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Thursday, July 17, 2014

Using Alternative Subcontract Types under Prime CPFF "Term" Contracts with USAID


Okay this one is a bit of a mind bender and is for....  geeks like me... mostly....

The basic idea of CPFF term contracts is that the Government is ordering types of labor at cost plus a fixed fee for each day of Level of Effort.  It is somewhat similar to T&M contract with less risk for the Government, because the labor rates are at cost, must be approved in advance, cannot exceed USAID CST and indirects are charged based on actual rates as negotiated under NICRA agreements.  The fixed fee however remains fixed and recoverable for each delivered day of labor based on the initially negotiated amount.

So, when budgeting for CPFF term contract, you have to be cognizant that the fee will remain fixed and will only be recovered in full if you deliver the total Level of Effort as stated in your contract.

Let’s use this example throughout:
So if the contract’s Fixed Fee is $10,000
Total Level of Effort is 100 days
Then the Fixed Fee recoverable per day is ($10,000/100) $100
If you deliver 50 days of LOE by the end of the contract, then you will only collect $5,000 and so on.

The fee is presumed fixed for all level of effort labor being delivered, including any of such level of effort types of labor being delivered by the subcontractors.

So if you are proposing one Fixed Fee for the total proposed Level of Effort (including subcontractor level of effort) under the Prime Contract, your award will reflect one Fixed Fee for the Total Level of Effort, which can be recovered on proportionate basis as explained above.

If your intent is to issue other than CPFF term subcontracts to your subcontractors under such prime CPFF term contract, you must not include the subcontractor labor in your Level of Effort Labor Part of the budget; you must, instead, budget the subcontractor’s total price under Subcontractor Pass Through Cost Line item and explain to the Government that those subcontracts would perform on other than CPFF term basis.  You would further need to explain how you arrived at the price for such subcontracts and that your proposed fixed fee for the prime contract only covers Level of Effort which would be performed directly by you, as a prime, and the subcontractor price is inclusive of their profits/fee and would simply be a pass through to the Government.  This should be explained in detail in your budget notes or your consent to subcontract request submitted with the proposal (you would need to convince the CO that you are selecting an appropriate type of subcontract for the work you plan to subcontract).  That subcontract cost including their profit/fee will then become pass through to the Government and you would not be recovering any fee on top of that subcontractor’s invoice.  (You may be able to recover Subcontractor Handling Charges if your NICRA allows for that.)

As mentioned above, if you are proposing one Fixed Fee for total proposed Level of Effort (including subcontractor level of effort) under the Prime Contract, your award will reflect one Fixed Fee for the Total Level of Effort, which can be recovered on proportionate basis as explained above.
 If you award a CPFF term subcontract under such prime contract, you are technically free to negotiate any fixed fee you chose with the subcontractor, which would be recoverable for delivery of total level of effort under that subcontract.    If you negotiated well, the subcontractor fee per day may be lower than the fixed fee per day you get to recover from the Government for their Level of Effort, subcontractor Level of Effort will count towards total Level of Effort delivered under the prime contract…  So instead of $100 per day you get from the Government, you would pay the subcontractor, let’s say $75 per day and keep the difference.

The real fun starts when you introduce a new subcontractor after the award of the prime contract and decide you want to subcontract on other than CPFF term basis.

Indirect Costs Restrictions: Fly America, Premium Class and Compensation above USAID CST

Do you need to apply Fly America to airfares charged to Indirects or can you fly whatever air carrier you want because the contract terms do not govern indirects?

How about First Class Travel or unjustified Premium Class Travel - can you charge it to Indirects since you can not charge it under direct costs for contracts/grants?

How about the difference in compensation of the company's executives making over the USAID Contractor Salary Threshold, who are approved and being charged to cost reimbursable contracts with USAID?

How about surplus in the salaries above the approved rates of pay under cost reimbursable contracts?

The answer to all these questions is - No.  Costs that are unallowable directly are also unallowable indirectly, which means that any such costs must be segregated outside your indirect pool applicable to US Government contracts & grants.

For in depth allowability of costs blog post go to Allowable and Unallowable Costs

To answer the above questions in depth:

FAR 52.247-63 (b) Preference for U.S. Flag Air Carriers states in part:

b) Section 5 of the International Air Transportation Fair Competitive Practices Act of 1974 (49 U.S.C. 1517) (Fly America Act) requires that all Federal agencies and Government contractors and subcontractors use U.S.-flag air carriers for U.S. Government-financed international air transportation of personnel (and their personal effects) or property, to the extent that service by those carriers is available. It requires the Comptroller General of the United States, in the absence of satisfactory proof of the necessity for foreign-flag air transportation, to disallow expenditures from funds, appropriated or otherwise established for the account of the United States, for international air transportation secured aboard a foreign- flag air carrier if a U.S.-flag air carrier is available to provide such services.


So, the travel that is charged to the Indirect Pool which is allocated to USG contracts and grants is travel that is funded by the US Government, hence must comply with the applicable limitation on use of non-US flag carriers.

The same would be true for travel in First Class or any unjustified premium class travel.  The cost principles for both for- and non-profits require justification for use of other than cheapest available airfare. That limit applies for direct or indirect costs.

By the way, international travel that is specifically serving a certain contract should be charged to that contract and not to overhead unless serving a genuine overhead purpose.  If such international travel (not serving an overhead purpose) can not be charged to the contract because the CO would not approve it, then its unallowable for direct or indirect charge.

USAID Threshold for salaries only applies to directly charged labor costs and ADS specifically mentions at ADS 302.3.6.10c "the indirect cost pool, to which this policy does not apply."  This means that executives who are charged indirectly are subject to general cost principles for compensation and not to USAID Contractor Salary Threshold.   This all changes if such executive gets approved to work under one of the USAID CPFF contracts.  The CO will likely only approve the maximum rate of USAID CST for any personnel, which means that any compensation above that limit for the time the executive works on that contract should be charged to Unallowable Pool and not to Indirect Pool.

The same goes for salaries above the approved amount in the contract for any consultants etc.  All unapproved amounts must be segregated in the Unallowable Pool and not Indirect Pool.