Offerors' Failure to Furnish Data Requested by the Contracting Officer

Before awarding any contract, contracting officers must make an affirmative statement that the contract price is fair and reasonable. When competition exists, price reasonableness can usually be established without requiring any additional supporting data. However, for sole source acquisitions, contracting officers must obtain the data necessary to establish price reasonableness. For contracting actions subject to TINA (Truth in Negotiations Act), the requirement to furnish certified cost or pricing data serves this purpose. However, for actions not subject to TINA, contractors may be requested to prepare and submit additional data to support their proposed prices.

Before the Government requests additional data from a prospective contractor, it must fir obtain whatever data is available from Government or other secondary sources and use that data in determining a fair and reasonable price. If that information is insufficient to determine fair and reasonable pricing, the contracting officer will require submission of data other than certified cost or pricing data from the offeror to the extent necessary to determine fair and reasonable pricing. This data might be that from which the Government can perform a cost realism analysis or information related to prior sales.

When a contractor fails to comply with a contracting officer's request for data other than certified cost or pricing data to support a fair and reasonable price determination, the contractor becomes ineligible for award. From a contractor's perspective, being declared ineligible for award is not a good thing, and frankly, this probably doesn't happen very often. What does happen however is that the Government often 'overreaches' in its request for information to include requests for data that has nothing to do with establishing fair and reasonable pricing. If this happens, it is appropriate to ask the contracting officer how he/she intends to use the information to establish fair and reasonable pricing. Perhaps the request was poorly worded or a 'cut-and-paste' job from a prior request without any though given to the propriety of the request to the current situation. Most often, concerns about whether requested data is appropriate in the circumstances for the purposes intended can be resolved quickly.

Use GSA's New Website to Search for Hourly Labor Rates

GSA (General Services Administration) has set up a new website called CALC (Contract Awarded Labor Category). Its really for the Government acquisition corps but it is interesting for contractors as well. One thing it provides is an easy way for contractors to check their competition.

CALC was set up to allow acquisition folks the ability to conduct market research on professional service labor categories more quickly and easily. It is also intended to take the guesswork out of cost estimations. All results shown are actual awarded hourly rates from GSA services schedules. The idea behind CALC is to provide another tool to help government acquisition make more informed decisions.

The first thing you do is type in a labor category. If you enter too broad of a term, you will be prompted with all of the labor categories that contain that particular term. After identifying the category (or sub-category), you can filter for (i) minimum education lever, (ii) years of experience, (iii) worksite (e.g. at the contractor facility or in a Government facility), and (iv) business size.

For example, if you type in the term "senior accountant", you will find 9 companies offering services ranging from $55 per hour to $134 per hour with an average of $84 per hour. The results also allow the user to download the specific GSA contract showing the rates.

One thing that CALC does not do (at least not yet) is to show labor costs for future years. Many of the GSA contracts are for five years with rates increasing each year. CALC returns only current year rates and will not return rates for any future years. You could download the contract and find future rates but that defeats the purpose of the website.

One thing that contractors on a GSA schedule should try is to enter their own contracted labor categories and see if the company shows up in the listing. If not, you should contact your GSA contracting officer and troubleshoot the problem.

Try it; CALC.gsa.gov.

What is a Consolidated Bill of Materials

When preparing cost or price proposals where certified cost or pricing data are required, contractors must submit their proposals in a manner consistent with the guidelines laid out in FAR 15.408, Table 2. The instructions for that Table are detailed in Section II, Instructions. Part A of the instructions, Materials and Services, contains the following requirement for a consolidated bill of material (CBOM) or service items:

Provide a consolidated priced summary of individual material quantities included in the various tasks, orders or contract line items being proposed and the basis for pricing.

Most solicitations require pricing by contract line items. Contract Line Items (or CLINs) often contain common material items or service items. So, for example, CLIN number 001 requires 2 units of Part Number ABC, CLIN 002 requires 10 units of Part No. ABC and CLIN No. 003 requires 6 units of Part Number ABC. For purchasing purposes, the contractor will purchase 18 units and the pricing of those units should reflect prices for that quantity. In theory, unit prices drop as quantities increase. If contractors were to price each CLIN separately, the proposed cost might be higher than it would for a consolidated purchase.

Failing to estimate prices for combined quantity would probably qualify as an estimating system deficiency and potential billing withhold. It would also result in a lead for a future audit of compliance with the Truth in Negotiations Act (TINA). Neither of these are good.

For further information, refer to the DCAA Contract Audit Manual, Chapter 9, Section 9-400 and DoD's Contract Pricing Reference Guide, Vol 3, Chapter 6.

Limits Placed on Dollars Available for Contracted Services - Part 2

Last Friday, we highlighted a new DoD policy that limits labor rates and overhead rates for service contracts awarded in 2012 and 2013 to those rates in effect under similar contracts in 2010. The Defense Contract Audit Agency (DCAA) has been assigned a role in implementing this new policy. Its not an "audit" role however but a information provider role. DCAA is going to poke around in its files for information from 2010 such as final indirect rates, historical decrements of unallowable costs, and any other information it might have that will help the contracting officer in implementing this new policy. DCAA is also telling its audit staff that it may need to obtain year end direct labor rates from the contractor, if not already int he permanent file.

Its not at all difficult to make accounting changes that make it look like one is holding labor rates and indirect rates to 2010 levels without really doing so. Moving elements of compensation from direct to indirect, changing the number of estimated "work days", increasing the indirect expense allocation bases, are all ways of manipulating rates without changing the underlying costs. DCAA will be on the alert for this risk area. Its guidance states:

Auditors should be alert for accounting changes, subsequent to 2010, that may impact the use of 2010 actual rates. Auditors should explain these changes, and if practical, furnish calculations to make rate information comparable.

This is a polite way of saying that DCAA believes that contractors are going to be tempted to make accounting changes, not to improve the allocation of costs to final cost objectives, but to manipulate data in such a way to show compliance with the new DoD guidance. Although not stated in the guidance, we suspect that if the audit agency uncovers instances where a contractor has made "accounting changes" for the purpose of showing their 2012 and 2013 rates match their 2010 rates, a Form 2000, Suspected Irregular Conduct, may be considered.

This policy is going to be challenging for those service contractors that are affected by it. Contractors should keep those contracting officer lines of communication open. Notify the contracting officer any pending accounting changes, or the planned adoption of new compensation policies/elements.

T&M Contracts to Include Separate Rates for Primes and Subs

The Department of Homeland Security (DHS) is proposing to limit the options available for pricing T&M and labor hour contracts. Look for other Agencies to follow their lead as the concern that contractors are earning windfall profits on T&M contracts continues to proliferate.

FAR policy currently provides that T&M (and labor hour) contracts can be priced using a single set of rates (composite rates) for a prime contractor and all of its subcontractors and affiliates, or to require separate rates for the prime contractor and each of its subcontractors and affiliates. FAR also states that individual agencies can make the use of separate rates mandatory (see FAR 16.601(e)).

DHS wants to make the use of separate rates mandatory. Under its proposed regulation, offers will be required to submit offers that include separate labor hour rates for subcontractors and affiliates. The purpose of this proposed procedure is to ensure appropriate labor hour rates are paid under T&M/labor hour contracts and orders. "The procedures are intended to eliminate unintentional windfall payments to the prime contractor that might otherwise result from work performed by lower labor rate subcontractors or affiliates that is billed at a higher prime contractor labor hour rate.

Significant Changes to Audit Thresholds

The Department of Defense has revised its procedures (Procedures, Guidance and Information or PGI) to limit contracting officers' requests for DCAA audit assistance to fixed-price proposals greater than $10 million and cost-type proposals greater than $100 million. This, according to DoD, is to "... align DCAA audit resources to those areas with greatest risk." This does not change the $700 thousand cost or pricing data threshold. Now, pricing support for proposals under the new thresholds will come from the Defense Contract Management Agency (DCMA) instead of through Defense Contract Audit Agency (DCAA). Some contracting officers are no doubt pleased with the change. They are hoping that DCMA will improve on the timeliness of pricing support they have been receiving lately.

Not everyone is pleased with the change. POGO (Project on Government Oversight) estimates using 2009 data, that there will be about $92 billion that will no longer be subject to audit. POGO is concerned that taxpayer interests might not be served by this move. Additionally, DCAA auditors are somewhat concerned about their own future. Pricing support represents a substantial portion of DCAA's workload. With $92 billion less to audit, current staffing levels may be too high.

Prime Contractor Surveillance of Subcontractors

Government contracting officers are responsible for determining price reasonableness of prime contracts. Those contracts often include subcontract costs. It is the prime contractors' responsibility to fulfil certain obligations related to those subcontracts including performing adequate subcontract pricing and monitoring.

In 2007, Congress required the Department of Defense to set up a Panel on Contracting Integrity. The purpose of the panel was to conduct a department-wide review to identify vulnerabilities that might lead to contracting fraud, waste, and abuse. In 2008, the Panel issued its report identifying 28 actions for implementation in 2009. One of those actions required the Panel's Adequate Pricing subcommittee to review and assess the current regulations related to contracting officer surveillance over prime contractor's pricing of its subcontracts. This recommendation was spurred by an IG report which identified cases where the Government failed to ensure fair and reasonable prices because the prime contractors failed to fulfill their responsibilities.

The Adequate Pricing subcommittee's initial assessment concluded that existing subcontract pricing coverage in FAR, DFARS, and applicable policies, guidance, and instructions appear adequate. The committee was very concerned however that these regulations have not been implemented effectively.

Contractors should be aware that there will be increased emphasis on requiring them to fulfill their pricing and monitoring obligations with respect to their subcontractors.

Adequate Contract Pricing Proposals

FAR contains detailed guidelines for preparing and adequately supporting price proposals. Proposals that do not comply with these guidelines are at risk for being returned to the offeror and could easily result in the offeror's disqualification. Someone in the Government will typically perform an adequacy determination. This could be a contracting officer or analyst in the buying command, someone in the administrative contracting office, or an auditor. Most organizations have checklists to help their staff make the adequacy determination. If deficiencies are minor and the Government does not believe that they will significantly impede the negotiation/contract award process, the proposal will be considered adequate. On the other hand, proposals with significant deficiencies significantly slow down the audit, price analysis, negotiation, and contract award process. In order to maximize resources, the Government is becoming less understanding and less tolerant of proposals that do not meet the FAR guidelines.

Specific guidelines for proposal preparation are found in FAR 15.408 and in Table 15-2. Any company preparing proposals for Government contractors should be intimately familiar with these sections.  Following is a listing of the significant proposal elements that, if missing, could result in an inadequacy determination.

1. Properly completed first page (see Table 15-2, Section I.A).
2. Index referencing all cost or pricing data and information accompanying or identified in the proposal (see Table 15-2, Section I.B).
3. Summary of total cost by element cross-referenced to supporting cost or pricing data (see Table 15-2, Sections I.D and I.E.)
4. Identification of cost or pricing data and an explanation of the estimating process to include judgmental factors and methods used in the estimate, including those used in projecting from known data and the nature and amount of any contingencies (see Table 15-2, Section I.C).
5. Identification of any incurred costs for work performed before submission of the proposal (see Table 15-2, Section I.F)
6. Identification and description of any agreements with Government representatives on use of forward pricing rates and factors (see Table 15-2, Section I.G).
7. Consolidated bill of materials (see Table 15-2, Section II.A).
8. Price analyses of all subcontract proposals and cost analysis of subcontracts when cost or pricing data is required (see Table 15-2, Section II.A).
9. Cost analysis of proposed interorganizational transfers (see Table 15-2, Section II.A.(i)).
10. Time phased breakdown of labor rates and hours by category or skill level and the basis for the estimates (see Table 15-2, Section II.B).
11. Calculation of indirect rates (see Table 15-2, Section II.C).
12. Identification of ODCs and basis for pricing (see Table 15-2, Section II.D).
13. Royalties and license fees (see Table 15-2, Section II.E).
14. Facilities Capital Cost of Money (see Table 15-2, Section II.F). It is important to note that in order to recover FCCM on a cost type contract, it must have been proposed.
15. For change orders, modifications, and claims, proposals must include current estimates for deleted and added work (see Table 15-2, Section III.B).

Besides the standard requirements found in FAR 15.408, Agencies often add additional submittal requirements. These additional requirements will be identified in the solicitation (RFQ/RFP) and adherence to these could also become critical to the success of your offer.