Consulting Costs - On Beyond Documentation Requirements

Long time readers of this blog will have a pretty good understanding of the specific documentation requirements for professional and consultant service costs found in FAR 31.205-33(f): consulting agreement (i.e. details of the agreement), invoices or billings, and work product. Although DCAA (Defense Contract Audit Agency) recently admonished its auditors to loosen up on strict interpretations by considering other forms of evidence that would satisfy the requirement, (see Consultant Costs - Revisited), this cost category still attracts lots of attention. In the word of one contract auditor, it represents "low hanging fruit" meaning that its an easy target for questioning costs.

When audited, smaller contractors will get by with providing the consulting agreement, invoice, and work product. However, there is a lot more to the cost principle than just the amount of documentation required. The standard includes a listing of factors that the contracting officer must consider in determining whether the cost is allowable in the first place. It is only after these factors have been considered, do the documentation requirements come in to play.

Professional and consultant service costs are not automatically allowable if well documented. They must be reasonable in relation to the services rendered and they cannot be contingent upon recovery of the costs from the Government. In determining the allowability of costs in a particular case, no single factor or any special combination of factors is necessarily determinative. However, the contracting officer shall consider the following factors, among others:

1. The nature and scope of the service, considering the contractor's capability in the particular area.
2. The necessity of contracting for the service, considering the contractor's capability in the particular area.
3. The past pattern of acquiring such services and their costs, particularly in the years prior to the award of Government contracts.
4. The impact of Government contracts on the contractor's business.
5. Whether the proportion of Government work to the contractor's total business is such as to influence the contractor in favor of incurring the cost, particularly when the services rendered are not of a continuing nature and have little relationship to work under Government contracts.
6. Whether the service can be performed more economically by employment rather than by contracting.
7. The qualifications of the individual or concern rendering the service and the customary fee charged, especially on non-Government contracts.
8. Adequacy of the contractual agreement for the service (e.g. description of the service, estimate of time required, rate of compensation, termination provisions).

Now you might be thinking that you've never heard of a contracting officer going to that level of detail in assessing the propriety of claimed professional and consultant service costs. And you might be correct. But DCAA, as the contracting officer's representative will, in cases were professional and consultant service costs are significant. DCAA takes a more systematic approach in assessing these factors with elements of purchasing system criteria thrown in. Tomorrow we will take a look at DCAA's approach methodology.

Continue on to Part 2.