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  • Question

    Doesn't the above violate "Cost as a percentage of Cost?" - Shouldn't the handling rate be based on the contractor's accounting system and if desired a ceiling applied, but not out an out fixed?


    Answer

    DAU’s acquisition glossary defines cost plus a percentage of cost by a scenario where profit/fee is a specified percentage of a contractor’s actual cost.  Unlike a fully burdened labor rate on a T&M contract, material handling rates do not include profit/fee.  So while I may not be an advocate of this approach, I can’t say that using a fixed material handling rate violates the FAR’s prohibition on cost-plus-a-percentage of cost contracts (FAR 16.102(c)). 
     
      
     
    A similar Ask the Professor question/response was published on 6/2/2014 that explains the use of handling rates on cost reimbursement CLINs for transportation.  (  https://dap.dau.mil/aap/pages/qlist.aspx?cgiSubjectAreaID=3&cgiStart=400&RefreshField=20 ) In summary, the crux of the response was the fact that material handling rates are an indirect expense that is allowable under FAR Part 31.  There is no fee associated with these CLINs and the indirect rates are normally proposed in a competitive environment.  It did help my acceptance of this approach to recognize that competitive constraints on the proposed material handling rate and the presence of an approved purchasing system do provide controls  to limit Government risk.  I also acknowledge that cost CLIN(s) are usually for incidentals on these fixed price contracts and they have relatively small dollars associated with them.  And finally, I would assume the use of a competitively awarded handling rate instead of relying on a final audited rate generated by the contractor’s accounting system is a tangible benefit during close-out.

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