Government Contract Case Studies
Allowable Cost Determination
During the review of a client's forward pricing rate package that supported the proposed indirect cost rates on several outstanding proposals, government auditors questioned the allowability of several hundred thousand dollars of costs in indirect cost pools. The questioned costs lowered indirect cost rates by a over a percentage point and since the client performed only negotiated defense contracts, it had a dollar for dollar reduction to the client's proposed contract prices.
While the government's arguments had intuitive appeal, they were contrary to applicable cost principles and regulations. We prepared the narrative submitted by the client that rebutted the government's arguments and resulted in having the allowability of the costs reinstated.
Our narrative reviewed the five tests of costs allowability along with applicable FAR 31 cost principles, Cost Accounting Standards (CAS) and relevant Generally Accepted Accounting Principles (GAAP). (back to top)
CAS Non-Compliance Stalls Proposal
A proposal by a top 10 defense contractor contained questioned costs as a result of a CAS 401 noncompliance. The allegation stalled progress on proposal negotiations until the increased costs were removed. After several months without resolution K&F was consulted.
K&F recognized the issue as an estimating technique and not a cost accounting practice. As such the contractor's quantification method was not a CAS 401 violation.
K&F prepared an explanation of its opinion with relevant citations and justification. The opinion was presented to the Contracting Officer and the auditor. The questioned costs were withdrawn and negotiations moved forward. (back to top)
Unique Pricing Model Created for Proposal Review
The solicitation instructions for an indefinite quantity contract required submission of an automated pricing model where each incremental increase in quantity reflected changes in variable costs only.
K&F employed analytical techniques to measure and quantify behaviors of the client's fixed and variable costs. It then developed algorithms and created software that used these algorithms for computing unit prices at any quantity level within the solicitation's requirement range. (back to top)
Manufacturing System Deemed Adequate
A Defense 100 contractor was selected for review of its Material Management and Accounting System (MMAS). K&F performed a compliance review to evaluate weaknesses in the contractor's current systems, policies and procedures.
A work plan was developed for implementing recommended shortcomings and K&F updated policies and procedures and worked with key client personnel in tuning existing systems.
K&F prepared and presented the demonstration in order to obtain interim approval pending further audit and analysis. K&F then participated in the subsequent system review and audit to answer questions and demonstrate system compliance with regulatory requirements. (back to top)
Contract Negotiated at Full Value
A first tier subcontractor received a multi-million dollar, Not-to-Exceed (NTE) contract to manufacture certain hardware pending final negotiation of a fixed price contract. By contract completion an agreement still had not been reached on the final contract value.
The final audit took exception to various cost elements and allocation methods claimed by the subcontractor. It concluded that the manufactured cost was less than half of the NTE value.
K&F recognized errors in the auditor's assessment of cost allowability. It also employed accepted quantitative techniques for evaluating fixed and variable costs as well as their appropriate allocation bases. K&F was able to use these results with regulatory requirements to show that the subcontractor's claimed costs and allocation methods were appropriate and that the actual costs incurred were slightly higher than the NTE value.
The final contract value was settled for the full NTE value. (back to top)