For those of you that are not yet subscribed to the ReliAscent Newsletter, I wanted to republish this piece by our own Dave Donley, the featured article from our most recent issue (released June 30th), as it is very useful to DoD/NAVY contractors. If you have not already, please do subscribe to our newsletter by visiting our website and completing the form on the About Us Page.
-Tyler Link, Marketing Manager
"Don't Let NAVY Tripwire Blow Up Your Pricing"
The ReliAscent Quarterly, Vol. 5, Iss. 2 (June 2016)
Everyone likes a bargain, and U.S. Government procurement and grant agencies are no different. What’s considered a fair and reasonable cost is in the eye of the beholder. Government buyers funding projects from the U.S. Treasury rely on certain specific cost limitations embedded in agency regulations and policies for their bargain hunting.
For example, allowable employee compensation (maximums and minimums) are established by regulation across the board, with agencies adding their own limitations to the mix. NIH clients are familiar with the HHS salary limitation clause. That’s on top of the limits found in FAR 31.206 which “benchmarks” executive employee compensation as well as for all employees for contracts starting after June 24, 2014.
We’ve seen a number of other examples where reliance on the competitive marketplace to validate cost reasonableness is replaced by either regulatory limits or more vague policy decisions.
We stumbled on one such policy called “Navy Tripwire”, a salary limitation as part of a wide-ranging procurement risk management process. One of our clients got us involved as they would lose a contract if they didn’t comply.
Navy Tripwire Genesis
An April 2012 memo from the Commander of the Naval Sea Systems Command established a policy surrounding NAVSEA service contracting, implementing a number of procurement “tripwires” the Navy deemed high risk to project cost and performance. It said the Navy had …”identified several areas of vulnerabilities …which require greater visibility and conscious decisions by higher levels of management.” These tripwires, according to the memo, “require higher level concurrence and notifications before continuing”…to execute a contract.
Among the ten (10) designated tripwires were the following criteria:
- Hourly labor rates exceeding rate of $156/hr (burdened rate)
- Excessive variation between proposed and actual rates
- Subcontracts ‐ monitor proposed addition of subcontractors beyond what was included as part of the initial award
- Excessive ODCs on a services contract (>10%)
- Lack of effective competition (when only one offer is received, it’s going to get a closer look and require headquarters approval)
Navy contracting officers are trained to be mindful of these criteria, and if they are exceeded, they must defend these contracting actions to a higher authority. The Navy memo establishes a standard 3 day review turnaround for a decision. Justification for these contracting actions must be documented in detail and must describe if the occurrence is systematic or a one-time occurrence.
What really happens is contractors are warned not to exceed these cost and pricing parameters. Government buyers down in the trenches are already spread thin and do what they can to keep the wheels turning. It’s natural for them to want and avoid the paperwork and exposure to higher level scrutiny. This causes contractors to capitulate to these limitations for fear of losing out on a project.
Beyond Just Salary Limitations
Unfortunately, it’s not always enough to have memorized chapter and the verse of the Federal Acquisition Regulations (FAR) and all its agency supplements, even if you could. The Code Federal of Regulations (CFR) contain just as many, perhaps more, pages to pick through affecting grant applications that could impact a cost proposal. These regulations affect not only salary, but many other aspects of pricing, not the least of which is indirect rates.
More troublesome are the policies like Navy Tripwire which in effect act as quasi-regulation to tamp down on costs.
What to do
Familiarize yourself with the basic tenants of FAR as it relates to cost. Dive into your agency’s contract or policy guide such as the ones for the Small Business Innovation Research (SBIR) program of the Grant Policy Statement for NIH. Most other agencies will offer a document or instructions having some level of precision in identifying cost limitations. Search the documents you find for keywords “limit” or “unallow”.
SBIR conferences and other industry or agency sponsored seminars will typically have a session on proposal preparation or cost allowance where these issue are identified and questions as to their applications can be brought up and clarified.
Take advantage of any project specific pre-bid conference or a solicitation’s question period. This is the best time to ask if there are specific cost and pricing limitations.
If you have any questions about Tripwire, please feel free to contact the experts at ReliAscent—we are happy to help!
- Dave Donley, ReliAscent