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    Is there anything in FAR or DFAR that prohibits Contracting Officers from establishing labor rate or indirect ceilings with contractors who do not have FPRA/FPRR or using the FPRA/FPRR as the labor or indirect rate ceiling?


    Answer

    FAR Part 42.707 references establishing Indirect Cost Rate Ceilings and this is on a Cost Sharing contract and FAR Part 39.101(h) does not address labor rate or indirect rate ceilings (see below). Your initiative isn't addressed by either FAR reference. Thus, if you don't have a Cost Sharing Contract, i don't recommend implementing your cost savings initiative. Please telephone your local Administrative Contracting Officer or Defense Contract Audit Agency Auditor to obtain further guidance. Your initiative outside of a Cost Sharing Contract seem to inconsistent with our process of final cost type contract rate determinations. This said, please continue to seek cost reductions or contracting efficiencies wherever possible or prudent. Your work toward this end is appreciated. 

    FAR 42.707 -- Cost-Sharing Rates and Limitations on Indirect Cost Rates.

    (a) Cost-sharing arrangements, when authorized, may call for the contractor to participate in the costs of the contract by accepting indirect cost rates lower than the anticipated actual rates. In such cases, a negotiated indirect cost rate ceiling may be incorporated into the contract for prospective application. For cost sharing under research and development contracts, see 35.003(b).
    (b)
    (1) Other situations may make it prudent to provide a final indirect cost rate ceiling in a contract. Examples of such circumstances are when the proposed contractor --
    (i) Is a new or recently reorganized company, and there is no past or recent record of incurred indirect costs;
    (ii) Has a recent record of a rapidly increasing indirect cost rate due to a declining volume of sales without a commensurate decline in indirect expenses; or
    (iii) Seeks to enhance its competitive position in a particular circumstance by basing its proposal on indirect cost rates lower than those that may reasonably be expected to occur during contract performance, thereby causing a cost overrun.
    (2) In such cases, an equitable ceiling covering the final indirect cost rates may be negotiated and specified in the contract.
    (c) When ceiling provisions are utilized, the contract shall also provide that --
    (1) The Government will not be obligated to pay any additional amount should the final indirect cost rates exceed the negotiated ceiling rates and,
    (2) In the event the final indirect cost rates are less than the negotiated ceiling rates, the negotiated rates will be reduced to conform with the lower rates.
    Far Part 39.101(h) Advanced Agreements provides  examples of where such agreements are important.
    (h) Examples for which advance agreements may be particularly important are --
        (1) Compensation for personal services, including but not limited to allowances for off-site pay, incentive pay, location allowances, hardship pay, cost of living differential, and termination of defined benefit pension plans;
        (2) Use charges for fully depreciated assets;
        (3) Deferred maintenance costs;
        (4) Precontract costs;
        (5) Independent research and development and bid and proposal costs;
        (6) Royalties and other costs for use of patents;
        (7) Selling and distribution costs;
        (8) Travel and relocation costs, as related to special or mass personnel movements, as related to travel via contractor-owned, -leased, or -chartered aircraft; or as related to maximum per diem rates;
        (9) Costs of idle facilities and idle capacity;
        (10) Severance pay to employees on support service contracts;
        (11) Plant reconversion;
        (12) Professional services (e.g., legal, accounting, and engineering);
        (13) General and administrative costs (e.g., corporate, division, or branch allocations) attributable to the general management, supervision, and conduct of the contractor’s business as a whole. These costs are particularly significant in construction, job-site, architect-engineer, facilities, and Government-owned contractor operated (GOCO) plant contracts (see 31.203(h));
        (14) Costs of construction plant and equipment (see 31.105(d));
        (15) Costs of public relations and advertising;
        (16) Training and education costs (see 31.205-44(h)); and
        (17) Statistical sampling methods (see 31.201-6(c)(4)).
     

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