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    Under a T4C, FFP, can the ktr charge OH and G and A for metals, purchased parts, misc inventory, Work in Process (WIP), tooling, freight cost?


    Answer

    FAR SUBPART 49.2- ADDITIONAL PRINCIPLES FOR FIXED-PRICE CONTRACTS TERMINATED
     
    FOR CONVENIENCE provides guidance at 49.201(a) "The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement." It further provides at 49.201(c) "Cost and accounting data may
    provide guides, but are not rigid measures, for ascertaining fair compensation." Consequently, the lack of "approved DCAA G&A rates", "DACO FPRR/AR (rates)", or "negotiated rates" would not necessarily be an impediment. Such formal rates would have been formed under more formal accounting rules to which you would not necessarily have to hold to other than as a "guide." For example, FAR 49.206-2(a)(ii), Bases for settlement proposals, Inventory basis, would seem to make a provision for allowing general administrative costs, but not overhead, per se. In addition, any profit (OR LOSS!) consideration, or enforcement, would be made with respect to what the contractor was experiencing on the terminated contract. (See FAR 49.202 Profit, FAR 49.203 Adjustment for loss, and references to the inventory
    basis, 49.206-2(a), and total cost basis, 49.206-2(b).) It would not simply be a matter of what profit they were reporting for their overall business operations to shareholders on their income statement.
     
    Also, as noted in the "Termination for Convenienc Guidebook"  (http://guidebook.dcma.mil/25/Terminationguidebook.htm), settlement proposals for Terminations are a unique situation with unique rules. And it is also noted that this same guidebook establishes policies to be followed by the DCMA. Thus a review of these policies, and perhaps consultation with the authorities responsible for its guidance, would definitely be warranted with respect to your specific situation. Also note that the TCO may refer the settlement proposal for audit if it is less than $100,000, but shall refer it for audit if it exceeds that amount. [FAR 49.107(a)]

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