl,

I have taken your bullets and edited them to show my understanding of correct principles.  We're only talking about indirect costs on Materials, so I deleted everything related to Hourly Rates -- I don't want our readers to conflate these.  I also disagree with a couple of your "if" statements.  Finally, any particular offeror's usual accounting practices are irrelevant in determining a contracting officer's unreasonableness in this matter.  My edits are shown within brackets.  I hope this will be helpful for the original poster and any other readers.

• A T&M contract for commercial items MUST include the clause at FAR 52.212-4, Alt. I.
• Paragraph (i)(1)(ii)(D)(2) provides for (1) a fixed amount [for indirect costs on Materials] and (2) a payment schedule to reimburse that amount on a pro-rata basis [for Indirect Costs should Indirect Costs not be included in the Hourly rate or Material payment item (CLIN)]. The parties can agree to $0 [if applicable Indirect Costs are otherwise included in the Hourly rate/Material payment items (CLIN)].
  • Per FAR 12.302(b) Paragraph (i) of the Alt I cannot be tailored; fill-ins are permissible as noted by Alt I.
• If an offeror wants payment for G&A costs (or any other indirect costs) [not included in the Hourly rate and/or on] Materials, the offeror should propose a fixed amount for that purpose in its proposal as a fill-in for Alt. I Paragraph (i)(1)(ii)(D)(2).
• If an offeror does not make such a proposal, or otherwise does not negotiate an amount, for the fill-in and the offeror accepts a contract with $0 as the fill-in, then the offeror has zero post-award entitlement to [a pro-rata fixed any] amount for in-directs.
  • Note that acceptance has different meanings for a quote versus a firm offer and the offeror should be aware of this difference when proposing and negotiating with regard to the fill-in.
• COs who insist on $0 [if in-directs are not otherwise included in Hourly rate and/Materials] are taking a tough, perhaps unreasonable, stance in negotiations. But they are within their rights.
  • [Unreasonable may be where the offeror’s usual practice is to not have indirect costs in its proposed price for hourly rates and/or materials as supported by the offeror’s usual accounting practices.]

Just now, ji20874 said:

my understanding of correct principles.

Your understanding is not consistent with how others, yes including me, have addressed Indirect.   If our attempt is to promote consistency and hopefully a meeting of the minds that is acceptable to all then I offer this. 

 As we have discussed FAR 31 and FAR 15 cost analysis does not apply to a CI TM (only) contract.   Therefore no one knows what the offerors price might or might not include.  So if you are leaving it to the offeror to price the fill-ins good faith and fair dealing seems to come into play.   So in one more whack at the bullets how about this?

• A  T&M contract for commercial items MUST include the clause at FAR 52.212-4, Alt. I.
  • A hybrid commercial item contract that includes TM and Fixed Price CLINS may include the Alt 1 as well as other clauses as applicable that address indirect costs.

   

• Paragraph (i)(1)(ii)(D)(2) of Alt 1 provides for (1) a fixed amount and (2) a payment schedule to reimburse that amount on a pro-rata basis for Indirect Costs. Should indirect costs NOT BE INCLUDED in the Hourly rate or Material price of a TM CLIN the offeror should propose a fill-in amount. If the offeror has proposed a Hourly rate and/or Material reimbursement TM CLIN price that DOES INCLUDE indirect the offeror should not propose a fill-in amount. 
  • Per FAR 12.302(b) Paragraph (i) of the Alt I cannot be tailored; fill-ins are permissible as noted by Alt I.
• If an offeror does not make a proposal , or otherwise does not negotiate an amount, for the fill-in and the offeror accepts a contract with $0 as the fill-in, then the offeror has zero post-award entitlement to a pro-rata fixed amount for indirect costs.
  • Note that acceptance has different meanings for a quote versus a firm offer and the offeror should be aware of this difference when proposing and negotiating with regard to the fill-in.
• COs who insist on $0 for the fill-in with out knowing the contractors pricing approach are taking a tough, perhaps unreasonable, stance in negotiations. But they are within their rights.
  • Unreasonable may be where the offeror’s usual practice is to not have indirect costs in its proposed price for hourly rates and/or materials as supported by the offeror’s usual accounting practices.  In the hierarchy of FAR guiding principles (FAR 15.404-1(b))of price analysis a CO, should not know and does not need to know where indirect amounts might be unless price competition received indicates a closer look of the offeror's pricing is necessary.  At such a point the CO may use, and is not limited to just the price analysis techniques listed in FAR 15.404-1(b) to determine the offeror's approach to indirect.

I don't think we will come to agreement regarding indirect costs on Materials for T&M contracts for commercial items.  I take care not to carry baggage from FAR 52.216-7 and 52.232-7 into commercial item contracts -- I see those clauses (and all the baggage associated with them) as wholly irrelevant to T&M contracts for commercial items.  It is an entirely new paradigm.

I am not aware of the clause you are referencing to deal with reimbursing a contractor's indirect costs in fixed-price arrangements.  In my practice, I do not reimburse a contractor's indirect costs on a fixed-price contract -- I simply pay the fixed-price.

I cannot join you in conflating Hourly Rate and Materials, and treating indirects on both of those the same way in the same sentence.  I see them as fundamentally different.

I disagree that an offeror can include indirect costs on Materials as part of its direct costs.  Alt. I says the government will pay actual costs for Materials, plus a separate fixed amount for indirect costs.  The indirect costs must be handled separately from the actual costs, and submitting an invoice that includes indirect costs in the actual costs would seem too me to be illegal or at least improper.

My recommendation for anyone awarding or administering a T&M contract for commercial items is to forget everything you learned from FAR 52.216-7 and 52.232-7, and to rely solely on a careful reading of FAR 52.212-4 with its Alt. I.

Deleted and replaced with a different response posted on October 29.

@ji20874Let it go. I think you are dealing with more than mere disagreement.

ji20874 said:

It is an entirely new paradigm.

Agreed.

ji20874 said:

I am not aware of the clause you are referencing to deal with reimbursing a contractor's indirect costs in fixed-price arrangements.  In my practice, I do not reimburse a contractor's indirect costs on a fixed-price contract -- I simply pay the fixed-price.

I am referencing Alt I.    More specifically Alt I says this (emphasis added) - "Indirect Costs (Material Handling, Subcontract Administration, etc.). The Government will reimburse the Contractor for indirect costs on a pro-rata basis over the period of contract performance at the following fixed price:"  I think you my have confused my wording some how that I was referring to a FP contract.   I was not, the reference was to Alt I for TM using its explicit wording.

ji20874 said:

I cannot join you in conflating Hourly Rate and Materials, and treating indirects on both of those the same way in the same sentence.  I see them as fundamentally different.

I understand you cannot but contractors do.  My intent is not to try and convince you but rather help improve bulleted advice matrix for the world.

ji20874 said:

I disagree that an offeror can include indirect costs on Materials as part of its direct costs.  Alt. I says the government will pay actual costs for Materials, plus a separate fixed amount for indirect costs.  The indirect costs must be handled separately from the actual costs, and submitting an invoice that includes indirect costs in the actual costs would seem too me to be illegal or at least improper.

I know but my question is how do you know if an offeror is or is not including indirect on materials when you are depending on price analysis?  And should you care if you have adequate competition?   By me posing the questions Alt I says the contractor will be paid at actual cost, the contractor can use its own materials and that actual cost for those "own" can  not exceed the offeror's catalog or market price.   Think Jakes Lumber Yard that gets a CI TM contract to build a wood fence around a facility and pulls the necessary lumber from their own stock.  

ji20874 said:

My recommendation for anyone awarding or administering a T&M contract for commercial items is to forget everything you learned from FAR 52.216-7 and 52.232-7, and to rely solely on a careful reading of FAR 52.212-4 with its Alt. I.

And so.....

• A  T&M contract for commercial items MUST include the clause at FAR 52.212-4, Alt. I.
  • A hybrid commercial item contract that includes TM and Fixed Price CLINS may include the Alt 1 as well as other clauses as applicable that address indirect costs for the Fixed Price portion of the contract.

   

• Indirect Costs- Paragraph (i)(1)(ii)(D)(2) of Alt 1 provides for (1) a fixed amount and (2) a payment schedule to reimburse (pay) that amount on a pro-rata basis for Indirect Costs. Should indirect costs NOT BE INCLUDED in the Hourly rate, Material price and/or Other Direct Cost of a TM CLIN the offeror should propose a fill-in amount. If the offeror has proposed a Hourly rate, Material reimbursement and/or Other Direct Cost TM CLIN price that DOES INCLUDE indirect the offeror should take that into consideration with regard to proposing a Indirect fixed price for the fill-in. 
  • Material is reimbursed (paid) at actual cost to the contractor noting that materials from the contractors own stock will be reimbursed (paid) at an amount not more than the contractors catalog or market price for such material. 
  • Other Direct Costs - If purchased or otherwise not provided on the contractors own basis the actual cost the contractor secures the needs is what will be reimbursed (paid).  If direct costs are on the contractors own basis (contractor per diem, contractor owned computer usage, contractor's own transport buses)such contractor cost will be reimbursed and shall not exceed the contractors catalog or market price.
  • Per FAR 12.302(b) Paragraph (i) of the Alt I cannot be tailored; fill-ins are permissible as noted by Alt I.
• If an offeror does not make a proposal , or otherwise does not negotiate an amount, for the fill-in and the offeror accepts a contract with $0 as the fill-in, then the offeror has zero post-award entitlement to a pro-rata fixed amount for indirect costs.
  • Note that acceptance has different meanings for a quote versus a firm offer and the offeror should be aware of this difference when proposing and negotiating with regard to the fill-in.
• COs who insist on $0 for the fill-in with out knowing the contractors pricing approach are taking a tough, perhaps unreasonable, stance in negotiations. But they are within their rights.
  • Unreasonable may be where the offeror’s usual practice is to not have indirect costs in its proposed price for hourly rates, materials (such as material from the contractors own stock) and other direct (like a computer usage charge based on the contractors catalog or market price) as supported by the offeror’s usual accounting practices.  In the hierarchy of FAR guiding principles (FAR 15.404-1(b))of price analysis a CO, should not know and does not need to know where indirect amounts might be unless price competition received indicates a closer look of the offeror's pricing is necessary.  At such a point the CO may use, and is not limited to just the price analysis techniques listed in FAR 15.404-1(b) to determine the offeror's approach to indirect.

Vern Edwards said:

@ji20874Let it go. I think you are dealing with more than mere disagreement.

You belong too bad you do not want to be involved.

ji20874 said:

I disagree that an offeror can include indirect costs on Materials as part of its direct costs.  Alt. I says the government will pay actual costs for Materials, plus a separate fixed amount for indirect costs.  The indirect costs must be handled separately from the actual costs

ji, under general accounting principles, the actual cost of an item includes all costs, both direct and indirect.  I don't interpret Alt I as prohibiting pricing material in this way.  However, if the contractor did price material in this way, I would have a problem adding an additional kicker to it as a part of the lump sum for material handling.

Retreadfed said:

ji, under general accounting principles, the actual cost of an item includes all costs, both direct and indirect.

Please cite that "general accounting principle," and then explain how it applies to the pricing of a government contract.

Here is what the clause says:

Quote

(D) Other Costs. Unless listed below, other direct and indirect costs will not be reimbursed.

(1) Other Direct Costs. The Government will reimburse the Contractor on the basis of actual cost for the following, provided such costs comply with the requirements in paragraph (i)(1)(ii)(B) of this clause: [Insert each element of other direct costs (e.g., travel, computer usage charges, etc. Insert “None” if no reimbursement for other direct costs will be provided. If this is an indefinite delivery contract, the Contracting Officer may insert “Each order must list separately the elements of other direct charge(s) for that order or, if no reimbursement for other direct costs will be provided, insert ‘None’”.]

(2) Indirect Costs (Material Handling, Subcontract Administration, etc.). The Government will reimburse the Contractor for indirect costs on a pro-rata basis over the period of contract performance at the following fixed price: [Insert a fixed amount for the indirect costs and payment schedule. Insert “$0” if no fixed price reimbursement for indirect costs will be provided. (If this is an indefinite delivery contract, the Contracting Officer may insert “Each order must list separately the fixed amount for the indirect costs and payment schedule or, if no reimbursement for indirect costs, insert ‘None’).”]

Since the clause expressly states how the government will pay for indirect costs, please explain how the contractor can include indirect costs in the other direct costs. By the terms of the clause, travel is an ODC.

Vern Edwards said:

Please cite that "general accounting principle," and then explain how it applies to the pricing of a government contract.

More from Alt I...

"(B) Except as provided for in paragraph (i)(1)(ii)(A) and (D)(2) of this clause, the Government will reimburse the Contractor the actual cost of materials (less any rebates, refunds, or discounts received by the contractor that are identifiable to the contract) provided the Contractor-"

Jakes Lumber Yard  actual cost of acquiring the asset (inventory is an asset) in their stock, the material they will incorporate into the work, includes all costs necessary to acquire the asset, hence the ODCs they expended to acquire the asset that becomes the material of the contractors that is used in the work.

As an addendum to this discussion,

True story about the last time I had to deal with travel on a contract.

Travel was a topic of discussions with the contractor and program office.  It was all very confusing to them, and if I am being honest, to me too.  We were going around in circles, not entirely unlike this thread.  Ultimately, the contractor proposed that travel should just be FFP.   We crunched numbers and came to something like $1,500 per "travel event."   If the contractor flew on a private jet, we don't care.  If they eat ramen and stayed in their sister's spare bedroom, we also don't care.  Made program happy, because this makes travel like an optional FFP line item - something they know and understand (unlike ODC).

This was a commercial open-market services & software contract valued at about a $1M.  Did not use FAR 15 procedures.  So far as I could tell, what we did was legal and compliant, and resulted in a fair and reasonable price.  Although I wouldn't bet my paycheck on that.

On 10/28/2021 at 7:58 AM, Vern Edwards said:

@Corduroy FrogIt's a good thing for your consulting practice that you are not posting under your own name, because you clearly don't know enough about the issue to provide advice to anyone, especially not for money. That "example" is absurd. If it's real, cite the contract number.

Vern, my name is Ron Jordan - I live in Manchester Tennessee at 802 Parks St.  Ask anyone in town and they can tell you where I live.  I work for money as an accountant, not a contracts consultant.

And of course, the example is not real.  Hypothetical.

General,

Sound legal to me!

Corduroy Frog said:

Vern, my name is Ron Jordan - I live in ----------------.  Ask anyone in town and they can tell you where I live.  I work for money as an accountant, not a contracts consultant.

And of course, the example is not real.  Hypothetical.

Thanks for letting me know. Now, delete your address. Very unwise to post it on the internet.

Crummy example.

General.Zhukov said:

Ultimately, the contractor proposed that travel should just be FFP.   We crunched numbers and came to something like $1,500 per "travel event."

Perfectly legal, if both parties can agree to the nature and amount of travel.

I wonder: Does everyone understand how 52.212-4, Alt. I, paragraph (i)(1)(ii)(D)(2) is supposed to work? Does everyone understand:

Quote

The Government will reimburse the Contractor for indirect costs on a pro-rata basis over the period of contract performance at the following fixed price: [Insert a fixed amount for the indirect costs and payment schedule... ]

Emphasis added.

If the contractor's G&A rate is 10 percent and it wants to recover that amount on materials costs under a commercial T&M contract, what "fixed price" schedule does the contractor insert in the blank?

Ron Jordan (CorduroyFrog), what do you say?

Vern Edwards said:

Does everyone understand how 52.212-4, Alt. I

I think I do.

The contractor would insert any fixed price amount that he/she thought would keep them competitive with regard to consideration for award of the contract, the he/she believes covers the indirect cost (G&A)  they are missing out on, and if necessary negotiate it.  Along with proposing the fixed price the contractor would also submit a proposed pro-rata payment schedule of the amount. Lots of options but by example a known 3 month period of the contract and payments will be made monthly.  The contractor might propose payment in 3 monthly equal  payments.  (Another contractor might propose two-thirds at first payment and one third in the last payment.)  If necessary the pro-rata basis would be negotiated as well.

@C CulhamThis was my question:

Vern Edwards said:

If the contractor's G&A rate is 10 percent and it wants to recover that amount on materials costs under a commercial T&M contract, what "fixed price" schedule does the contractor insert in the blank?

You did not answer it.

Maybe I wasn't clear. What amount does the contractor insert?

If there are many possibilities, choose one. Remember, it must provide for pro rata payment. Your answer need not come with a lot of palaver (explanation). One short sentence will do.

If you like, assume a one-year T&M contract and that the estimate of materials costs at the time of award is $20,000.

Vern Edwards said:

@C CulhamThis was my question:

You did not answer it.

Maybe I wasn't clear. What amount does the contractor insert?

If there are many possibilities, choose one. Remember, it must provide for pro rata payment. Your answer need not come with a lot of palaver (explanation). One short sentence will do.

If you like, assume a one-year T&M contract and that the estimate of materials costs at the time of award is $20,000.

Thanks for the additional detail.   Here is my response.

The contractor inserts no amount they propose an amount if they so choose, the Government inserts the amount, and the amount is negotiated if the contractor does not indicate acceptance to what the government inserted (i.e. contractor proposes an amount different than that which the government inserted).

The answer seems pretty clear to me.  Insert $2,000 and include a pro rated payment schedule

@formerfed Two questions:

1. Must the "fixed amount" be a single lump sum?

2. What would a "pro rated payment schedule" look like—to what would payment be proportional?

Vern Edwards said:

@formerfed Two questions:

1. Must the "fixed amount" be a single lump sum?

2. What would a "pro rated payment schedule" look like—to what would payment be proportional?

1. I don’t see why it has to be a single lump sum

2.  To me, the most logical schedule coincides with purchase of materials.  If materials are equally purchased over three months, the payment schedule is $6,667 per month.  If purchased all at once, payment is a single amount of $2,000.

@formerfedWhat worries me about a single fixed amount of $2,000—based on a materials cost estimate of $20,000 and a 10 percent G&A rate—is that we'd be using a T&M contract because we would not be sure of what work would have to be done and what the costs would be.

What if it turns out that the contractor actually needs only $5,000 in materials? A "reimbursement" of $2,000 for indirect costs would be too much. In fact, it wouldn't really be a "reimbursement." What if the contractor actually spends $30,000 for materials? The $2,000 "reimbursement" would be too small.

So why not fill in the blank with something like "$250 for materials costs up to $2,500; $500 for anything up to $5,000; $1,000 for anything up to $10,000," et cetera? In other words, why not provide for the possibility that actual materials costs might be less or more than estimated and thereby minimize any over or under payment?

Another thought is to fill the blank with something like "$0.10 for every dollar of actual materials costs." That would be a fixed amount per materials dollar, which would provide for perfectly proportionate reimbursement of the 10 percent G&A rate with little or no risk of over or under reimbursement.

But I suspect that scheme might be considered cost-plus-a-percentage-of-cost?

Vern Edwards said:

But I suspect that scheme might be considered cost-plus-a-percentage-of-cost?

That was my thought. However, I think it would be ok if there was a maximum stated. So, "$0.10 for every dollar of actual material costs up to $10,000."

The latest exchange in this thread demonstrates that the view of Alt. I clause with regard to payment is perceived in many ways and that there is no one consistent interpretation.  I have concluded as well that the Alt. I is poorly supported by further guidance in the FAR and its supplements.   The adage of "the eye of the beholder" applies in that what the government and contractor believe is a beautiful (agreed to) with regard to what has been termed the "fill-ins" in (i) Payments of Alt. I is what counts.   And I have concluded it should be that way.

As I followed and responded to this thread I attempted to dig, especially with regard to replies directed at me.   I turned up some interesting stuff.   Not saying what I found was current but overall supported to me that there is a very wide view of the Alt. I Payments paragraph at (i) and the effort to determine price reasonableness of any amount put in any of the fill-ins of the paragraph.  I was drawn to DoD most often as I looked around as it seems DoD gets used as the benchmark view most often.

https://www.acq.osd.mil/dpap/dars/pgi/attachments/2006d030_overview.pdf

DFARS 212.209 and through in .207 as well.

Don Mansfield said:

That was my thought. However, I think it would be ok if there was a maximum stated. So, "$0.10 for every dollar of actual material costs up to $10,000."

@Don MansfieldI had considered the use of a maximum, and that may be a solution. In any case, I think the idea of a single lump sum amount is problematical if there is a large degree of uncertainty about materials cost. The idea is to "reimburse" the contractor for indirect costs, or at least to approximate those costs. In my opinion, an amount that might be significantly disproportionate to the amount of actual materials costs cannot be fair and reasonable.

I must point out that CorduroyFrog's opening post descried what he saw as a tendency to refuse any compensation for G&A on travel. This discussion about what to put in the blank of 52.212-4, Alt. I, (i)(1)(ii)(D)(2) does not address that issue.

I don't know whether the problem is that COs are refusing to pay indirect costs specifically on travel or more generally.

Thanks to Formerfed for his response to my question.

One last thought about the clause. It says: "The Government will reimburse the Contractor for indirect costs on a pro-rata basis over the period of contract performance at the following fixed price..."

I think that is ambiguous. The term "pro-rata" could be read as referring to the method for measuring the amount to be reimbursed, rather than the method of paying the reimbursement. Such a method would be a rate. But use of the phrase "fixed price" is contradictory. 

The entry "$0.10 for every dollar of actual materials cost" could a way to resolve that ambiguity, since $0.10 is a fixed amount. But a CO would have to be aware of the GAO's interpretation of the cost-plus-a-percentage-of-cost (CPPC) prohibition in order to avoid a prospective problem.

For a description and analysis of the GAO's interpretation of CPPC as applied to indirect costs, See Mr. James White, Assistant General Counsel for Finance and Litigation, Office of the General Counsel, Department of Commerce, GAO decision B-252378, Sept. 21, 1993.  In that case the rate applied was a percentage: "54 percent". Would GAO consider "$0.10 per dollar" to be a percentage?

Duplicate post deleted.

Thanks for the references, Carl. I didn’t review the DFARS but did read the OSD reference.  It provides policy on when T&M can be used for commercial items/services. 

It also provides some policy guidance on ODC’s for commercial item T&M , including indirect costs: 

“D. Indirect Costs

(1) Noncommercial T&M/LH Contracts. Indirect costs are reimbursed at the contractor’s actual costs.

(2) Commercial T&M/LH Contracts

(a) Indirect costs are not paid based on the contractor’s actual costs. Instead, a fixed amount for indirect costs is negotiated in the contract (FAR 52.212-4, Alternate I (i)(1)(ii)(D)(2)) and paid on a pro-rata basis over the period of contract performance. The CO must insert the fixed amount and the payment schedule in the contract clause. If no reimbursement of indirect costs will be provided, the CO should insert “$-0-” in the contract clause.

(b) The fixed amount is the total amount of indirect costs that is paid on the contract.

(c) The fixed amount will be determined for each contract through the competitive negotiation process. Offerors will propose an amount in their offer, the negotiation process will proceed, and the contract will include the amount that results from negotiation.

(d) For indefinite-delivery contracts, the CO awarding the contract may specify “None” for the fixed amount of indirect costs or provide for each order to separately fix the amount and payment schedule.

* References to “All T&M/LH Contracts” means that the rule applies to both commercial and noncommercial T&M/LH contracts.
  
Example: The contract provides for reimbursement of $60,000 of indirect costs. The contract period is 12 months. The expenditure of materials is expected to be spread evenly over the contract period. Thus, the contract states that the contractor is reimbursed $5,000 per month ($60,000 divided by 12) for indirect costs under this contract. In Month 12, the contractor submits a bill for an additional $8,000 of indirect costs, claiming that the actual indirect costs applicable to this contract were higher than anticipated. Payment for this additional $8,000 is not permitted, since the indirect costs are limited to the $60,000 specified in the contract.”

While the policy says that the CO inserts the fixed amount and the payment schedule, it also says that the offerors submit an amount in their offers and the amount will be negotiated.

An initial commercial T&M ID/IQ award is competitive. I assume that there can be a single or multiple award.

joel hoffman said:

Example: The contract provides for reimbursement of $60,000 of indirect costs. The contract period is 12 months. The expenditure of materials is expected to be spread evenly over the contract period. Thus, the contract states that the contractor is reimbursed $5,000 per month ($60,000 divided by 12) for indirect costs under this contract. In Month 12, the contractor submits a bill for an additional $8,000 of indirect costs, claiming that the actual indirect costs applicable to this contract were higher than anticipated. Payment for this additional $8,000 is not permitted, since the indirect costs are limited to the $60,000 specified in the contract.”

What's interesting is that in the same document DOD says:

Quote

Time-and-materials and labor-hour (T&M/LH) contracts are the least preferred contract types, but they may play an important role in helping the Government meet its needs in certain situations -- namely, when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.

So the policy is that the parties must negotiate a fixed price to "reimburse" the contractor for indirect costs, even though they cannot anticipate costs with any reasonable degree of confidence.

They came up with that policy because, as stated in the Federal Register, they didn't want to reimburse commercial item contractors for actual costs, since that would have imposed the cost principles in FAR Part 31, which wouldn't be very commercial. But they couldn't use a rate-based policy, because that would violate CPPC.

If the prospect of an excessive or unfairly low "reimbursement" bothers you, one obvious solution is to negotiate a schedule of fixed prices for varying ranges in the amount of materials costs.

Are there any other solutions?

Quote

one obvious solution is to negotiate a schedule of fixed prices for varying ranges in the amount of materials costs.

Are there any other solutions?

This seems like the most practical approach - other than just a single rate for smaller value actions.  It should be simple and not administratively burdensome so the administrative effort of managing isn’t excessive.

Vern Edwards said:

If the prospect of an excessive or unfairly low "reimbursement" bothers you, one obvious solution is to negotiate a schedule of fixed prices for varying ranges in the amount of materials costs.

Are there any other solutions?

Minor twist - and possibly anticipated time of need for the materials and when the contractor acquired them?  The latter being the biggest question.    Noting my Jakes Lumber Yard example again when they have the materials already.

I put it as question with regard to the wording for payment for materials which is different than hourly rate.  Hourly rate is clearly for "hours performed".  For materials it is a little less finite even though "(i) Payments (1)Work Performed" is the lead in to all of the payment verbiage.     But then you have (ii)(A)(1) "Quantities being acquired" not Quantities Acquired, quantities incorporated into the work, or....?.  

A very wonky Alt. I!