Increase in fixed fee?

The only rationale for increasing the dollar amount of a fixed fee under a CPFF contract would be a contract change -- formal or constructive, within or beyond scope -- that adds work. (The fee may naturally change as a percentage of total cost depending on the performance cost outcome.)

The only rationale for increasing the dollar amount of a fixed fee under a CPFF contract would be a contract change -- formal or constructive, within or beyond scope -- that adds work. (The fee may naturally change as a percentage of total cost depending on the performance cost outcome.)

Thank You for your response....it will be interesting today to see what the CO decides!

is there any reason why the fixed fee of a contract (CPFF) would increase. THere is no increase in work, actually the G&A has been reduced and the CPFF has not changed so the contractor is trying to make up for the reduction in G&A by increasing the fee... my position to the CO is that I don't believe thats correct. What do you guys think?

I agree with Vern. If there was no formal or constructive government change to the scope of work or other contract requirements, there would be no basis for a change in the fee. Here, I am assuming that only the firm's G&A rate has been adjusted due to an internal or external audit or general business conditions.

How is contractor justifying that? Wasn't the fixed fee based off a percentage at some point? Granted that fixed fee may have become a fixed dollar amount which if the G&A dropped actually results in a slight increase in the fee percentage but the dollar figure would not change.

Example - $1M in estimated burdened cost with the fixed fee negotiated at 10%. Was written into contract as fixed fee being dollar amount of $100K. Indirect rates drop so new estimated burdened cost is only $950K but based on way contract was written fixed fee remains at $100K (now 10.5%). If contract had been written to say fixed fee was 10% of estimated burdened cost not to exceed $100K then fixed fee paid out would wind up being adjusted to $95K.

If contract had been written to say fixed fee was 10% of estimated burdened cost not to exceed $100K then fixed fee paid out would wind up being adjusted to $95K.

Whoop, I think that scenario is a form of cost plus percentage of cost, which could motivate a firm to expend the most money possible within the cost ceiling.

I do agree with you that a decrease in actual cost with a fixed fee would result in a higher return on costs, but there is nothing inherently wrong with that.

Zoom, Zoom, Zoomie71.

Whoop, I think that scenario is a form of cost plus percentage of cost, which could motivate a firm to expend the most money possible within the cost ceiling.

I do agree with you that a decrease in actual cost with a fixed fee would result in a higher return on costs, but there is nothing inherently wrong with that.

Zoom, Zoom, Zoomie71.

The justification is : the contractor has reduced the application of G&A to subK costs from 11% to 6%, the fee was 3% and now the fee will be 6% while the total estimated cost will not change

The justification is : the contractor has reduced the application of G&A to subK costs from 11% to 6%, the fee was 3% and now the fee will be 6% while the total estimated cost will not change and the labor has been reduced for the option periods

lacylu:

Clear things up! Are you talking about fee as a dollar figure or as a percentage figure?

lacylu:

Clear things up! Are you talking about fee as a dollar figure or as a percentage figure?

Sigh... I should have known better.

"And now... The Rest of the Story!" ... Or most of it... Err, refer to another thread for more details...

Look, lacylu -- except in casual conversation, professional contracting personnel do not describe the fee under a CPFF contract in terms of a percentage of costs. They describe the fee as a dollar amount. In a CPFF contract fee is supposed to be stipulated as a dollar amount, not a percentage. If you calculate the fixed fee as a percentage of cost you can see that the percentage will change as actual costs are incurred and vary from estimates. When costs are lower than expected, fee, as a percentage of cost, will be higher than expected, but the dollar amount does not change.

When you asked your question I stupidly assumed that you knew this and that you were asking about fee as a dollar amount. If you were asking about fee as a percentage, forget about it. That does not mean anything. Of course it changes as a percentage. There is nothing for the CO to decide.

Get it?

Look, lacylu -- except in casual conversation, professional contracting personnel do not describe the fee under a CPFF contract in terms of a percentage of costs. They describe the fee as a dollar amount. In a CPFF contract fee is supposed to be stipulated as a dollar amount, not a percentage. If you calculate the fixed fee as a percentage of cost you can see that the percentage will change as actual costs are incurred and vary from estimates. When costs are lower than expected, fee, as a percentage of cost, will be higher than expected, but the dollar amount does not change.

When you asked your question I stupidly assumed that you knew this and that you were asking about fee as a dollar amount. If you were asking about fee as a percentage, forget about it. That does not mean anything. Of course it changes as a percentage. There is nothing for the CO to decide.

Get it?

I do understand that... the poposed CPFF increase is in terms of dollar amount but I talked it about it in percentages, sorry for sounding confusing..

basically, the CO is allowing the contractor to renegotiate; labor has been reduced a little, fixed fee doubles but total est CPFF stays exactly the same.

Again, this is due to the application of G&A to subs being reduced from 11% to 6%

I do understand that... the poposed CPFF increase is in terms of dollar amount but I talked it about it in percentages, sorry for sounding confusing..

basically, the CO is allowing the contractor to renegotiate; labor has been reduced a little, fixed fee doubles but total est CPFF stays exactly the same.

Again, this is due to the application of G&A to subs being reduced from 11% to 6%

Is this under the Seaport-e contract where a subcontract passthrough rate is used?

The CO probably passed RIPIDIQ's warrant exam.

Is this under the Seaport-e contract where a subcontract passthrough rate is used?

No, this is not under the seaport vehicle .... in reference to passthru, the prime will now be treating the subs as passthru.

I just found out the CO will allow all of this to happen... I just don't agree with it at all... the govt has not received any benefit under this

renegotiation. . The labor has been reduced, but we didn't see the benefit, looks like its thrown back into the fee, TOTAL CPFF is the same as contract award

The CO probably passed RIPIDIQ's warrant exam.

HA HA HA HA HA HA! LOL, , etc... I liked that!!!

Unfortunately, that person is spending the US Taxpayers' money, plus money that the government does NOT have and that my kids and grandkids might be expected to pay back someday. That is sobering, isn't it?

The original question, is there any reason why fixed fee under a CPFF contract would increase, has been answered. At the risk of oversimplifying, if the scope has not changed, and there is no basis in a contract clause for an equitable adjustment that would include fee, CPFF should be taken literally: cost plus FIXED fee.

Was this some kind of pre-arranged deal where G&A would be capped while fee was increased so that a portion of indirect cost was reclassified as fee and the contract amount remained the same, "a wash", "no harm no foul"? If so, on what basis was that deal struck? And where is the consideration for the Government?

At the risk of oversimplifying, if the scope has not changed, and there is no basis in a contract clause for an equitable adjustment that would include fee, CPFF should be taken literally: cost plus FIXED fee.

For example, the changes clause for cost-reimbursement contracts, FAR 52.243-2, authorizes an adjustment to fee for a within-scope change.

@Joel - Ref the cost-plus-percentage-of-cost - even if the fee shows a NTE dollar amount? But I do get your point

@Joel - Ref the cost-plus-percentage-of-cost - even if the fee shows a NTE dollar amount? But I do get your point

Woop, in your example, the fee is directly proportional to the amount of incurred cost, up to the maximum cost limitation. What is the difference?

No, this is not under the seaport vehicle .... in reference to passthru, the prime will now be treating the subs as passthru.

I just found out the CO will allow all of this to happen... I just don't agree with it at all... the govt has not received any benefit under this

renegotiation. . The labor has been reduced, but we didn't see the benefit, looks like its thrown back into the fee, TOTAL CPFF is the same as contract award

Was the change in the accounting treatment of subcontractor costs done voluntarily by the contractor or at the direction of the government?

Was the change in the accounting treatment of subcontractor costs done voluntarily by the contractor or at the direction of the government?

Retread, there was a recent thread where Lacylu more or less explained the scenario. It had to do with changing overhead or accounting procedures after award. I don't know why she started a new thread here.