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    Are contractors allowed to charge fee on costs such as material, travel and other direct cost?


    Answer

    Good question, one we get often during training, but it's been a while since we've answered here at AAP.

    Additional details from the question submitter revealed the contract had multiple CLIN types, none of which were T&M and the scenario involves negotiating a change order. It also revealed that travel was not a stand-alone cost reimbursement CLIN.

    With few exceptions (described below), there is nothing in the FAR or DFARS or other regulatory guidance that expressly prohibits profit or fee on material, travel or ODCs.

    In fact, if you look at the Weighted Guidelines (WGL), DD Form 1547, blocks 13 through 19 form the base for profit or fee analysis. Block 13 is Material and block 17 is Other Direct Charges. So they are included in the base to determine profit or fee. In this instance direct travel costs are included in ODCs without a separate CLIN to capture those.

    WGL references: DFARS subpart 215.404-70, DFARS subpart 215.404-71, and CPRG vol 3, chapter 11.

    The exceptions:

    If you had a T&M CLIN, then your contract would include FAR clause 52.232-7 and it is FAR 52.232-7(b)(7) that expressly excludes profit or fee on materials.

    See FAR 15.404-4(c)(3), the second sentence: “Before applying profit or fee factors, the contracting officer shall exclude from the pre-negotiation cost objective amounts the purchase cost of contractor-acquired property that is categorized as equipment, as defined in FAR 45.101, and where such equipment is to be charged directly to the contract.”

    Finally, a very common thing many contracting organizations and contracting officers do in structuring their solicitations and contracts when travel will be a direct charge is to have it as a separate reimbursable CLIN. Example, if it was cost reimbursement then FAR 52.216-11 Cost Contract-No Fee would apply to that CLIN and therefore expressly disallow fee on travel related costs.

    For guidance on what are allowable material and travel related costs see FAR 31.205-26 and FAR 31.205-46 respectively.

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