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