FAR 42.704 explains that’s contracting officers or auditors are responsible for establishing the final indirect cost that will be used to determine billing rates.
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Learning Goal: Need help with my Business question – I’m studying for my class.
STUDENT 1 (Jena):
Forward pricing rates are rates and factors such as: direct labor rates, various overhead rates, and cost and money factors utilized by contractors for pricing proposals for new procurement or changes to existing contracts. According to FAR 15.407-3, “when certified cost or pricing data are required, offerors are required to describe any forward pricing rate agreement (FPRAs) in each specific pricing proposals to which the rates apply and to identify the latest cost or pricing data already submitted in accordance with the FPRA” (para. 1). Contracting Officers (COs) will utilize the FPRA rates as the base line for pricing all contracts & changes that may occur over the duration of the period covered by the agreement. FPRAs have been found to be very usefully for contractors who may do many pricing actions over a specified period of time. However, there are many contractors who are reluctant to enter in to FPRAs.
FAR 42.704 explains that’s contracting officers or auditors are responsible for establishing the final indirect cost that will be used to determine billing rates. According to the Federal Acquisition Regulation (FAR) 42.704, “the contracting officer (or cognizant Federal agency official) or auditors shall establish billing rates on the basis of information resulting from recent review, previous rate audits or experience, or similar reliable data or experience of other contracting activities” (para. 2). When establishing billing rates, is essential to ensure that rates are as close to the final indirect cost rates as anticipated for the contractors fiscal year as adjusted for any unallowable costs (FAR). Upon establishment of billing rates, the contracting officer, auditors, or the contractors may request to revise billing rates only when there is a mutual agreement between the parties. If agreement are unable to be reached, the billing rates may be determined by the contracting officer (or cognizant Federal agency official).
Final overhead rates are completed by the Administrative Contracting Officer (ACO) within a 27- or 36 month cycle for major and non-major contractors (DCMA Manual 2201-03 Final Indirect Cost Rates, 2019, p. 17). The final overhead agreement utilizes rates and formulas to determine how much will be used to pay and complete the contract. The final overhead agreement is subject to audits and penalties when final overhead proposal do not comply with FAR part 15.407-4. In additional FAR 15.407-4 outlines which evaluated costs are subject to separate audit reports. According to FAR 15.407-4, “The objective of the overhead should-cost review is to evaluate significant indirect cost elements in-depth, and identify and recommend corrective actions regarding inefficient and uneconomical practices. If it is conducted in conjunction with a programs should-cost review, a separate overhead should-cost review report is not required.”
References
DCMA Manual 2201-03 Final Indirect Cost Rates. (2019). https://www.dcma.mil/Portals/31/Documents/Policy/DCMA-MAN-2201-03.pdf?ver=2019-02-20-154550-670.
FAR. Acquisition.gov. https://www.acquisition.gov/content/part-15-contracting-negotiation.
FAR. https://www.acquisition.gov/content/15407-4-should-cost-review.
FAR. https://www.acquisition.gov/content/42704-billing-rates.
STUDENT 2 (Amy):
The FAR, Federal Acquisition Regulation, provides acquisition and procurement guidance and sets rules and regulations for the Department of Defense and Federal agencies. Forward Pricing Rate Agreements (FPRAs) are agreements that are negotiated in advance of a contract award. Direct labor rates and indirect/overhead costs are included in FPRAs per guidance within the FAR. The specific FPRA section in the FAR is 15.407-3 (United States Government, 2020).
Negotiations on the forward pricing rates in advance can be difficult since the market and business volume may fluctuate and are not always able to be predicted accurately. Agreeing on rates for future contracts can also be risky. Inflation could be incorrectly accounted for as well as other unforeseen factors (Oyer, 2012).
When an FPRA is requested by either the contractor or the contracting officer, the contracting officer is the entity responsible for reviewing the request and determining if the FPRA is a good fit for the contract. If the decision has been made to move forward with the FPRA process, the contractor must include supporting documentation with the agreement. The supporting documentation must include pricing and cost data to support the details contained in the FPRA.
However, if there is a significant change in the pricing or cost data that was submitted in support of the agreement, the contractor must submit those altered details to the contracting officer for review. This also includes any other variables that might affect the terms set in the agreement. If deemed necessary, changing conditions may require that a new FPRA be established. The contractor or the contracting officer also have the ability to cancel the agreement (Oyer, 2012).
An FPRA can speed up the contract process especially when many contract proposals are involved. The FPRA allows for the opportunity for contractors to skip contract negotiations when an FPRA is already in place since rates have already been agreed upon (Manning, 2019). However, FPRAs can be risky if incorrect rates were estimated or if inflation is not accounted for. Close monitoring of the agreements and making changes when necessary can help reduce the risk involved.
References
Manning, B. (2019, February 1). Contracts and Legal: Forward Pricing Rate Agreements (FPRA). Retrieved from AcqNotes: http://acqnotes.com/acqnote/careerfields/forward-pricing-rate-agreements-fpra#:~:text=These%20rates%20are%20estimates%20of,audit%20or%20analyze%20the%20rates.&text=FPRAs%20are%20very%20useful%20for,volume%20of%20Government%20contract%20proposals.
Oyer, D. (2012). Cost-Based Pricing: A Guide for Government Contractors. Vienna, Virginia: Management Concepts. Retrieved from http://web.a.ebscohost.com.ezproxy1.apus.edu/ehost…
United States Government. (2020). Part 15 – Contracting by Negotiation. Retrieved from Acquisition.gov: https://www.acquisition.gov/content/part-15-contra…
STUDENT 3 (Thomps):
Federal Acquisition Regulation is the primary regulation that is used by all the executive agencies in the acquisition of supplies and services with appropriated funds. It precludes agency acquisition regulations that unnecessarily repeats or restate the FAR. FAR provides for coordination, simplicity and uniformity in the federal acquisition process. Moreover, it also provide for agency and public participation in the development of FAR as well as agency acquisition regulations.
FAR provides a number of requirements as far as forward pricing rates is concerned. Forward pricing rates refers to an agreement between a contractor and a government agency in which certain indirect rates are established for a specified period of time (Acquisition, 2020). These rates are often used to price contracts as well as in modifying contracts. Based on FAR requirements, offerors are required to describe any of the forward pricing rate agreements in each of the specific proposal where the rates apply. Additionally, contracting officers are required to use the Forward pricing rate agreements as the bases for all the pricing of all the contracts, modifications and even the contractual actions that are to be performed within the period of agreement (Acquisition, 2020).
Additionally, in terms of billing rates, contracting officers are required to establish billing rates that are based on the information from the recent review, rate audits of experience or similar reliable data from other contracting activities (Huntercpa, 2020). Consequently, billing rates should be prospectively revised by mutual agreements of the contracting officers.
Overhead rate refers to the percentage of general expenses that consultants can bill to contacting government agencies (Huntercpa, 2020). Thus, based on the FAR requirements, contractors are required to prove that costs are allowable, reasonable and allocable as per the provisions for contracts with commercial organizations.
References
Acquisition. (2020). Forward pricing rate agreements. Retrieved from https://www.acquisition.gov: https://www.acquisition.gov/content/15407-3-forwar…
Huntercpa. (2020). Overhead Rate Audits Explained. Retrieved from https://www.huntercpa.com: https://www.huntercpa.com/articles/overhead-rate-a…
Answer preview FAR 42.704 explains that’s contracting officers or auditors are responsible for establishing the final indirect cost that will be used to determine billing rates.
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