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  • Question

    What is your opinion as to the course of action of company B should they pursue any reduction in cost or allocability given that the rates submitted have been approved by the government without terminating their travel requirements. Thank you,


    Answer

    1. The FAR references quoted below in pertinent part are applicable to this response.

    FAR 42.201 -- Contract Administration Responsibilities
    (a) For each contract assigned for administration, the contract administration office (CAO) shall --
      (1) Perform the functions listed in 42.302(a) to the extent that they apply to the contract,

    (b) The Defense Contract Management Agency … offer[s] a wide variety of contract administration and support services.

    FAR 42.302 -- Contract Administration Functions
    (a) The contracting officer normally delegates the following contract administration functions to a CAO.
      (9) Establish final indirect cost rates and billing rates for those contractors meeting the criteria for contracting officer determination in Subpart 42.7.

    FAR 42.701 -- Definition
    “Billing rate,” as used in this subpart, means an indirect cost rate--
      (1) Established temporarily for interim reimbursement of incurred indirect costs; and
      (2) Adjusted as necessary pending establishment of final indirect cost rates.

    FAR 42.702 -- Purpose
    (b) Establishing billing rates provides a method for interim reimbursement of indirect costs at estimated rates subject to adjustment during contract performance and at the time the final indirect cost rates are established.

    FAR 42.703-1 -- Policy
    (b) Billing rates … shall be used in reimbursing indirect costs under cost-reimbursement contracts and in determining progress payments under fixed-price contracts.

    2. Given the limited information provided in this inquiry, our response assumes that the subcontract in question is either a cost reimbursement subcontract or is a fixed price subcontract receiving progress payments under a prime contract with a DoD contracting activity. Given this assumption, we also presume that the subcontractor is requesting payment of G&A costs associated with travel expenses based of a 22% interim billing rate, developed by the subcontractor as contemplated by FAR 42.302(a)(9), FAR 42.701, FAR 42.702(b) and FAR 42.703-1(b) as described above.

    3. As indicated in FAR 42.201(a) & (b), the Defense Contract Management Agency (DCMA) provides contract administration services for DoD contracting activities. As set forth in FAR 42.302(a)(9), DCMA is responsible for establishing interim G&A billing rates to be used by subcontractors claiming payments under DoD prime contracts. Therefore in this case, we recommend that the prime contractor (i.e., company B) take the following course of action:
      (1) Request its cognizant DCMA office to request verification from the subcontractor’s (company A) cognizant DCMA office that the correct interim G&A billing is being used for payments under the subcontract or if not, to specify the correct interim G&A billing rate applicable to the subcontract;
      (2) Demand that company A use the correct G&A interim billing rate if not doing so already and withhold payment until corrected invoices are submitted, or
      (3) Pay the subcontractor claimed G&A costs on travel expenses if the correct interim G&A billing rate established by DCMA is being used.



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