Level: Intermediate
TCM Section(s):
10.3. Change Management
Venue: 2023 AACE International Conference & Expo
Abstract: For federal construction contracts, FAR 31.105(d)(3) allows for certain field overhead costs to be chargeable as indirect or direct costs for contract modifications, provided that these costs are consistent with the contractor’s accounting practice and applied to all project costs.While this is simple enough in concept, there remains confusion as to how this FAR requirement is applied in practice.Specifically, construction contracts administered by the Navy require contractors to provide proposals for contract modifications on NAVFAC Form 4330/43, which contain built-in indirect cost rates for home office overhead (HOOH) and field office overhead (FOOH) of 3 percent and 10 percent respectively.The built-in overhead rates listed on the form are applied to the direct costs for labor, material and equipment costs associated with the changed work.Apart from the fact that allocating FOOH costs as an indirect cost may be contrary to a contractor’s accounting practice, defining FOOH as an indirect cost prevents a contractor from recovering extended FOOH costs on what would otherwise be a compensable time only change to the contract, as there would be no direct costs to apply the FOOH rate against.This paper discusses the proper use of NAVFAC Form 4330/43 based on compliance with the FAR, historical usage as a contractor optional form and other Navy regulations and policy guidance.
TCM Section(s):
10.3. Change Management
Venue: 2023 AACE International Conference & Expo
Abstract: For federal construction contracts, FAR 31.105(d)(3) allows for certain field overhead costs to be chargeable as indirect or direct costs for contract modifications, provided that these costs are consistent with the contractor’s accounting practice and applied to all project costs.While this is simple enough in concept, there remains confusion as to how this FAR requirement is applied in practice.Specifically, construction contracts administered by the Navy require contractors to provide proposals for contract modifications on NAVFAC Form 4330/43, which contain built-in indirect cost rates for home office overhead (HOOH) and field office overhead (FOOH) of 3 percent and 10 percent respectively.The built-in overhead rates listed on the form are applied to the direct costs for labor, material and equipment costs associated with the changed work.Apart from the fact that allocating FOOH costs as an indirect cost may be contrary to a contractor’s accounting practice, defining FOOH as an indirect cost prevents a contractor from recovering extended FOOH costs on what would otherwise be a compensable time only change to the contract, as there would be no direct costs to apply the FOOH rate against.This paper discusses the proper use of NAVFAC Form 4330/43 based on compliance with the FAR, historical usage as a contractor optional form and other Navy regulations and policy guidance.