ARINC PROPRIETARY
New Time and Material Requirements
Glenn BaerApril 2008
The new Time and Material changes are to expressly authorize the use of T&M and labor hour contracts for commercial services
To ensure fair and reasonable prices under non-commercial T&M and labor hour contracts
To eliminate the confusion related to the payment amounts for subcontractor provided labor
These new rules also introduce some confusion
Objectives of new policy
Discourage the use of T&M contracts Least advantageous – FFP preferred Legislative efforts to limit commercial T&M
Section 805 of DOD Authorization Bill FAR 16.601 only use when it is not possible to estimate to
total cost of the requirement and FFP not suitable Must process D&F signed by agency head >3 yrs
Distinction on rules – adequate price competition Separate rates, blend or combination DFARS - DOD only apply separate rates
Legislative limitations applying to DOD Section 805 of DOD Authorization Bill
DOD Must amend its regulations regarding T&M and
Labor Hour contracts for commercial items. Such contracts can only be used to procure.
Services supporting a commercial item ( Ancillary Services
Commercial Repair Services When an agency head approves a CO determinations
that the services Services are commonly sold to the general public
through the use of T&M and Labor Hour contracts
Profit and cost clarification of subcontractor cost
Clarifys that the Prime can add profit to qualified subcontractor labor DCAA Audit Memo of 7/31/07 Subcontractor rates include all cost and include
prime contractor profits on such cost Prime Profit does not permit additional
interdivisional transfer profits
Both Prime and Subcontractor labor must meet the labor Qualification in the contract to be fully reimbursed – FAR 52.232-7(a)(1) Who proposes labor Qualifications ?
Contrary to PBSA concepts FAR 39-104 IT contracts not specify labor
qualifications Lee Memo 1/28/03 use labor qualifications in very
limited situations to permit maximum flexibility
Payment of subcontractor by Prime
New rules in need of some clarifications DCAA Audit guidance requires the Prime
to review subcontractor labor qualifications.. Time record keeping and cost prior to payment
“Evidence of actual payment”
Does this requirement attempt to reinstate the paid cost rule ?
Payment of Materials and incidental cost
New rules make clear that all material cost are reimbursed at actual cost further all labor expended that is not identified in the contract rates or meets the labor qualifications will be considered “incidental cost” It is incumbent on the prime to verify the
subs rates are include in the contract and meet all qualifications or risk loosing the application of profit
Time and Material – Changes
All commercial categories of services can be procured on a T&M basis if competitively awarded.
Specify that Allowable Cost & Payment Clause is included in T&M Contracts for Material Items.
Redefines “Materials” in a T&M Contract. See FAR Section 16.601. Specify if a contractor provides it own commercial material, it may sell it at its
catalog or market price. Except as otherwise stated, the government does not pay fee on “Materials or
incidental cost ” Labor that does not meet the qualifications in the contract is considered to be
incidental services. Prior approval of the Contracting Officer is required in order to be paid for the incidental services.
Specify that all labor hours that qualify under the labor requirements are to be paid at the rate in the contract which includes wages, overhead G&A and Profit.
Prompt Payment Act applies for interim payments under T&M and LH contracts for services
Incorporate three new solicitation provision that address contract labor
T&M RULE MATRIX
Requirement FAR Commercial Rule
FAR Non-Commercial Rule WITHOUT Adequate Price Competition .
FAR Non-Commercial . Rule WITH Adequate Price Competition
DFARS Non-Commercial Rule WITH Adequate Price Competition
Determinations and Findings
(D&F) must be developed pre-
contract
Pre-contract, CO must develop a D&F and document:Market researchCan’t estimate duration or costStructured for future FFPActions to maximize use of FFPSole Source Not authorized
Pre-contract, CO must develop a D&F stating no other contract type other than T&M is suitable for the requirement.
Consent to Subcontract
No consent required
FAR 52.244-2 applies: Government not required to reimburse subcontract costs incurred prior to obtaining consent for subcontractors. Approved purchasing systems authority remains unchanged
T&M RULE MATRIX
Requirement
FAR Commercial Rule
FAR Non-Commercial Rule WITHOUT Adequate Price Competition
FAR Non-Commercial . Rule WITH Adequate Price Competition
DFARS Non-Commercial Rule WITH Adequate Price Competition
Qualifying Labor Hours
Payment
Payment for all labor hours for the prime and subcontractor at contract-specified labor rates for employees satisfying labor category qualifications. Include wages, indirect costs, G&A, profit. prompt payment act now applies to T&M contracts DCAA audit guidance makes clear that Prime can include profit on subs cost
Hourly Rates
Offeror must specify in proposal if non-FAR Part 12, labor rates apply to prime, subcontractor, and/or division, subsidiary, or affiliate of prime. No separate rates for prime or sub. are required to be in the contract.
Offeror must identify the labor categories for each subcontractor to which proposed hourly labor rates apply; in addition to the labor rates of the prime.
More flexibility due to competition Offeror not required to include separate rates for subcontractors but may blend prime or sub rates or list sep. interdivisional transfer includes no profit.
Offeror specify sep hourly labor rates for prime, each sub, and each division, subsidiary, or affiliate of prime
Rule/Acquisition TypeRequirement FAR Commercial
RuleFAR Non-Commercial Rule WITHOUT Adequate Price Competition
FAR Non-Commercial . Rule WITH Adequate Price Competition
DFARS Non-Commercial Rule WITH Adequate Price Competition
Interdivisional Subcontract
Services
No separate rates for prime
or sub. are required to be in
the contract Catalog or
Market prices can apply
No profit on profit for transferring org., unless service is commercial item.
Incidental Services
Services not corresponding with any labor category in the prime contract are incidental and reimbursed as “materials” at actual cost.
T&M RULE MATRIX
Requirement
FAR Commercial Rule
FAR Non-Commercial Rule WITHOUT Adequate Price Competition
FAR Non-Commercial . Rule WITH Adequate Price Competition
DFARS Non-Commercial Rule WITH Adequate Price Competition
Materials Comm. Items reimbursed at catalog or mkt. price, Non-Comm items reimbursed at actual cost.
Contractor’s “own” commercial items reimbursed at contractor’s catalog or market price; Non-comm items reimbursed at cost plus M&H, per FAR cost principles and Allowable Cost and Payment clause. Amend FAR 52-232-7 to specifically state that the government does not pay profit or fee on the prime contractors materials or ODC’s materials also include supplies and ancillary services transferred between Divisions under common control
ODCs Reimbursed actual costs for types of ODCs designated in contracts; CO may limit recovery
Reimbursed at actual cost provided indirect costs comprised only of costs excluded from hourly labor rates and allocated in accordance with contractor’s written/established accounting practices.
T&M RULE MATRIX
Requirement FAR Commercial Rule
FAR Non-Commercial Rule WITHOUT Adequate Price Competition
FAR Non-Commercial . Rule WITH Adequate Price Competition
DFARS Non-Commercial Rule WITH Adequate Price Competition
Indirect CostsM&H
Reimbursed fixed amount, excluding costs included in hourly rates, allocated on pro-rata basis set by payment schedule; CO may limit recovery
Reimbursed at actual costs allocated to material excluded from hourly labor rates and allocated in accordance with contractor’s written or established accounting practices.
Rebates, Refunds, Discounts
Eliminated the requirement for commercial contractors to give credit for rebates, refunds & discounts
Contractor must credit the Government for cash and trade discounts, rebates, scrap, commissions, other amounts that have accrued to the benefit of the contractor.
T&M RULE MATRIX
Requirement FAR Commercial Rule
FAR Non-Commercial Rule WITHOUT Adequate Price Competition
FAR Non-Commercial . Rule WITH Adequate Price Competition
DFARS Non-Commercial Rule WITH Adequate Price Competition
GSA FSS Commercial 9 GSA GWACS is considered Non-Commercial sales and require Mods to include subcontractor rates
Surveillance Increased Contracting surveillance to assure efficient methods and effective cost controls are being used. CO will evaluate labor qualifications to contract requirements up to final payment. Contractors to maintain records to support subcontractor invoice including original timecards, timekeeping procedures distribution and qualifications of labor and invoices for material
Approvals Approvals by the head of the agency prior to execution of base and option exceeding three years
Withholds No specific withhold requirements
5% or 50 K on contracts and task orders