Wednesday, December 4, 2013

Documenting Individual Consulting Agreements for Audit

One of the common recent audit findings under Contracts and Assistance Awards has been Contractor/Recipient non-compliance with procurement standards and documentation standards for Individual Consulting Agreements (including cost/price analysis, justification for sole source etc).

For both Contractors and Recipients, Independent Consultants fall into the category of “procurement actions” or “vendor contracts” therefore subject to procurement standards and competition in subcontracting regulations as well documentation requirements, applicable under those procurement standards.  These are in addition to the requirements for documentation applicable by relevant cost principles.

For Profit Contractors:

Procuring services of an independent consultant is subject to the cost principles at FAR 31.205-33 Professional and Consultant services, which basically set out the requirements and justification parameters that need to be considered in employing consultants vs employees, as well as standards for documenting the fees paid to the consultants, including copies of agreements, adequacy of terms and conditions of the agreement, invoicing detail and copies of work products as follows:

(d) In determining the allowability of costs (including retainer fees) 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:
(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).

(f) Fees for services rendered are allowable only when supported by evidence of the nature and scope of the service furnished [..]. However, retainer agreements generally are not based on specific statements of work. Evidence necessary to determine that work performed is proper and does not violate law or regulation shall include—
(1) Details of all agreements (e.g., work requirements, rate of compensation, and nature and amount of other expenses, if any) with the individuals or organizations providing the services and details of actual services performed;
(2) Invoices or billings submitted by consultants, including sufficient detail as to the time expended and nature of the actual services provided; and
(3) Consultants’ work products and related documents, such as trip reports indicating persons visited and subjects discussed, minutes of meetings, and collateral memoranda and reports.

FAR 31.205-33 defines Professional or Consulting Services to mean those services rendered by persons who are members of a particular profession or possess special skill and who are not officers or employees of the contractors.

The definition implies to individuals or concerns (i.e. companies) (See FAR 31.205-33 (d) (7)).


Non-Profits are required to comply with the Cost Principles for Professional Services Costs at 2 CFR 230 Appendix B §37 in procuring Consultant Services

In determining the allowability of costs, the cost principle requires several factors to be considered without any single factor or a combination of factors being determinative (2 CFR 230 Appendix B §37 (b)). For the purpose of establishing a fair rate, (b) (7) of the cost principle requires that the qualifications of the individual rendering the service be reviewed and compared to the customary fees charged for similar services on other federal and non-federal awards.  All of the items similar to the same For-Profit Cost Principle described above.

It further defines Professional Services to mean those services rendered by persons who are members of a particular profession or possess special skill and who are not officers or employees of the non-profit organization.  The term applies to both individuals and concerns (2CFR230 Appendix B.37 (b)(7)).

Under Contracts with USAID (all Contractors regardless of type):

FAR 44.101 define Subcontractor as “any supplier, distributor, vendor or firm that furnishes supplies or services to or for prime contractor or another subcontractor”.

Subcontract is defined as “contract” at FAR 2.1, which means any mutually signed agreement.

This means Consultant Agreements are Subcontracts and require consent per 52.244-2.

This also means that as with all subcontractors, the procurement of consultant services must be documented including cost/price analysis, justification for sole-source etc.  (See FAR 44.202-2).

Under Cooperative Agreements and Grants (all Recipients regardless of type)

22 CFR 226.40-49 defines “procurement standards” for procuring services from vendors. 

OMB Circular A-133 defines a vendor as “a dealer, distributor, merchant or other seller providing goods or services that are required for the conduct of a Federal program. These goods or services may be for an organization's own use or for the use of beneficiaries of the Federal program.”

Although A-133 at _§210 further elaborates on “vendors” and refers to “organizations” only, most auditors have been finding that Individual Consultants are in fact “vendors”, because they do not meet the definition of “recipient” (or sub-recipient) but do meet the definition of “vendor” at A-133.

As such, since the vendor is subject to procurement regulations, audit findings have been pointing to 22 CFR226.45, which requires that some sort of “price/cost” analysis be on file for all consultant agreements of any value.

This seems to correspond to the treatment of consultants under USAID contracts.

However, unlike subcontractor consent requirements under USAID contracts, Individual Consultant Agreements under Assistance Awards do not require approval by USAID's AO per 22CFR226.25.8.(c), even though all vendor contracts for services with organizations do require such approval.  This is thanks to USAID 1994's AAPD, which states that approval of individual consultants is not required.

Moral of the story:

Document Individual Consultant Agreements with consent to subcontract (may be in form of technical/rate approval of consultants), cost/price analysis, sole source justification, copies of trip reports, work products and close-out forms.

Make it part of your procurement policy and make sure your staff has received training on how to do this most effectively.

 Be able to say “Of course, here it is!” to the auditors and see their faces turn sad :-( a little for losing such a low hanging fruit in non-compliance findings….

Wednesday, September 25, 2013

Sale of Personal Property by USAID Contractor & Recipient Employees - AIDAR PERSONNEL & Mandatory Provision

Here is the oldie but goodie.

This is one of the AIDAR clauses that everyone sees all the time in all of the USAID contracts, but either 1) reads right over,  paying no attention to the text or 2) ignores completely as something that must be outdated and left over from the “cold war” (no joke, someone gave me this as a “reason” once because the clause was dated 1990….).

AIDAR Clause 752.7027 PERSONNEL (1990) has lots of juicy stuff, but this story is about paragraph (d) which deals with Importation or sale of personal property or automobiles.

Tuesday, September 3, 2013

Come and join me for "Fun with Vendors and Grantees" Topic!

Grant and Cooperative Agreement Course
for USAID Partners

October 7 - 11, 2013 ~ Washington, DC
Four Points Sheraton Hotel

As a current or prospective implementing partner to USAID, your organization is invited to participate in a customized training course designed by former USAID Agreement Officers to ensure you have the knowledge base and the tools required for successful project implementation of your USAID sponsored grant or cooperative agreement.
The training session is available on a first come, first served basis through direct registration by your organization. Ideal registrants for this USAID tailored training would include: procurement, audit, finance, administrative and compliance officials.

Special Guest Lecturer
Olga Wall, Director of Grants and Contracts
International Relief and Development Inc (IRD)

Topic: Vendor vs Subaward – Getting it Right

Author: Complaince Blog for Contractors and Grantees
Course Details
Participants will be able to
·         Guide their respective organizations through the myriad of USAID rules and regulations to ensure compliance and successful project implementation
·         Resolve award and sub-award implementation issues
·         Gain an understanding of all USAID prior approval requirements, and learn about award extensions
·         Better understand the structure of USAID and how to build cooperative and beneficial relationships
·         Prepare their organization to achieve successful audits and prevent disallowances
·         Improve their organization’s business model and be prepared for USAID Forward
A customized event for your organization’s technical,
administrative and program staff, designed and
taught by former USAID Agreement Officers
specifically for NGOs with USAID sponsorship

Registrants provided exclusive Help Desk services
for 60 days upon course completion
10% Discount on Early Registrations
until September 16, 2013
Enter the promo code ClaroKC10 to take
advantage of your 10% early registration discount
October 7 - 11, 2013
Four Points Sheraton Hotel
Washington, DC

Thursday, August 15, 2013

Handling Indirect Rates for Sub-grantees and Subcontractors without existing NICRA

USAID recognizes that businesses have indirect expenses. It is willing to pay its fair share of these when it contracts with or issues a grant to a firm subject to some requirements.   The expenses must be reasonable, allowable and allocable, and the Government must be certain that it is paying only its fair share. FAR 31.203 and OMB Circulars like A-122, Indirect Costs, contain guidance on allocating indirect costs.

Prime contractors and grantees are responsible for verifying; establishing and settling all final indirect cost rates with their subs and providing status of final indirect audit for subs at CO/AO’s request. (FAR 52.216-7 (d)(5)).

USAID has a publication called "Best Practices Guide for Indirect Costing" issued as part of Mandatory Help for ADS 300 which is also a useful information piece (Best Practices Guide for Indirect Costing) for proposing and negotiating indirect rates with USAID.

How does it work in practice?

If the sub company has a NICRA (Negotiated Indirect Cost Rate Agreement) with any U.S. Government agency, it should be used (provisional or final rates) with or without rate ceilings and included in the cost reimbursable subcontracts/sub-grants or used to establish pricing in fixed priced subcontracts/subgrants.

For cost reimbursable sub-instruments, the settlement of final indirect rates should then be handled in an appropriate manner and with prior consent of USAID where possible – see discussion below.

However, most local companies and non-US organizations do not have NICRA, which leads us to the reason for this blog post.

There are two ways to handle indirect costs for subs that do not have a NICRA.

Sunday, June 16, 2013

Pay-Out Of Accrued Vacation Leave on USAID Programs

This one is about paying out the untaken vacation leave at the end of the tour on USAID programs and with thanks to Babylonia for asking the question.
Obviously, this should be easy, right?  Right, of course it is.

Wednesday, June 12, 2013


In a General Notice issued by GC, EGAT and OAA on April 3, 2012, it states that USAID’s Administrator has approved a Construction Policy for USAID.  As of today, we are unaware that this policy has been incorporated into an Acquisition and Assistance Policy Directive or made part of the Agency’s Automated Directives System, even though it has some major impacts to how USAID implements programs with a construction component. 

Highlights include the use of a mandated instrument as follows:

USAID must use a direct contract when the award is solely for construction or the award includes construction activities as some portion of all award activities, providing that:

1.         The estimated cost of construction activities at a single project site is $500,000

 or more, or

2.         The total aggregate estimated cost of construction activities under the award is

                     $10,000,000 or more.

For USAID Recipients (grantees), inclusion of construction activities is no longer permitted in grant awards.  However, you may include construction activities in cooperative agreements, with the following conditions:

-           The award complies with the requirements of ADS 221 USAID’s Procedures for Implementing International Agreements for Tied and Untied Aid;
-           The CA must expressly state that no construction activities other than those explicitly approved under the agreement may be performed as part of the cooperative agreement;
-           Construction activities must be explicit in the budget;
-           A term of substantial involvement must be the right of the Agreement Officer’s Representative (AOR) to halt construction; and
-           The construction activities are only a portion of all award activities and 1) the estimated cost of construction activities at a single project site is less than $500,000 and; 2) the total aggregate estimated cost of construction activities under the award is less than  $10,000,000.

As written in the General Notice, the Procurement Executive can waive the established limits above.

Some exemptions to this new policy are included for Fixed Amount Reimbursement Agreements, Development Credit Authority instruments and Public International Organizations or grants to other bilateral donors. 

Other waivers to this policy include:  1) Construction activities carried out under Food for Peace for disaster relief (including that using program income and monetized proceeds); 2) Construction activities carried out by DCHA/OTI through Grants Under Contracts (e.g., SWIFT) to the extent current practice is maintained;   3) Construction activities conducted by DCHA/OFDA; 4) Construction activities carried out by the West Bank/Gaza Mission and; 5) Construction activities conducted by DCHA/ASHA have already been provided waivers to this new policy

Wednesday, June 5, 2013

"Sharing is Nice" (Your Mum)

In these times of austerity in Government contracts and grants and scarce funding, the more and more importance is given to cost saving techniques by contractors and grantees.

The question has come up about regulatory framework for sharing costs, facilities etc. in the same country of performance between multiple USAID and non-USAID projects performed by the same organization or even two different organizations.

The scary audit-speak concept of “co-mingling funds” can be avoided through careful planning and appropriate procedures in advance of sharing of any kind.  Done right, it yields savings to all parties, reduces waste and uses resources efficiently – all the points that will hopefully be reflected under “cost control” evaluation factors on your next CPR or grant performance accolades.

Tuesday, May 28, 2013

What if you had access to an all-you-can-ask USAID CO Hotline?

Have you ever wanted to talk to your Agreement Officer were not scared a little.... and have them answer any question that you like…. fast?

Have you ever wanted to have them on speed dial to clarify regulations, explain policies and interpret clauses?

This is your chance.

My old friend, Jeffrey Bell, a (young) veteran of USAID Acquisition and Assistance office has assembled a Dream Team of former USAID Contracting and Agreement Officers, Policy Advisors and regulation writers to conduct Assistance and Acquisition courses for us mere mortal contractors and recipients. The first one in DC is a Basic Assistance Course on July 8-12, 2013, which will surely leave you wanting for more and asking "what other USAID training?” The price of the course comes with a 60 day (!!!!) all you can ask Assistance Help Desk subscription.

Do not miss the opportunity to attend this course, which combines the knowledge and insight from both sides of an USAID agreement!" Sign up here: Assistance Essentials

A preview of the program below:

Day 1

            Legal Arrangements

            USAID Decision Makers

            Organization of USAID

            Assistance Instruments Types

            USAID Forward Overview

            New or Revamped Toolbox

            Fixed Obligation Grants (FOGs)

 Day 2

            Award Execution

            Post Award Orientation and Conference

            Program and Financial Management Responsibilities

 Day 3

            Procurement of Goods and Services

            Property Management

            Personnel Issues

 Day 4

            Reporting and Recordkeeping

            Suspension, Termination, USAID Enforcement, Dispute and Appeals

            Branding and Marking

            Close-outs and Audits

Day 5

            USAID Standard and Required As Applicable Provisions

            Subaward Responsibilities

            Wrap Up

Thursday, May 23, 2013

Allowable and Unallowable Costs for Non-Profits

Certain costs, although many are legitimate business expenses (and deductible as expenses by the IRS), cannot be included in pricing for federal government contracts, grants and cooperative agreements. This does not mean that a company is not allowed to incur these costs; it simply means the government is not willing to pay for them, either directly or indirectly.

NGOs are required to follow the directives of OMB A-122 in charging project costs to federally-funded grants and contracts (federally-sponsored agreements).  OMB A-122 requires NGOs to identify unallowable costs and exclude them from any application, proposal, billing, or claim related to a federally-sponsored agreement.

Thursday, April 11, 2013

Audit Issue: Consent to Subcontract & Overseas Allowances for Consultants

Audit Issue:  Consent to Subcontract and Overseas Allowances for Independent Consultants           

This is a discussion and a possible solution in response to two of the recent audits issues showing up in multiple contractor audits (please note this post is related to prime contractors and not to organizations working exclusively under assistance instruments):

Are Independent Contractors = Subcontractors, requiring consent to subcontract and justification in accordance with the competition requirements and the Contractor procurement policy?

Can Independent Consultants receive Danger Pay and Post Differential automatically in DSSR designated areas?

Monday, March 25, 2013

Use of AIDAR Personnel Compensation Clause under T&M

As you look through AIDAR and the text of USAID specific clauses in Subchapter H, you will find that all of the clauses have a prescription for use in ALL contracts or ONLY IN Cost Reimbursable contracts, but none of the clauses specifically require use in Time and Materials (T&M) contracts.
The reason, as it was explained to me, is that when AIDAR was being written, USAID did not use T&M contracts to any great extent and therefore had no need for any specific clauses to augment T&M clauses already used from the main FAR.
However, now that T&M IQCs as well as stand-alone contracts have become common place, the COs seems to want to use cost reimbursable AIDAR clauses in all the T&M contracts as if they were meant for that use.  This creates confusion and does not bear fairly on contractors.
This post explores the effects of the AIDAR Personnel Compensation Clause (752.7007) and restrictions associated with USAID Contractor Salary Threshold as applied to T&M contracts.
Personnel Compensation Clause 752.7007 is used in solicitations and contracts for T&M awards even though its prescription clearly states that the use should be restricted to cost-reimbursement contracts only.  The clause was changed in 2007 to allow Contractor Policy prevail in establishing salaries, but most, if not all, COs enhance the clause in the actual contracts to put a 3-year highest salary restriction (removed in 2007) back in.  This is weird and limits the already limited salary ceiling.  It is also almost impossible to apply to “independent consultants”, since they do not have 3- year annual salary histories, only daily rate histories, which means that if they only worked for 3 days in each of the last 3 years, their annual salary ceiling may come out at $1,500 per annum….. or $5.70 per day – i.e. below minimum wage J
The best and correct approach would be to allow contractors use their policies, biodatas and FAR 31.206-6 Compensation for personal services as limitations.  Alas, this topic is for another post… 
The reason why the Personnel Compensation AIDAR clause is included in the solicitations for T&M and Fixed Price Contracts is ADS 302, which implies that this clause should be included in solicitations for T&M and Fixed Price Contracts as a measure of limitation on “reasonable” compensation, which would be allowed by Contracting Officers during cost analysis for build-up of the fixed daily rates (FDR) or a fixed price.
302.3.6.10 USAID Contractor Salary Threshold (USAID CST)  The USAID Contractor Salary Threshold (CST) sets a maximum rate on salaries under contracts where the Agency establishes the price or the fixed labor rate for services after considering what the actual staff salaries would be.
This seems overly restrictive for competitions where two or more offerors are in fact expected to bid and the price is being established by competition on an open market.  However, given that our market is not as large as the DoD market, it would appear USAID does not trust the “open market” competition to establish a fair rate and is therefore limiting the basis of a rate build-up during proposal stage.
Now, once the fixed daily rates (under T&M) or fixed price (under FFP) are established, the contract itself should not contain this clause, since it is up to the contractor what they decide to pay their employees, as long as what they charge the Government is a fixed daily rate or a fixed price already negotiated.
If your Fixed Price Contract contains that clause, ask for it to be removed as inapplicable or ask that USAID confirms in writing that this clause would only be used as a limitation on recovery of actual costs if your Fixed Price Contract “coverts” to cost-reimbursable under a Termination for Convenience scenario.
For T&M contracts, the advice is the same as above, with one caveat – that caveat applies if your T&M contract is for performance overseas and includes Local Hires and Third Country Nationals (TCNs), which are not billed at Fixed Daily Rate, and, are instead billed under “Materials” at cost plus a multiplier .  By the way, the multiplier is the easiest way to negotiate a “load” on direct cost labor billed under T&M, since you will want to recover indirects and a fee and T&M contracts prohibit use of fee as a stand -alone under the Materials portion.
If you do have Locals and TCNs billed under Materials, the Personnel Compensation Clause (normally enhanced to include limitations of USAID LCP on CCN salaries) is appropriate, because it establishes the limitations on non-FDR salaries (for example future subcontractors) as well as Local and TCN salaries – since their salaries are “reimbursed” under the contract. 
However, to avoid confusion, you need to clarify in writing with the CO that this clause in your T&M contract only applies to non-FDR labor, including Local Hires and TCN and does not apply in any way to Fixed Daily Rate labor or associated costs.
The reason is Allowances.  Let’s say your Fixed Daily Rate employee gets paid above USAID CST (still within the Fixed Daily Rate – i.e. you take less “load” on that employee for business reasons).  Would his post differential and danger pay apply to his actual salary or to the salary up to USAID CST?
Since you are not restricted to what you will pay your employees once the FDRs are fixed under a contract, are you restricted to what the basis for allowances is?
If your T&M contract contains Personnel Compensation Clause and you have not clarified in writing that the clause only applies to reimbursable labor like Local Hires and TCNs, the audit and subsequent USAID CO decision may find that you are restricted by the personnel compensation clause for all labor in what you pay them and in what you will charge their allowances on.

Sunday, February 3, 2013

What shall we write about next?

Coming to "Lost in Regulation" soon:

  • Strange and Wonderful FAR clauses never used by USAID Contractors
  • Application of Allowances to Fixed Daily Rate Personnel under T & M Contracts and IQCs
  • AIDAR Personnel Compensation Clause and non-Cost-Type Contracts
  • Certifications of Cost or Pricing Data for legalese challenged non-CPAs
  • Cost and Price Analysis - simple tips for Procurement Staff
  • TQSA, SMA, COLA - acronyms of torture, which you need not use (its a free country).
  • Constructive and Cardinal Changes
  • 10 Questions to ask your Agreement Officer after signing a Cooperative Agreement

Please email with any more topics of interest, or things you always wanted to know.  The weirder, the better.

We Heart Strange Audit Decisions, Strange CO/AO decisions, Strange Policies

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