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Wednesday, July 8, 2020

Total Time Accounting In Small Business Government Service Contracting

Image: JAMIS Job Cost Accounting Systems


In small business government service contracting, it is necessary to establish a written policy and procedure disclosing time keeping practices to government auditors and fact-finding teams. Included must be the company process for both pricing and accounting for overtime. In doing so, topics such as compensated and uncompensated time must be addressed.

Include in the policy/process for pricing and job cost accounting those steps required for compensated overtime to personnel who are non-exempt from the Fair Labor Standards Act (hourly who receive time and one half).

Also include the policy/ process for pricing and job cost accounting, those steps required for uncompensated overtime to personnel who are exempt from the Fair Labor Standards Act (salaried who receive pay at straight time for hours in excess of 40 and those who do not receive pay at all for hours in excess of 40) The former are usually engineers and technicians. The latter are usually management or staff).

I encourage "Total Time Accounting" to my clients to make all hours worked a part of the record and stay away from waste fraud and abuse or defective pricing allegations.

I believe the below article by Find Law contains the best approach to the issue of uncompensated overtime and I encourage my clients to make part of their policy the practice specified in the last 4 paragraphs of the article:

 http://library.findlaw.com/1999/Jul/1/127569.html

 "In our view, contractors performing labor-hour, time-and-material, or cost reimbursable contracts should avoid any timekeeping system that fails to accurately report the total time worked. Such a system under-bills clients for work performed and thereby affects a company’s bottom line. Moreover, any timekeeping system that by its very design under-reports actual hours worked invites labor mis-charging and false claim allegations.

A total time accounting system that accurately reports hours will generate the proper amount of revenue for contractors on each of their labor-hour and time-and-material contracts. Cost reimbursable contracts have an added twist. Many cost reimbursable contractors who report total time use a diluted hourly rate approach for distributing labor costs to projects. For example, if an employee is paid $1,000 per week and works 40 hours, the projects are charged $25 per hour. If the same employee works 50 hours the following week, the hourly rate is diluted and projects are charged $20 per hour. In this example the contractor gets no additional revenue for the extra 10 hours of effort — they are provided free of charge to the Government.

 Fortunately, acceptable standard cost approaches will negate this windfall to the Government and still allow the contractor to take advantage of uncompensated overtime. The most common of these approaches involves charging direct labor to projects at a standard hourly rate established annually for each direct labor employee. Actual hours are charged to projects at this standard rate.

For uncompensated overtime situations, the variance between labor charged to projects and actual compensation is credited to overhead. Such an approach allows contractors to account for their hours in an accurate, straightforward manner, bill for the hours actually worked, and effect a competitively beneficial decrease in their overhead rates. DCAA has recognized this as an acceptable method of accounting for labor costs, and we think that it generally beats just giving the Government hours of effort for free."

Sunday, July 5, 2020

Utilizing Contingent Hire Agreements to Strengthen Workforce Depth



Image:  "Bigstock"

An option to recruit prospective employees and associates who have previously worked in businesses that have contracted with the government is by utilizing contingent hire agreements.  Such individuals prospectively bring expertise and qualifications with them  and lend credibility to your enterprise proposals. 

A contingent hire agreement is one way to approach an experienced employee with the prospect of joining your firm at a later time when the business base is there to permit professional advancement. Under such an agreement the prospective employee agrees to contribute time and effort on a proposal for a new contract and is assured on paper by your company of a position on the project when it is awarded to your firm.  

Such arrangements are generally recognized by the government as a credible way for new or start-up businesses to grow and agencies will accept resumes of experienced professionals in proposals from small business contractors with signed contingent hire agreements even though the personnel may not yet be on the company payroll. 

Prospective employees of this type are often available from the retired or downsized ranks of  prime contractors. Be aware that government procurement integrity regulations apply. Individuals should not be considered who have a potential conflict of interest in the project you are bidding due to a former association with the buying agency in a source selection authority role as specified in FAR Section 3.104.

You can download a recommended free draft shell for this type of agreement from the right margin of this site at the BOX "References" cube.  Look for "Generic Contingent Hire Agreement"  in document list.  



Sunday, June 28, 2020

Don't Overlook The Government Contract Data Requirements List (CDRL)

Image:  Defense Acquisition University 
The Contract Data Requirements List (CDRL) is usually contained in Part III, Section J of the government solicitation you are bidding and the executed contract upon award. 

The CDRL is a register of the deliverable data items. Each data item has a discrete numeric identifier, a data item description (DID) number and a delivery schedule to the customer. 

The CDRL is commonly conveyed on DD Form 1423 by the Department of Defense (DOD) specifying the delivery address, number of copies required and the reviewing and approving authority for the data item within the government agency.  It also specifies electronic addresses if electronic data delivery is necessary. Forms other than a DD Form 1423 may be used to convey data item requirements by agencies outside DOD. That form may be as simple as a listing of requirements. 

You should review the listing to insure adequate definition and understanding exist for you to commit to the data requirements when you sign your contract. Data Item Descriptions (DID's) are available at:

Data Item Description Library

Although it is unusual to negotiate separate pricing for contract data, your negotiated contract and resulting budget baseline must contain the resources to prepare and submit these items.

On contracts for new products, data item submissions represent major benchmarks on the contract schedule. Results of study, research, engineering design and development are submitted in the form of data items to the government for approval. 

Once approved, data items form the specifications for continuing effort on the contract. Key design reviews on development programs are focused on the contents of data item submissions.

Data item submissions contain reports of contract cost and schedule performance, results of status meetings and records of ongoing deliveries. Data item deliveries are key factors in demonstrating successful performance under the contract.

In some instances, the number of data items and the level of detail in each are negotiable with the government. Such negotiations have a direct impact on cost even though data items are not normally priced separately in the contract.

The cost for data item preparation and submission is usually included in the pricing in Section B of the contract within the prices for contract line item deliverable to which the data items apply.

SDRL or "Subcontract Data Requirements List" is a prime contractor flow-down of the CDRL requirements to a subcontractor. 

Generally the prime will structure the SDRL to insure that subcontractor data submissions support the prime contract CDRL technical content, schedule and other parameters. 

The prime may also take the liberty to incorporate additional requirement to support their own internal systems of quality,cost and schedule control. 

As with CDRL requirements, SDRL's should be carefully priced within the end item CLIN's to which they apply to insure cost coverage.

Friday, June 26, 2020

MicroMentor - A Free Business Mentoring Program For Entrepreneurs



It has been a pleasure being part of the MicroMentor Team for the last 9 years of our dramatic growth in volunteer mentoring services worldwide. 









New Federal Fiscal Year - Have You Managed Contract Funding Risk?




As the federal fiscal year draws to a close and the new year opens on 1 October, an astute contractor will have examined the funding status of all government contracts for risk.

Limitation of funds and funding exposure must be a vital topic for every government contractor.

THE FUNDING CHALLENGE

Many federal contracts are funded incrementally, usually based on the government fiscal year that runs from 1 October to 30 September. Although the government may negotiate dollar price ceilings for cost plus and time and materials contracts or firm, fixed total price arrangements, the contracts themselves may be incrementally funded, particularly if they extend over multiple government fiscal years. A contract may contain negotiated prices or a cost ceiling but also specify an incremental funding value.


The contractor is required to inform the government when actual costs incurred plus obligations to suppliers or payroll on a specific contract reach certain thresholds of the current incremental funding specified in the contract (usually 80%). The government is then obligated to further fund the contract. 

In the event the contract is not funded further, the contractor has the right to stop work before he exceeds the incremental funding. Some contractors choose to operate on "risk," continuing to perform on a contract while exceeding the incremental funding in booked cost and obligations. 


The government is under no obligation to reimburse the contractor for invoiced amounts exceeding incremental funding. Nearing the end of a government fiscal year, a contractor may find delays in funding reaching all the way to congress. This situation must be managed with the government contracting officer. Limitation of Funds and Funding Exposure


STOP WORK ORDER


Contractors may receive stop work orders from agencies unless their contracts were fully funded in the previous fiscal year.  The government reserves the right to 

de-obligate funding on contracts, which can effectively bring them to a halt. 


Stop work orders are serious matters and require special handling to comply with government direction and manage the associated financial risk. 

Upon receipt of a stop work order you have no guarantee of payment for any transaction date-stamped in your accounting system after the date of the stop work order (or the commencement date of a stop work order specified in a Contracting Officer's Letter).

Applicable charge numbers in the accounting system must be closed until the stop work order is lifted and any effected suppliers and subcontractors must be notified to do the same.

To the degree the government has made progress payments or has any other form of payment invested in a physical product to date it has ownership rights. If that is the case, treat the physical material work-in-process as government owned, store it as such without performing any more effort on it and await further disposition.

To the degree the government has not paid anything on the contract or delivery order they have no ownership rights to the physical product and you are free to complete it and sell it to another customer (commercial or government that has not stopped work). If the government recommences the order, quote a new price and delivery from ground zero.

At the bottom line a stop work is blunt and to the point.  Treat it as if you will never hear from this customer again to manage the risk.

To the degree you do hear from the Contracting Officer again and he or she has the funding to recommence work, be prepared to submit a proposal for what it will take to start the effort and a realistic delivery schedule to complete it, but do not build any retroactive costs incurred during the stop work period into your logic and expect to bill them; they may not come to payment fruition. 

Continuing effort on a contract after receipt of a stop work is high risk. Astutely managing your options is a far better approach.   What is a Government Contract Stop Work Order?

SUMMARY

Having a limitation of funds and funding exposure process in the company should be a standard part of doing business.  A, shrinking, remaining funding level condition on incrementally funded contracts should trigger a risk analysis and government notification process throughout the year.  The federal fiscal year-end brings an additional element of risk to the process with the annual budgeting, approval and appropriations process required by law. 









Saturday, June 20, 2020

Is The Term"Talent Pool" Obsolete?

Image:  "Jobsoid.com"


Talent is fluid today. It is also being re-defined.  Thus, what used to be considered a “Pool” (either captive or available) is now a technologically-equipped, high speed resource of communicators with motivated skill sets seeking opportunity.
Economic hardship has also put a hard, cynical edge on many.  Selling must occur both ways (employer and employee).  To an extraordinary degree the age in which we live is requiring us to redefine trust and the degree to which communication and expectation contribute to it.
Loyalty has taken a back seat to the above.  Recruiters, companies and entrepreneurs must recognize these hard facts of life. 
Values
As long as values for the organization are base-lined and maintained in the enterprise mission statement and clearly promulgated in objectives to the employees, then it becomes a management maintenance challenge with regard to employee acquisition and retention.
The fact that individual value systems may or may not align with the organization values or changes in them is a communications issue. If the conflict is too stark - people will not join a company, will not perform if they join and leave or be fired as usual results.
In a free society organizations and individuals have choices.  "At Will Employment Contracts" are taken literally. In not so free societies other conditions exist that impact     values.  Conditions there are dictated by governments or stark economic conditions.
With the global competition for resources and employment these days, business and governments must view the value issue in its simplest terms and not make a complex science out of it.
People, companies, jobs, resources and success will be achieved through supply and demand.  All will change to acquire the balance necessary for success
Managing Talent
The most successful organizations pair experienced personnel on a staff basis with junior ones as models. Each has individual assignments and reports to the boss but the senior party is the example in the process/experience-driven aspects of the job and is available to answer questions.
The younger individual infuses the older one with energy and new ideas much like osmosis. The result is a hybrid of old and new that works and has been put together by a team.
The above approach works extremely well, imposes on no one, results in the young and old learning by observation, satisfaction and recognition for collective efforts and reduction in the boss’s work load; a win-win all around. 
Know how much leadership to offer and how much to let the individual grow on his or her own. 
Strike the right balance between specific and generic guidance so the unique individual traits of the workers come through in the business model.
Let the employee have a role in solutions to problems, system design and success of the firm. When you do so, your talent will remain stable and grow with you.


Saturday, June 13, 2020

What Small Business Should Know About FAR and CAS




Federal Acquisition Regulation & Cost Accounting Standards

      Rules of the Game
       Developing Your Game Plan
INTRODUCTION

Small businesses consistently encounter FAR and CAS requirements upon entering or growing into federal government contracting.   The purpose of these standards is to supply uniform regulatory guidance to all companies doing business with the government and to the agencies that buy from them.

This article will discuss a basic understanding of FAR and CAS as well as the methods to design approaches to meeting them. 

OVERVIEW

The below table contains the principal FAR chapter titles and each of the 19 CAS clause titles (CAS 419 was never written).  Linked below the table are the web sites that can be utilized to explore these documents. 



PLEASE CLICK ON IMAGE TO ENLARGE
The FAR applies to the full acquisition cycle for all supplies and services the federal agencies buy.  The CAS apply to consistency in estimating, pricing, job cost accounting, billing and closeout of financial data under the contracts for supplies and services regulated by the FAR. 

FAR and CAS are not "Rocket Science" but they are different than the commercial business sector.  

HOW TO DETERMINE WHAT FAR AND CAS MEAN TO YOU

Determine the regulation basics that apply to any given job considered for bidding.  Examine a few solicitations in your area of expertise at the SAM web site:



Use the FAR and CAS links to determine the basic terms and conditions and examine the solicitation source documents to read in detail the clauses you must understand to effectively bid federal work.  

CAS

Small businesses are generally required to meet modified CAS coverage.  A business system meets Modified Cost Accounting Standard (CAS) Coverage defined by the government when it it satisfies the following:

Standard 9904.401, Consistency in Estimating, Accumulating, and Reporting Costs
 
https://www.acquisition.gov/chapter_99/part-9904-cost-accounting-standards#d1e2710

Standard 9904.402, Consistency in Allocating Costs Incurred for the Same Purpose
 
https://www.acquisition.gov/chapter_99/part-9904-cost-accounting-standards#d1e2966

Standard 9904.405, Accounting for Unallowable Costs
 
http://www.smalltofeds.com/2007/04/unallowable-costs-under-federal.html

Standard 9904.406, Cost Accounting Standard―Cost Accounting Period
The following article contains practical business system guidance regarding building a Modified CAS Coverage Small Business System for federal government contracting:

HELP
 
When you have confusion regarding interpreting a requirement, seek assistance in the table of contents to the free book at this site offering guidance under the topic in question:


PLEASE CLICK ON IMAGE TO ENLARGE

You may also set up a free counseling connection at Micro Mentor:



SUMMARY

While assessing the impact of FAR and CAS on your company educate yourself on that what directly affects your company first in making the transition to federal government contracting and growing into the field.

Carefully  maximize your existing business processes and systems first before making changes and do not jump to instant fixes with exotic software tools a supplier or consultant has told you will make you compliant or competitive overnight in government contracting.
FAR and CAS are generally logical bodies of regulation that have come about due to the need to control and make consistent the government and industry approaches to meeting prudent and sound contracting objectives with the necessary  transparency to govern. 

FAR and CAS do not impose business systems.  They do require that you disclose the way you meet regulatory requirements in the way you operate with your processes and tools. Plan the approach and learn to convey it to auditors, contracting officers and industry partners.


Grow into the business by exploring the venue and having it grow into you.








 

Thursday, June 11, 2020

Assessing Department of Labor (DOL) Government Contract Wage/Rate Determinations

beta.SAM.gov


MANAGING COMPLIANCE WITH THE SERVICE CONTRACT AND DAVIS-BACON ACTS


INTRODUCTION:


When pricing government contracts, in particular service contracts, the small business will encounter government wage determinations under the Service Contract Act and Davis-Bacon Act. These determinations specify the minimum wages and related benefits that must be paid to all hourly employees charging time directly to a federal service contract as part of a total compensation plan.   

The Department of Labor Manages the Wage Determination program.

SAM Wage Determinations


Contractor compliance with Wage Determinations  is subject to audit by the Department of Labor, Defense Contract Audit Agency, or other agency audit procedures. Failure to prove compliance may subject the contractor to debarment from all government contracts for up to three years.

Service Contract Act, as an example, requires minimum wages be paid per labor category as defined in the Directory of Occupations and listed as minimum wages per labor category on the Area Wage Determination incorporated into each contract. The wages are mandatory minimums paid employees for every hour worked on the contract as defined by The Act, both full-time and part-time. A typical Wage Determination is below: (Please Click Image to Enlarge)



MANAGEMENT CONSIDERATIONS:

When bidding a service contract with a requirement containing a Wage Determination, the labor category wages and fringe must conform, as a minimum,to the Wage Determination in the government Request for Proposal (RFP).  The personnel must be paid not less than the wages and fringe benefits specified in the determination when the contract is awarded.   


Due to competitive factors and labor market concerns the company may propose labor and fringe exceeding the Wage Determination, but the bid cannot go beneath the government specified rates.  Below is a typical conformance table for an engineering firm with the Wage Determination information on the right side and the company bid rate on the left side of the table.  (Please Click Image to Enlarge)

.

The Fringe element of the Wage Determination conformance is usually discussed in the basis of estimate for the fringe rate in the price proposal. A major project in a given location may impact on the company wide-fringe rate if existing fringes in the company do not meet the minimum requirement for the wage determination in the area being bid. This can be a deciding factor in a bid/no bid decision on a prospective project.
 
When conforming a labor category to a government wage determination,  the title of the company job need not be identical to that to which the government wage determination refers, but the company job description must be made available to an auditor for compliance mapping purposed; i.e. the role of the individual and the scope of his or her job description must very closely match the government documents. It is best to use existing company labor categories and descriptions and work any exceptions during the conformance process, conveying the results in the form of a table similar to the above in your proposal.

If a particular wage determination selected by the contracting officer in the RFP appears to be vastly out of sync with the scope of work in the prospective contract, it is best to bring this to the government's attention in the form of a question or a suggestion for improvement during the Q&A or draft RFP comments phase of the bid process.  But remember, your question, its answer and any action taken by the CO will be made available to all competitors. 

In many instances competitive labor rates, and in some cases benefits as well, will be higher than those specified in the government wage determination. Wage determination updates by the government often lag rapidly changing technical labor markets and area economic trends.

Evaluate your initial GSA Schedule and renewals against area wage determinations, since the government may choose to buy off your schedule or you may choose to use your GSA Schedule rates to bid a procurement where a wage determination applies.

Demographics in your company may play a role.  Accumulation of labor cost history driving a pay rate in one geographic location of a company for a given labor category may not meet government wage determinations if that category is used in another geographic area with a different area wage determination in a substantially different labor market.  Many larger firms maintain standard rates across multiple geographic locations to deal with this factor.  

SUMMARY

Regularly review your company labor category rates and fringe benefits for ongoing compliance with DOL Area Wage Determinations. Sample the DOL Wage Determination web site regularly as a normal function of maintaining your labor rates and fringe benefits costs.