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In what case would we add the Reimb to the D/C for the denominator in calculating for 51% in-house (Ability to perform)? Do you ever use both REIMB and D/C in calculating 51/49?

AAP Question #130871: 50/50 Logistics Calculation

Subject: Non-Severable Question

Background: I have a system that is supported by both the government and a contractor. Naval Stations send Direct Cite Funding for the contractor and Reimbursable funding for the government on a non-severable basis to procure, assemble, and install upgrades to the system. The work is for a duration of 12 months or less, the contract is FFP. As the work is station funded, we may get funded for the entire effort any time during the fiscal year. Sometimes a station will fund the entire effort (both the REIMB and the D/C) on a PX (2276A), and sometimes a station will fund the entire effort on two funding documents at the same time, a 2275 (Project Order) and 2276 Direct Cite.

Question: In what case would we add the Reimb to the D/C for the denominator in calculating for 51% in-house (Ability to perform)? Do you ever use both REIMB and D/C in calculating 51/49?

Answer:  Due to the lack of certain details in the Background of this question, there is a necessity to make an assumption regarding the nature of the work being performed on the system.  That assumption, which seems fairly realistic from the Background, is that the system described in the question is undergoing depot-level repair as defined in 10 U.S.C. §2460.  As such, the depot-level repair would fall under the 10 U.S.C. §2466(a) limitations.  10 U.S.C. §2466(a) states, “Percentage Limitation.—Not more than 50 percent of the funds made available in a fiscal year to a military department or a Defense Agency for depot-level maintenance and repair workload may be used to contract for the performance by non-Federal Government personnel of such workload for the military department or the Defense Agency. Any such funds that are not used for such a contract shall be used for the performance of depot-level maintenance and repair workload by employees of the Department of Defense.”

There are two things that must be noted with regard to 10 U.S.C. §2466(a): First, the 50% limitation is at the military department (i.e. service) level.  Therefore, as long as the service as a whole has “Not more than 50 percent of the funds made available in a fiscal year… for depot-level maintenance and repair workload …used to contract for the performance by non-Federal Government personnel of such workload for the military department…,” individual programs have not run afoul of the statute, even if they have more than 50%.  Second, the statute is conspicuously silent on how the funding gets to the entity that is doing the work.  It simply does not matter if the funding is used as reimbursable or direct citation.  The assumption in the statute is that when 10 U.S.C. §2466(a) says, “…the funds made available in a fiscal year to a military department…” it means ALL of the funds.  And, as such, ALL of the funds must be included in the denominator for the purposes of complying with 10 U.S.C. §2466(a).

There is one more wrinkle in the discussion of the calculation of the 10 U.S.C. §2466(a) percentage limitations.  That is the concept of Centers for Industrial Technical Excellence (CITE).  As delineated in 10 U.S.C. §2474, a CITE is where a public-private partnership (PPP) is established that allows a non-Federal government entity (i.e. a contractor) to utilize government facilities, equipment, and personnel to perform government depot-level repair.  Department of Defense Instruction 4151.21, Section 4 requires the use of PPPs (when cost effective) when it states, “Public-private partnerships for depot-level maintenance shall be employed whenever cost effective in providing improved support to the warfighter, and to maximize the utilization of the government’s facilities, equipment, and personnel at DoD depot-level maintenance activities.”  The theory behind the use of Cites, pursuant to a PPP, is nicely explained in U.S.C. §2474.  And even more insight is given in The Public-Private Partnership for Product Support Guidebook (which can be found at https://www.dau.mil/tools/t/DoD-Public-Private-Partnering-(PPP)-for-Product-Support-Guidebook ), and the Acquipedia article titled “Depot Maintenance Statute – 10 USC 2474 (which can be found at https://www.dau.mil/acquipedia/Pages/ArticleDetails.aspx?aid=f5cdbecc-d258-4553-a32b-654c8cf11c2f).

The reason as to why this concept of CITEs is important in the calculation of the 10 U.S.C. §2466(a) percentage limitations is spelled out in 10 U.S.C. §2474(f).  In that section it says, “Amounts expended for the performance of a depot-level maintenance and repair workload by non-Federal Government personnel at a Center of Industrial and Technical Excellence under any contract shall not be counted for purposes of applying the percentage limitation in section 2466(a) of this title if the personnel are provided by private industry or other entities outside the Department of Defense pursuant to a public-private partnership.”  Thus, if the work in this Question were being done at a CITE, the direct citation portion of the work would be eliminated from the calculation.

For an explanation of how this elimination of those amounts should occur mathematically, we refer to the Acquipedia article titled “Depot Maintenance Statute – 10 USC 2474 (which can be found at https://www.dau.mil/acquipedia/Pages/ArticleDetails.aspx?aid=f5cdbecc-d258-4553-a32b-654c8cf11c2f).  That article states, “Amounts expended for workload performed at a CITE by non-Federal government personnel pursuant to a PPP are to be excluded from the calculation to apply the percentage limitation of 10 USC 2466. That statute mandates that not more than 50% of the funds made available to a MILDEP or Defense Agency for depot maintenance during a fiscal year may be used to contract for the performance of depot maintenance by non-Federal Government personnel. When applying this 10 USC 2474 provision, however, the cost of workload performed at a CITE by non-government CITE partner personnel is excluded from the numerator when calculating the percentage of workload performed for a MILDEP or Defense Agency by non-Federal Government personnel in any particular fiscal year. (In effect, a MILDEP or Defense Agency may spend more that 50 percent of its funds on contract depot maintenance, as long as the contract work not performed at a CITE pursuant to a PPP does not exceed 50 percent of the total depot maintenance expenditures.).”  So while the amounts would be eliminated from the non-Federal government numerator (not moved to the government numerator), they MUST REMAIN in the denominator.  If the same amounts are removed from both the numerator and the denominator, the use of a CITE would not lower the percentage of workload done by non-Federal entities as much and thus the incentive to utilize PPPs would be reduced.

Conclusion: In the end, both the reimbursable and the direct citation funds for any given fiscal year should be included in the denominator for the purposes of complying with 10 U.S.C. §2466(a).  However, if the depot-level repair is taking place pursuant to a public-private partnership, more specifically a Center for Industrial Technical Excellence (CITE), the direct citation amount would be eliminated only from the numerator when calculating the percentage of work that is done by non-Federal government entities.

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