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Apogee Consulting Inc

Unallowable Training

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Many (most?) government contractors know that the Federal government has rules regarding the types of costs it will pay for. The “Part 31 Cost Principles” are a fundamental part of government contract compliance, and people who don’t know much about government contracting at least know that the rules exist, even if they don’t know where to find them in the FAR. People commonly think those rules only apply to cost-type contracts (aka “cost reimbursement” type), so they tend not to worry about them unless they are bidding or performing on such contracts. People who have Time-and-Materials (“T&M”) contracts probably know that the rules apply to costs billed under the “M” part of the T&M equation, but that’s rarely the predominant part of the invoice being billed, so compliance typically is not considered to be a big deal. But those rules can also apply to cost proposals submitted for firm fixed-priced contract types. (See FAR 31.102, which states “The applicable subparts of Part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever (a) cost analysis is performed, or (b) a fixed-price contract clause requires the determination or negotiation of costs.”)

Thus, unless you are doing sealed bids or competitive FFP contracts 100% of the time, you will probably be dealing at some point with the FAR Part 31 Cost Principles and trying to figure out how to properly identify and segregate the various flavors of unallowable costs. It would be nice to be prepared to do that but, alas, too many companies simply gloss over that aspect of contract compliance. As we’ve noted before, the compliance risk assessment tends to be skewed because contractors tend to not appreciate or understand the true risks they are facing.

There are plenty of consultants—including some ex-DCAA auditors who have retired and set up consultancies—available to assist small contractors with the subject. There are Procurement Technical Assistance Centers—PTACs—who will do the same thing, for free (donations are always appreciated). Larger contractors hire the best experts they can find, either as employees or as consultants (or both), because the larger the contractor the larger the impact of a sustained questioned costs (aka “cost disallowances”). There are lawyers in law firms, big and small, expensive and really expensive, who can provide assistance. (We here at Apogee Consulting, Inc. think we know a thing or two about the topic, but this is not the place to tout our expertise.) You can even buy expensive books on the subject, some written by the top government contracts attorneys or top-notch practitioners, each author with impeccable pedigrees. There are lots of resources available, depending on the depth of one’s pocketbook and the appetite for compliance.

The point is that there is little, if any, excuse for not complying with at least the fundamental aspects of the FAR Part 31 Cost Principles when they are applicable to your company or to your contract.

That being said, some of the nuances are tricky and it is—quite frankly—difficult to know everything about everything in the Cost Principles. To learn the nuances requires a lot of effort, and many people don’t care to delve that deeply into government regulation trivia and case law. If you are a small business owner, you spend most of your time worrying about cash flow and proposals and executing the contracts you’ve already won; there is precious little time left to worry about things like allowable costs and unallowable costs and proper calculation of indirect cost rates.

Even government contracting officers often don’t have the time to get into the topic to the necessary depth. They take their DAWIA-mandated courses at DAU or wherever, and then they get back to the business of trying to make the nearly broken Federal acquisition system work. They are so busy trying to get stuff done that they don’t have the time to become experts on government contract cost accounting, even if they would otherwise be inclined to do so.

Yet those some government contracting officers are required by their warrants to referee disagreements between government auditors and contractors regarding the allowability of certain costs, costs subject to tricky and nuanced rules. Rules that are hard to understand, and to apply, and to get right.

This blog article is about one of those rules: FAR 31.205-44 (“Training and Education Costs”). That Cost Principle seems easy to master at first glance, but a deeper dive reveals difficulties that one would be wise to avoid.

Pretty much everybody can read the first phrase: “Costs of training and education that are related to the field in which the employee is working or may reasonably be expected to work are allowable …” because it makes sense and seems logical and reasonable, and it is very similar to IRS rules on the tax deductibility of such expenses. However, many people stop there and miss the important next phrase: “except as follows:”—which sets forth circumstances in which training and education costs would not be allowable.

There are six circumstances in which the costs of employee training and/or education would not be allowable. The first circumstance is what we want to focus on today: “Overtime compensation for training and education is unallowable.” Does that sentence mean what it seems to mean? Does that sentence say that, even if the cost of tuition is allowable, the attending employee’s labor is unallowable if it is overtime labor?

Yes. Yes it does.

The next questions usually gets into what the definition of “training and education” might be. Does it apply to outside seminars? To college and graduate school classes? What about internal training? Does it apply to all kinds of training and education without limitation?

Yes. Yes it does.

What about salaried, exempt, employees? They don’t get premium overtime pay, but sometimes they get “extended work weeks” (or something similar) and they get paid straight-time rates for hours recorded in excess of their standard 40-hour workweek. Does the rule apply to those labor hours as well?

Yes. Yes it does.

What about training exercises? What if you are working at a Government-Owned, Contractor-Operated (GOCO) site and you run a terrorist attack simulation or an earthquake simulation or a forest fire simulation, the intent of which is to train employees on how to handle a crisis—and that training runs into the night (because terrorists don’t always attack during the daytime), which requires overtime to be paid? Is that overtime labor made unallowable by this Cost Principle?

Well, maybe. And that’s where it gets nuanced and that’s where a dispute between auditor and contractor may arise.

Which is why the Department of Energy issued Acquisition Letter AL 2016-005 on May 3, 2016.

We have written several blog article applauding the DOE’s attempt to provide written guidance to its contracting officers to help them with tricky issues. From our point of view, the guidance we have seen has been reasonable and equitable. The guidance helps ensure consistency and makes it easier for the DOE contracting officers to adjudicate disputes between auditor and contractor. Further, such guidance helps DOE contractors establish proactive compliance strategies. When the contractors know the DOE’s policy on a particular subject, they can focus their processes and resources on complying with it, which tends to decrease a lot of the disputes between auditor and contractor that would otherwise arise. AL 2016-005 is another example of smart, reasonable, equitable guidance that helps all parties avoid disputes and, potentially, litigation. We can only wish the DOD would emulate DOE’s approach.

AL 2016-005 is actually kind of remarkable in its format and content. It is filled with such gems of wisdom as “The selected costs in FAR 31.205 deal primarily with the issue of when costs are specifically unallowable. When the language in a discussion in FAR 31.205 states the ‘cost is unallowable’ it means the cost is always unallowable. The converse is not true.” What that last part means is that a cost if allowable only if it complies with the requirements of FAR 31.201-2. There are five requirements of cost allowability set forth in that FAR Cost Principle. So even if a cost is not called-out as being expressly unallowable, it can’t be said to be allowable unless it can be determined that the cost has satisfied all five requirements.

After a bit of helpful background, the AL gets into the meat of the topic: 31.205-44. It states—

FAR 31.205-44 is one of the FAR 31.205 selected costs. Its paragraph (a) states that an overtime cost incurred during training or education related to the field in which the employee is working or may reasonably be expected to work is specifically unallowable. (In addition to the FAR 31.205-44’s absolute ban on overtime costs for training or education, FAR 22.103 makes it clear that overtime costs in general merit special scrutiny. Contractors should normally not incur them, and contracting officers may normally not specify delivery or performance schedules that require them. In negotiating contracts, contracting officers should, consistent with the Government’s needs, attempt to negotiate prices without overtime premiums or obtain the requirements from other sources. If overtime is required, FAR 22.103 provides procedures to follow and approvals to obtain.)

The AL also addresses the nuances. It addresses the situation where training/education is a byproduct of a training simulation and/or exercise. And it gives the same advice to DOE contracting officers that we have often given to clients: The intended purpose helps inform the cost allowability determination. In other words, when you understand why a cost has been incurred, you will then be prepared to make a call as to that cost’s allowability. In fact, we devoted most of a blog article to that topic. We said “If you tell us what you are doing and (more importantly) why you are doing it, we can give you an allowability determination with a high degree of confidence. But it you mislead us, or withhold certain crucial facts, then our determination may well be wrong. And that error may end up costing the company millions of profit dollars.”

In the DOE AL, the contracting officer is given guidance as follows—

When overtime costs are incurred for purposes other than training or education, and some training or education occurs as a side effect, the overtime costs are not specifically unallowable per FAR 31.205-44. Any portion of the overtime costs incurred solely for the purpose of FAR 31.205-44 training or education, however, would be specifically unallowable per FAR 31.205-44. As an example, assume a contractor conducts a 48 hour continuity of operations exercise or force on force exercise that requires guard service personnel to participate after standard shift hours. During the exercise employees gain knowledge that is related to the field in which the employees are working or may reasonably be expected to work. Continuity of operations exercises and force on force exercises are not generally training as that term is used in the cost principle. The exercises are usually conducted to test operational procedures, not for the purposes of training or education, and therefore overtime costs are usually not specifically unallowable. (Any portion of the overtime costs incurred solely for the purpose of FAR

31.205-44 training or education, however, would be specifically unallowable per FAR 31.205-44.) This does not mean the overtime costs meet all of the five requirements listed in FAR 31.201-2, that is, it does not mean the overtime costs are necessarily allowable. The contracting officer should always analyze why the exercise could not be conducted during the employees’ normal working hours to determine if the overtime costs are reasonable.

That is some great policy guidance, right there. Have we mentioned that we wish DOD would take a similar approach?

In addition to the policy guidance quoted above, the DOE AL also provides the flexibility to permit DOE contractors to make a business case for the allowability of otherwise unallowable overtime labor associated with training and education. The AL states—

If before overtime costs for FAR 31.205-44 training or education are incurred a contractor believes that training on overtime would lower the overall costs to the Government or is necessary to meet urgent program needs, it should submit a detailed cost benefit analysis and appropriate rationale to make the business case for the contracting officer to seek deviation authority and await a deviation approval. The business case must include an analysis of alternative approaches that the contractor could take, including training on regular time, that might possibly meet contract objectives and avoid training on overtime. If the contractor demonstrates to the contracting officer’s satisfaction that overtime cost incurrence would significantly reduce the overall cost to the Government or is necessary to meet urgent program needs, the contracting officer may, at his or her discretion, consider a contractor’s request for a deviation.

Finally, the AL also includes the reminder (which we hope our readers will consider) that paying employees overtime is not the preferred approach to performing government contracts. The AL reminds DOE contracting officers that the FAR has something to say about the issue, stating—

FAR 22.103 states, ‘Contractors shall perform all contracts, so far as practicable, without using overtime, particularly as a regular employment practice, except when lower overall costs to the Government will result or when it is necessary to meet urgent program needs. Any approved overtime, extra-pay shifts, and multi-shifts should be scheduled to achieve these objectives.’

In these days of sequestration, budget constraints and lowest-price technically-acceptable contract awards, and Baby Boomer retirements and normal attrition, it’s become harder and harder for contractors to get the job done with the workforce they have in place. (This is fundamentally a leadership problem abetted by a failed HR function, but we’ve ranted on that subject before.) Overtime, especially for experienced direct-charging employees, has become the new normal. The quote from FAR 22.103, above, should remind us all that use of systemic overtime—as a regular employment practice—leaves a company vulnerable to allegations by disgruntled employees of violations of the False Claims Act (via the implied certification theory). Something to consider, perhaps?

All in all, an excellent piece of policy guidance by the Department of Energy. Clearly, DOE is moving forward and trying to manage contracts without the benefit of DCAA’s audit assistance. We think the Department is doing a great job of it so far, and we look forward to the next piece of policy guidance. In the meantime, we don’t have many nice things to say about DOD and DCAA.

 

DCAA’s Annual Report, Again

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For the fifth time, the Defense Contract Audit Agency has submitted its Annual Report to Congress. This is a report mandated by statute and certain metrics must be reported because Congress told DCAA it had to do so. Accordingly, there is some repetition from year to year.

We have reported on each Annual Report to Congress. Links to those blog articles follow:

  • First Annual Report to Congress

  • Second Annual Report to Congress

  • Third Annual Report to Congress

  • Fourth Annual Report to Congress

For the Government Fiscal Year 2015, DCAA reported the following metrics:

  • DCAA examined $257.5 Billion in contract costs, up from last year’s figure of $182.6 Billion

  • DCAA issued 4,546 audit reports, down from the last year’s figure of 5,688 audit reports

  • DCAA issued 1,925 incurred cost audit reports, roughly the same amount as last year (1,919)

  • DCAA closed 9,400 incurred cost years, down from last year’s figure of 11,101 incurred cost years

  • DCAA reported $3.1 Billion in “net savings” to the taxpayers, down from last year’s figure of $4.5 Billion

  • DCAA reported a “return on investment” of $4.80 to $1.00 spent, down from last year’s figure of 6.9 to 1

  • DCAA reported 11,758 incurred cost submissions as pending at year end, significantly down from last year’s figure of 18,185

  • DCAA reported that it took the agency an average of 883 days to complete a single incurred cost audit, a significant improvement over last year’s duration of 1,006 days

  • DCAA reported a questioned cost sustention rate of 50.6%, up from last year’s sustention rate of 46.4%

Auditor staffing as of 30 September 2015: 4,304 – down 252 auditors from last year’s level (5.5% decrease). The Report noted that that decrease stemmed from “budget constraints” and also stated that the funding eliminated by the 2016 NDAA will impact the agency’s ability to perform needed audits. According to Director Bales, “Without additional funding, we cannot bring on new hires or hire behind attrition. This reduction in resources, combined with the operational lags for training and transition, will likely have a negative impact on our progress moving forward.” The problem with that logic is that the lost funding was 100% related to non-DOD audits; there should still be plenty of funding available to perform DOD audits and to hire auditors to perform DOD audits.

Despite our opinion on the topic, DCAA begged Congress for more funding to hire more auditors. For example, DCAA stated that it must perform business system reviews on 675 major contractors. DCAA stated, “To conduct business system audits at all of these companies on a cyclical basis, DCAA needs to do over 2,000 Business System audits over a three-year period. DCAA's approach is to do one business system per year at each contractor-a total of 675 business system audits per year-covering all three business system audits in a three-year period. Over the past several years, due to resource constraints, DCAA has averaged only 22 business system audits per year.”

According to DCAA, the agency is supposed to conduct a minimum of 675 business system audits each year, but it managed to eke out a paltry 22 such audits in GFY 2015. That sucks, doesn’t it? For the record, let us point out that nowhere in statute or regulation does it say that a business system review expires in three years. DCAA just made that “sell-by date” up out of nothing and it’s desperately hoping that nobody is noticing. Well, we are. We call shenanigans.

DCAA also stated that it could perform more than the sad number of 26 “post-award” defective pricing audits that it performed in GFY 2015, if only it had more funding and more auditors.

Yeah, no.

Let us repeat (once again) an oft-repeated refrain, one that’s been featured far more than once on this website:

DCAA has plenty of auditors. What DCAA lacks is effective management.

DCAA’s management decided on its unique interpretation of GAGAS that requires far more effort and documentation than most observers would consider to be reasonable.

DCAA’s management decided to defer performing incurred cost audits so it could focus on performing audits in Southwest Asia, which garnered headlines and lots of questioned costs, and provided nice fodder for Congressional testimony—but which history has proven to be of dubious value to the taxpayer. Then, when the backlog became itself the focus of Congressional hearings, DCAA’s management decided to focus almost exclusively on the ICS audits, to the detriment of CAS compliance, Disclosure Statement adequacy, and TINA compliance—not to mention business system reviews.

DCAA’s management watched productivity metrics fall and read scathing criticism after scathing criticism; yet it did almost nothing to address the concerns of alarmed senior auditors and outside critics.

DCAA’s management led the audit agency into the sinkhole in which it now finds itself. DCAA’s management—and no other group of people—is to blame for its own problems.

And now DCAA’s management wants the taxpayers to ladle over more funding so it can hire more auditors to keep performing audits the same way the agency has become accustomed to performing them—with ridiculously long risk assessments, ridiculous piles of electronic working papers, hours spent observing contractors download system reports to prevent manipulation (as if the False Statements Act didn’t exist), and 80% of the work performed via checklist.

DCAA dug its own hole and we here at Apogee Consulting, Inc. do not believe that the taxpayers should throw them a rope to climb out.

 

 

Busy Season

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CPAs and tax-preparers will recognize today’s blog title. It’s that time of year when financial statements need to get audited in order to sign-off on the 10-K, the time of year when everybody wants their taxes done so they can file by the deadline. It’s the time of year when one needs to buckle down and put distractions to the side, so that the inputs can be converted into outputs. It’s the time of year when most of the annual revenue gets generated.

In the consulting life it doesn’t really work that way. There are workload peaks and valleys scattered throughout the year, depending on what the clients need and when they need it. There is no “busy season” per se; but you hope that the whole year will be a good balance of input and output. Ideally, the work to be done is a mix of short-term revenue generation and long-term client development. In addition, it’s always nice to throw some learning and some thought leadership into the mix. You don’t want the peaks to be too high and you don’t want the valleys to be too low. What you want is steady state.

But sometimes you don’t get steady state. Sometimes you get a workload peak and you’ve got to buckle down and get it done. Such has been our lot in life over the past several weeks. Which is good news from a revenue generation perspective but not so good news from a “time to write a blog article” perspective.

Thus, there’s been a bit of a hiatus in the article-writing department.

It’s not like there haven’t been topics of interest, topics we would have liked to discuss here. For example, DCAA put out a new MRD on use of blended rates which piggy-backed on a DCMA guidance memo (same topic). We would have liked to review that guidance in light of our previous article on the topic. But alas, that was not to be the case. Some people like to post a link to guidance with no further comments; other people post a link and a high-level summary of the contents. That’s just not our style here. We like to think about the guidance and how somebody might actually implement it. We like to offer an opinion regarding whether or not it’s good guidance. And we like to have some substance behind that opinion.

All of which takes time, time that has been in short supply recently.

The good news for readers is that we can see an end to this busy season, a drop from the current peak—hopefully not into a deep valley, but who knows? The point is that the production of blog articles will resume in the near future.

We’ll discuss blended rates. We’ll discuss the postscript to the NEON audit controversy. We’ll note in passing continued problems with Boeing’s KC-46 aerial tanker, and lessons that should be learned about the F-35 Lightning II program. We’ll perhaps discuss innovation and acquisition reform, since those topics continue to be discussed by policy-makers. We’ll complain (once again) about the missing-in-action CAS Board and we’ll complain about the missing ASBCA website. In short, we predict a return to normalcy in the near future.

But not just yet.

 

How to Multitask the Taco Bell Way

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Multitasking is the ability to juggle multiple projects and multiple demands—all at the same time. The concept comes to us from the information technology field, where multitasking is defined as “the simultaneous execution of more than one program or task by a single computer processor.” Over time, the notion of multitasking migrated from the realm of hardware and software into the field of business, where humans are asked to perform more than one task or activity at the same time. Multitasking is now considered to be a fundamental requirement for many positions, including those in management.

The topic of multitasking frequently arises in both job descriptions and in interview questions. A quick LinkedIn search recently found a job description for a Senior R&D Manager. In that description was the following: “This is a highly collaborative environment where willingness and ability to communicate and work flexibly is essential. Ability to multitask in technical and managerial responsibilities is desired.” Another position description for an “Office Manager and Accounting Coordinator” at an engineering firm stated that the job required “Attention to detail and good organizational skills” and “Ability to multitask while keeping track of all on-going activities”. I could list many other similar examples. A Google search on the phrase “multitasking interview questions” reveals 144,000 results regarding how to handle interview questions on that topic, including model answers to give to the interviewers. It is thus apparent that the ability to multitask is a sought-after skill, and those who can demonstrate it should expect better jobs and better pay.

The problem with the notion that multitasking is a skill or ability that can distinguish one in the workplace is that there is really no such thing.

Multitasking is not a skill that can be learned nor is it a trait that can be demonstrated.

It’s a chimera, an imaginary construct. Like a creature from mythology, it is a concept that has been around for a while, but there is no evidence that it actually exists. To the contrary, the evidence points to it being a fictional creation.

Even in computing, processors don’t really “multitask” and, instead, the CPU actively executes instructions only for one task at a time. The multitasking—such as it is—lies in the sequencing of the processes. A Wikipedia article states “New tasks start and interrupt already started ones before they have reached completion, instead of executing the tasks sequentially so each started task needs to reach its end before a new one is started. As a result, a computer executes segments of multiple tasks in an interleaved manner, while the tasks share common processing resources such as CPUs and main memory.” Thus, for computers, multitasking is all about prioritization and sequencing.

Similarly, multitasking for humans isn’t really multitasking at all. In theory, we should be able to answer a phone while typing an email and surfing the internet; however, in reality multitasking is really a series of single tasks performed according to a prioritization, an innate trade analysis between task and outcome. We speak on the phone and pause the typing. We hit enter on the keyboard and type a bit of the email while the website is loading. Those events happen singly and they do not all happen at once. Because that’s how humans operate.

More importantly, attempts to truly multitask almost inevitably result in suboptimal outcomes. For example, Junco and Cotton (2010) found that “that using Facebook and text messaging while studying were negatively related to student grades.” Another study (Strayer, Drews, et al, 2006) found that drivers talking on cell phones were more involved in rear-end collisions and sped up more slowly than drivers who were actually intoxicated. Attempts to multitask have been found to result in wasted time (stemming from something called “context switching”). Attempts to multitask have been linked to quality escapes and defects (stemming from an inability to pay sufficient attention to detail). Matt Richtel, writing in the New York Times (2008) estimated that US businesses lost $650 billion annually from the wasted time associated with employee multitasking.

Still, some version of multitasking is real, at least in terms of information analysis. Johnson (2005) asserted that information scanning to pick out relevant details, without deep-diving into those details, is a valuable skill. He wrote that this type of multitasking “usually involves skimming the surface of the incoming data, picking out the relevant details, and moving on to the next stream. You’re paying attention, but only partially. That lets you cast a wider net, but it also runs the risk of keeping you from really studying the fish." There is value in deciding which messages out of many deserve attention, and which do not. But that’s not multitasking in the sense of reading multiple inputs at the same time; it’s simply prioritizing inputs based on a preliminary assessment of potential value.

I learned about multitasking back at Taco Bell #47.

If you know anything about Taco Bell, you know that it’s a vast global fast food restaurant chain. It has more than 6,500 restaurants. So when I say that I worked at Taco Bell #47, you know that I’m talking about a long time ago. I was a teenager when my experience at Taco Bell #47 taught me how to multitask. I should be clear that I don’t know if this approach is still taught at restaurants. I suspect not; I’m pretty sure it’s not written down in any Taco Bell manual, and I couldn’t find any references to it on the Internet. I suspect I learned it because I was lucky enough to be surrounded by knowledgeable and experienced team members who were willing to share their “tribal knowledge” with me.

And now I’m going to share with you how to multitask, the way I was taught at Taco Bell #47.

If you’ve ever worked in a fast food restaurant you have experienced the situation known as a “rush”. Whether it’s a lunch rush or dinner rush, it’s the same thing: the restaurant fills with lines of hungry and impatient people, anxious to get their food and gobble it down. They want to be served and they want to be served right now. Meanwhile, the drive-thru line wraps around the building and, if it doesn’t move fast enough, tempers start to flare.i Fast-food restaurants generate most of their daily sales during the rushes but for the staff it’s a stress-filled time.

The goal, of course, is to move as many people through the lines as quickly as possible.

In order to move the people through the lines, the team has to work as one. The person on the register has to take the order quickly, ring it up, and take the money and deliver the change. That starts the clock for the order, and from then on the rest of the team needs to prepare the food, wrap it and serve it (either bag or tray), get the drinks, and get the food to the customer—all while the customer looks on with impatience. (And hunger.) And speed of service isn’t the only important metric; the accuracy of the order matters as well. And not only that, but the food has to meet quality standards. So: speed, accuracy, and quality drive the customer experience.

During the rushes any problem impacts these areas and slows down customer queuing. If the food prep team falls behind, the dining room starts to fill with unhappy customers waiting for their orders. If an order is taken (or prepared or served) inaccurately, it has to be redone, which impacts the team’s workflow—and leads to a very unhappy customer, especially if the customer discovered the inaccurate order after leaving the dining room. If the food quality isn’t where it needs to be, the customer expects it to be remade and remade correctly. Any little problem becomes magnified during the rushes and reduces sales while at the same time creating a negative customer impression.

Where does multitasking fit in to this order-in-the-midst-of-chaos? The fact is that not all customers are created equal. There are customers who know what they want and there are customers who have questions and there are customers who can’t make up their minds. There are customers who’ve never eaten Mexican food before.ii There are customers who are ordering for groups and for families, and there are customers who are ordering just for themselves. They all expect the same level of service, as defined by speed, accuracy, and quality. But they have different needs and they need to be handled in different ways.

At Taco Bell #47 I was introduced to the concept of the “single item order”. The single item order is exactly what you’d think it would be: somebody is ordering a single taco or a single burrito or a single drink. That’s all they want and no amount of up-selling is going to change their mind. Back in the day, a single taco or a single burrito cost less than a dollar; the restaurant was not going to make much in sales (or margin) from that order. I learned that it was best to move that customer on their way as quickly as possible, so as to make room for the next customer, who might order a number of items and maybe a couple of drinks.iii

Accordingly, we developed special handing for the single item order customer. Any single item order went immediately to the front of the food preparation queue. It got immediate priority. The person on the cash register would yell out “single item” and what it was, and the food prep line would stop and pivot and make that single item and stuff it and bag it and get it to the customer just as quickly as possible. And then the team would go back to what it was doing.

That is multi-tasking the Taco Bell way. Get the single item order out fast to make room for the bigger, more profitable orders.

That’s not really a revolutionary concept, I grant you. The business world has similar concepts, such as “low-hanging fruit” and “quick wins”. In any given long-duration project, progress can be demonstrated best by completing a few quick milestones. It takes the pressure off and provides fodder for the status meetings. It makes management smile.

The key thing is the prioritization of the tasking. At Taco Bell #47 I learned that the team has to stop what they are doing, pivot, and then make the single item order the focus of all efforts. Get it done and get it out. Then pivot back and resume normal operations. That’s harder to do than it sounds, and it tends to run counter to some long-term project management approaches, which advocate devoting a portion of the team effort to scoring quick wins while concurrently moving forward on the project’s critical path.iv (Filey, 2010) The Taco Bell multitasking philosophy says the entire team should focus on the quick wins to clear the road for the entire team to focus and to work the critical path as one, unhindered and without distraction.

Importantly, the Taco Bell multitasking approach only works because the single item orders are unique unto themselves. They have no predecessor events and no antecedent events. They can be worked, worked quickly, and then forgotten. If that wasn’t the case, the Taco Bell multitasking philosophy might not be the right approach to accomplishing the restaurant’s objectives and meeting the success criteria I listed above.

Savvy readers will have already realized that the Taco Bell approach to multitasking isn’t really multitasking. It’s very much akin to how computers multitask: it’s all about prioritization and sequencing. The funny thing is, I learned how to multitask the Taco Bell way about the same time as the Apple II home computer was being released. Nobody who worked at Taco Bell #47 had one. So it’s a mystery as to how this important aspect of computer operating system management found its way to the employees of a small fast-food restaurant in Southern California.

Nonetheless, remembering how we handled single item orders at Taco Bell #47 has helped me throughout my career, in both managing multiple tasks and in managing people. I remain grateful for my experience and for my co-workers who took the time to teach me the concepts.

i Full disclosure: Taco Bell #47 didn’t have a drive-thru window, which is probably one of the primary reasons it no longer exists. Ditto Taco Bell #1068, where I also worked.

ii Yes, I’m calling Taco Bell Mexican food. When I worked there the cheese came in blocks and the beans were cooked daily in big pressure cookers. It was a real Mexican restaurant, albeit a SoCal gringo fast-food version.

iii We liked it when customers ordered iced tea. Iced tea was the big money-maker. Make a big pot in the morning and serve it all day over ice. Charge the same as a sugar-based fountain drink, but without the costs. Profit!

iv The Taco Bell multitasking approach is probably closer to “agile” project management, which consists of short-term delivery cycles, also known as “sprints”. But the Taco Bell approach saves the sprints only for single item orders.

 

Misinterpretations and Misinformation

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Normally we go out of our way to extend courtesy to fellow consultants who express opinions on topics of current interest.

Normally.

However, sometimes there is an interpretation that is so off-base that it demands to be set straight. People rely on solid interpretations and solid advice given by self-proclaimed experts; and sometimes those “experts” get it wrong.

Granted, there’s a lot of gray area in the Federal Acquisition Regulation and Cost Accounting Standards. We’ve been doing this compliance thing for 30 years now, and we are still learning new things. That said, the fundamental requirement to giving good advice is to read thoroughly, think critically, and support opinions with facts. If you can’t do that, you’re in the wrong business.

Come we now to a little post on LinkedIn by a consultant who’s been consulting for 6 months, after a 26 year career with DCAA. This consultant has “in depth understanding of Government contracting and extensive experience in compliance determination” and “over 20 years of extensive knowledge in Federal Acquisition Regulation (FAR), DFARS, and Cost Accounting Standards (CAS).” This consultant posted a link to a GovExec article entitled “Air Force Told to Save Millions on Contractors’ Depot Labor” and used that article to offer potential clients the following advice:

Federal Government budget is not like it use to be due to cost costing mandated by the Congress. It is better for companies now thinking about getting in a new contract with multiple subs to do the job. It does not have to worry as much of cost control and still earn profit over subcontract costs plus an allocation of procurement and G&A costs. Forecasting costs and planning is very crucial. Best scenario in this environment. The problem of this for public companies is that they have to prove to shareholders and investors that sales are growing .

As we interpreted that advice, it seemed that the consultant was advocating use of subcontractors. Which was weird, because the article didn’t seem to have much relevance to that advice. Other LinkedIn posters interpreted the advice in the same way. One comment stated “Are you trying to say it is better for contractors to use subs than employees? I agree that subcontracting work is a good solution in some cases but definitely not always and in most cases I think it is more expensive to the contractor when they already have the capacity to hire employees as their own.” To which the consultant replied (somewhat cryptically) “Fee applies on total costs and subcontracts is a part of total costs.”

Had the consultant read the GovExec article more closely, or actually read the DoD OIG audit report that was the subject of the GovExec article, that consultant would have realized that the DoD OIG audit report was very poor support for the position that more subcontracting was better. To the extent the audit report was even discussing subcontracting, it was advocating that the prime contractor should not receive the same fee on subcontractors’ overhead as it did on subcontractors’ direct labor—which would tend to make subcontracting less financially attractive.

We pointed out the error but the consultant had a quick rebuttal to our point. The consultant posted “what IG talked about is an issue that has been around, it is called pass through costs to government where the prime applies fee to subcontract costs, as part of the prime's total costs. The opinion is that there is no added value of the prime on subcontract costs. …”

(Which was no rebuttal at all, but never mind that.)

The point of this article is that people and companies in search of government contracting consultants need to carefully vet those consultants before hiring them, paying them, and relying on their advice. The fact that somebody spent 26 years with DCAA—or 30 years elsewhere—doesn’t meant s/he knows what s/he is talking about. It’s not all about regulatory knowledge; it’s about applying that knowledge to further the business objectives of the client. And not everybody can do that, despite spending decades dealing with the issues.

Now let’s move on to the DoD OIG audit report (link above). Here’s a summary from the DoD IG website—

The Air Force did not effectively negotiate depot labor profit. Specifically, contracting officials did not adequately reduce or eliminate profit and fees paid for work performed by the depot. … DoD guidance did not require contracting officials to:

  • assess the depot at lower risk and reduce profit and fees when it was treated differently from other subcontractors, and

  • eliminate profit and fees the contractor is paid on the depot nonrepair costs since those expenses do not directly support the maintenance performed. The nonrepair costs accounted for 69.3 to 78.4 percent of the total profit for the three contracts.

As a result, the three contractors will earn millions in profit and fees on low-risk DoD labor.

The DoD OIG report was addressing a fairly rare deal: the use of public-private partnerships to accomplish depot repair work. Public-private partnerships (PPPs) are “cooperative arrangements between a DoD depot-level maintenance activity and one or more private sector entities to perform DoD-related work or utilize DoD depot facilities and equipment." Right there we see that any lessons learned from the audit report were going to have a very narrow application.

In the PPP, the DoD depot activity is the subcontractor to a prime contractor. Obviously, having a government entity as a subcontractor is a bit different than the usual run-of-the-mill prime contractor/subcontractor relationship. The DoD OIG audit report addressed three PPPs between Warner Robins Air Logistics Center (WR-ALC) and prime contractors. In those arrangements, DoD negotiated prime contract prices with the primes that included the costs of WR-ALC depot activities as subcontractors. The WR-ALC depot costs consisted of direct labor plus allocated overhead expenses for such items as “office supplies, depreciation of buildings, and military salaries.” The DoD OIG asserted that the prime contractors shouldn’t receive the same profit on the overhead expenses as they did for the depot direct labor hours.

We read that audit report with some interest, because it seemed counterintuitive to split total costs into various constituent components and apply a different profit rate to each component. That’s not at all what the DoD weighted guidelines for negotiating profit/fee tell a Contracting Officer to do. Ultimately we decided against blogging about the IG audit report, because it seemed to be such a niggling point, with only limited applicability to the general contracting world.

But then our consultant friend decided to use an article about that audit report as the jumping-off point for … something. We really don’t know what that consultant was trying to accomplish, other than perhaps get some LinkedIn recognition. But that something caught our attention. That something was misinformed and contained gross misinterpretations of what was really going on. Some people on LinkedIn saw that consultant’s advice and the article that was being used as support for the advice, and they probably didn’t click the link to the article (let alone read the original IG audit report), and so they didn’t see that the article was poor support for the advice, and they didn’t see what was wrong with advice and the follow-up posts. For all we know, some people might have taken the advice being offered at face value, which would have been a bad mistake.

And that’s what led to this article.

 


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Newsflash

Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.