WEBVTT 00:00.059 --> 00:03.920 Of cordial All right . Robert , it's 00:03.920 --> 00:07.280 all you , buddy . All right . Well , uh , 00:07.469 --> 00:10.229 good morning to my fellow California 00:10.229 --> 00:12.340 people that I saw there in the chat . 00:12.380 --> 00:16.110 Uh , good afternoon to those 00:16.110 --> 00:18.332 across the country . Thanks for joining 00:18.332 --> 00:20.388 us today . Again , my name is Robert 00:20.388 --> 00:22.554 Jones . As Jim said , the firm is Left 00:22.554 --> 00:25.950 Brain Professionals . We are a boutique 00:25.950 --> 00:28.629 accounting firm that we work only with 00:28.629 --> 00:31.049 US federal government contractors . I 00:31.049 --> 00:33.105 tell people that we live , eat , and 00:33.105 --> 00:35.216 breathe the FAR DFARS cost accounting 00:35.216 --> 00:37.438 standards , and we deal with all things 00:37.438 --> 00:39.216 DCAA , such as indirect rates , 00:39.216 --> 00:41.271 incurred cost proposals , accounting 00:41.271 --> 00:43.650 systems , and audits . This is what we 00:43.650 --> 00:46.770 do all day every day . We are a 00:46.770 --> 00:49.689 licensed CPA firm . I am a licensed CPA . 00:50.569 --> 00:52.625 A couple of things that set us apart 00:52.625 --> 00:54.736 from your typical CPA firm is that we 00:54.736 --> 00:56.529 don't do any tax work , very 00:56.529 --> 00:58.529 knowledgeable of tax issues . We'll 00:58.529 --> 01:00.529 highlight those tax issues with our 01:00.529 --> 01:02.751 clients . We'll work with your external 01:02.751 --> 01:05.860 tax CPA as necessary . And we don't 01:05.860 --> 01:08.027 execute any audits ourselves . We do a 01:08.027 --> 01:10.249 lot of audit prep , audit remediation . 01:10.540 --> 01:12.707 We have clients who want us on site to 01:12.707 --> 01:14.873 hold their hand during an audit and be 01:14.873 --> 01:16.707 that point of contact . We don't 01:16.707 --> 01:18.651 actually execute any audits , um , 01:18.651 --> 01:20.818 which again , the things that we don't 01:20.818 --> 01:22.929 do allow us to be very focused , um , 01:22.929 --> 01:25.980 in that work that we do for government 01:25.980 --> 01:28.970 contractors . Uh , if you interact with 01:28.970 --> 01:31.137 us or if you have in the past , you've 01:31.137 --> 01:33.137 probably had an opportunity to meet 01:33.137 --> 01:35.081 Steve and Suzanne , a couple of my 01:35.081 --> 01:38.010 colleagues . I want to dive into our 01:38.010 --> 01:40.250 learning objectives and our content for 01:40.250 --> 01:44.029 today . I know we've got a bit of 01:44.029 --> 01:46.589 time blocked out . Again , take 01:46.589 --> 01:48.589 advantage of that Q&A . I've got it 01:48.589 --> 01:51.110 open on my side . I'll try to keep an 01:51.110 --> 01:53.550 eye on it . We'll definitely have time 01:53.550 --> 01:55.717 to answer those questions either as we 01:55.717 --> 01:58.529 go along or certainly at the end . Um , 01:58.739 --> 02:00.961 at the end of our time together today , 02:00.961 --> 02:02.980 you should hopefully have a better 02:02.980 --> 02:04.591 understanding of the federal 02:04.591 --> 02:06.980 regulations related to cost accounting 02:06.980 --> 02:09.600 for government contracts . Learn the 02:09.600 --> 02:11.711 essential components of an acceptable 02:11.711 --> 02:13.711 cost accounting system and how that 02:13.711 --> 02:15.767 plays into your income statement and 02:15.767 --> 02:17.979 other financial statements . Recognize 02:17.979 --> 02:19.820 the importance of accurate cost 02:19.820 --> 02:22.220 accounting and tracking for pricing 02:22.220 --> 02:24.669 contracts and billing purposes . We'll 02:24.669 --> 02:26.910 talk about some best practices for cost 02:26.910 --> 02:28.966 accounting , ensuring compliance and 02:28.966 --> 02:30.910 optimizing financial performance , 02:31.350 --> 02:33.070 discuss the consequences for 02:33.070 --> 02:35.990 contractors without an adequate cost 02:35.990 --> 02:39.669 accounting system , and provide some 02:39.669 --> 02:42.839 recommendations as you move forward . 02:45.100 --> 02:47.220 I want to start , uh , quickly with a 02:47.220 --> 02:50.779 poll here , and I think , uh , Jim , 02:50.899 --> 02:52.850 you can kick these off if that is 02:52.850 --> 02:55.059 correct . Yeah , hang on one second , 02:55.130 --> 02:57.300 OK . Yep , let me launch it . 02:58.820 --> 03:01.259 And so as the poll comes up on your 03:01.259 --> 03:03.460 screen there , um , part of this is 03:03.460 --> 03:06.539 just so that we gauge , um . 03:07.399 --> 03:09.677 Uh , and what we , and I see we've got , 03:09.677 --> 03:11.677 uh , the polls in there . If you'll 03:11.677 --> 03:13.843 just answer the first one . Looks like 03:13.843 --> 03:16.066 maybe we've got them all . I'm not sure 03:16.066 --> 03:18.750 what's going to happen there . Um . The 03:18.750 --> 03:20.861 first one here , which best describes 03:20.861 --> 03:22.972 your current accounting system ? Some 03:22.972 --> 03:24.861 of you might be asking what is an 03:24.861 --> 03:26.750 accounting system . We run across 03:26.750 --> 03:28.750 clients who are doing everything in 03:28.750 --> 03:32.289 Excel , uh , maybe you are looking at 03:32.289 --> 03:34.289 accounting systems and software and 03:34.289 --> 03:36.511 need some help , or you already have an 03:36.511 --> 03:39.110 adequate accounting system in place . 03:43.470 --> 03:44.690 And 03:48.139 --> 03:51.020 I'm not , I'm not sure if it's gonna 03:51.020 --> 03:53.242 work correctly . It looks like maybe we 03:53.242 --> 03:55.409 got all the questions loaded at once . 03:55.409 --> 03:57.409 Yeah . Yeah , I was , I'm sorry , I 03:57.409 --> 03:59.464 thought I was supposed to put all of 03:59.464 --> 04:01.520 them at once . All right . So I tell 04:01.520 --> 04:03.687 you what , we're , if you just want to 04:03.687 --> 04:05.798 go ahead and close that , it's really 04:05.798 --> 04:08.100 just a gauge for us to um . Uh , to , 04:08.229 --> 04:10.396 to gauge some audience participation . 04:10.759 --> 04:12.592 If any of you want to throw some 04:12.592 --> 04:14.979 answers or comments into the chat , uh , 04:15.070 --> 04:17.070 as we go through some of these poll 04:17.070 --> 04:19.237 questions , that would be great . Um , 04:19.237 --> 04:21.459 and if you have a very , again , a very 04:21.459 --> 04:23.292 specific question , um , you can 04:23.292 --> 04:25.549 certainly put that in the Q&A . I'm 04:25.549 --> 04:28.209 going to go ahead and go through , uh , 04:28.649 --> 04:31.750 dive into our content here . So Jim , 04:31.829 --> 04:34.162 if you want to just close out that poll , 04:34.162 --> 04:36.709 we'll ignore that functionality for 04:36.709 --> 04:39.959 today . So I said that one of the first 04:39.959 --> 04:42.070 things we were going to talk about is 04:42.070 --> 04:45.140 accounting regulations . Specifically 04:45.140 --> 04:47.959 here I've highlighted the things that 04:47.959 --> 04:49.848 government contractors need to be 04:49.848 --> 04:52.040 concerned about . The very first thing 04:52.040 --> 04:54.480 that's not on the list is gap 04:54.480 --> 04:56.279 compliance , generally accepted 04:56.279 --> 04:58.501 accounting principles . We are going to 04:58.501 --> 05:00.557 talk about that in a few more slides 05:00.557 --> 05:02.223 when we get into the adequate 05:02.223 --> 05:04.112 accounting system . But certainly 05:04.112 --> 05:06.279 everything that you do as a government 05:06.279 --> 05:09.630 contractor should be GAAP compliant and 05:09.630 --> 05:12.980 part of GAP compliance . For 05:12.980 --> 05:15.940 government contractors , uh , is having 05:15.940 --> 05:17.607 financial statements that are 05:17.607 --> 05:20.059 accrual-based and not cash-based , and 05:20.059 --> 05:22.115 we can talk a little more about that 05:22.115 --> 05:25.500 later . Um , but , uh , as we look 05:25.500 --> 05:28.059 specifically at government contracting , 05:28.829 --> 05:30.996 uh , accounting regulations , uh , one 05:30.996 --> 05:32.940 of the first ones that people will 05:32.940 --> 05:36.859 encounter is R 31 or the 05:36.859 --> 05:39.730 contract cost principles and procedures . 05:39.970 --> 05:42.192 Again , we've got links here . We'll be 05:42.192 --> 05:45.809 sure to get this PowerPoint out to 05:45.809 --> 05:47.476 everybody at the close of the 05:47.476 --> 05:49.587 presentation . We'll have a follow-up 05:49.587 --> 05:51.420 email so we'll get a copy of the 05:51.420 --> 05:53.309 PowerPoint out to you or a way to 05:53.309 --> 05:56.149 download it . Uh , I recommend that if 05:56.149 --> 05:59.070 you're looking up the , uh , any of 05:59.070 --> 06:02.230 these , uh , regulations or anything 06:02.230 --> 06:05.109 from the FDARS , our recommendation is 06:05.109 --> 06:07.829 to use acquisition.gov . So you can 06:07.829 --> 06:10.329 always start there and navigate your 06:10.329 --> 06:13.420 way to FAR 31 . This is again , the 06:13.420 --> 06:15.670 cost to contract principles . A lot of 06:15.670 --> 06:17.670 people think about this in terms of 06:17.670 --> 06:19.448 cost allowability or looking at 06:19.448 --> 06:21.970 unallowable costs . But it deals with 06:21.970 --> 06:25.209 all aspects of contract costing . The 06:25.209 --> 06:28.500 DFAs clause here deals with accounting 06:28.500 --> 06:30.459 system administration and the 06:30.459 --> 06:32.292 requirements to have an adequate 06:32.292 --> 06:34.459 accounting system , and we're going to 06:34.459 --> 06:36.626 talk about those in detail in a little 06:36.626 --> 06:38.459 bit . And then the third is cost 06:38.459 --> 06:40.626 accounting standards , and we do bring 06:40.626 --> 06:42.681 it up here . I know that many of the 06:42.681 --> 06:45.540 people on today's call are small 06:45.540 --> 06:48.380 businesses and otherwise exempt . I'm 06:48.380 --> 06:51.119 going to say from most . Of the cost 06:51.119 --> 06:53.230 accounting standards , but the reason 06:53.230 --> 06:55.119 we always address cost accounting 06:55.119 --> 06:57.175 standards in everything that we do , 06:57.549 --> 06:59.716 there's actually a couple of reasons . 07:00.450 --> 07:03.640 One is that some cost accounting 07:03.640 --> 07:07.269 standards apply to all contractors 07:07.649 --> 07:11.529 when the costs involved are 07:11.529 --> 07:13.890 material in nature . So there's again , 07:13.959 --> 07:16.015 there's some very specific ones that 07:16.230 --> 07:18.410 Even if you're otherwise exempt from 07:18.410 --> 07:20.260 the rest of the cost accounting 07:20.260 --> 07:22.869 standards , there are a few particular 07:22.869 --> 07:25.091 cost accounting standards that can come 07:25.091 --> 07:28.470 into play if the costs involved are 07:28.470 --> 07:31.390 material in nature , meaning that if 07:31.390 --> 07:33.989 the misstatement of those costs would , 07:34.109 --> 07:37.130 would cause somebody to have a 07:37.309 --> 07:39.531 different evaluation or opinion of your 07:39.531 --> 07:41.670 financial statements , and it's a 07:41.670 --> 07:45.019 material item . Uh , one of the other 07:45.019 --> 07:48.779 reasons is that , uh , contractors , as 07:48.779 --> 07:51.579 they grow , will trip over the 07:51.579 --> 07:55.130 requirement and have modified CAAS , uh , 07:55.329 --> 07:57.551 meaning that they have to comply with a 07:57.551 --> 08:00.140 few parts of CAAS . And so that will 08:00.140 --> 08:02.619 happen , uh , usually before you have 08:02.619 --> 08:05.140 to be compliant with all of C CAAS . 08:06.140 --> 08:08.619 There's a lot of good , really standard 08:08.619 --> 08:10.660 practices that come out of the cost 08:10.660 --> 08:12.882 accounting standards . Uh , things that 08:12.882 --> 08:16.179 are just good to do . Uh , auditors 08:16.179 --> 08:18.500 will refer to cast . You can , even if 08:18.500 --> 08:20.299 you don't have any cast-covered 08:20.299 --> 08:22.299 contracts and otherwise exempt from 08:22.299 --> 08:25.970 cast , auditors will quite often Uh , 08:26.109 --> 08:28.709 refer to CASS as we will . And the 08:28.709 --> 08:31.510 other is that it's much easier to start 08:31.510 --> 08:33.729 thinking about cass and building 08:35.000 --> 08:37.750 those cast requirements and those best 08:37.750 --> 08:40.070 practices into the foundation of your 08:40.070 --> 08:43.479 business and to do that over time 08:43.989 --> 08:46.630 with the perspective or with the idea 08:46.630 --> 08:49.130 that you're on this trajectory to grow 08:49.130 --> 08:51.909 and that you would trip over those 08:51.909 --> 08:54.131 requirements . You would trip over that 08:54.131 --> 08:56.130 threshold . Um , and , and so it's 08:56.130 --> 08:58.809 easier to take some bite-sized steps 08:58.809 --> 09:01.929 working towards that compliance than it 09:01.929 --> 09:05.250 is to wait and say , oh my gosh , now 09:05.250 --> 09:07.472 we have to do this , and then you're in 09:07.472 --> 09:09.669 a rush to get everything in place . So 09:09.969 --> 09:11.913 again , if you're thinking , hey , 09:11.913 --> 09:13.913 we're a small business and the cost 09:13.913 --> 09:15.969 accounting standards don't apply , I 09:15.969 --> 09:17.969 just say that that's not completely 09:17.969 --> 09:19.858 true for the reasons that we just 09:19.858 --> 09:22.780 chatted about . We're talking about the 09:22.780 --> 09:26.080 need for an adequate accounting system . 09:26.580 --> 09:30.190 Uh , and so , uh , there are various 09:30.190 --> 09:32.559 times where again , you will trip over 09:32.559 --> 09:34.780 these thresholds . We're going to talk 09:34.780 --> 09:37.450 about these here on a few slides . Um , 09:37.460 --> 09:39.989 and if you want to throw into the chat , 09:40.299 --> 09:42.460 how many of you are participating in 09:42.460 --> 09:45.419 the SIBR or SIR program , the Small 09:45.419 --> 09:47.419 Business Innovation Research or the 09:47.419 --> 09:49.440 Small Business Technology Transfer 09:49.440 --> 09:53.059 Program ? Uh , we know that many , um , 09:54.380 --> 09:58.260 contractors are . The phase two is 09:58.260 --> 10:00.427 typically , and , and if we say you're 10:00.427 --> 10:03.979 usually awarded as a cost type award , 10:04.059 --> 10:05.892 meaning that you have to have an 10:05.892 --> 10:08.340 adequate accounting system . Uh , and I 10:08.340 --> 10:11.570 say usually , um , that's the That's 10:11.570 --> 10:13.792 how they are prescribed to be awarded , 10:13.792 --> 10:16.289 that we do know that AFRL and there are 10:16.289 --> 10:18.345 some others out there who are making 10:18.345 --> 10:21.609 phase 2 awards as fixed price . But 10:21.609 --> 10:23.776 again , generally we're still seeing a 10:23.776 --> 10:25.831 lot of cost type awards , and you're 10:25.831 --> 10:27.942 going to notice that as we go through 10:27.942 --> 10:30.220 these slides today that that cost type . 10:30.989 --> 10:33.049 is really kind of the key factor in 10:33.049 --> 10:35.229 having an adequate accounting system . 10:35.909 --> 10:38.229 And again , uh , on these slides , 10:38.309 --> 10:41.150 we've got links to relevant information 10:41.150 --> 10:44.969 for you . Other times where you have to 10:44.969 --> 10:47.136 have an adequate accounting system are 10:47.136 --> 10:49.380 for cost reimbursable contracts . And 10:49.380 --> 10:51.491 so there are some different flavors , 10:52.059 --> 10:54.619 including cost plus fixed fee , cost 10:54.619 --> 10:57.340 plus award fee , cost plus incentive 10:57.340 --> 11:00.419 fee , and other cost-sharing contracts . 11:00.469 --> 11:04.049 And again , these can be uh contracts , 11:04.150 --> 11:06.539 uh , typical contracts with the 11:06.539 --> 11:08.580 government . They can also be grant 11:08.580 --> 11:10.900 awards that are cost-type or cost 11:10.900 --> 11:13.530 sharing in some fashion . And again , 11:13.609 --> 11:16.809 the government says that you're 11:16.809 --> 11:18.976 supposed to have an , they're supposed 11:18.976 --> 11:21.198 to validate and verify that you have an 11:21.198 --> 11:23.130 adequate accounting system before 11:23.130 --> 11:26.570 issuing these types of awards . And so 11:26.570 --> 11:28.570 why does the government want you to 11:28.570 --> 11:30.514 have an adequate accounting system 11:30.514 --> 11:33.229 before having a cost type of award ? 11:33.729 --> 11:35.340 And that is because they are 11:35.340 --> 11:38.210 reimbursing your costs . And so they 11:38.210 --> 11:40.266 want to make sure that you are doing 11:40.266 --> 11:42.432 things correctly because there's a lot 11:42.432 --> 11:44.679 of risk to the government in 11:44.679 --> 11:47.690 reimbursing those costs . And so that's 11:47.690 --> 11:49.801 why it's very important for them that 11:49.801 --> 11:52.079 you have an adequate accounting system . 11:52.079 --> 11:54.190 And again , we're going to talk about 11:54.190 --> 11:55.968 the requirements of an adequate 11:55.968 --> 11:58.079 accounting system today . Other types 11:58.079 --> 12:00.301 of flexibly priced or cost reimbursable 12:00.301 --> 12:02.919 type contracts . Uh , so time and 12:02.919 --> 12:05.909 material contracts are technically fall 12:05.909 --> 12:08.429 into the category of a flexibly priced 12:08.429 --> 12:11.140 contract . And that's because of the M 12:11.140 --> 12:13.140 or the material portion . Now , the 12:13.140 --> 12:15.969 time portion is a fixed price 12:17.130 --> 12:19.549 portion . Now , it's fixed price by 12:19.549 --> 12:21.605 labor category , right ? So in a T&M 12:21.605 --> 12:24.280 you're typically selling . Uh , labor 12:24.280 --> 12:26.559 categories , and that is at a fixed 12:26.559 --> 12:30.080 price . But the M or material , uh , 12:30.280 --> 12:32.280 and there can be some variations in 12:32.280 --> 12:35.080 this , but it's typically reimbursement 12:35.080 --> 12:38.359 of travel , ODCs and other materials at 12:38.359 --> 12:40.415 cost . And again , we hear that cost 12:40.415 --> 12:42.303 word in there , which is going to 12:42.303 --> 12:44.359 trigger that the government wants to 12:44.359 --> 12:46.415 ensure you're doing things correctly 12:46.415 --> 12:48.248 and that they're reimbursing you 12:48.248 --> 12:51.210 appropriately for those costs . It's 12:51.210 --> 12:53.349 important to note some people forget 12:53.349 --> 12:56.229 that there are cost aspects of 12:57.090 --> 12:59.929 fixed price contracts . So specifically 12:59.929 --> 13:01.818 here , fixed price contracts with 13:02.770 --> 13:05.719 progress payments . Note that I did say 13:05.719 --> 13:09.330 here , progress payments . This is not 13:09.330 --> 13:11.809 performance-based payments . They do 13:11.809 --> 13:14.650 look and sound somewhat similar , but 13:14.650 --> 13:16.570 they are distinctly different . 13:17.340 --> 13:19.979 Progress payments are based on cost . 13:20.099 --> 13:22.432 Our trigger word there for today , cost , 13:22.820 --> 13:26.099 whereas performance-based payments are 13:26.099 --> 13:29.799 objective milestones . That while the 13:29.799 --> 13:32.440 dollar amount that is associated with 13:32.440 --> 13:35.640 that milestone is likely based on some 13:35.640 --> 13:38.380 cost , you as the contractor are trying 13:38.380 --> 13:41.219 to get reimbursed for your costs along 13:41.219 --> 13:43.960 the way during these fixed price 13:43.960 --> 13:46.400 contracts . The difference is that 13:46.400 --> 13:48.344 progress payments are actually are 13:48.344 --> 13:50.456 based on your actual costs incurred , 13:50.456 --> 13:52.979 just like a cost type contract . And so 13:52.979 --> 13:55.380 you would submit that cost information 13:55.380 --> 13:58.340 on a monthly invoice , whereas 13:58.340 --> 14:01.619 performance-based payments . You 14:01.619 --> 14:05.260 invoice at the milestone when that 14:05.260 --> 14:08.900 objective milestone has been met . And 14:08.900 --> 14:11.960 so a perfect example of that could be 14:12.859 --> 14:16.659 you might be building something and you 14:16.659 --> 14:18.826 say , OK , the first milestone is that 14:18.826 --> 14:21.580 the foundation is complete . Now you as 14:21.580 --> 14:23.580 a contractor are going to put again 14:23.580 --> 14:26.140 some dollar values to these milestones 14:26.140 --> 14:28.084 that you want to use for invoicing 14:28.084 --> 14:31.150 purposes . Obviously those milestone 14:31.150 --> 14:33.317 dollar amounts are going to be tied to 14:33.317 --> 14:37.099 cost to some , to some degree . But the 14:37.099 --> 14:39.289 factor , the key point there is that 14:39.289 --> 14:42.020 you have to meet the milestone . So if 14:42.020 --> 14:44.299 it takes you longer , if it takes you 14:44.299 --> 14:46.859 more time , more money over time , you 14:46.859 --> 14:49.419 have a cost overrun , whatever that 14:49.419 --> 14:52.119 might be in order to meet the milestone . 14:52.599 --> 14:55.479 You may or may not be reimbursed for 14:55.479 --> 14:57.535 all of your costs up to that point , 14:58.140 --> 15:00.084 but the key is that you've met the 15:00.084 --> 15:02.799 milestone . Spend a little time on that 15:02.799 --> 15:04.966 because they are tricky . They do look 15:04.966 --> 15:07.021 and sound similar , but again , they 15:07.021 --> 15:08.855 are different when we talk about 15:08.855 --> 15:10.243 progress payments versus 15:10.243 --> 15:13.150 performance-based payments . The other 15:13.150 --> 15:15.206 fixed price contract that comes into 15:15.206 --> 15:18.070 play are those with either prospective 15:18.070 --> 15:21.309 or retroactive price redetermination , 15:21.750 --> 15:25.609 and we see the latter in particular 15:26.390 --> 15:28.950 in commodities markets where there are 15:28.950 --> 15:32.950 large fluctuations in the price of 15:32.950 --> 15:35.150 those materials that go into it . So 15:35.150 --> 15:38.630 for example , Of contracts for the 15:38.630 --> 15:40.760 purchase of fuel or for certain types 15:40.760 --> 15:43.789 of raw materials where there's a lot 15:43.789 --> 15:47.109 of validity volatility , I should say , 15:47.469 --> 15:50.669 in the marketplace and so you as a 15:50.669 --> 15:53.030 contractor can say I can price this for 15:53.030 --> 15:55.130 you , the government . But if you're 15:55.130 --> 15:57.489 buying it 6 months from now , 9 months 15:57.489 --> 15:59.656 from now , or if it's a contract where 15:59.656 --> 16:01.979 maybe I'm delivering a certain portion 16:01.979 --> 16:05.010 each month , the price that I pay can 16:05.010 --> 16:07.770 vary significantly . And so I need to 16:07.770 --> 16:10.210 be compensated appropriately for that . 16:10.530 --> 16:12.697 And that's where they will have some , 16:12.697 --> 16:14.586 they can have a retroactive price 16:14.586 --> 16:18.409 redetermination um in your contract . 16:19.080 --> 16:21.799 Again , that price redetermination is 16:21.799 --> 16:24.200 going to be based on what cost or 16:24.200 --> 16:28.020 trigger word there in order to have um 16:29.869 --> 16:32.036 uh in requiring us to have an adequate 16:32.036 --> 16:34.202 accounting system . The next type is a 16:34.202 --> 16:36.679 fixed price incentive contract . So , 16:36.799 --> 16:39.419 these are , these incentives are based 16:39.419 --> 16:43.030 on what cost , right ? So the idea here 16:43.030 --> 16:45.141 with a fixed price incentive contract 16:45.141 --> 16:48.400 is that we have a fixed price that can 16:48.400 --> 16:51.260 actually vary , which sounds 16:51.400 --> 16:53.456 counterintuitive , right ? How can I 16:53.456 --> 16:55.678 have a fixed price that varies ? But we 16:55.678 --> 16:57.900 have a , it's fixed price because we've 16:57.900 --> 17:00.067 determined the price upfront and we've 17:00.067 --> 17:01.956 determined what the price will be 17:01.956 --> 17:04.984 readjusted to based upon this incentive , 17:05.045 --> 17:07.324 right ? So if I meet certain cost 17:07.324 --> 17:10.564 targets , uh , the price can adjust , 17:10.685 --> 17:12.964 but it actually can be the incentive is 17:12.964 --> 17:15.297 that if I'm saving the government money , 17:15.297 --> 17:17.685 they're actually willing to pay me a 17:17.685 --> 17:19.935 different price for that , which can be 17:19.944 --> 17:23.239 beneficial to me . Also with the 17:23.239 --> 17:25.239 retroactive price redetermination , 17:27.000 --> 17:29.119 an example here could also be that we 17:29.119 --> 17:32.160 have a price , a fixed price that is 17:32.160 --> 17:35.000 adjustable based upon an index . And so 17:35.000 --> 17:37.111 that's something that we have pointed 17:37.111 --> 17:39.056 out and helped some of our clients 17:39.056 --> 17:41.300 negotiate . Again , when they're maybe 17:42.199 --> 17:45.079 buying products or services that they 17:45.079 --> 17:47.959 are reselling , where again those those 17:47.959 --> 17:51.119 prices are changing on a regular basis . 17:51.920 --> 17:55.640 The fixed price is determined by 17:55.640 --> 17:58.839 an agreed upon third party index . All 17:58.839 --> 18:00.950 right , so that's one way that we can 18:00.950 --> 18:03.729 do that . One of the other ways that we 18:03.729 --> 18:05.340 see people tripping over the 18:05.340 --> 18:07.118 requirement to have an adequate 18:07.118 --> 18:09.229 accounting system is when they have a 18:09.229 --> 18:11.229 desire to participate in a multiple 18:11.229 --> 18:13.369 award contract , a MAC or a 18:13.369 --> 18:15.536 government-wide acquisition contract , 18:15.536 --> 18:19.209 a GWAC , uh , where cost type 18:19.209 --> 18:22.589 awards are contemplated or expected 18:22.930 --> 18:25.369 as part of those contracts . And so 18:25.369 --> 18:27.591 what you'll see is in the , in the call 18:27.591 --> 18:29.729 that we often get is the clients will 18:29.729 --> 18:33.359 say , We want to participate , for 18:33.359 --> 18:35.248 example , in the Oasis contract . 18:35.248 --> 18:37.359 That's one of the big ones and one of 18:37.359 --> 18:39.581 the common ones where this pops up . We 18:39.581 --> 18:41.803 want to participate in Oasis or we want 18:41.803 --> 18:43.859 to participate in one of these other 18:43.859 --> 18:46.479 GWACs . Everything that we do is fixed 18:46.479 --> 18:48.646 price . It always has been . We expect 18:48.646 --> 18:50.701 that it's always going to be a fixed 18:50.701 --> 18:52.812 price . We don't understand why we're 18:52.812 --> 18:54.923 having to jump through these hoops to 18:54.923 --> 18:56.979 have an adequate accounting system . 18:56.979 --> 18:59.420 And the reason is because the contract 18:59.420 --> 19:03.219 vehicle itself can issue cost type 19:03.219 --> 19:05.900 and T&M awards . And so in order for 19:05.900 --> 19:08.699 you to participate , you have to have 19:08.859 --> 19:10.819 that adequate accounting system in 19:10.819 --> 19:13.010 place . And , and again , it is 19:13.010 --> 19:15.229 possible and we do see it happen where 19:16.170 --> 19:18.369 contractors typically had fixed price 19:18.369 --> 19:22.050 work , but they later accepted TNM or 19:22.050 --> 19:24.819 cost type rewards on these other 19:24.819 --> 19:27.839 contract vehicles . All right , again , 19:27.930 --> 19:29.652 we know the pole isn't working 19:29.652 --> 19:31.763 correctly and that's OK . If you want 19:31.763 --> 19:33.874 to throw some answers into the chat , 19:33.874 --> 19:36.208 that would be perfectly acceptable here . 19:36.208 --> 19:38.263 Really just to check to see how well 19:38.263 --> 19:39.986 you're paying attention . Cost 19:39.986 --> 19:42.097 reimbursable contracts include all of 19:42.097 --> 19:44.979 the following except which type ? Cost 19:44.979 --> 19:47.329 plus fixed fee , cost plus award fee , 19:47.780 --> 19:50.790 labor hour , or cost plus incentive fee . 19:51.219 --> 19:53.441 And if you want to throw an answer into 19:54.699 --> 19:56.755 the chat , I'll give you a couple of 19:56.755 --> 19:59.400 seconds to think about that . Well , I 19:59.400 --> 20:00.733 take a drink of water . 20:06.489 --> 20:10.290 I do see some answers coming in . And 20:10.290 --> 20:13.410 I will say that it looks like almost 20:13.410 --> 20:15.550 everybody is on the right track , and 20:15.550 --> 20:19.130 that is C Charlie is the answer . 20:19.449 --> 20:22.089 A labor hour contract is not a cost 20:22.089 --> 20:25.109 check contract . A labor hour contract . 20:26.479 --> 20:29.400 Uh , is , is essentially a time and a 20:29.400 --> 20:31.622 material contract without the M , which 20:31.622 --> 20:33.789 is what somebody put down there . It's 20:33.789 --> 20:35.956 a T&M contract without the M . So if I 20:35.956 --> 20:38.178 only have T , what do I have ? I have a 20:38.178 --> 20:41.140 labor hour contract . So , very good . 20:41.479 --> 20:43.535 All right , we're going to dive into 20:43.535 --> 20:45.839 here um components of an accounting 20:45.839 --> 20:48.280 system . And I do want to pause for a 20:48.280 --> 20:50.280 moment and some people are probably 20:50.280 --> 20:52.391 starting to think to themselves , how 20:52.391 --> 20:55.439 does all of this tie into the income 20:55.439 --> 20:57.661 statement , which was part of the title 20:57.661 --> 20:59.883 of today . We're going to get to that . 20:59.883 --> 21:03.199 Um , uh , one of the things that we 21:03.199 --> 21:05.959 often encounter working with clients . 21:06.380 --> 21:08.420 Um , is helping them clean up their 21:08.420 --> 21:10.531 financial statements for a variety of 21:10.531 --> 21:12.587 reasons . Um , one , they often know 21:12.587 --> 21:14.364 there are problems . We uncover 21:14.364 --> 21:16.364 problems , uh , as we begin to work 21:16.364 --> 21:18.476 with them on various things , whether 21:18.476 --> 21:20.698 it's indirect rates , the incurred cost 21:20.698 --> 21:22.753 proposal , getting through , through 21:22.753 --> 21:24.976 the SF 1408 process to have an adequate 21:24.976 --> 21:27.099 accounting system . Uh , we work with 21:27.099 --> 21:29.880 clients on mergers and acquisitions . 21:29.979 --> 21:32.312 And so we do a lot of advisory services . 21:32.312 --> 21:34.312 In fact , we've got a couple of big 21:34.312 --> 21:36.312 projects for that right now . And I 21:36.312 --> 21:39.430 will tell you that as you grow , uh , 21:39.660 --> 21:41.493 not only do you need an adequate 21:41.493 --> 21:43.327 accounting system for government 21:43.327 --> 21:45.479 purposes , there's really good 21:45.479 --> 21:47.535 information that comes out of this , 21:47.535 --> 21:49.479 even if you're not doing cost type 21:49.479 --> 21:52.089 contracts . But a lot of the principles , 21:52.380 --> 21:54.602 I would say one , all of the principles 21:54.602 --> 21:56.849 are applicable regardless of contract 21:56.849 --> 21:59.060 type and regardless of customer type . 21:59.699 --> 22:02.300 So the stuff that's required is really 22:02.300 --> 22:04.300 helpful information , even for your 22:04.300 --> 22:06.750 commercial contracts . The practices 22:06.750 --> 22:10.310 are are very applicable when you go 22:10.310 --> 22:12.390 through a financial review or a 22:12.390 --> 22:14.790 financial audit outside of government 22:14.790 --> 22:17.640 requirements . And again , if you are 22:17.640 --> 22:20.589 looking forward to mergers , 22:20.630 --> 22:23.150 acquisitions , to the exit strategy of 22:23.150 --> 22:25.317 your business , I'm sure some of you . 22:26.209 --> 22:28.431 might already be thinking about , hey , 22:28.439 --> 22:30.606 I'm going to sell my business down the 22:30.606 --> 22:32.772 road or I'm going to retire and how am 22:32.772 --> 22:34.883 I going to retire ? How am I going to 22:34.883 --> 22:37.050 get out of this ? Um , you're going to 22:37.050 --> 22:39.650 need all of this stuff in place so that 22:39.650 --> 22:42.310 you develop and have consistent 22:42.310 --> 22:44.849 earnings over time , uh , that the 22:44.849 --> 22:46.849 financial statements are accurate , 22:46.849 --> 22:48.738 that you've got good policies and 22:48.738 --> 22:50.905 procedures in place . And that you can 22:50.905 --> 22:52.905 pass audits because I will tell you 22:52.905 --> 22:55.489 that as you grow and you need to borrow 22:55.489 --> 22:57.378 larger sums of money , you need a 22:57.378 --> 22:59.211 larger line of credit , which is 22:59.211 --> 23:01.211 something we help clients with . We 23:01.211 --> 23:03.378 don't do lines of credit , but we help 23:03.378 --> 23:05.433 them , help them get their financial 23:05.433 --> 23:07.489 statements in place so that they can 23:07.489 --> 23:09.600 apply for a line of credit or a large 23:09.600 --> 23:11.822 loan . Again , if you're thinking about 23:11.822 --> 23:13.878 M&A and exit , we've got a couple of 23:13.878 --> 23:16.100 clients right now that are in a selling 23:16.100 --> 23:18.045 mode . They're going to have to go 23:18.045 --> 23:20.211 through a quality of earnings audit as 23:20.211 --> 23:22.378 well as a financial review and audit , 23:22.378 --> 23:24.545 and some of the stuff that we're going 23:24.545 --> 23:27.260 to talk about today is applicable to 23:27.260 --> 23:29.260 all of those financial statements . 23:30.060 --> 23:32.171 First and foremost , um , in order to 23:32.171 --> 23:34.420 have an adequate accounting system for 23:34.420 --> 23:37.060 the government , and again , for you 23:37.060 --> 23:39.116 and other types of financial reviews 23:39.116 --> 23:41.060 and audits , is you have to be gap 23:41.060 --> 23:43.004 compliant , right ? GAP is again , 23:43.219 --> 23:44.886 generally accepted accounting 23:44.886 --> 23:46.819 principles . Specifically , we're 23:46.819 --> 23:49.180 talking about USAAP since we are 23:49.180 --> 23:53.000 talking with and about US contractors . 23:53.489 --> 23:56.670 Um , And it means having accrual-based 23:56.670 --> 23:58.837 accounting instead of cash basis , and 23:58.837 --> 24:00.837 that's often a big change for small 24:00.837 --> 24:03.390 businesses . So accrual base means that 24:03.390 --> 24:06.890 I am recording revenue and expense . 24:07.000 --> 24:09.333 I'm recording revenue when it is earned , 24:09.760 --> 24:11.538 not when I receive cash from my 24:11.538 --> 24:13.371 customers or when I generate the 24:13.371 --> 24:15.839 invoice . And it means recording 24:15.839 --> 24:19.160 expenses when they are incurred , not 24:19.160 --> 24:21.327 when I pay them . So let me give you a 24:21.327 --> 24:23.920 couple of quick examples . Um , for 24:23.920 --> 24:27.630 revenue . You might have a fixed price 24:27.630 --> 24:29.790 contract that is going to take you 3 24:29.790 --> 24:32.270 months to do the work , and whether 24:32.270 --> 24:34.390 that's a product or a service , it 24:34.390 --> 24:36.709 doesn't matter for the conversation at 24:36.709 --> 24:38.765 the moment , but it might take you 3 24:38.765 --> 24:40.987 months to do the work and your contract 24:40.987 --> 24:44.229 might say that you invoice at the end . 24:45.040 --> 24:47.199 Does that mean that you earned , so 24:47.199 --> 24:49.366 let's say you do the work in January , 24:49.366 --> 24:51.532 February , and March , you deliver the 24:51.532 --> 24:53.588 stuff the last week of March . You , 24:53.588 --> 24:55.532 let's say you generate the invoice 24:55.532 --> 24:58.050 April 2nd as you're closing out March , 24:58.520 --> 25:01.599 and maybe you get paid May 2nd or , you 25:01.599 --> 25:03.880 know , something like that 30 days 25:03.880 --> 25:07.430 later . Now you might say , well , did 25:07.430 --> 25:09.486 I earn the revenue in May when I got 25:09.486 --> 25:11.469 the cash ? From a cash basis 25:11.469 --> 25:13.580 perspective , the answer is yes , you 25:13.580 --> 25:15.829 earned that revenue in May when you 25:15.829 --> 25:17.940 received the cash , and you can still 25:17.940 --> 25:20.260 be a cash basis taxpayer , which is a 25:20.260 --> 25:22.260 different conversation . So you can 25:22.260 --> 25:24.790 still have books on an accrual basis , 25:24.829 --> 25:28.520 but be a cash basis taxpayer . But I 25:28.520 --> 25:30.742 can tell you that you did not earn that 25:30.742 --> 25:34.349 revenue in May from a gap compliance 25:34.349 --> 25:37.750 accrual-based books . You did not earn 25:37.750 --> 25:40.349 that revenue in April when you 25:40.349 --> 25:42.571 generated the invoice , right ? You did 25:42.571 --> 25:45.430 the work in , in January , February , 25:45.469 --> 25:47.989 and March . And I will say that here is 25:47.989 --> 25:50.156 where things get more tricky and there 25:50.156 --> 25:52.378 is a much deeper dive , and we won't go 25:52.378 --> 25:54.600 into that today . Uh , I would say that 25:54.600 --> 25:57.930 it's possible , even likely . That you 25:57.930 --> 26:01.130 earned a portion of that revenue in 26:01.130 --> 26:03.463 each of the months , January , February , 26:03.463 --> 26:05.930 and March . It's also possible that you 26:05.930 --> 26:08.489 earned all of that revenue in March 26:08.489 --> 26:10.711 when you delivered the final product or 26:10.711 --> 26:12.822 service , even though you did work in 26:12.822 --> 26:16.010 January and February . That gets into a 26:16.010 --> 26:19.930 much deeper analysis of the type of 26:19.930 --> 26:21.874 work , the contract , and what was 26:21.874 --> 26:23.819 involved in order to have accurate 26:23.819 --> 26:25.819 revenue recognition . In compliance 26:25.819 --> 26:28.189 with ASC 606 , which again is a whole , 26:28.270 --> 26:30.437 we could do a whole other webinar just 26:30.437 --> 26:32.381 on that . But I do point out those 26:32.381 --> 26:34.437 things here because that is a common 26:34.437 --> 26:36.437 issue that we uncover . And so it's 26:36.437 --> 26:38.548 something that if you are not already 26:38.548 --> 26:40.603 having those conversations with your 26:40.603 --> 26:42.770 internal or external accountants , you 26:42.770 --> 26:44.548 should be talking about revenue 26:44.548 --> 26:47.310 recognition . And determine whether you 26:47.310 --> 26:50.069 are , and again , this is a contract by 26:50.069 --> 26:53.949 contract basis , so that the terms of 26:53.949 --> 26:56.171 a particular contract , even though two 26:56.171 --> 26:58.338 contracts side by side might look very 26:58.338 --> 27:01.109 similar , there can be things in that 27:01.109 --> 27:03.165 contract that affect whether you are 27:03.165 --> 27:05.510 recognizing that revenue . What we say 27:05.510 --> 27:08.510 as overtime , meaning that you , in my 27:08.510 --> 27:10.510 example , you would have recognized 27:10.510 --> 27:12.677 revenue , some of that revenue each in 27:12.677 --> 27:14.899 January , February , and March . Versus 27:14.899 --> 27:17.380 recognizing revenue at a point in time . 27:17.829 --> 27:19.885 And in my example , that would be in 27:19.885 --> 27:22.150 March when you delivered the final 27:22.150 --> 27:24.206 product or service . I know that's a 27:24.206 --> 27:26.483 lot to digest . If you're taking notes , 27:26.483 --> 27:28.483 I would tell you to just write down 27:28.483 --> 27:30.594 revenue recognition . And if you want 27:30.594 --> 27:33.709 to write down ASC . As in 27:35.170 --> 27:38.910 Apple , Sam , Charlie , 606 . 27:39.290 --> 27:41.457 That's specifically what we're talking 27:41.457 --> 27:43.401 about . Some other things with gap 27:43.401 --> 27:45.234 compliance are things like lease 27:45.234 --> 27:47.346 accounting , which is a big change in 27:47.346 --> 27:49.449 the last couple of years . So it 27:49.449 --> 27:53.390 requires a specific Uh , reporting and 27:53.390 --> 27:56.750 presentation of capital and operating 27:56.750 --> 28:00.270 or finance and operating , uh , leases 28:00.270 --> 28:02.492 on the balance sheet and how those flow 28:02.492 --> 28:04.714 through to the income statement . Other 28:04.714 --> 28:07.780 things like PTO liability . So , uh , 28:07.910 --> 28:11.010 you as the employer need to be 28:11.010 --> 28:14.530 recording PTO expense when it is 28:14.540 --> 28:18.150 earned , not when it is used . And so 28:18.150 --> 28:20.206 that's a common problem that we come 28:20.206 --> 28:22.750 across is that people are reporting . A 28:22.750 --> 28:26.229 PTO sick vacation holiday , when it 28:26.229 --> 28:29.810 is used instead of when it is earned . 28:30.069 --> 28:32.013 And again , there are some general 28:32.013 --> 28:35.949 guidelines , but how you execute 28:35.949 --> 28:38.116 it within your company comes into play 28:38.116 --> 28:40.449 in making those decisions . So for 28:40.449 --> 28:42.505 example , if you have employees , if 28:42.505 --> 28:45.849 you , if your employees earn PTO each 28:45.849 --> 28:49.589 paycheck , then you would be recording 28:50.010 --> 28:52.829 a PTO expense with each paycheck 28:53.449 --> 28:56.510 regardless of whether anybody used PTO 28:56.510 --> 28:59.719 that during that pay period . If you 28:59.719 --> 29:02.170 have a PTO policy , and we have , we do 29:02.170 --> 29:05.640 see a few clients who do this . That 29:05.640 --> 29:08.680 employees get a full bank of PTO on 29:08.680 --> 29:10.624 January 1st . So if they get three 29:10.624 --> 29:13.349 weeks . Boom , January 1st , they've 29:13.349 --> 29:15.550 got 3 weeks of PTOs sitting in their 29:15.550 --> 29:18.229 bank that they can use immediately . If 29:18.229 --> 29:20.285 that's the case , then you've earned 29:20.285 --> 29:22.451 all of that in January and it needs to 29:22.451 --> 29:25.349 be reported appropriately on the income 29:25.349 --> 29:27.405 statement and on the balance sheet . 29:27.869 --> 29:29.925 And again , I'll highlight those few 29:29.925 --> 29:32.036 things because those are kind of some 29:32.036 --> 29:34.147 of the common and big ones that we do 29:34.147 --> 29:33.550 come across when we talk about 29:33.550 --> 29:37.540 compliance with GAO . Um , specifically , 29:37.680 --> 29:39.800 as we continue on through the SO 1408 29:39.800 --> 29:41.522 requirements , and get back to 29:41.522 --> 29:43.859 government contract requirements here , 29:44.400 --> 29:46.567 uh , the government wants to make sure 29:46.567 --> 29:48.567 that you have proper segregation of 29:48.567 --> 29:51.199 direct and indirect costs . So those 29:51.199 --> 29:53.366 direct costs are those things that are 29:53.366 --> 29:55.643 attributable to a final cost objective , 29:55.643 --> 29:57.866 such as a contract , project , or job . 29:57.866 --> 30:00.349 And indirect costs are attributable to 30:00.349 --> 30:02.650 more than one final cost objective , 30:03.280 --> 30:05.829 such as overhead , or that they go to 30:05.829 --> 30:07.996 the business as a whole and they would 30:07.996 --> 30:11.199 fall into GNA . Here you can see we're 30:11.199 --> 30:13.469 getting costs into the wrong category 30:13.469 --> 30:17.329 of Uh , direct or indirect , fringe 30:17.329 --> 30:20.170 overhead or GNA . Uh , all of these are 30:20.170 --> 30:22.503 things that are on the income statement . 30:22.503 --> 30:24.448 And so getting them into the wrong 30:24.448 --> 30:26.281 category will affect your income 30:26.281 --> 30:28.503 statement , but they'll also affect the 30:28.503 --> 30:30.503 proper calculation of your indirect 30:30.503 --> 30:32.670 rates . You're going to notice through 30:32.670 --> 30:32.540 here as well that I have some past 30:32.540 --> 30:34.619 references . Again , the reason for 30:34.619 --> 30:36.859 that is um there's some really good 30:36.859 --> 30:38.479 guidance on 30:41.079 --> 30:43.246 On how these apply , even if you think 30:43.246 --> 30:46.000 you're otherwise exempt from CAAS , 30:46.439 --> 30:48.920 some really good best practices to go 30:48.920 --> 30:50.864 ahead and start building into what 30:50.864 --> 30:52.976 you're doing so that as your business 30:52.976 --> 30:54.753 grows , you're prepared for CAS 30:54.753 --> 30:58.750 compliance in the future . Many people 30:58.750 --> 31:01.280 know that we have to have good job 31:01.280 --> 31:04.469 costing or what the requirements is , 31:04.479 --> 31:07.400 is the identification and accumulation 31:07.400 --> 31:10.160 of direct costs by contract . We just 31:10.160 --> 31:12.327 call this job costing . So it's making 31:12.327 --> 31:14.271 sure that costs are incurred for a 31:14.271 --> 31:16.327 specific contractor assigned to that 31:16.327 --> 31:18.549 contract . Example I like to give is if 31:18.549 --> 31:20.839 you're building a house , And you go 31:20.839 --> 31:23.000 down to Lowe's and you pick up a load 31:23.000 --> 31:25.222 of lumber that you know is specifically 31:25.222 --> 31:27.389 for that house , even though you might 31:27.389 --> 31:29.439 be building 4 houses or 4 buildings 31:29.439 --> 31:31.606 right now , you know that that load of 31:31.606 --> 31:34.040 lumber is for that particular building , 31:34.599 --> 31:37.339 then that lumber is a direct cost , 31:37.599 --> 31:39.821 right , for that project . While you're 31:39.821 --> 31:42.150 down at Lowe's , you might go over and 31:42.150 --> 31:44.150 say , well , I need to pick up some 31:44.150 --> 31:46.979 hammers and drills and screwdrivers and 31:46.979 --> 31:49.400 a few other tools that I'm going to use . 31:50.390 --> 31:52.612 Well , we all know that you're going to 31:52.612 --> 31:54.829 carry those tools from job to job . In 31:54.829 --> 31:56.829 that case , those tools would be an 31:56.829 --> 31:58.996 overhead expense , right , because I'm 31:58.996 --> 32:01.469 using them across jobs and they're not 32:01.469 --> 32:03.869 going to be incorporated as part of the 32:03.869 --> 32:07.160 final deliverable . OK . Another way , 32:07.199 --> 32:09.421 I'm gonna go back here . Another way to 32:09.421 --> 32:11.310 think about direct and indirect , 32:11.310 --> 32:13.366 sometimes people ask us about direct 32:13.366 --> 32:15.477 costs . One of the things that one of 32:15.477 --> 32:17.643 the ways I help clients determine this 32:17.643 --> 32:19.810 is what is , what are the deliverables 32:19.810 --> 32:22.260 of your contract ? Um , if in my 32:22.260 --> 32:25.260 current , my , my example there , if 32:25.260 --> 32:27.482 the contract said you'll buy drills and 32:27.482 --> 32:29.482 hammers and screwdrivers , and when 32:29.482 --> 32:31.482 you're done , you're going to leave 32:31.482 --> 32:33.538 those for us because we want them to 32:33.538 --> 32:35.482 continue doing maintenance on this 32:35.482 --> 32:37.593 building , then those would be direct 32:37.593 --> 32:39.704 costs , right ? Cause you bought them 32:39.704 --> 32:41.927 for that job and they are a deliverable 32:41.927 --> 32:43.871 of that job , then they would be a 32:43.871 --> 32:45.816 direct cost . But many times in my 32:45.816 --> 32:47.760 example , where we're going to buy 32:47.760 --> 32:49.982 those types of tools and we're going to 32:49.982 --> 32:49.780 continue to , we're going to keep those 32:49.780 --> 32:51.949 tools . And we're going to use those 32:51.949 --> 32:54.171 tools across other jobs , they would be 32:54.171 --> 32:55.893 overhead . But again , if it's 32:55.893 --> 32:57.949 something that is a deliverable that 32:57.949 --> 33:00.171 will be left behind with the customer , 33:00.171 --> 33:03.890 then it would be a direct cost . The 33:03.890 --> 33:07.869 next requirement is um the , a logical 33:07.869 --> 33:09.569 and consistent method for the 33:09.569 --> 33:12.530 allocation of indirect costs to those 33:12.530 --> 33:14.949 intermediate and final cost objectives . 33:15.329 --> 33:17.218 Uh , the terminology as well that 33:17.218 --> 33:20.170 you'll find in a document from DCAA 33:20.170 --> 33:22.810 called Information for contractors is a 33:22.810 --> 33:25.489 logical , causal beneficial 33:25.489 --> 33:27.930 relationship between the pool and the 33:27.930 --> 33:30.170 base . And the example that I like to 33:30.170 --> 33:32.729 give here is fringe costs that are 33:32.729 --> 33:36.410 incurred for maintaining my W-2 33:36.410 --> 33:38.354 employees . And it's always really 33:39.089 --> 33:41.311 clear to make sure that we're talking , 33:41.311 --> 33:43.367 that we understand what fringe costs 33:43.367 --> 33:45.700 are . Again , maintaining W-2 employees . 33:46.170 --> 33:49.930 So hiring costs , HR costs are not 33:49.930 --> 33:52.209 maintaining , right ? Those are HR 33:52.209 --> 33:54.390 costs that belong in overhead or GNA . 33:55.130 --> 33:56.963 But fringe costs are things like 33:56.963 --> 33:59.020 employer taxes . Healthcare , 33:59.869 --> 34:02.036 retirement , and paid absences . Those 34:02.036 --> 34:05.849 are the four big categories . And , 34:05.959 --> 34:08.560 and again , it's for maintaining my W-2 34:08.560 --> 34:11.159 employees . So the base of fringe is my 34:11.159 --> 34:14.000 W-2 labor . Specifically , I'm 34:14.000 --> 34:15.959 excluding any temporary labor , 34:16.120 --> 34:18.199 subcontractor labor , independent 34:18.199 --> 34:20.199 contractors because they are not my 34:20.199 --> 34:22.959 employees and I'm not incurring those 34:22.959 --> 34:26.330 fringe costs for those people . So that 34:26.340 --> 34:29.820 is a logical and consistent or a causal 34:29.820 --> 34:31.820 beneficial relationship between the 34:31.820 --> 34:34.050 pool and the base . And again , when we 34:34.050 --> 34:37.179 get these costs into the right category 34:37.179 --> 34:40.179 on our income statement , then it makes 34:40.179 --> 34:44.179 it easier to calculate an accurate 34:44.179 --> 34:47.780 indirect rate . The next we're having 34:47.780 --> 34:49.780 accumulation of costs under general 34:49.780 --> 34:52.060 ledger control . A couple of things 34:52.060 --> 34:53.893 here that we're looking for that 34:53.893 --> 34:57.500 subledgers tie to the general ledger . 34:58.139 --> 35:00.306 Examples of subledgers are things like 35:00.306 --> 35:02.620 the accounts receivable , accounts 35:02.620 --> 35:05.260 payable , and even your job costs , so 35:05.260 --> 35:08.239 your direct costs . So I should be able 35:08.239 --> 35:11.659 to run a job cost 35:11.659 --> 35:14.530 ledger . That shows me all of the 35:14.530 --> 35:17.330 direct costs or the cost of goods sold 35:17.330 --> 35:21.080 by job . And those should sum up and 35:21.080 --> 35:24.959 tie to the total direct costs or total 35:24.959 --> 35:27.181 cost of goods sold that's listed on the 35:27.181 --> 35:29.292 income statement . Same thing is true 35:29.292 --> 35:31.515 for my accounts receivable and accounts 35:31.515 --> 35:33.515 payable . I should have an accounts 35:33.515 --> 35:36.199 receivable report that ties to the 35:36.199 --> 35:38.310 general ledger and the same thing for 35:38.310 --> 35:40.310 accounts payable . Other aspects of 35:40.310 --> 35:42.199 general ledger control are having 35:42.199 --> 35:44.477 appropriate internal controls in place , 35:44.477 --> 35:46.532 and that includes things like When , 35:46.532 --> 35:48.366 who , and how do we generate new 35:48.366 --> 35:50.800 general ledger accounts ? Uh , who 35:50.800 --> 35:52.911 approves them , who creates vendors , 35:52.911 --> 35:55.022 who creates customers . There's a lot 35:55.022 --> 35:57.219 of things in internal control , um , 35:57.409 --> 35:59.929 that tie back to general ledger control . 36:02.020 --> 36:03.909 Um , and I'm going to pause for a 36:03.909 --> 36:05.964 moment . I saw a couple of questions 36:05.964 --> 36:09.570 come in here . So , let me try to 36:09.570 --> 36:12.189 answer these as we go along . Um , we 36:12.189 --> 36:15.149 do FFP contracts and do not have any 36:15.149 --> 36:17.205 cost reimbursable contracts . We are 36:17.205 --> 36:20.429 now a large business , but still have 36:20.429 --> 36:22.596 small business contract vehicles . Are 36:22.596 --> 36:24.989 we required to submit a disclosure 36:24.989 --> 36:28.429 statement ? Uh , I'm going to say the 36:28.429 --> 36:31.469 answer to that is maybe . Um , we 36:31.469 --> 36:33.729 probably have a need to have another 36:33.989 --> 36:36.389 conversation . Uh , about that . I'm 36:36.389 --> 36:38.445 going to say you probably don't , if 36:38.445 --> 36:40.669 you don't have any cost reimbursable 36:40.669 --> 36:43.050 contracts , you probably are not 36:43.629 --> 36:45.407 required to submit a disclosure 36:45.407 --> 36:47.518 statement at the moment , but I would 36:47.518 --> 36:49.870 certainly be making sure that you have 36:49.870 --> 36:51.926 good written policies and procedures 36:51.926 --> 36:53.981 and that you've at least developed a 36:53.981 --> 36:56.590 disclosure statement . Um , people want 36:56.590 --> 36:58.423 to know what what this person is 36:58.423 --> 37:00.629 talking about . Uh , when you do have 37:00.629 --> 37:02.685 to meet the cast requirements that I 37:02.685 --> 37:05.120 mentioned , There is a formal thing 37:05.120 --> 37:07.199 called a cash disclosure statement . 37:07.679 --> 37:09.846 And a disclosure statement is really a 37:09.846 --> 37:12.280 statement that outlines your treatment 37:12.280 --> 37:16.040 of specific costs . And so 37:16.040 --> 37:18.500 many times you do have some flexibility 37:18.500 --> 37:20.333 in how you treat costs , but the 37:20.333 --> 37:22.399 government wants to be sure that you 37:22.399 --> 37:24.510 are consistent in the treatment of 37:24.510 --> 37:26.677 those costs . And the way they do that 37:26.677 --> 37:28.843 is through that disclosure statement . 37:28.843 --> 37:30.954 And during an audit process , if they 37:30.954 --> 37:32.899 discover that you are not treating 37:32.899 --> 37:35.066 those costs consistently and following 37:35.066 --> 37:37.121 your disclosure statement , then you 37:37.121 --> 37:39.343 can have a CAAS violation . Uh , so I'm 37:39.343 --> 37:41.677 gonna mark that one as answered for now . 37:41.677 --> 37:43.399 If you want to talk about that 37:43.399 --> 37:45.566 separately , um , feel free to contact 37:45.566 --> 37:47.232 me and I'll have some contact 37:47.232 --> 37:49.288 information up here in a bit . Would 37:49.288 --> 37:49.139 you please clarify the difference 37:49.139 --> 37:51.250 between an adequate accounting system 37:51.250 --> 37:53.139 versus a DCAA approved accounting 37:53.139 --> 37:55.306 system and the pros and cons of each ? 37:55.306 --> 37:57.528 Great question . There is no such thing 37:57.528 --> 37:59.695 as a DCAA approved accounting system . 37:59.695 --> 38:02.020 That's a misnomer . Um , that 38:02.020 --> 38:04.889 terminology has been picked up and 38:04.889 --> 38:07.760 carried around for years . The correct 38:07.760 --> 38:10.040 terminology is an adequate accounting 38:10.040 --> 38:12.520 system . I would say arguably they are 38:12.520 --> 38:15.520 the same . It's just that DCAA does not 38:15.520 --> 38:19.080 approve accounting systems . Um , DCAA 38:19.080 --> 38:22.439 and any other auditors simply audit or 38:22.439 --> 38:24.439 survey the accounting system . They 38:24.439 --> 38:26.870 write a report . The report goes to the 38:26.870 --> 38:28.719 contracting officer , and the 38:28.719 --> 38:30.830 contracting officer is the person who 38:31.560 --> 38:33.639 makes the final determination of 38:33.639 --> 38:36.310 adequacy . OK . So that's the correct 38:36.310 --> 38:38.949 terminology . Uh , the way the question 38:38.949 --> 38:40.782 is written , I would say they're 38:40.782 --> 38:42.671 largely the same . Um , and there 38:42.671 --> 38:44.671 really are , so there are really no 38:44.671 --> 38:46.671 pros and cons difference . But just 38:46.671 --> 38:48.616 remember that we're really talking 38:48.616 --> 38:48.219 about an adequate accounting system . 38:48.270 --> 38:50.469 That's the correct terminology . Um , 38:51.459 --> 38:53.626 and at what point does a contractor go 38:53.626 --> 38:55.792 for a DCA approved accounting system ? 38:55.792 --> 38:58.239 What is the process start to finish ? 38:58.770 --> 39:01.820 Um , I would say start , I honestly 39:01.820 --> 39:03.987 tell people , you need to start sooner 39:03.987 --> 39:05.987 than later . If you're a government 39:05.987 --> 39:08.209 contractor , and even if you're small , 39:08.209 --> 39:10.209 just getting started , maybe you're 39:10.209 --> 39:12.264 only doing fixed price contracts now 39:12.264 --> 39:11.739 and you're saying , Robert , you keep 39:11.739 --> 39:14.219 mentioning this cost type stuff . Um , 39:14.350 --> 39:16.683 again , there's a couple of things . Uh , 39:16.683 --> 39:18.683 you're going to find that having an 39:18.683 --> 39:20.850 adequate accounting system is going to 39:20.850 --> 39:22.961 help with a lot of things , including 39:22.961 --> 39:25.072 your internal management . It's going 39:25.072 --> 39:27.699 to give you better information . Uh , 39:27.719 --> 39:30.600 for making decisions , for , uh , 39:30.840 --> 39:32.673 making sure that you've got good 39:32.673 --> 39:34.618 indirect rates for developing your 39:34.618 --> 39:36.840 proposals and your pricing . It's going 39:36.840 --> 39:38.951 to help towards profitability , which 39:38.951 --> 39:41.007 is something I'm going to talk about 39:41.007 --> 39:43.173 later . Uh , it's going to prepare you 39:43.239 --> 39:45.461 when the day comes that you do get that 39:45.461 --> 39:48.179 TNM or that cost cost type reward , 39:48.560 --> 39:50.560 because unfortunately , some of the 39:50.560 --> 39:53.030 calls that we get are Hey , my , my 39:53.030 --> 39:54.808 grants officer , my contracting 39:54.808 --> 39:56.641 officers got the award in hand . 39:56.641 --> 39:58.808 They're ready to give it to me , but I 39:58.808 --> 39:58.679 don't have an adequate accounting 39:58.679 --> 40:01.239 system and I need to get that done ASAP . 40:01.760 --> 40:03.927 And let me just tell you that's not an 40:03.927 --> 40:05.871 ASA kind of , kind of project . It 40:05.871 --> 40:08.093 doesn't really work that way . Um , and 40:08.093 --> 40:10.260 so you don't want to be in a situation 40:10.260 --> 40:12.719 where that happens and now you're in a 40:12.719 --> 40:15.159 scramble to try to get everything in 40:15.159 --> 40:18.379 place . So start early , it's going to 40:18.379 --> 40:21.459 benefit you regardless . And then as 40:21.459 --> 40:23.939 you grow , you're ready for these other 40:23.939 --> 40:26.106 things like lines of credit , audits , 40:26.106 --> 40:28.272 other things that we've talked about . 40:28.272 --> 40:31.280 Um All right . I'm gonna , I , I know 40:31.280 --> 40:33.558 there's some other questions coming in . 40:33.558 --> 40:36.860 I'm going to um uh jump back here . So 40:36.860 --> 40:38.971 if you've got more questions , please 40:38.971 --> 40:41.193 put them in there . That's great . I do 40:41.193 --> 40:43.360 appreciate it . All right . Uh , so we 40:43.360 --> 40:45.582 talked about General Electric control . 40:45.582 --> 40:47.360 The next one is a big one . and 40:47.360 --> 40:49.416 actually the next two are combined . 40:49.416 --> 40:51.527 I'm going to talk , I'm going to flip 40:51.527 --> 40:53.749 my , I'm going to ignore the poll for a 40:53.749 --> 40:53.439 moment because it got in the middle 40:53.439 --> 40:55.550 there . I'm going to talk about labor 40:55.550 --> 40:57.772 distribution and timekeeping together . 40:57.800 --> 40:59.689 So I'm going to go back and forth 40:59.689 --> 41:01.911 between these two slides a little bit . 41:01.911 --> 41:03.911 All right . Labor is the number one 41:03.911 --> 41:05.744 expense of every company . Every 41:05.744 --> 41:07.800 company , there's probably a few out 41:07.800 --> 41:10.145 there where maybe material is higher , 41:10.564 --> 41:13.405 but labor is almost always the number 41:13.405 --> 41:16.405 one expense . And certainly if you are 41:16.405 --> 41:19.114 a services provider , labor is the 41:19.114 --> 41:21.114 number one expense , right ? You're 41:21.114 --> 41:23.114 selling people's time , so labor is 41:23.114 --> 41:25.170 that expense . Because of that , the 41:25.170 --> 41:27.392 government wants to make sure that when 41:27.392 --> 41:29.735 they're buying anything from you that 41:30.149 --> 41:33.350 That labor , that timekeeping , and 41:33.350 --> 41:35.628 that labor expense is accurate , right ? 41:35.628 --> 41:37.683 They don't want you messing with the 41:37.683 --> 41:39.683 books . They don't want you kind of 41:39.683 --> 41:41.961 coming up with some crazy way to do it . 41:41.961 --> 41:44.072 Um , they want to make sure that it's 41:44.072 --> 41:46.294 correct . So that's why timekeeping and 41:46.294 --> 41:48.461 labor distribution are connected . And 41:48.461 --> 41:50.517 I'm going to make the connection for 41:50.517 --> 41:52.461 you in a moment . And it's why the 41:52.461 --> 41:54.628 government , and , and if you , if you 41:54.628 --> 41:56.794 haven't been through an audit , you're 41:56.794 --> 41:56.399 going to see that when you go through 41:56.399 --> 41:58.621 audits , the government spends a lot of 41:58.621 --> 42:01.679 time looking at timekeeping and labor 42:01.679 --> 42:04.310 costs because of , because of just of 42:04.310 --> 42:07.399 the nature of it . Timekeeping , one of 42:07.399 --> 42:09.510 the things that we find is that a lot 42:09.510 --> 42:11.455 of companies are really good about 42:11.455 --> 42:13.621 timekeeping , which is great . We find 42:13.621 --> 42:15.843 that they've got a really good system . 42:15.843 --> 42:19.020 They're tracking time by both internal 42:19.020 --> 42:21.820 and external jobs , meaning that , hey , 42:21.879 --> 42:23.823 we've got some internal projects , 42:23.823 --> 42:25.990 we've got our overhead and GNA , we've 42:25.990 --> 42:28.101 got some R&D and some BMP projects or 42:28.101 --> 42:30.212 some other things that we do . And so 42:30.212 --> 42:32.157 we find that some companies have a 42:32.157 --> 42:34.212 really good timekeeping system . But 42:34.212 --> 42:35.823 they don't have a good labor 42:35.823 --> 42:37.990 distribution system , which we'll talk 42:37.990 --> 42:40.157 about in a moment . We also find , and 42:40.157 --> 42:42.212 I just had a couple of conversations 42:42.212 --> 42:44.435 with a client recently that they said , 42:44.435 --> 42:46.969 we record all of our direct work , we 42:46.969 --> 42:49.136 record all the hours for that , but we 42:49.136 --> 42:51.302 don't record , record the time that we 42:51.302 --> 42:53.469 spend on all the internal stuff . OK , 42:53.469 --> 42:55.469 well , that's not work . That's not 42:55.469 --> 42:57.691 good and that's not adequate and that's 42:57.691 --> 42:59.691 not going to pass an audit . All of 42:59.691 --> 43:01.913 your employees need to record all hours 43:01.913 --> 43:04.136 worked . It's a term that we call total 43:04.136 --> 43:06.370 time accounting . All employees record 43:06.370 --> 43:09.399 all hours worked . It's the only way 43:09.399 --> 43:12.260 that you're going to get to an accurate 43:12.770 --> 43:15.040 um labor distribution calculation , 43:15.149 --> 43:17.260 meaning that we're getting the proper 43:17.260 --> 43:19.159 dollars to the right spots in the 43:19.159 --> 43:21.437 statements and in our job reports , OK . 43:22.629 --> 43:25.379 Timekeeping number one . We're going to 43:25.379 --> 43:28.520 skip over the pole at the moment . And 43:28.520 --> 43:30.631 labor distribution . So what is labor 43:30.631 --> 43:33.149 distribution ? I describe or define 43:33.149 --> 43:36.350 labor distribution as converting hours , 43:36.429 --> 43:40.270 the timekeeping , into dollars and 43:40.270 --> 43:42.870 then allocating or spreading those 43:42.870 --> 43:45.689 dollars throughout the GL 43:46.469 --> 43:48.802 and among all of their appropriate jobs , 43:48.889 --> 43:51.989 both internal and external . Right , so 43:51.989 --> 43:54.590 we know that we pay people either 43:54.590 --> 43:58.110 salary or hourly , and that I can , and 43:58.110 --> 44:00.469 even if they're salary , I could take 44:00.469 --> 44:02.669 their salary , divide it by the hours 44:02.669 --> 44:04.891 worked , and figure out their effective 44:04.891 --> 44:07.113 hourly rate , which is a key thing that 44:07.113 --> 44:09.336 we need to do . And if they're hourly , 44:09.336 --> 44:11.058 then I know what that is . But 44:11.058 --> 44:13.058 regardless , I can get to an hourly 44:13.058 --> 44:15.113 rate for employees , so I take their 44:15.113 --> 44:17.225 hours , I multiply it by their hourly 44:17.225 --> 44:19.820 rate , and now I've got a cost . For 44:19.820 --> 44:22.979 every hour for every job . And so I 44:22.979 --> 44:25.201 need to put the , if , if it's a direct 44:25.201 --> 44:27.479 job , then those , then those dollars 44:27.479 --> 44:29.368 need to go into direct labor . If 44:29.368 --> 44:31.479 they're doing overhead work , then it 44:31.479 --> 44:33.646 goes to overhead labor , etc . through 44:33.646 --> 44:35.812 the general ledger . But then I'm also 44:35.812 --> 44:37.979 moving those dollars or applying those 44:37.979 --> 44:40.620 dollars to the jobs so that when I run 44:40.620 --> 44:43.219 a job cost report or a job status 44:43.219 --> 44:45.729 report , an income statement by job , 44:45.780 --> 44:48.002 whatever your accounting software calls 44:48.002 --> 44:50.310 it . So now when I run that report , I 44:50.310 --> 44:53.719 can actually see the cost of that labor , 44:53.800 --> 44:56.000 not just hours from a timekeeping 44:56.000 --> 44:58.167 solution , but the cost of those hours 44:58.167 --> 45:00.679 on each job . Now I'm getting to a 45:00.679 --> 45:02.919 point that again , if I go back in my 45:02.919 --> 45:05.086 list here , one of the requirements is 45:05.086 --> 45:07.870 to have a job costing system . And 45:07.870 --> 45:10.320 again , labor is a cost , so we need 45:10.320 --> 45:13.399 the accurate cost of that labor in the 45:13.399 --> 45:16.639 job costing . So that's timekeeping and 45:16.639 --> 45:18.639 labor distribution . Again , really 45:18.639 --> 45:20.800 quickly , timekeeping is total time 45:20.800 --> 45:23.022 accounting , meaning that all employees 45:23.022 --> 45:25.280 record all hours worked , and labor 45:25.280 --> 45:28.439 distribution is the conversion of hours 45:28.439 --> 45:30.383 into dollars and then distributing 45:30.383 --> 45:33.040 those dollars among throughout the GL 45:33.040 --> 45:35.300 and among all of the appropriate jobs . 45:37.270 --> 45:41.270 Um , All right . Uh , I'm 45:41.270 --> 45:43.326 going to go back and see a couple of 45:43.326 --> 45:45.270 more questions here to clarify the 45:45.270 --> 45:47.437 question . When do we ask for an audit 45:47.437 --> 45:49.603 to determine accuracy ? OK . So you as 45:49.603 --> 45:53.590 a contractor cannot request DCAA 45:53.590 --> 45:57.239 to do an audit . Um , A 45:57.239 --> 45:59.239 request for a government audit will 45:59.239 --> 46:01.540 come from your contracting officer , 46:01.919 --> 46:03.975 and it will come when they determine 46:03.975 --> 46:05.863 that you need to have an adequate 46:05.863 --> 46:08.030 accounting system . Again , so for the 46:08.030 --> 46:08.030 reasons that we talked about earlier on , 46:08.399 --> 46:11.199 in terms of those phase two cost type 46:11.199 --> 46:13.840 awards , really any type of flexibly 46:13.840 --> 46:15.709 priced cost type award , you're 46:15.709 --> 46:17.931 supposed to have an adequate accounting 46:17.931 --> 46:20.042 system . And so for the government to 46:20.149 --> 46:23.340 um to do that , they're going to have 46:23.340 --> 46:25.340 to , in order for the government to 46:25.340 --> 46:27.562 issue those awards , they're gonna have 46:27.562 --> 46:27.110 to confirm that you have an adequate 46:27.110 --> 46:29.909 accounting system . Now , what you can 46:29.909 --> 46:33.149 do , and I'm going to tie this as well 46:33.149 --> 46:35.270 back to those Macs and GWAC and some 46:35.270 --> 46:37.610 other contracting vehicles out there . 46:38.659 --> 46:40.820 Is that for example , on Oasis and 46:40.820 --> 46:43.060 again some of these other GWACs , it'll 46:43.060 --> 46:44.893 say that if you have an adequate 46:44.893 --> 46:46.949 accounting system , you can get some 46:46.949 --> 46:48.671 bonus points , right , in your 46:48.671 --> 46:50.560 evaluation . Now , the government 46:50.560 --> 46:52.560 cannot give you negative points and 46:52.560 --> 46:54.671 they can't hold it against you if you 46:54.671 --> 46:56.560 don't have an adequate accounting 46:56.560 --> 46:58.504 system in those situations for the 46:58.504 --> 47:00.727 proposal . It just means that you would 47:00.727 --> 47:02.782 get zero bonus points . Again , they 47:02.782 --> 47:04.782 can't go negative . They just can't 47:04.782 --> 47:06.838 give you any bonus points . So we do 47:06.838 --> 47:08.949 have clients who call and say , hey , 47:08.949 --> 47:11.171 You know , we'd like to get an adequate 47:11.171 --> 47:13.282 accounting system in place and have a 47:13.282 --> 47:15.282 report so that we can get the bonus 47:15.282 --> 47:17.889 points . So what you can do is that you 47:17.889 --> 47:20.929 can hire a third party CPA firm like us , 47:21.330 --> 47:23.441 and we do this all the time . There's 47:23.441 --> 47:25.330 information on our website . Um , 47:25.330 --> 47:29.239 Leranepro.com . We can do the SF 1408 47:29.239 --> 47:31.406 survey for you . You'll get a report . 47:31.406 --> 47:33.517 Remember I said earlier that we don't 47:33.517 --> 47:36.320 approve your system . DCAA doesn't 47:36.320 --> 47:38.379 approve your system . Auditors only 47:39.080 --> 47:41.247 write , they evaluate and they write a 47:41.247 --> 47:44.199 report . You can take that report . We 47:44.199 --> 47:46.366 give you a version of that report that 47:46.366 --> 47:48.477 you can share with your Prime . So if 47:48.477 --> 47:50.532 you're a subcontractor and the Prime 47:50.532 --> 47:52.755 wants to issue a cost type award to you 47:52.755 --> 47:54.866 and they want to know that you've got 47:54.866 --> 47:56.921 an adequate accounting system , your 47:56.921 --> 47:59.032 Primes will accept a letter from us . 47:59.032 --> 48:01.199 You could also submit that letter with 48:01.199 --> 48:03.421 those other proposals , and we've we've 48:03.421 --> 48:05.532 seen clients do that many times where 48:05.532 --> 48:07.366 they now claim that they have an 48:07.366 --> 48:09.477 adequate accounting system . They put 48:09.477 --> 48:11.643 in for the bonus points , and they got 48:11.643 --> 48:11.540 a letter from us showing that they've 48:11.540 --> 48:13.707 been through it . Now here's the thing 48:13.707 --> 48:15.540 that I will tell you . If you're 48:15.540 --> 48:19.250 working with DOD , NASA , even if you 48:19.250 --> 48:21.417 go through the process with us , which 48:21.417 --> 48:23.417 I still recommend because if you go 48:23.417 --> 48:25.810 through it with us , then we can help 48:25.810 --> 48:28.090 you fix anything that we find because 48:28.090 --> 48:30.209 we're consultants and so we can help 48:30.209 --> 48:32.929 you again fix any of the issues that we 48:32.929 --> 48:36.679 may uncover . But we have a 100% pass 48:36.679 --> 48:38.639 rate when clients go through these 48:38.639 --> 48:40.528 audits either with the government 48:40.528 --> 48:42.600 directly or in some cases , the 48:42.600 --> 48:44.639 government does outsource , so even 48:44.639 --> 48:46.695 though the government may want to do 48:46.695 --> 48:48.806 the audit themselves , they sometimes 48:48.806 --> 48:51.560 outsource that to other CPA firms . In 48:51.560 --> 48:53.616 either case , we have a 100% success 48:53.616 --> 48:56.139 rate because clients have gone through 48:56.139 --> 48:58.840 this with us and now they're ready when 48:59.199 --> 49:01.639 Um , when the auditors show up . And 49:01.639 --> 49:03.583 again , you can also use this with 49:03.583 --> 49:05.750 proposals and you can use it with your 49:05.750 --> 49:08.199 primes . So I would tell you , start 49:08.199 --> 49:11.399 early and work with somebody like us 49:11.399 --> 49:13.232 who can help you get through the 49:13.232 --> 49:15.232 process . Hopefully , that's a good 49:15.232 --> 49:17.455 answer for your question . Um , Another 49:17.455 --> 49:19.399 question related here , our recent 49:19.399 --> 49:21.455 experiences the DCAA is not actively 49:21.455 --> 49:23.959 auditing any accounting systems . So I 49:23.959 --> 49:26.399 think it's um The the same answer that 49:26.399 --> 49:28.600 I just gave is that you cannot request 49:28.600 --> 49:31.760 DCA to do it . Only the contracting 49:31.760 --> 49:33.427 officer can do that , and the 49:33.427 --> 49:35.649 contracting officer is only going to do 49:35.649 --> 49:37.538 that if there's a need from their 49:37.538 --> 49:39.704 perspective . If they're issuing you a 49:39.704 --> 49:41.927 fixed price award that there's no price 49:41.927 --> 49:45.229 redetermination or anything like that , 49:45.239 --> 49:47.360 and it's not progress payments , then 49:47.360 --> 49:49.582 they're not going to request it because 49:49.582 --> 49:51.638 one , they have to pay for it , um , 49:51.638 --> 49:53.804 it's going to come out of their budget 49:53.804 --> 49:53.600 and they're not going to , they're not 49:53.600 --> 49:57.000 going to do that . Um , but you can , 49:57.010 --> 49:59.121 again , still work with somebody like 49:59.121 --> 50:01.879 us to prepare for that process . All 50:01.879 --> 50:04.101 right , uh , continuing on , again , we 50:04.101 --> 50:06.046 talked about timekeeping and labor 50:06.046 --> 50:08.157 distribution . Great questions . Keep 50:08.157 --> 50:10.379 them coming , please . Next requirement 50:10.379 --> 50:12.379 is that you have interim at least a 50:12.379 --> 50:15.260 monthly determination of cost charged 50:15.260 --> 50:17.427 to the contract to the routine posting 50:17.427 --> 50:19.649 of books . This means , are you closing 50:19.649 --> 50:21.704 and reconciling your books monthly ? 50:21.704 --> 50:24.280 And regularly , we encounter many 50:24.280 --> 50:26.391 clients who are not closing monthly . 50:26.391 --> 50:28.447 In fact , I'm working on a couple of 50:28.447 --> 50:30.447 big projects with clients right now 50:30.447 --> 50:32.669 where they are several , several months 50:32.669 --> 50:34.891 behind in closing . And , and there's a 50:34.891 --> 50:38.020 few problems with that . Uh , one , Uh , 50:38.250 --> 50:40.194 well , there's a lot of problems . 50:41.120 --> 50:43.389 These clients and , and typically we , 50:43.459 --> 50:45.969 we begin to see a few related problems 50:45.969 --> 50:48.280 coming in . Um , if they're not closing 50:48.280 --> 50:50.391 monthly , quite often they don't have 50:50.391 --> 50:52.502 gap compliance , uh , meaning some of 50:52.502 --> 50:54.613 the stuff that I mentioned earlier in 50:54.613 --> 50:56.780 terms of revenue recognition , getting 50:56.780 --> 50:58.780 the revenue and the expenses in the 50:58.780 --> 51:01.002 proper months , um , lease accounting , 51:01.002 --> 51:03.224 PTO liability , some other stuff . Um , 51:03.224 --> 51:05.280 we find that there are problems with 51:05.280 --> 51:04.810 that . They may be recording 51:04.810 --> 51:06.929 depreciation only once a year at the 51:06.929 --> 51:09.209 end of the year . Um , we sometimes 51:09.209 --> 51:10.987 find that they're recording tax 51:10.987 --> 51:13.209 depreciation instead of instead of book 51:13.209 --> 51:15.487 depreciation , which is a problem . Um , 51:15.487 --> 51:17.709 we've got a client right now that their 51:17.810 --> 51:20.929 tax CPA recorded . Because they're a 51:20.929 --> 51:24.290 cash-pa taxpayer , uh , their previous 51:24.290 --> 51:27.570 tax CPA recorded a cash to accrual 51:27.570 --> 51:29.737 adjustment in the books , which should 51:29.737 --> 51:31.959 have never been recorded in the books . 51:31.959 --> 51:34.126 And , and so , and , and then we see a 51:34.126 --> 51:36.292 lot of these things , they , they make 51:36.292 --> 51:38.514 these journal entries in December . And 51:38.514 --> 51:40.292 so then your December financial 51:40.292 --> 51:42.570 statements are skewed and out of whack . 51:42.570 --> 51:44.848 So there's a lot of problems with that . 51:44.848 --> 51:46.792 We find that sometimes clients are 51:46.792 --> 51:49.014 waiting on an external CPA to give them 51:49.014 --> 51:51.014 this information . And so , Again , 51:51.014 --> 51:52.903 instead of recording depreciation 51:52.903 --> 51:55.014 monthly , because that , those things 51:55.014 --> 51:57.070 are depreciating monthly . They make 51:57.070 --> 51:59.126 one big adjustment at the end of the 51:59.126 --> 51:59.070 year . So now my financial statements 51:59.070 --> 52:01.590 throughout the year are inaccurate 52:01.590 --> 52:03.423 because I've had costs that I've 52:03.423 --> 52:05.530 incurred that I didn't record . Um , 52:06.030 --> 52:08.750 and , and , and then your , your owners 52:08.750 --> 52:10.639 and your managers , if you're not 52:10.639 --> 52:13.149 closing in a timely manner , the owners 52:13.149 --> 52:15.409 and managers are not getting meaningful 52:15.409 --> 52:17.353 information , right ? They're , if 52:17.353 --> 52:19.590 you're Weeks or months behind in 52:19.590 --> 52:21.646 getting stuff posted and getting the 52:21.646 --> 52:23.868 correct information in there , then the 52:23.868 --> 52:25.830 people who are relying on that 52:25.830 --> 52:28.163 information don't have good information . 52:28.163 --> 52:29.941 And so that that's bad for your 52:29.941 --> 52:33.750 business . Um , and obviously one of 52:33.750 --> 52:35.972 the reasons why the government wants to 52:35.972 --> 52:37.972 make sure you're closing monthly is 52:37.972 --> 52:40.139 because if you're submitting cost type 52:40.139 --> 52:42.306 invoices , they want to make sure that 52:42.306 --> 52:44.139 all of the accurate and complete 52:44.139 --> 52:45.917 information is in each of those 52:45.917 --> 52:48.179 invoices . Um , the government wants to 52:48.179 --> 52:50.500 make sure that you are excluding 52:50.500 --> 52:53.540 unallowable costs . Um , and I said 52:53.540 --> 52:55.707 earlier , I could do a full webinar on 52:55.707 --> 52:57.762 some of these things . And in fact , 52:57.762 --> 52:59.818 many of the topics that we've talked 52:59.818 --> 53:01.818 about today , including unallowable 53:01.818 --> 53:04.040 costs , we do have entire webinars that 53:04.040 --> 53:06.100 are recorded . They are free . I'll 53:06.100 --> 53:08.156 have a link up later , but I'll just 53:08.156 --> 53:10.156 tell you , you can either go to our 53:10.156 --> 53:11.489 website . Uh , which is 53:11.489 --> 53:13.322 leftbrainpro.com . You can go to 53:13.322 --> 53:15.322 YouTube and just search for at Left 53:15.322 --> 53:17.433 Brain Pro on YouTube . It'll take you 53:17.433 --> 53:19.378 to our YouTube channel . We've got 53:19.378 --> 53:21.544 about 50 videos out there ranging from 53:21.544 --> 53:23.689 60 to 90 minutes , all on topics of 53:23.689 --> 53:26.219 government contract accounting . And in 53:26.219 --> 53:28.441 fact , we have a few different versions 53:28.441 --> 53:30.540 on cost allowability and unallowable 53:30.540 --> 53:32.550 costs . So many of the things that 53:32.550 --> 53:34.494 we'll talk about today , if you're 53:34.494 --> 53:36.550 looking for additional information , 53:36.550 --> 53:38.883 just go to our YouTube channel for that . 53:38.883 --> 53:41.050 But the government basically says that 53:41.050 --> 53:43.629 there are certain costs that you will 53:43.629 --> 53:47.479 incur as a , as a 53:47.479 --> 53:50.719 business that the government says are 53:50.719 --> 53:53.719 not really applicable to us and what we 53:53.719 --> 53:56.520 do , and they need to be excluded from 53:56.520 --> 53:58.409 your indirect rates and from your 53:58.409 --> 54:00.800 proposals and pricing . All of that is 54:00.800 --> 54:02.800 covered in FAR 31 , which is one of 54:02.800 --> 54:05.080 those regulations that I brought up 54:05.080 --> 54:07.600 earlier . Um , you need to make sure 54:07.600 --> 54:09.719 that you've got written policies and 54:09.719 --> 54:12.419 procedures to address unallowable costs . 54:12.840 --> 54:15.919 And note that you can have unallowable 54:15.919 --> 54:18.000 time . So it's important that your 54:18.000 --> 54:20.280 timekeeping policy address unallowable 54:20.280 --> 54:23.909 time . Um , your expense reporting , um , 54:24.100 --> 54:26.959 again , things like uh certain travel 54:26.959 --> 54:29.270 expenses can be unallowable . And so if 54:29.270 --> 54:31.437 you have employees who are traveling , 54:31.437 --> 54:33.548 we need to make sure that the expense 54:33.548 --> 54:35.381 reporting policy and procedure . 54:35.381 --> 54:37.326 Addresses that , but also that the 54:37.326 --> 54:40.379 expense tool itself has the appropriate 54:40.379 --> 54:43.860 way for employees to segregate , allow 54:43.860 --> 54:46.139 unallowable costs . Same thing for 54:46.139 --> 54:48.209 purchasing , that you've got the 54:48.209 --> 54:50.659 appropriate GL account set up to 54:50.659 --> 54:52.899 capture these unallowable costs , that 54:52.899 --> 54:55.860 your rate calculations are accurate 54:55.860 --> 54:58.540 because again , unallowable costs come 54:58.540 --> 55:00.790 into factor there . And we have to 55:00.790 --> 55:04.129 consider CAAS 405 . OK . Again , 55:04.669 --> 55:07.090 this CAAS requirement , you may think 55:07.090 --> 55:09.146 that you're exempt from CAAS , but I 55:09.146 --> 55:11.146 will tell you the CAS 405 gives you 55:11.146 --> 55:13.149 some really good guidance on cost 55:13.149 --> 55:15.729 allowability and how to handle those . 55:16.389 --> 55:17.945 Next requirement is for the 55:17.945 --> 55:19.945 identification of costs by contract 55:19.945 --> 55:22.750 line item . I say this is job costing 55:22.750 --> 55:24.972 at the next level , kind of job costing 55:24.972 --> 55:27.229 on steroids . So not only does the 55:27.229 --> 55:30.810 government want to see those direct 55:30.810 --> 55:33.330 costs by contract or by job , but they 55:33.330 --> 55:35.386 want to see it at the lower level by 55:35.386 --> 55:38.169 clean . So if you have a cost type 55:38.169 --> 55:40.840 contract , and let's say you have 4 55:40.840 --> 55:42.810 cleans on there , and you've got a 55:42.810 --> 55:45.050 clean for labor and 1 for travel and 1 55:45.050 --> 55:48.550 for ODCs and 1 for materials . Then you 55:48.550 --> 55:50.717 need to have the appropriate breakdown 55:51.239 --> 55:53.520 in your work breakdown structure , in 55:53.520 --> 55:55.742 your time reporting structure , in your 55:55.742 --> 55:58.280 expense reporting structure to capture 55:58.280 --> 56:00.600 those costs and be able to report them 56:00.600 --> 56:03.879 and invoice them at the clean level . 56:04.699 --> 56:07.179 That also means that for the incurred 56:07.179 --> 56:09.235 cost proposal , you're breaking them 56:09.235 --> 56:11.860 out by clin . It's also important to 56:11.860 --> 56:15.419 make sure that for those contracts 56:15.419 --> 56:17.363 where you have a hybrid contract , 56:17.379 --> 56:19.490 which is not an actual hybrid , there 56:19.490 --> 56:22.100 is no hybrid contract type . If you go 56:22.100 --> 56:25.100 to F 16 , there is no such thing as a 56:25.100 --> 56:28.419 hybrid contract . But we do have hybrid 56:28.419 --> 56:30.370 contracts out there where the 56:30.370 --> 56:32.959 government or your primes issue a 56:32.959 --> 56:35.126 contract to you where some of the line 56:35.126 --> 56:37.237 items are cleansed or fixed price and 56:37.237 --> 56:40.580 some are T&M or cost type . OK , so you 56:40.580 --> 56:43.750 have some mixture of contract types 56:43.750 --> 56:46.060 within your cleanse structure that 56:46.060 --> 56:48.282 needs to be recorded in your accounting 56:48.282 --> 56:50.780 system and in your job and cost 56:50.780 --> 56:53.002 reporting system as well , because that 56:53.002 --> 56:55.199 is important information . So again , 56:55.280 --> 56:57.447 if you've got cleans , we need to make 56:57.447 --> 56:59.669 sure that we're collecting all time and 56:59.669 --> 57:01.836 expenses at the clean level so that we 57:01.836 --> 57:04.040 can do our reporting and invoicing at 57:04.040 --> 57:07.709 the clean level as well . All right , 57:07.800 --> 57:10.022 I'm going to pause for a moment to take 57:10.022 --> 57:12.078 a drink and read . I see a couple of 57:12.078 --> 57:13.300 more questions here . 57:19.870 --> 57:21.759 So the next question is , can the 57:21.759 --> 57:25.229 government award a CPFF if a contractor 57:25.229 --> 57:27.062 has not been audited , cleared , 57:27.062 --> 57:30.070 approved ? In other words , how , when 57:30.070 --> 57:32.181 does the government know they have to 57:32.181 --> 57:34.292 ask for an audit ? If I can't ask for 57:34.292 --> 57:36.237 an audit and the government has no 57:36.237 --> 57:38.237 incentive , no . So let me , let me 57:38.237 --> 57:42.120 clarify here . When the government is 57:42.120 --> 57:44.850 going to make an award to you , they're 57:44.850 --> 57:46.628 going to ask you if you have an 57:46.628 --> 57:48.739 adequate accounting system and do you 57:48.739 --> 57:52.120 have a document for that . Uh 57:52.899 --> 57:55.459 They can look in some government 57:55.459 --> 57:58.050 records for that . So if DCAA has 57:58.050 --> 58:00.979 approved it , um , then DCAA will , or 58:00.979 --> 58:03.540 I should say DCA has has audited it . 58:03.739 --> 58:07.100 DCA will have that . Um , you will at 58:07.100 --> 58:09.649 whatever time that you go through an 58:09.649 --> 58:12.379 approval process , the your contracting 58:12.379 --> 58:15.580 officer will issue you a letter stating 58:15.580 --> 58:17.636 that you have an adequate accounting 58:17.636 --> 58:19.649 system . Um , keep a copy of that 58:19.649 --> 58:21.760 because you'll want it to submit with 58:21.760 --> 58:23.982 other proposals . You'll want to submit 58:23.982 --> 58:25.927 it to other contracting officers , 58:25.927 --> 58:27.871 you'll want to submit it to , um , 58:27.871 --> 58:29.927 primes . Keep in mind that even when 58:29.927 --> 58:32.093 you're dealing with the government , I 58:32.093 --> 58:34.620 jokingly but seriously say this is not 58:34.620 --> 58:36.731 one big happy government . They don't 58:36.731 --> 58:38.787 have all access to the same things . 58:39.080 --> 58:41.247 Remember that you may be , and we have 58:41.247 --> 58:43.919 clients who do work with DOD , DOE , 58:44.459 --> 58:46.459 NASA . I mean they , they deal with 58:46.459 --> 58:48.770 many different offices and agencies in 58:48.770 --> 58:50.770 the government , and they don't all 58:50.770 --> 58:52.826 have access to that information . So 58:52.826 --> 58:54.770 it's also going to be up to you to 58:54.770 --> 58:56.881 support that . I did say earlier that 58:56.881 --> 59:00.719 the Approval or the adequacy 59:00.719 --> 59:04.159 determination , oftentimes may come 59:04.159 --> 59:07.520 through DCAA doing an audit , but there 59:07.520 --> 59:11.219 are other Agencies that 59:11.219 --> 59:13.379 either do their own audits , some of 59:13.379 --> 59:15.601 them will accept , some federal offices 59:15.601 --> 59:17.860 and agencies will accept a letter from 59:17.860 --> 59:20.580 a third party CPA like us . And so 59:20.580 --> 59:22.747 again , having that letter saying that 59:22.747 --> 59:25.024 we've evaluated , we have not approved , 59:25.024 --> 59:27.080 we don't approve it , auditors don't 59:27.080 --> 59:29.191 approve it , but we've evaluated your 59:29.191 --> 59:31.024 system and we believe that it is 59:31.024 --> 59:32.858 adequate and we'll have all that 59:32.858 --> 59:34.913 appropriate language in the letter , 59:34.913 --> 59:36.969 and you can submit that , and that's 59:36.969 --> 59:39.136 what a contracting officer or a grants 59:39.136 --> 59:41.191 officer is looking for . And so when 59:41.191 --> 59:43.302 they're ready , so that the check and 59:43.302 --> 59:45.302 balances , they're ready to make an 59:45.302 --> 59:47.191 award for you and , and , and the 59:47.191 --> 59:49.358 requirement for an adequate accounting 59:49.358 --> 59:51.358 system should be in the RFP , so it 59:51.358 --> 59:54.669 shouldn't be . A surprise to you . You 59:54.669 --> 59:57.310 should know this long before going into 59:57.310 --> 01:00:00.070 the process , but through that whole 01:00:00.070 --> 01:00:03.870 RFP evaluation award process , there's 01:00:03.870 --> 01:00:05.981 going to be , hey , I'm making a cost 01:00:05.981 --> 01:00:08.550 type award . I need to , I'm , I'm the 01:00:08.550 --> 01:00:10.772 contracting officer at the moment . I'm 01:00:10.772 --> 01:00:12.828 making a cost type award . I need to 01:00:12.828 --> 01:00:14.606 make sure they have an adequate 01:00:14.606 --> 01:00:16.828 accounting system . I'm either going to 01:00:16.828 --> 01:00:18.828 look into my records to see if I've 01:00:18.828 --> 01:00:18.419 worked with them in the past , and I 01:00:18.419 --> 01:00:20.141 know they have because they've 01:00:20.141 --> 01:00:22.363 submitted it or I've got a copy of it , 01:00:22.363 --> 01:00:24.475 or I'm going to ask them to submit me 01:00:25.780 --> 01:00:27.979 their certificate or their report from 01:00:27.979 --> 01:00:30.139 somebody else . So hopefully that 01:00:30.139 --> 01:00:32.659 clarifies that problem . And yes , you 01:00:32.659 --> 01:00:36.639 cannot . Uh , you cannot request 01:00:36.639 --> 01:00:38.879 an audit yourself other than working 01:00:38.879 --> 01:00:41.949 with a third-party CPA from like us to 01:00:41.949 --> 01:00:43.671 help you through the process . 01:00:46.080 --> 01:00:47.010 Um , 01:00:50.179 --> 01:00:52.659 Our sponsor at one of the DOD agencies 01:00:52.659 --> 01:00:54.826 asked us to get an approved accounting 01:00:54.826 --> 01:00:56.826 system , and then he can award us a 01:00:56.826 --> 01:01:00.340 CPFO . If you're working with a DOD 01:01:00.340 --> 01:01:03.310 agency , that contracting officer 01:01:03.310 --> 01:01:05.421 should be , they should be requesting 01:01:05.421 --> 01:01:07.477 DCA . They're the ones who do that . 01:01:07.477 --> 01:01:09.659 Again , you can't call DCAA . They 01:01:09.659 --> 01:01:12.629 should be calling DCAA to do that . 01:01:13.310 --> 01:01:15.366 Again , my , my big caution to you , 01:01:15.366 --> 01:01:17.366 while I'd love for you to call us , 01:01:17.366 --> 01:01:19.421 work with somebody to make sure that 01:01:19.421 --> 01:01:21.532 you're actually prepared because what 01:01:21.532 --> 01:01:23.699 you don't want to have happen , and we 01:01:23.699 --> 01:01:26.820 see this . is we see clients who tackle 01:01:26.820 --> 01:01:29.540 this on their own or think they're 01:01:29.540 --> 01:01:31.540 prepared , but they're not really . 01:01:31.860 --> 01:01:34.899 DCAA or some other auditor shows up to 01:01:34.899 --> 01:01:37.820 do the survey or the audit , and 01:01:37.820 --> 01:01:40.042 they're not prepared and then they fail 01:01:40.042 --> 01:01:42.098 the audit and then they have to hire 01:01:42.098 --> 01:01:44.820 somebody like us to do the remediation . 01:01:44.939 --> 01:01:46.939 So one way or another you're paying 01:01:46.939 --> 01:01:48.939 somebody like us either to help you 01:01:48.939 --> 01:01:51.161 prepare . And know that you're going to 01:01:51.161 --> 01:01:53.272 get through it without issues , or if 01:01:53.272 --> 01:01:55.495 you tackle it on your own , quite often 01:01:55.495 --> 01:01:57.606 we see people fail the audit and they 01:01:57.606 --> 01:01:59.772 end up having to hire somebody like us 01:01:59.772 --> 01:02:02.949 to remediate the issues . Uh , and then 01:02:02.949 --> 01:02:05.005 the last one that I see here for the 01:02:05.005 --> 01:02:07.171 moment , in the case of a modification 01:02:07.171 --> 01:02:09.429 under an FFP contract , we have to 01:02:09.429 --> 01:02:12.389 share our costs overhead , etc . At 01:02:12.389 --> 01:02:14.669 that stage , CEOs often ask us for 01:02:14.669 --> 01:02:16.780 overhead rates and markups , or do we 01:02:16.780 --> 01:02:19.113 have a DCA letter to validate our rates ? 01:02:19.113 --> 01:02:20.780 Does this mean we should have 01:02:20.780 --> 01:02:22.891 documented an adequate system ? Great 01:02:22.891 --> 01:02:25.002 question . And so there's a couple of 01:02:25.002 --> 01:02:27.280 things kind of buried in that question . 01:02:27.280 --> 01:02:29.391 Um , the first thing what I'd like to 01:02:29.391 --> 01:02:31.502 clarify is , even if you have a fixed 01:02:31.780 --> 01:02:34.002 price award that doesn't have any other 01:02:34.002 --> 01:02:36.280 cost aspect associated with it , right ? 01:02:36.290 --> 01:02:38.820 So there's no progress payments , um , 01:02:38.899 --> 01:02:40.843 there's no price redetermination , 01:02:40.843 --> 01:02:43.199 there's no , uh , anything like that . 01:02:44.439 --> 01:02:46.661 You have a , you have a fixed price and 01:02:46.661 --> 01:02:48.550 let's say it's awarded based upon 01:02:48.550 --> 01:02:52.479 adequate competition . OK . But now all 01:02:52.479 --> 01:02:55.800 of a sudden , there's a modification to 01:02:55.800 --> 01:02:59.239 that contract . Now there's no 01:02:59.239 --> 01:03:02.110 competition at the modification , right ? 01:03:02.199 --> 01:03:04.143 They're only awarding to you . The 01:03:04.143 --> 01:03:06.199 original award might have been based 01:03:06.199 --> 01:03:08.532 upon modification , but now , I'm sorry , 01:03:08.532 --> 01:03:10.699 the original award may have been based 01:03:10.699 --> 01:03:13.032 upon competition , adequate competition . 01:03:13.032 --> 01:03:15.255 But the modification is only with you . 01:03:15.255 --> 01:03:17.366 There's no adequate competition . And 01:03:17.366 --> 01:03:21.080 so if that modification exceeds 01:03:21.379 --> 01:03:23.268 the truthful cost or pricing data 01:03:23.268 --> 01:03:25.323 threshold , what we used to call the 01:03:25.323 --> 01:03:28.199 TINA threshold of $2 million then 01:03:29.370 --> 01:03:31.370 the government , they , they've got 01:03:31.370 --> 01:03:33.481 that requirement to say you've got to 01:03:33.481 --> 01:03:35.592 submit cost or pricing information to 01:03:35.592 --> 01:03:39.060 us , including indirect rates in order 01:03:39.060 --> 01:03:41.959 for us to evaluate it . Now , if you 01:03:42.100 --> 01:03:44.909 have not otherwise . Previously been 01:03:44.909 --> 01:03:47.179 required to have like a forward pricing 01:03:47.179 --> 01:03:49.401 rate agreement , then obviously you may 01:03:49.401 --> 01:03:51.568 not have that . They're still going to 01:03:51.568 --> 01:03:54.229 request that information and I will say 01:03:54.229 --> 01:03:56.173 that working with somebody like us 01:03:56.173 --> 01:03:59.389 where we can prepare a report and we do 01:03:59.389 --> 01:04:01.278 this , we , we calculate people's 01:04:01.278 --> 01:04:04.149 indirect rates and rewrite a report on 01:04:04.149 --> 01:04:06.093 that calculation of those indirect 01:04:06.093 --> 01:04:09.000 rates to to support that . That can go 01:04:09.000 --> 01:04:11.167 a long way because what the government 01:04:11.167 --> 01:04:13.167 is looking for is they want to know 01:04:13.167 --> 01:04:15.278 that a third party , right , somebody 01:04:15.278 --> 01:04:17.389 outside of your company has looked at 01:04:17.389 --> 01:04:19.360 this . They want comfort in the 01:04:19.360 --> 01:04:21.879 accuracy of those rates . And so that's 01:04:21.879 --> 01:04:24.101 where you're going to need something to 01:04:24.101 --> 01:04:26.350 say , yes , there , there are these 01:04:26.350 --> 01:04:28.183 rates that we're showing you are 01:04:28.183 --> 01:04:30.294 accurate . So hopefully that that's a 01:04:30.294 --> 01:04:32.461 helpful piece of information for you . 01:04:32.659 --> 01:04:35.129 Hey Robert , Robert , real quick , um , 01:04:35.340 --> 01:04:39.239 so there is one in the , uh , the chat . 01:04:39.540 --> 01:04:41.659 OK . What are the negatives of just 01:04:41.659 --> 01:04:44.080 doing firm fixed price as we have done 01:04:44.300 --> 01:04:46.260 on phase one and phase twos ? 01:04:47.560 --> 01:04:50.070 Um , so I would say there's not 01:04:50.070 --> 01:04:53.080 necessarily any negatives to that . Uh , 01:04:53.320 --> 01:04:55.376 again , we do see some phase-2s that 01:04:55.376 --> 01:04:57.598 are awarded fixed price , which is kind 01:04:57.598 --> 01:05:01.550 of interesting . Um , the , the , the 01:05:01.550 --> 01:05:03.717 thing that I would tell you to just to 01:05:03.717 --> 01:05:05.828 be careful of is we hear people say , 01:05:05.828 --> 01:05:07.939 well , I only do fixed price work . I 01:05:07.939 --> 01:05:09.939 don't need to jump through all this 01:05:09.939 --> 01:05:08.909 stuff that you're talking about , 01:05:08.959 --> 01:05:12.550 Robert . And again , I really can't 01:05:12.550 --> 01:05:15.070 stress enough that the information 01:05:15.070 --> 01:05:17.237 you're going to get out of an adequate 01:05:17.237 --> 01:05:19.100 accounting system , out of gap 01:05:19.100 --> 01:05:21.669 compliance , out of calculating , 01:05:21.750 --> 01:05:23.972 monitoring , and managing your indirect 01:05:23.972 --> 01:05:27.100 rates and building budgets . All of 01:05:27.100 --> 01:05:29.211 that is stuff that I talk about in my 01:05:29.211 --> 01:05:31.322 book , and I'm going to talk about it 01:05:31.322 --> 01:05:33.322 again in a little bit , that really 01:05:33.322 --> 01:05:35.378 leads to two things . It gets you to 01:05:35.378 --> 01:05:38.689 total cost recovery , and by that , 01:05:38.739 --> 01:05:41.080 you're then maximizing profitability . 01:05:41.139 --> 01:05:43.028 And that's what you can get . And 01:05:43.028 --> 01:05:45.139 that's why I say that the stuff that 01:05:45.139 --> 01:05:47.580 we're talking about here today is 01:05:47.580 --> 01:05:50.399 applicable regardless of contract type 01:05:50.780 --> 01:05:52.669 and regardless of customer type , 01:05:52.780 --> 01:05:55.002 government or commercial or otherwise . 01:05:57.909 --> 01:06:00.280 OK great . And the other two ones , the 01:06:00.280 --> 01:06:02.447 anonymously attendee , those two , you 01:06:02.447 --> 01:06:04.613 already got those , right ? Yes , OK , 01:06:04.613 --> 01:06:06.613 I'm just getting rid of them as you 01:06:06.613 --> 01:06:08.947 answer them , so it's easier for you to , 01:06:08.947 --> 01:06:11.919 yeah , great , thanks . All right , um , 01:06:12.000 --> 01:06:14.550 oops , I clicked my , so what I want , 01:06:15.159 --> 01:06:16.937 next thing back to our adequate 01:06:16.937 --> 01:06:18.826 accounting system requirements is 01:06:18.826 --> 01:06:20.879 segregation of pre-production costs 01:06:20.879 --> 01:06:23.909 from production costs . Um , key thing 01:06:23.909 --> 01:06:26.580 here is that , uh , sometimes , 01:06:26.830 --> 01:06:28.663 especially like we see this with 01:06:28.663 --> 01:06:31.270 manufacturers where there might be some 01:06:31.270 --> 01:06:33.989 pre-production costs of setting up 01:06:33.989 --> 01:06:37.270 things , they may have to reconfigure 01:06:37.270 --> 01:06:39.603 an assembly line or something like that . 01:06:39.979 --> 01:06:42.270 Um , we've got to make sure that those 01:06:42.270 --> 01:06:44.979 are segregated out , um , because they 01:06:44.979 --> 01:06:47.590 might need to be reported , potentially 01:06:47.590 --> 01:06:49.646 invoiced . They may or may not be an 01:06:49.646 --> 01:06:51.757 allowable cost . So we've got to make 01:06:51.757 --> 01:06:53.868 sure that's separated out . The other 01:06:53.868 --> 01:06:56.090 thing that I tie to this that I like to 01:06:56.090 --> 01:06:58.312 remind people is be very , very careful 01:06:58.312 --> 01:07:00.257 of your period of performance . So 01:07:00.257 --> 01:07:02.423 anytime and expenses need to be within 01:07:02.423 --> 01:07:04.257 the period of performance of the 01:07:04.257 --> 01:07:06.750 contract . If you , if somebody starts 01:07:06.750 --> 01:07:10.070 doing work before The contract period 01:07:10.070 --> 01:07:12.600 of performance or they do work after 01:07:12.600 --> 01:07:14.711 the period of performance , those are 01:07:14.879 --> 01:07:18.110 unbillable and really unallowable costs . 01:07:18.679 --> 01:07:20.846 They are still direct costs . I always 01:07:20.846 --> 01:07:22.957 have to clarify we can't move them to 01:07:22.957 --> 01:07:25.179 overhead or GNA just because I incurred 01:07:25.179 --> 01:07:27.235 those expenses outside the period of 01:07:27.235 --> 01:07:29.401 performance , but they are outside the 01:07:29.401 --> 01:07:31.623 period of performance , and they're not 01:07:31.623 --> 01:07:33.901 part of those allowable contract costs . 01:07:34.310 --> 01:07:36.477 So make sure that your timekeeping and 01:07:36.477 --> 01:07:39.590 expense reporting tools are set up with 01:07:39.590 --> 01:07:41.790 the period of performance to block 01:07:41.790 --> 01:07:43.750 people from charging that time and 01:07:43.750 --> 01:07:46.929 expense outside of there . Uh , other 01:07:46.929 --> 01:07:50.370 requirements is that , um , If you 01:07:50.370 --> 01:07:53.250 have a contract with a limitation of 01:07:53.250 --> 01:07:55.209 cost or a limitation of funds or a 01:07:55.209 --> 01:07:57.320 limitation of payments clause in it , 01:07:57.810 --> 01:08:00.090 that you can support those from the 01:08:00.090 --> 01:08:03.489 system . The key thing here , uh , and 01:08:03.489 --> 01:08:05.489 I'm going to elaborate this and 01:08:05.489 --> 01:08:07.322 reiterate this a couple of times 01:08:07.322 --> 01:08:09.378 because we see people get this wrong 01:08:09.378 --> 01:08:11.211 with these limitation of costs , 01:08:11.211 --> 01:08:13.169 limitation of funds , you need to 01:08:13.169 --> 01:08:15.225 notify the prime or the government , 01:08:15.270 --> 01:08:19.089 whatever the case may be . 60 days 01:08:19.089 --> 01:08:22.310 in advance of when you're going to trip 01:08:22.310 --> 01:08:25.839 the 75% threshold . OK , so let me say 01:08:25.839 --> 01:08:29.319 that again . This is a forward-looking 01:08:29.319 --> 01:08:31.319 requirement , and this is the piece 01:08:31.319 --> 01:08:33.430 that people get messed up . It's easy 01:08:33.430 --> 01:08:37.250 to calculate . My actual cost when I've 01:08:37.250 --> 01:08:40.799 tripped over the 75% threshold . It's 01:08:40.799 --> 01:08:42.709 more difficult to do what is the 01:08:42.709 --> 01:08:45.100 correct thing , and that is to predict 01:08:45.520 --> 01:08:48.319 60 days in the future of when I'm going 01:08:48.319 --> 01:08:51.319 to trip the 75% set threshold , and 01:08:51.319 --> 01:08:53.208 that is the requirement . It is a 01:08:53.208 --> 01:08:56.279 future looking requirement . Um , the 01:08:56.279 --> 01:08:58.799 reason that it is future-looking is 01:08:58.799 --> 01:09:00.799 that the government or your prime , 01:09:00.799 --> 01:09:03.279 whatever the case may be , is trying to 01:09:03.279 --> 01:09:05.839 manage the cost or the money that 01:09:05.839 --> 01:09:08.006 they've allocated . And so this can be 01:09:08.006 --> 01:09:10.228 a couple of things . This can either be 01:09:10.228 --> 01:09:12.450 the contract ceiling , or it could be a 01:09:12.450 --> 01:09:14.617 funding limit , right ? So we've got a 01:09:14.617 --> 01:09:16.839 client right now that has a $20 million 01:09:16.839 --> 01:09:19.172 contract , but they got funded for like , 01:09:19.172 --> 01:09:21.228 I forget now , $3 million.04 million 01:09:21.228 --> 01:09:23.640 dollars , something like that . So they 01:09:23.640 --> 01:09:25.751 have and they're and they're just now 01:09:25.751 --> 01:09:27.807 tripping over that forward looking . 01:09:28.040 --> 01:09:30.262 Hey , wait a minute , at the rate we're 01:09:30.262 --> 01:09:33.639 going , Within 60 days we will exceed 01:09:33.639 --> 01:09:36.519 the 75% threshold , and that's what the 01:09:36.519 --> 01:09:38.686 government or your prime wants to know 01:09:39.358 --> 01:09:41.838 because it's going to take them time to 01:09:41.838 --> 01:09:45.399 process the mod . And or to identify 01:09:45.399 --> 01:09:47.399 additional funding to be able to do 01:09:47.399 --> 01:09:49.455 that , right ? If this is a contract 01:09:49.455 --> 01:09:51.566 ceiling and you're saying , hey , I'm 01:09:51.566 --> 01:09:53.843 not done with the work , but I'm , I'm , 01:09:53.843 --> 01:09:56.010 I'm going to be at 75% and if you want 01:09:56.010 --> 01:09:58.232 me to continue , I'm going to need more 01:09:58.232 --> 01:10:00.288 money . They need to know that . And 01:10:00.288 --> 01:10:00.120 it's the same thing with the funding , 01:10:00.200 --> 01:10:02.359 right ? Because if you wait until you 01:10:02.359 --> 01:10:06.140 actually trip over actual cost of 75% . 01:10:06.870 --> 01:10:09.203 It takes the government time to do that . 01:10:09.203 --> 01:10:11.426 You're going to continue working . It's 01:10:11.426 --> 01:10:14.250 very likely you would then exceed . 01:10:15.000 --> 01:10:18.240 Your ceiling or funding amount while 01:10:18.240 --> 01:10:20.351 the government is still going and now 01:10:20.351 --> 01:10:22.518 you're either at risk or you're forced 01:10:22.518 --> 01:10:25.520 into a stop work and that's not going 01:10:25.520 --> 01:10:28.299 to be good . OK . So just one more time , 01:10:28.310 --> 01:10:30.770 again , this is a forward looking and 01:10:30.770 --> 01:10:32.992 the way we do this is we need to have a 01:10:32.992 --> 01:10:35.399 good project management tool and a good 01:10:35.399 --> 01:10:37.640 burn calculator . I'm sure some of you 01:10:37.640 --> 01:10:39.696 have done that where you're saying , 01:10:39.696 --> 01:10:41.862 hey , I'm looking ahead and I know I'm 01:10:41.862 --> 01:10:44.084 going to burn $10,000 next week and I'm 01:10:44.084 --> 01:10:46.140 going to burn $15,000 the week after 01:10:46.140 --> 01:10:48.609 that and $12,000 the week after that 01:10:49.069 --> 01:10:52.009 and so what you have to do is say , If 01:10:52.009 --> 01:10:54.759 I add up my actual cost to where I am 01:10:54.759 --> 01:10:57.720 today and I look at my burn rate in the 01:10:57.720 --> 01:11:00.770 future , in the next 60 days , if I'm 01:11:00.770 --> 01:11:03.200 going to trip over 75% , I need to 01:11:03.200 --> 01:11:05.890 notify the government now . OK , that's 01:11:05.890 --> 01:11:09.350 the requirement . And 01:11:09.350 --> 01:11:11.950 obviously , I just want to stress , one 01:11:11.950 --> 01:11:14.172 of the ways that you're able to do that 01:11:14.172 --> 01:11:16.479 is having accurate information in the 01:11:16.479 --> 01:11:19.069 income statement , right ? All your 01:11:19.069 --> 01:11:22.140 actual costs accurate , indirect , 01:11:22.500 --> 01:11:25.629 overhead fringe GNA so that that 01:11:25.629 --> 01:11:29.410 calculation is correct . Um , 01:11:29.580 --> 01:11:32.779 hey , Robert , yes , so , uh , I think 01:11:32.779 --> 01:11:34.668 I accidentally deleted one of the 01:11:34.668 --> 01:11:36.890 questions . It was about QuickBooks and 01:11:36.890 --> 01:11:39.057 other , uh , accounting software . Are 01:11:39.057 --> 01:11:41.057 you gonna hit this later , maybe in 01:11:41.057 --> 01:11:43.620 your briefing , or I can , um , I , if 01:11:43.620 --> 01:11:47.259 you give me one second and is it over 01:11:47.259 --> 01:11:49.426 here on the , uh , actually , no , I , 01:11:49.540 --> 01:11:51.762 I thought you had answered it , and I , 01:11:51.762 --> 01:11:53.873 uh , oh , here it is . I see it . You 01:11:53.873 --> 01:11:56.080 got it . I went , yep . I'll come back 01:11:56.080 --> 01:11:58.191 to that in just a minute . Yep , OK , 01:11:58.191 --> 01:12:01.729 cool . Thank you . Thank you , um . So 01:12:01.729 --> 01:12:03.951 one of the other requirements , again , 01:12:03.951 --> 01:12:06.173 we've already talked about the sum , so 01:12:06.173 --> 01:12:08.285 I won't belabor this , but you know , 01:12:08.285 --> 01:12:10.507 is there data there to support progress 01:12:10.507 --> 01:12:10.259 payments , which is a big thing of all 01:12:10.259 --> 01:12:12.481 of what we've been talking about having 01:12:12.481 --> 01:12:15.270 the proper cost information . And as 01:12:15.270 --> 01:12:17.669 the accounting system and the records 01:12:17.669 --> 01:12:19.502 maintained in such a manner that 01:12:19.502 --> 01:12:21.830 adequate data are developed for use and 01:12:21.830 --> 01:12:24.270 pricing follow-on acquisitions . This 01:12:24.270 --> 01:12:26.950 is really critical because as you 01:12:26.950 --> 01:12:29.350 develop a basis of estimate , um , and 01:12:29.350 --> 01:12:31.239 you put together proposals in the 01:12:31.239 --> 01:12:33.509 future , uh , one of the best things 01:12:33.509 --> 01:12:35.310 that you can use for a basis of 01:12:35.310 --> 01:12:39.029 estimate is actual costs from a similar 01:12:39.029 --> 01:12:41.970 or same project in the past . And in 01:12:41.970 --> 01:12:43.803 fact when you do that , then the 01:12:43.803 --> 01:12:45.970 government's going to say great , show 01:12:45.970 --> 01:12:48.081 us the data , right , because they're 01:12:48.081 --> 01:12:47.479 going to say , hey , wait a minute , 01:12:47.520 --> 01:12:49.742 you're proposing a $10 million contract 01:12:49.742 --> 01:12:51.687 for us and you've got , you know , 01:12:51.687 --> 01:12:54.459 15,000 hours of this one labor category . 01:12:54.560 --> 01:12:56.671 How did you come up to that ? How did 01:12:56.671 --> 01:12:58.893 you come up to the price for that phase 01:12:58.893 --> 01:13:01.116 of the project or for that product line 01:13:01.116 --> 01:13:03.449 or whatever that is that you're selling , 01:13:03.449 --> 01:13:05.616 and you're going to say , well , We've 01:13:05.616 --> 01:13:07.782 done that similar project before or we 01:13:07.810 --> 01:13:10.370 do that particular thing all the time 01:13:10.370 --> 01:13:12.592 across all these other projects and the 01:13:12.592 --> 01:13:14.703 government says , great , show me the 01:13:14.703 --> 01:13:16.759 data to support the , the price that 01:13:16.759 --> 01:13:18.814 you're proposing , right ? So that's 01:13:18.814 --> 01:13:20.759 what this is talking about here in 01:13:20.759 --> 01:13:23.100 follow-on acquisitions . And is the 01:13:23.100 --> 01:13:25.211 accounting system in full operation ? 01:13:25.339 --> 01:13:28.279 If not , explain when and why . Um , 01:13:29.419 --> 01:13:32.180 sometimes what happens here is a 01:13:32.180 --> 01:13:34.291 situation where some of the proactive 01:13:34.291 --> 01:13:36.402 stuff that we've talked about today , 01:13:36.402 --> 01:13:38.569 contractors are proactive in trying to 01:13:38.569 --> 01:13:40.680 get the adequate accounting system in 01:13:40.680 --> 01:13:42.680 place . And so they might say , you 01:13:42.680 --> 01:13:44.847 know what , we're really close . We're 01:13:44.847 --> 01:13:47.013 missing these couple of things . We've 01:13:47.013 --> 01:13:49.236 got a solution ready . It's going to be 01:13:49.236 --> 01:13:51.402 ready on this date . And so we may not 01:13:51.402 --> 01:13:53.402 be exactly ready today , but here's 01:13:53.402 --> 01:13:55.402 what's missing and here's how we're 01:13:55.402 --> 01:13:57.736 going to solve that problem . All right . 01:13:57.736 --> 01:14:00.069 So , um , before I go to the next thing , 01:14:00.069 --> 01:14:02.236 I'm gonna come back over here and talk 01:14:02.236 --> 01:14:04.402 about QuickBooks question . Let me see 01:14:04.402 --> 01:14:06.458 that again and then I've got another 01:14:06.458 --> 01:14:06.430 question . OK , what kinds of systems 01:14:06.430 --> 01:14:08.486 are typically affordable and used by 01:14:08.486 --> 01:14:10.652 small businesses to comply with all of 01:14:10.652 --> 01:14:12.819 this ? It doesn't seem like QuickBooks 01:14:12.819 --> 01:14:14.652 um can do it . All right , great 01:14:14.652 --> 01:14:16.899 question . So here's what I say . 01:14:17.240 --> 01:14:19.073 QuickBooks is a good tool . It's 01:14:19.073 --> 01:14:21.296 affordable . It's easy to use . There's 01:14:21.296 --> 01:14:23.407 a lot of support out there , but it's 01:14:23.407 --> 01:14:25.740 not designed for government contractors . 01:14:25.959 --> 01:14:28.439 You can hear me when I say this , you 01:14:28.439 --> 01:14:30.606 can have an adequate accounting system 01:14:30.606 --> 01:14:33.770 with QuickBooks . There's a big however , 01:14:33.839 --> 01:14:37.160 and however is a button a tuxedo is 01:14:37.160 --> 01:14:39.799 what my English professor in college 01:14:39.799 --> 01:14:42.759 said . However , you have to do a bunch 01:14:42.759 --> 01:14:45.479 of other work in order for QuickBooks 01:14:45.479 --> 01:14:47.590 to be an adequate accounting system . 01:14:48.000 --> 01:14:49.778 And that means having an add-on 01:14:49.778 --> 01:14:52.000 timekeeping tool , an add-on expense 01:14:52.000 --> 01:14:54.240 reporting tool , an add-on indirect 01:14:54.240 --> 01:14:58.100 rate tool . It means doing some work 01:14:58.100 --> 01:15:01.060 in Excel and synchronizing and 01:15:01.060 --> 01:15:03.339 uploading and downloading data . And 01:15:03.339 --> 01:15:05.450 the other thing that I would tell you 01:15:05.450 --> 01:15:07.172 is that people say , oh well , 01:15:07.172 --> 01:15:09.006 QuickBooks is easy and cheap and 01:15:09.006 --> 01:15:11.117 affordable , but the moment you start 01:15:11.117 --> 01:15:13.228 adding all these other tools and then 01:15:13.228 --> 01:15:15.006 dealing with the administrative 01:15:15.006 --> 01:15:17.061 nightmare of managing multiple tools 01:15:17.061 --> 01:15:19.283 and getting stuff into Excel and all of 01:15:19.283 --> 01:15:21.339 that type of thing . Um , if they're 01:15:21.339 --> 01:15:24.390 honestly at QuickBooks , a , a , a , a 01:15:24.399 --> 01:15:27.750 comprehensive QuickBooks solution . is 01:15:27.750 --> 01:15:31.430 oftentimes as expensive or more 01:15:31.430 --> 01:15:33.750 expensive we're seeing than some of the 01:15:33.750 --> 01:15:36.310 software that's designed for government 01:15:36.310 --> 01:15:38.689 contractors . If you go to our website , 01:15:38.979 --> 01:15:41.990 click on partners , um , and I'm happy 01:15:41.990 --> 01:15:44.212 to talk about this later if you want to 01:15:44.212 --> 01:15:46.029 contact me . Um , we have other 01:15:46.029 --> 01:15:48.196 software out there that we recommend . 01:15:48.470 --> 01:15:50.637 Quickly , I'll tell you that if you're 01:15:50.637 --> 01:15:52.680 doing services , Procast is a great 01:15:52.680 --> 01:15:55.509 tool for that , very affordable , very 01:15:55.509 --> 01:15:58.049 easy to use , very easy to implement . 01:15:58.509 --> 01:16:00.859 Um , if you're a little larger and more 01:16:00.859 --> 01:16:02.859 complex , there are some tools like 01:16:02.859 --> 01:16:06.450 Deltech , Govcon 365 , Uninet , um , 01:16:06.709 --> 01:16:08.709 those are a little more expensive . 01:16:08.709 --> 01:16:10.931 They're a little more complex . They're 01:16:10.931 --> 01:16:12.870 a little more difficult to Um , 01:16:13.009 --> 01:16:15.009 configure and implement . They're a 01:16:15.009 --> 01:16:17.176 little more expensive to configure and 01:16:17.176 --> 01:16:19.287 implement . Again , they're all great 01:16:19.287 --> 01:16:22.009 tools . Um , I know that no one tool is 01:16:22.009 --> 01:16:24.209 going to solve everybody's budget or 01:16:24.209 --> 01:16:26.950 everybody's schedule . I also know that 01:16:27.169 --> 01:16:29.169 some of those tools have a bunch of 01:16:29.169 --> 01:16:31.225 features in them that some companies 01:16:31.225 --> 01:16:33.450 don't need . And so if you're a 01:16:33.450 --> 01:16:35.394 services provider and you don't do 01:16:35.394 --> 01:16:37.169 inventory , and you don't do 01:16:37.169 --> 01:16:39.391 manufacturing or assembly and you don't 01:16:39.391 --> 01:16:41.613 need some of that other functionality , 01:16:41.613 --> 01:16:43.669 Procast is truly an excellent tool . 01:16:43.669 --> 01:16:45.870 It's very affordable . And if you buy 01:16:45.870 --> 01:16:47.926 into one of the other tools , you're 01:16:47.926 --> 01:16:50.092 going to spend a lot of time and money 01:16:50.092 --> 01:16:52.203 doing something that probably doesn't 01:16:52.203 --> 01:16:54.092 make sense for you . So hopefully 01:16:54.092 --> 01:16:55.814 that's a good answer . Again , 01:16:55.814 --> 01:16:57.870 QuickBooks , I like to be fair , you 01:16:57.870 --> 01:16:59.629 can do it . Um , but it can be 01:16:59.629 --> 01:17:01.790 expensive and , you know , and it's 01:17:01.790 --> 01:17:04.012 gonna take a lot of work to get there . 01:17:04.709 --> 01:17:06.653 Uh , I see another question . As a 01:17:06.653 --> 01:17:08.820 small business , our rates may swing a 01:17:08.820 --> 01:17:10.542 lot year to year . We see that 01:17:10.542 --> 01:17:12.542 sometimes , uh , i.e. , growth year 01:17:12.542 --> 01:17:14.765 with big investments . How do we juggle 01:17:14.765 --> 01:17:16.931 between actual rates versus rates that 01:17:16.931 --> 01:17:19.098 are more aligned to our business model 01:17:19.098 --> 01:17:21.209 for consistent pricing purposes ? For 01:17:21.209 --> 01:17:23.542 example , a cup of coffee in the market , 01:17:23.779 --> 01:17:25.946 with $3 in the market one year and the 01:17:25.946 --> 01:17:27.890 same cup of coffee based upon cost 01:17:27.890 --> 01:17:29.946 might be $500 . How do I manage this 01:17:29.946 --> 01:17:31.890 huge discrepancy of a business and 01:17:31.890 --> 01:17:34.790 still be compliant ? Great question . 01:17:35.049 --> 01:17:37.700 Um , there , there's a 01:17:39.910 --> 01:17:41.790 Part of the answer to that is is 01:17:41.790 --> 01:17:43.846 strategy and advisory . And that's , 01:17:43.846 --> 01:17:46.109 that's part of what we do . Um , the 01:17:46.109 --> 01:17:48.276 first thing that I will tell you is if 01:17:48.669 --> 01:17:50.780 you , you need to capture all of your 01:17:50.780 --> 01:17:53.002 costs , you probably know that you need 01:17:53.002 --> 01:17:55.225 to capture your actual costs . You need 01:17:55.225 --> 01:17:57.391 to measure , you need to have indirect 01:17:57.391 --> 01:17:59.558 rates that are based upon those actual 01:17:59.558 --> 01:18:01.725 costs . Um , you need to have proposal 01:18:01.725 --> 01:18:03.891 rates that are built upon those actual 01:18:03.891 --> 01:18:06.729 costs . And because if you don't , 01:18:07.279 --> 01:18:10.399 you're selling yourself short . Um , I 01:18:10.399 --> 01:18:13.799 say jokingly , but mostly seriously , I 01:18:13.799 --> 01:18:15.910 don't have clients who call me saying 01:18:15.910 --> 01:18:18.021 I've got too much money . Can you get 01:18:18.021 --> 01:18:20.188 it in a wheelbarrow and help me get it 01:18:20.188 --> 01:18:22.410 to the bank ? That's not the question . 01:18:22.410 --> 01:18:24.355 That's not the request I get . The 01:18:24.355 --> 01:18:26.466 request I get is , we're losing money 01:18:26.466 --> 01:18:28.466 on this project or this contract or 01:18:28.466 --> 01:18:30.632 overall , or we're not competitive and 01:18:30.632 --> 01:18:32.799 we're having problems and we're having 01:18:32.799 --> 01:18:34.743 profitability problems . And it is 01:18:34.743 --> 01:18:37.021 often related to stuff like this . Now , 01:18:37.021 --> 01:18:39.077 sometimes what we find is that there 01:18:39.077 --> 01:18:40.855 are issues in the indirect rate 01:18:40.855 --> 01:18:43.077 structure and in the calculations . And 01:18:43.077 --> 01:18:45.299 so that can be a problem . Um , but the 01:18:45.299 --> 01:18:47.521 other is that there's strategy . And so 01:18:47.521 --> 01:18:49.410 part of the strategy and advisory 01:18:49.410 --> 01:18:51.521 services we provide are , hey , we've 01:18:51.521 --> 01:18:53.959 got , we've had this , what I call a 01:18:53.959 --> 01:18:55.792 single indirect rate structure , 01:18:55.792 --> 01:18:57.737 meaning we've got one fringe , one 01:18:57.737 --> 01:18:59.848 overhead , one GNA , we roll it up to 01:18:59.848 --> 01:19:01.848 one indirect rate . That might have 01:19:01.848 --> 01:19:03.959 been good when you started . It might 01:19:03.959 --> 01:19:05.903 be good if you provide one type of 01:19:05.903 --> 01:19:07.903 product or one type of service . If 01:19:07.903 --> 01:19:10.126 you're providing different products and 01:19:10.126 --> 01:19:12.126 services , potentially at different 01:19:12.126 --> 01:19:14.660 locations , so meaning Maybe you have 01:19:14.660 --> 01:19:16.979 some employees who work at a customer 01:19:16.979 --> 01:19:19.379 site versus employees who work at your 01:19:19.379 --> 01:19:21.490 site , versus employees who work from 01:19:21.490 --> 01:19:23.819 home . Um , maybe you have different 01:19:23.819 --> 01:19:25.708 office locations , maybe you have 01:19:25.708 --> 01:19:27.708 different product lines , maybe you 01:19:27.708 --> 01:19:29.763 have manufacturing and engineering . 01:19:29.763 --> 01:19:31.819 You've got some complexities in your 01:19:31.819 --> 01:19:34.750 business that having One indirect rate 01:19:34.750 --> 01:19:36.729 structure to support all of these 01:19:36.729 --> 01:19:38.896 different things going on is affecting 01:19:38.896 --> 01:19:40.840 your pricing , profitability , and 01:19:40.840 --> 01:19:43.229 competitiveness . We help clients 01:19:43.229 --> 01:19:45.270 develop a multiple indirect rate 01:19:45.270 --> 01:19:47.492 structure to address those . That's one 01:19:47.492 --> 01:19:49.790 answer to your question . Another 01:19:49.790 --> 01:19:51.901 answer to your question is it depends 01:19:51.901 --> 01:19:54.500 on What you're investing in and maybe 01:19:54.500 --> 01:19:56.722 are you properly accounting for those . 01:19:56.722 --> 01:19:58.799 So right , there could be situations 01:19:58.799 --> 01:20:00.799 where maybe some of the investments 01:20:00.799 --> 01:20:02.910 you're doing should be on the balance 01:20:02.910 --> 01:20:06.720 sheet and amortized or depreciated 01:20:06.720 --> 01:20:09.720 appropriately in the future . That 01:20:09.720 --> 01:20:11.664 might be an answer to some of what 01:20:11.664 --> 01:20:13.664 you're doing . So without some more 01:20:13.664 --> 01:20:15.720 details , it's hard to know an exact 01:20:15.720 --> 01:20:17.776 answer . I certainly understand it . 01:20:17.776 --> 01:20:19.998 And there are some things that we can't 01:20:19.998 --> 01:20:22.164 control again , in terms of volatility 01:20:22.164 --> 01:20:24.498 of some of the costs in the marketplace , 01:20:24.498 --> 01:20:26.442 but that's a reality , right ? And 01:20:26.442 --> 01:20:28.498 that's , that's something that maybe 01:20:28.498 --> 01:20:30.720 the way we do that is through an EPA or 01:20:30.720 --> 01:20:34.310 an , or Um , a price adjustment 01:20:34.310 --> 01:20:37.950 clause , um , in our 01:20:38.609 --> 01:20:41.399 contracts . So we do a fixed price EPA 01:20:41.399 --> 01:20:43.810 contract where we say , hey , here , 01:20:43.970 --> 01:20:47.819 here's my price today . But I know that 01:20:47.819 --> 01:20:50.140 this price is likely to change in the 01:20:50.140 --> 01:20:52.939 future when you start executing because 01:20:53.140 --> 01:20:55.700 there's volatility in part of that . 01:20:56.020 --> 01:20:58.339 And so you put this EPA clause in for 01:20:58.339 --> 01:21:01.540 the price adjustment , OK ? So again , 01:21:01.689 --> 01:21:03.856 happy to have that conversation deeper 01:21:03.856 --> 01:21:07.020 with you um in the future . All right , 01:21:07.140 --> 01:21:09.196 let's get back to our content here . 01:21:09.196 --> 01:21:11.140 We've got a few more things to get 01:21:11.140 --> 01:21:13.251 through . I have time to stick around 01:21:13.251 --> 01:21:15.307 and ask questions later as well , if 01:21:15.307 --> 01:21:17.529 people want to do that . Um , I do want 01:21:17.529 --> 01:21:19.696 to highlight my book . I will tell you 01:21:19.696 --> 01:21:21.918 that it's available on on Amazon . Um , 01:21:22.209 --> 01:21:24.542 a lot of what we're talking about today , 01:21:24.542 --> 01:21:26.765 especially around this indirect rates , 01:21:26.765 --> 01:21:28.876 pricing , profitability . This is the 01:21:28.876 --> 01:21:31.098 first of 3 books actually , so I've got 01:21:31.098 --> 01:21:31.040 2 more books that are in the works 01:21:31.040 --> 01:21:33.520 that'll be coming out . This book 01:21:33.520 --> 01:21:35.187 really dives into some of the 01:21:35.187 --> 01:21:37.520 fundamentals that we talked about today , 01:21:37.520 --> 01:21:39.576 having your chart of accounts set up 01:21:39.576 --> 01:21:41.687 correctly . That's a big part of your 01:21:41.687 --> 01:21:43.853 all of your financial statements , but 01:21:43.853 --> 01:21:45.799 especially your income statement , 01:21:45.959 --> 01:21:48.015 making sure that it shows you how to 01:21:48.015 --> 01:21:50.015 segregate those direct and indirect 01:21:50.015 --> 01:21:52.237 costs , how to set up your cost pools , 01:21:52.319 --> 01:21:54.080 how to set up an indirect rate 01:21:54.080 --> 01:21:56.279 structure . In fact , I go into a 01:21:56.279 --> 01:21:58.501 little bit of some advisory on advanced 01:21:58.501 --> 01:22:00.919 indirect rate structures in here , how 01:22:00.919 --> 01:22:02.975 that flows through to your pricing . 01:22:03.040 --> 01:22:05.262 And again , one of my things at the end 01:22:05.262 --> 01:22:07.207 of the day is making sure that our 01:22:07.207 --> 01:22:09.040 clients are achieving total cost 01:22:09.040 --> 01:22:11.319 recovery , which is as it sounds , that 01:22:11.319 --> 01:22:13.208 you're covering all of your costs 01:22:13.208 --> 01:22:15.152 through accurate price , through , 01:22:15.160 --> 01:22:17.160 through an accurate roll-up of your 01:22:17.160 --> 01:22:18.938 indirect costs , so that you're 01:22:18.938 --> 01:22:21.330 maximizing profitability , right ? If , 01:22:21.350 --> 01:22:24.000 if you're , if you don't understand and 01:22:24.000 --> 01:22:27.399 or you miscalculate your costs that are 01:22:27.399 --> 01:22:29.850 going into your pricing , I can tell 01:22:29.850 --> 01:22:33.370 you that probably 99.999 times out of 01:22:33.370 --> 01:22:36.859 100 . Contractors are not overcharging 01:22:36.859 --> 01:22:39.026 the government . They're undercharging 01:22:39.026 --> 01:22:41.026 the government . And what does that 01:22:41.026 --> 01:22:43.137 mean ? It means that it's eating into 01:22:43.137 --> 01:22:45.303 your profitability . Profit erosion is 01:22:45.303 --> 01:22:47.192 the term that we use , but you're 01:22:47.192 --> 01:22:49.359 eating into that profitability because 01:22:49.359 --> 01:22:51.303 of issues in the way your indirect 01:22:51.303 --> 01:22:53.137 rates are set up or policies and 01:22:53.137 --> 01:22:53.020 procedures and some other stuff around 01:22:53.020 --> 01:22:56.089 it . And so , Um , you can pick up a 01:22:56.089 --> 01:22:58.529 paperback copy . Um , you can also pick 01:22:58.529 --> 01:23:00.196 up a Kindle version if you're 01:23:00.196 --> 01:23:03.490 interested . But it , it's a , and I 01:23:03.490 --> 01:23:05.601 will tell you , not just for me , but 01:23:05.601 --> 01:23:07.546 people who have read it , who have 01:23:07.546 --> 01:23:09.810 reviewed it for me , this book is 01:23:09.810 --> 01:23:13.319 broken down into bite-sized chunks that 01:23:13.319 --> 01:23:16.410 are easy for a non-accountant to 01:23:16.410 --> 01:23:19.569 understand and digest . All right . Um , 01:23:19.649 --> 01:23:21.927 I want to get into some best practices , 01:23:21.927 --> 01:23:24.038 some of these things I've hinted on , 01:23:24.129 --> 01:23:26.169 um , already . But one of the big 01:23:26.169 --> 01:23:28.447 things is managing your indirect rates , 01:23:28.447 --> 01:23:30.649 right ? It's one thing to calculate 01:23:30.649 --> 01:23:32.760 your indirect rates at the end of the 01:23:32.760 --> 01:23:34.927 year , but are you building a budget ? 01:23:34.927 --> 01:23:37.149 Are you managing those rates throughout 01:23:37.149 --> 01:23:39.316 the year ? Uh , managing it means that 01:23:39.316 --> 01:23:41.538 you need to monitor . It means you need 01:23:41.538 --> 01:23:43.482 to calculate them every month . If 01:23:43.482 --> 01:23:45.649 something doesn't look right , are you 01:23:45.649 --> 01:23:47.871 asking questions ? Why did this rate go 01:23:47.871 --> 01:23:50.093 up ? Why did that rate go down ? What's 01:23:50.093 --> 01:23:52.629 this huge variance in in our budget 01:23:52.629 --> 01:23:54.740 between , you know , these line items 01:23:54.740 --> 01:23:56.907 that we thought we were going to spend 01:23:56.907 --> 01:23:59.073 this , we spent way more or way less , 01:23:59.073 --> 01:24:01.407 you know , something doesn't look right . 01:24:01.407 --> 01:24:03.462 Are you looking at trended financial 01:24:03.462 --> 01:24:05.685 statements ? I'm showing a couple of my 01:24:05.685 --> 01:24:07.740 clients right now , and they never , 01:24:07.740 --> 01:24:09.740 for whatever reason , they've never 01:24:09.740 --> 01:24:12.029 looked at . 2023 , what they what they 01:24:12.029 --> 01:24:14.680 call them for each month . And actually 01:24:14.680 --> 01:24:16.902 comparing the trend throughout the year 01:24:16.902 --> 01:24:19.013 and seeing what's happening . Why did 01:24:19.013 --> 01:24:21.236 this go up ? Why did it go down ? Can't 01:24:21.236 --> 01:24:23.458 you know , and some things do , right ? 01:24:23.458 --> 01:24:25.680 Some things we know that are cyclical . 01:24:25.680 --> 01:24:25.680 Hey , we knew we were going to spend a 01:24:25.680 --> 01:24:27.750 bunch of money in this month on that 01:24:27.750 --> 01:24:30.479 thing . OK , that's great . But maybe 01:24:30.479 --> 01:24:32.950 we didn't . Maybe it got posted wrong . 01:24:33.120 --> 01:24:35.120 I mean , either , so we need to ask 01:24:35.120 --> 01:24:37.287 those questions when something doesn't 01:24:37.287 --> 01:24:39.453 look right . But if you're not closing 01:24:39.453 --> 01:24:41.398 the books on a monthly basis , and 01:24:41.398 --> 01:24:43.453 you're not calculating those rates , 01:24:43.453 --> 01:24:45.453 and you're not actually reading the 01:24:45.453 --> 01:24:47.509 reports and spending time to analyze 01:24:47.509 --> 01:24:47.379 them , then you're not going to get to 01:24:47.379 --> 01:24:49.546 that next level . It's also one of the 01:24:49.546 --> 01:24:51.657 services that we provide . Um , we do 01:24:51.657 --> 01:24:53.779 outsource CFO and controller services 01:24:53.779 --> 01:24:55.580 where you might have a great 01:24:55.580 --> 01:24:57.691 bookkeeping team , but maybe you need 01:24:57.691 --> 01:24:59.913 somebody to help with this higher level 01:24:59.913 --> 01:25:03.060 analysis and advisory services , um , 01:25:03.299 --> 01:25:05.521 you know , in your business . If you're 01:25:05.521 --> 01:25:07.688 not managing indirect rates and you're 01:25:07.688 --> 01:25:09.799 doing cost type work , you can end up 01:25:09.799 --> 01:25:11.355 in a situation where you've 01:25:11.355 --> 01:25:12.910 significantly overbilled or 01:25:12.910 --> 01:25:14.577 significantly underbilled the 01:25:14.577 --> 01:25:16.743 government . And that's a problem . If 01:25:16.743 --> 01:25:18.799 you are overbilling the government , 01:25:18.799 --> 01:25:21.021 then at the end of the year when you do 01:25:21.021 --> 01:25:22.910 that incurred cost proposal , the 01:25:22.910 --> 01:25:25.021 government can be standing there with 01:25:25.021 --> 01:25:24.750 their hand out saying , hey , you owe 01:25:24.750 --> 01:25:27.089 me some money . And that might be 01:25:27.089 --> 01:25:29.367 difficult for you to write a big check , 01:25:29.367 --> 01:25:32.410 uh , or , or to credit that back on 01:25:32.410 --> 01:25:34.632 future invoices . I mean , there's some 01:25:34.632 --> 01:25:36.743 ways to do it , but still , if you've 01:25:36.743 --> 01:25:38.854 overbilled the government and you got 01:25:38.854 --> 01:25:41.021 cash in hand , you may have taken that 01:25:41.021 --> 01:25:42.910 cash and invested it in , uh , in 01:25:42.910 --> 01:25:45.180 internal infrastructure or in business 01:25:45.180 --> 01:25:47.290 development and other things . Not 01:25:47.290 --> 01:25:49.512 saying that it's fraud or anything like 01:25:49.512 --> 01:25:51.623 that , but cash in hand is cash spent 01:25:51.623 --> 01:25:53.790 for many businesses . OK . So that can 01:25:53.790 --> 01:25:55.957 be a problem . If you've significantly 01:25:55.957 --> 01:25:58.290 underbilled the government , then the 01:25:58.290 --> 01:26:01.089 problem for you is that you may be 01:26:01.089 --> 01:26:03.200 significantly delayed in getting that 01:26:03.200 --> 01:26:05.367 money because now you're going to have 01:26:05.367 --> 01:26:07.589 to go through audits and prove that you 01:26:07.589 --> 01:26:07.569 actually , that those rates are correct 01:26:07.569 --> 01:26:09.569 and the government does owe you the 01:26:09.569 --> 01:26:11.569 money . So that can take time . The 01:26:11.569 --> 01:26:14.970 other is that Um , you can end up in a 01:26:14.970 --> 01:26:17.081 situation where the government simply 01:26:17.081 --> 01:26:19.137 doesn't have any more money for that 01:26:19.137 --> 01:26:21.137 program , right ? If they're out of 01:26:21.137 --> 01:26:23.359 appropriations and you're at the end of 01:26:23.359 --> 01:26:23.169 your contract and the end of that 01:26:23.169 --> 01:26:25.336 program , there may be no money left . 01:26:25.336 --> 01:26:27.558 You can have a legitimate claim and the 01:26:27.558 --> 01:26:29.725 government says , we're so sorry , you 01:26:29.725 --> 01:26:31.725 should have told us sooner that you 01:26:31.725 --> 01:26:33.836 were spending more money and maybe we 01:26:33.836 --> 01:26:35.947 could have done something then . That 01:26:35.947 --> 01:26:38.113 also goes back to that forward looking 01:26:38.113 --> 01:26:37.089 stuff that we were talking about 01:26:37.089 --> 01:26:39.689 earlier . And managing rates , OK . 01:26:40.629 --> 01:26:42.685 Hopefully you guys are seeing all of 01:26:42.685 --> 01:26:44.629 this connection back to the income 01:26:44.629 --> 01:26:46.518 statement , back to the financial 01:26:46.518 --> 01:26:48.629 statements . What are some , what are 01:26:48.629 --> 01:26:50.962 some of the things that cause variances ? 01:26:50.962 --> 01:26:53.129 Uh , fluctuation in direct work is one 01:26:53.129 --> 01:26:55.185 of the big ones , right ? So many of 01:26:55.185 --> 01:26:57.462 you probably know that direct expenses , 01:26:57.790 --> 01:26:59.957 uh , including direct labor material , 01:26:59.957 --> 01:27:02.680 travel , ODCs and subcontractors are 01:27:02.680 --> 01:27:04.720 the base or certainly the biggest 01:27:04.720 --> 01:27:06.887 portion of the base of fringe overhead 01:27:06.887 --> 01:27:09.620 and GNA . So if I have a big increase 01:27:09.620 --> 01:27:13.390 or decrease , In direct work , then I 01:27:13.390 --> 01:27:16.490 now am affecting those indirect rates , 01:27:16.540 --> 01:27:18.818 and that could be positive or negative , 01:27:18.919 --> 01:27:21.030 but again , it could then put me in a 01:27:21.030 --> 01:27:23.069 situation where I'm overbilling or 01:27:23.069 --> 01:27:25.490 underbilling the government . Uh , 01:27:25.500 --> 01:27:27.770 budget overruns , oops . Budget 01:27:27.770 --> 01:27:29.937 overruns , I think , go without saying 01:27:29.937 --> 01:27:31.714 that if you spend more money on 01:27:31.714 --> 01:27:33.826 something , it's going to affect your 01:27:33.826 --> 01:27:36.048 rates , period . Labor efficiency , how 01:27:36.048 --> 01:27:38.339 well are your people doing work ? Is it 01:27:38.339 --> 01:27:40.839 taking them more time to do the work 01:27:41.419 --> 01:27:43.419 than what you expected them to do , 01:27:43.419 --> 01:27:45.819 right ? So are you tracking , hey , we 01:27:45.819 --> 01:27:48.779 proposed 1000 hours for this task . 01:27:49.779 --> 01:27:51.835 We've all of a sudden got 1200 hours 01:27:51.835 --> 01:27:54.001 invested in it . Why ? What happened , 01:27:54.060 --> 01:27:56.227 right ? Was our estimate wrong ? Do we 01:27:56.227 --> 01:27:57.949 have people who are not paying 01:27:57.949 --> 01:27:59.949 attention ? Are we doing a bunch of 01:27:59.949 --> 01:28:02.171 rework , right ? There could be various 01:28:02.171 --> 01:28:04.282 things , um , unallowable costs . Did 01:28:04.282 --> 01:28:06.338 we properly account for those in our 01:28:06.338 --> 01:28:08.393 budgeting and in our rates , right ? 01:28:08.393 --> 01:28:10.338 Remember , they are excluded , but 01:28:10.338 --> 01:28:12.504 we've got to be careful in , in making 01:28:12.504 --> 01:28:15.229 sure that that's correct . But it also 01:28:15.229 --> 01:28:17.229 affects our profitability , right ? 01:28:17.229 --> 01:28:19.451 That's stuff that does , and , and they 01:28:19.451 --> 01:28:21.451 are , doesn't mean that they're not 01:28:21.451 --> 01:28:23.562 allowable for tax purposes . They may 01:28:23.562 --> 01:28:25.785 or may not be tax deductible , which is 01:28:25.785 --> 01:28:27.896 a whole other conversation , but they 01:28:27.896 --> 01:28:27.250 do have to be excluded from our 01:28:27.250 --> 01:28:30.240 indirect rates . Um , a little deeper 01:28:30.240 --> 01:28:32.407 into fluctuation in direct work , some 01:28:32.407 --> 01:28:34.573 of the things we see happen are people 01:28:34.573 --> 01:28:36.796 win an unexpected contract , uh , which 01:28:36.796 --> 01:28:38.879 can be great , um , but it can also 01:28:38.879 --> 01:28:41.240 cause problems . Well , how could that 01:28:41.240 --> 01:28:43.640 be bad ? It's not necessarily bad , but 01:28:43.640 --> 01:28:45.807 it will affect your rates . And if you 01:28:45.807 --> 01:28:47.918 don't adjust accordingly , Again , it 01:28:47.918 --> 01:28:49.918 can cause problems down the road on 01:28:49.918 --> 01:28:52.029 those cost type contracts . Losing an 01:28:52.029 --> 01:28:54.196 expected contract or having a contract 01:28:54.196 --> 01:28:56.418 terminated . Maybe I'm not even talking 01:28:56.418 --> 01:28:58.362 for a cause , right ? We know that 01:28:58.362 --> 01:29:00.418 there are stop work orders . We know 01:29:00.418 --> 01:29:02.473 that the government does termination 01:29:02.473 --> 01:29:04.640 for convenience . We know that . Hey , 01:29:04.640 --> 01:29:06.862 we thought the contract was going to be 01:29:06.862 --> 01:29:08.751 awarded in March , and now it got 01:29:08.751 --> 01:29:10.807 pushed to September , and now it got 01:29:10.807 --> 01:29:13.084 pushed to next year . Things like that , 01:29:13.084 --> 01:29:15.251 when we have that stuff built into our 01:29:15.251 --> 01:29:17.251 budgets and built into our proposal 01:29:17.251 --> 01:29:19.196 rates affect reality , right ? And 01:29:19.196 --> 01:29:21.319 we've got to adjust for that . We've 01:29:21.319 --> 01:29:23.680 got to go back . We may have to make 01:29:23.680 --> 01:29:27.069 adjustments to Um , sorry , we may have 01:29:27.069 --> 01:29:29.236 to make adjustments to the budget . We 01:29:29.529 --> 01:29:31.585 may have to adjust our billing rates 01:29:31.585 --> 01:29:33.807 and go back to the government and say , 01:29:33.807 --> 01:29:33.279 hey , we've got to , we've got to 01:29:33.279 --> 01:29:35.446 change our billing rates ASAP or we're 01:29:35.446 --> 01:29:38.430 going to be in a bad situation . Um , 01:29:38.540 --> 01:29:40.762 budget overruns , right ? If you have a 01:29:40.762 --> 01:29:42.818 direct budget overrun , meaning that 01:29:42.818 --> 01:29:45.040 you spend more money on a direct cost , 01:29:45.040 --> 01:29:47.262 it may or may not be billable . Um , if 01:29:47.262 --> 01:29:49.207 it's a fixed price contract , then 01:29:49.207 --> 01:29:50.762 you're just eating into the 01:29:50.762 --> 01:29:52.762 profitability of that contract . If 01:29:52.762 --> 01:29:54.873 it's a cost type contract , you might 01:29:54.873 --> 01:29:56.929 have a cost ceiling that may not get 01:29:56.929 --> 01:29:58.818 increased . And so now you've got 01:29:58.818 --> 01:30:01.040 unbillable direct costs that are eating 01:30:01.040 --> 01:30:02.929 into your overall profitability . 01:30:02.929 --> 01:30:05.151 Obviously , you know , from an indirect 01:30:05.151 --> 01:30:07.373 perspective , if we spend more money on 01:30:07.373 --> 01:30:07.310 rent or utilities or other stuff than 01:30:07.310 --> 01:30:09.310 what we've thought , right , that's 01:30:09.310 --> 01:30:10.977 going to affect our budgets . 01:30:12.700 --> 01:30:15.379 Um , labor efficiency that we talked 01:30:15.379 --> 01:30:18.649 about , um , Uh , 01:30:19.439 --> 01:30:21.606 again , depending on what's , and this 01:30:21.606 --> 01:30:23.606 can be on both sides of the table . 01:30:23.606 --> 01:30:25.772 This can be both direct and indirect . 01:30:25.772 --> 01:30:27.828 And keeping in mind that many of our 01:30:27.828 --> 01:30:30.161 employees , almost all of our employees , 01:30:30.161 --> 01:30:31.939 well , I should say many of our 01:30:31.939 --> 01:30:34.161 employees are doing some amount of both 01:30:34.161 --> 01:30:36.328 direct and indirect work . Always like 01:30:36.328 --> 01:30:38.272 to clarify for people , there is , 01:30:38.272 --> 01:30:40.272 there are no employees who are 100% 01:30:40.272 --> 01:30:42.328 direct . If you think they are , you 01:30:42.328 --> 01:30:44.495 need to talk to me . No employees 100% 01:30:44.495 --> 01:30:47.049 direct because they have PTO holidays , 01:30:47.379 --> 01:30:49.323 and they have overhead . They have 01:30:49.323 --> 01:30:51.323 internal meetings , they have other 01:30:51.323 --> 01:30:53.490 things . Now , again , I , I recognize 01:30:53.490 --> 01:30:55.490 that for some of you , some of that 01:30:55.490 --> 01:30:58.299 overhead labor for many of those 01:30:58.299 --> 01:31:00.540 employees might be minimal . I can 01:31:00.540 --> 01:31:02.859 agree to that . But your direct 01:31:02.859 --> 01:31:05.060 employees almost always have some 01:31:05.060 --> 01:31:07.227 amount of indirect work that they do . 01:31:07.227 --> 01:31:09.282 And in fact , you probably have some 01:31:09.282 --> 01:31:11.393 employees who are doing direct work , 01:31:11.393 --> 01:31:13.529 overhead work . They're doing IRAD , 01:31:13.609 --> 01:31:15.776 they're doing BMP , so they're hitting 01:31:15.776 --> 01:31:19.129 a lot of spots . OK ? And if you get 01:31:19.129 --> 01:31:21.890 that mix of work wrong and that labor 01:31:21.890 --> 01:31:24.549 efficiency in what they're doing , um , 01:31:24.729 --> 01:31:26.840 then obviously that's going to affect 01:31:26.840 --> 01:31:29.740 your rates . Talked about unallowable 01:31:29.740 --> 01:31:33.180 costs and over and underbilling . Uh , 01:31:33.220 --> 01:31:36.680 a little bit Already mentioned that 01:31:36.890 --> 01:31:39.250 monitor those rates , look at the 01:31:39.250 --> 01:31:41.139 reports , ask questions about the 01:31:41.139 --> 01:31:43.649 variances , make sure that you can 01:31:43.649 --> 01:31:45.593 explain . If you can't explain the 01:31:45.593 --> 01:31:47.816 variance , then stop , right ? Somebody 01:31:47.816 --> 01:31:50.319 needs to be able to explain why a rate 01:31:50.319 --> 01:31:52.430 went up or went down . Somebody needs 01:31:52.430 --> 01:31:54.850 to explain why we spent more money or 01:31:54.850 --> 01:31:57.017 less money in a line item than what we 01:31:57.017 --> 01:31:58.906 thought , right ? What's , what's 01:31:58.906 --> 01:32:01.128 happening ? Because if we can't explain 01:32:01.128 --> 01:32:03.350 it , then we need to keep digging until 01:32:03.350 --> 01:32:05.406 we can explain it . And if you can't 01:32:05.406 --> 01:32:07.461 explain it , then you can't fix it , 01:32:07.461 --> 01:32:09.072 right ? What are some of the 01:32:09.072 --> 01:32:12.270 consequences of adequate accounting 01:32:12.270 --> 01:32:14.214 systems and some of the stuff that 01:32:14.214 --> 01:32:16.437 we've talked about today ? Lost profits 01:32:16.437 --> 01:32:18.659 is one of the big ones . I've said that 01:32:18.659 --> 01:32:20.826 already , that if you're not achieving 01:32:20.826 --> 01:32:22.770 total cost recovery , then you are 01:32:22.770 --> 01:32:25.103 absolutely not maximizing profitability . 01:32:25.103 --> 01:32:28.149 And I know many of you uh on , on this 01:32:28.149 --> 01:32:30.109 training today as government 01:32:30.109 --> 01:32:32.165 contractors , you're doing cost type 01:32:32.165 --> 01:32:34.709 contracts and you've got , you know , 01:32:35.020 --> 01:32:38.490 profit and fee of 6 to 8% . I , I know 01:32:38.490 --> 01:32:40.930 that it's out there . And you know , 01:32:41.089 --> 01:32:43.490 the slightest , I mean , you got to 01:32:43.490 --> 01:32:46.379 remember that out of that 6 to 8% , um , 01:32:46.770 --> 01:32:48.826 you're paying corporate taxes out of 01:32:48.826 --> 01:32:50.937 that . You're paying , you're dealing 01:32:50.937 --> 01:32:53.159 with unallowable costs , you're dealing 01:32:53.159 --> 01:32:55.103 with some budget overruns , you're 01:32:55.103 --> 01:32:57.103 dealing with other things , and you 01:32:57.103 --> 01:32:59.326 still need to have working capital left 01:32:59.326 --> 01:33:01.492 right out of that 68% . You need to be 01:33:01.492 --> 01:33:03.714 able to fund the growth of the business 01:33:03.714 --> 01:33:05.770 and other things that are going on . 01:33:05.770 --> 01:33:07.770 And if you're not monitoring all of 01:33:07.770 --> 01:33:10.529 this stuff , those narrow small profit 01:33:10.529 --> 01:33:12.529 margins make that very difficult . 01:33:13.700 --> 01:33:15.533 You're going to have audits as a 01:33:15.533 --> 01:33:17.533 government contractor , you will be 01:33:17.533 --> 01:33:19.756 audited . There's a variety of audits . 01:33:19.756 --> 01:33:22.229 We've talked primarily today about um 01:33:22.759 --> 01:33:24.926 accounting system surveys and audits , 01:33:24.926 --> 01:33:26.870 but you can have the incurred cost 01:33:26.870 --> 01:33:29.180 proposal . You can have a post-award 01:33:29.180 --> 01:33:31.347 accounting system audit , you can have 01:33:31.347 --> 01:33:34.060 contract audits . Um , during those 01:33:34.060 --> 01:33:36.282 audits , you can end up with disallowed 01:33:36.282 --> 01:33:38.616 costs , which will affect profitability , 01:33:38.660 --> 01:33:40.827 um , and what you can bill back to the 01:33:40.827 --> 01:33:42.882 government . Right , so all of these 01:33:42.882 --> 01:33:45.049 things are really , really important . 01:33:45.359 --> 01:33:48.509 Um , My recommendations , I want to 01:33:48.509 --> 01:33:50.731 talk about something that I hinted at a 01:33:50.731 --> 01:33:52.898 few moments ago , and that is from the 01:33:52.898 --> 01:33:54.731 advisory side is looking at your 01:33:54.731 --> 01:33:58.640 indirect rates . And I'm going to um Uh , 01:33:58.649 --> 01:34:00.538 I'm just looking at our time here 01:34:00.538 --> 01:34:02.760 because I want , I know we've got a few 01:34:02.760 --> 01:34:02.450 more questions to get to and I'm 01:34:02.450 --> 01:34:06.419 probably running a tad long . If any 01:34:06.419 --> 01:34:08.910 of these things apply to you , please 01:34:08.910 --> 01:34:11.509 call us . Let's talk . Have you had a 01:34:11.509 --> 01:34:13.565 change in business operations ? Have 01:34:13.565 --> 01:34:15.787 you add or removed a product or service 01:34:15.787 --> 01:34:18.669 line ? Are you phasing out a division ? 01:34:18.709 --> 01:34:20.820 Are you adding a division somewhere ? 01:34:20.820 --> 01:34:22.931 Did you buy another company ? Are you 01:34:22.931 --> 01:34:25.098 contemplating buying another company ? 01:34:25.430 --> 01:34:27.779 All of those things can affect , again , 01:34:27.830 --> 01:34:29.997 what your indirect rate structure is . 01:34:30.310 --> 01:34:32.477 And I will tell you that unless you're 01:34:32.477 --> 01:34:35.479 selling . Services only and it's the 01:34:35.479 --> 01:34:37.520 same services and nothing really 01:34:37.520 --> 01:34:41.020 changes . In that situation , a single 01:34:41.020 --> 01:34:44.979 indirect rate structure might be OK as 01:34:44.979 --> 01:34:47.035 long as the nature of those services 01:34:47.035 --> 01:34:49.201 are the same , but the moment you tell 01:34:49.201 --> 01:34:51.201 me , hey , we've got people working 01:34:51.201 --> 01:34:53.146 from home and people who work at a 01:34:53.146 --> 01:34:55.312 client site and people who work in our 01:34:55.312 --> 01:34:57.201 offices , even as a services only 01:34:57.201 --> 01:34:59.201 provider , you probably need 2 or 3 01:34:59.201 --> 01:35:01.368 different rates . You probably need to 01:35:01.368 --> 01:35:03.479 be looking at your proposals and your 01:35:03.479 --> 01:35:05.590 pricing differently because of that , 01:35:05.590 --> 01:35:07.479 OK . Those things right there can 01:35:07.479 --> 01:35:10.680 affect your competitiveness as well as 01:35:10.680 --> 01:35:13.959 your profitability , OK ? Um , change 01:35:13.959 --> 01:35:16.759 in location . Did you , again , did you 01:35:16.759 --> 01:35:19.092 add a location ? Did you buy a location ? 01:35:19.092 --> 01:35:21.259 Did you open or close a location ? Any 01:35:21.259 --> 01:35:23.315 of those things can affect what your 01:35:23.315 --> 01:35:25.315 indirect rate structure is and what 01:35:25.315 --> 01:35:27.370 your indirect rates are . One of the 01:35:27.370 --> 01:35:29.481 number one reasons clients contact is 01:35:29.481 --> 01:35:31.799 loss of competitiveness . Um , they're 01:35:31.799 --> 01:35:34.120 struggling to properly price their 01:35:34.120 --> 01:35:36.560 products and services and for all the 01:35:36.560 --> 01:35:38.839 reasons that we've already talked about 01:35:38.839 --> 01:35:42.770 today . Reduceed profitability . Uh , 01:35:42.810 --> 01:35:45.140 we oftentimes get clients calls saying , 01:35:45.729 --> 01:35:47.951 and , and they don't have good data . A 01:35:47.951 --> 01:35:49.951 lot of times it's a very notional , 01:35:49.951 --> 01:35:51.951 anecdotal thing , like , I know I'm 01:35:51.951 --> 01:35:54.118 losing money on this product or , or , 01:35:54.118 --> 01:35:56.062 or this service line or I know I'm 01:35:56.062 --> 01:35:58.509 losing money on that contract . Uh , 01:35:58.669 --> 01:36:00.850 they can say , hey , we're , what I've 01:36:00.850 --> 01:36:02.794 heard many times is to say , we're 01:36:02.794 --> 01:36:04.906 doing work , we're sending invoices , 01:36:04.906 --> 01:36:06.961 we're getting paid on the invoices . 01:36:06.961 --> 01:36:09.183 There's just not much money left at the 01:36:09.183 --> 01:36:11.294 end of the month . And , and , and we 01:36:11.294 --> 01:36:13.461 don't have much , you know , free cash 01:36:13.461 --> 01:36:13.319 flow . We don't have much working 01:36:13.319 --> 01:36:15.279 capital , and we don't know what's 01:36:15.279 --> 01:36:18.399 going on . Um , and , and they , and 01:36:18.399 --> 01:36:20.399 sometimes they , again , they might 01:36:20.399 --> 01:36:22.566 know that it's related to a particular 01:36:22.566 --> 01:36:24.732 product or stuff , but , but sometimes 01:36:24.732 --> 01:36:24.479 they don't . They just see , hey , 01:36:24.560 --> 01:36:26.727 there's not much money left at the end 01:36:26.727 --> 01:36:28.893 of the month and , and we don't really 01:36:28.893 --> 01:36:31.171 know what's going on . And , and again , 01:36:31.171 --> 01:36:33.504 it's always around those sort of things . 01:36:33.504 --> 01:36:33.120 When we talked about the book . I hope 01:36:33.120 --> 01:36:36.069 you'll take advantage of that . Um , 01:36:36.100 --> 01:36:38.299 we've got some more Q&A here . I did 01:36:38.299 --> 01:36:40.466 want to get the contact info up before 01:36:40.466 --> 01:36:43.220 I go back to the , uh , last few 01:36:43.220 --> 01:36:45.500 questions . Um , our website is 01:36:45.500 --> 01:36:47.660 leftbrainpro.com . You can send us an 01:36:47.660 --> 01:36:50.180 email support at leftbrainpro.com that 01:36:50.180 --> 01:36:52.236 does come into our help desk so that 01:36:52.236 --> 01:36:54.402 multiple people will see it and answer 01:36:54.402 --> 01:36:56.624 it . You can check out future events on 01:36:56.624 --> 01:36:58.680 our website . If you go to YouTube , 01:36:58.680 --> 01:37:00.791 again , we've got about 50 videos out 01:37:00.791 --> 01:37:03.013 there . And with that , I'm going to go 01:37:03.013 --> 01:37:05.236 back to the other questions . If you've 01:37:05.236 --> 01:37:07.513 got a question you want to put in here , 01:37:07.529 --> 01:37:11.270 please do so . Um , we sell services 01:37:11.270 --> 01:37:13.437 using commercial sell rates based upon 01:37:13.437 --> 01:37:15.381 market research and then typically 01:37:15.381 --> 01:37:17.603 escalate each year based upon the BLS . 01:37:17.839 --> 01:37:19.839 How often should I conduct market 01:37:19.839 --> 01:37:22.006 research to revamp our commercial sale 01:37:22.006 --> 01:37:24.560 rates ? Um , this is a great question . 01:37:24.600 --> 01:37:26.711 And really , there's a couple of , of 01:37:26.711 --> 01:37:28.822 things . There's a , there's a hidden 01:37:28.822 --> 01:37:30.933 answer in there to a kind of a hidden 01:37:30.933 --> 01:37:32.989 question . So the first thing that I 01:37:32.989 --> 01:37:35.044 will say is you need to be on top of 01:37:35.044 --> 01:37:37.229 the market and what's going on . Um , 01:37:37.479 --> 01:37:41.439 while I I think most of our clients 01:37:41.439 --> 01:37:43.661 are fairly aware of what's happening in 01:37:43.661 --> 01:37:46.279 their industry and in the market . I'm 01:37:46.279 --> 01:37:48.501 surprised at times that the clients who 01:37:48.501 --> 01:37:50.612 show up that don't know . They , they 01:37:50.612 --> 01:37:52.723 don't know what their competitors are 01:37:52.723 --> 01:37:54.946 charging . They don't know what the GSA 01:37:54.946 --> 01:37:57.057 rates are , and not the GSA rates are 01:37:57.057 --> 01:37:59.279 the be all end all . Don't , don't take 01:37:59.279 --> 01:38:01.501 that as the final by any means . But it 01:38:01.501 --> 01:38:04.270 is a data point , right ? What What is 01:38:04.270 --> 01:38:06.492 happening in the marketplace . And that 01:38:06.492 --> 01:38:08.770 can be your local geography , national , 01:38:09.319 --> 01:38:11.541 um , you know , what , what's happening 01:38:11.541 --> 01:38:13.652 with the materials and stuff that you 01:38:13.652 --> 01:38:15.600 buy . Um , what are other people 01:38:15.600 --> 01:38:17.489 charging ? What is the government 01:38:17.489 --> 01:38:20.299 paying ? Have , have you looked at , um , 01:38:20.660 --> 01:38:22.771 you , you know , at other contracts ? 01:38:22.771 --> 01:38:24.993 Have you done your research through USA 01:38:24.993 --> 01:38:27.271 Spending.gov and through some other Uh , 01:38:27.271 --> 01:38:29.604 paid tools that are available out there . 01:38:29.660 --> 01:38:31.827 Are you partnering with other people ? 01:38:31.827 --> 01:38:34.049 Do you have access to information other 01:38:34.049 --> 01:38:36.160 way ? Are you talking to people , you 01:38:36.160 --> 01:38:39.160 know , at conferences ? I regularly 01:38:39.660 --> 01:38:42.899 talk to some of my competitors , and 01:38:42.899 --> 01:38:45.220 some of them are , are not so much 01:38:45.220 --> 01:38:47.387 competitors because some of them don't 01:38:47.387 --> 01:38:49.609 do exactly what we do . But I know what 01:38:49.609 --> 01:38:51.720 other accounting firms charge for the 01:38:51.720 --> 01:38:53.942 work that they do . And I know where we 01:38:53.942 --> 01:38:56.276 sit in the marketplace with our pricing . 01:38:56.350 --> 01:38:58.294 Uh , and we're kind of mid-range . 01:38:58.294 --> 01:39:00.350 We're not the high-priced firm , but 01:39:00.350 --> 01:39:02.572 we're not the cheap bookkeeper down the 01:39:02.572 --> 01:39:04.739 street either . We're very focused and 01:39:04.739 --> 01:39:06.850 specialized in what we do . We have a 01:39:06.850 --> 01:39:08.850 very specific skill set and type of 01:39:08.850 --> 01:39:11.183 work that we do . And there's a premium . 01:39:11.183 --> 01:39:13.517 I mean , there's , we pay for that . Um , 01:39:13.517 --> 01:39:15.628 and there's a premium for that . OK . 01:39:15.628 --> 01:39:17.810 Um , I , I would say that you need to 01:39:17.810 --> 01:39:19.910 constantly be doing that market 01:39:19.910 --> 01:39:22.189 research . The hidden question and 01:39:22.189 --> 01:39:25.569 hidden answer in there is , Um , it 01:39:25.569 --> 01:39:27.458 doesn't matter what the market is 01:39:27.458 --> 01:39:29.569 willing to pay if you don't know your 01:39:29.569 --> 01:39:33.330 costs . And what we're going to do is 01:39:33.330 --> 01:39:35.810 help make sure that you understand your 01:39:35.810 --> 01:39:38.049 costs and they are accurate . And the 01:39:38.049 --> 01:39:39.716 example that I give is if the 01:39:39.716 --> 01:39:42.649 marketplace is willing to pay $150 per 01:39:42.649 --> 01:39:45.290 unit , that could be per product , per 01:39:45.290 --> 01:39:47.512 hour , for whatever , it doesn't really 01:39:47.512 --> 01:39:49.679 matter . The marketplace is willing to 01:39:49.679 --> 01:39:53.399 pay $150 per unit . If you roll up the 01:39:53.399 --> 01:39:55.566 cost of your unit , whatever that is , 01:39:55.566 --> 01:39:58.680 and it costs you $148 before any profit 01:39:58.680 --> 01:40:02.410 or fee , Then $2 of 01:40:02.410 --> 01:40:04.688 potential , and I say potential profit . 01:40:05.529 --> 01:40:08.089 Is it worth doing business ? It may not 01:40:08.089 --> 01:40:10.256 be , right ? You either need to figure 01:40:10.256 --> 01:40:12.256 out how can I sell it for more than 01:40:12.256 --> 01:40:15.370 $150 or I need to figure out how to do 01:40:15.370 --> 01:40:17.481 this product or service for less than 01:40:17.481 --> 01:40:19.790 $148 right ? That , that's an important 01:40:19.790 --> 01:40:23.509 thing . Um , If you know that the 01:40:23.509 --> 01:40:25.950 market is willing to pay $150 and we 01:40:25.950 --> 01:40:28.117 roll up your costs and you say , hey , 01:40:28.117 --> 01:40:31.850 it's $120 for me to do that . A 01:40:31.850 --> 01:40:35.100 $30 gross profit or $30 profit margin 01:40:35.100 --> 01:40:37.459 on there . You might say , Robert , how 01:40:37.459 --> 01:40:39.403 can you help me sell more of these 01:40:39.403 --> 01:40:41.459 things , right ? How do I , how do I 01:40:41.459 --> 01:40:43.681 get more of this out there ? But if you 01:40:43.681 --> 01:40:46.209 don't know either . Data point , it 01:40:46.209 --> 01:40:48.729 doesn't matter . Uh , and the , and the 01:40:48.729 --> 01:40:50.896 other example that I'll give you is we 01:40:50.896 --> 01:40:53.649 have people who say , I really got a 01:40:53.649 --> 01:40:55.871 couple of examples . We've had a couple 01:40:55.871 --> 01:40:58.149 of clients come to us and say , Robert , 01:40:58.419 --> 01:41:01.899 We're a sub and the prime has told us 01:41:01.899 --> 01:41:04.220 they're not going to pay more than $10 01:41:04.220 --> 01:41:06.109 per labor category in these labor 01:41:06.109 --> 01:41:08.387 categories , and we know what they are . 01:41:08.387 --> 01:41:10.498 We need help to figure out how we can 01:41:10.498 --> 01:41:13.299 sell at a lower cost , right ? We know 01:41:13.299 --> 01:41:15.188 what the price is . The prime has 01:41:15.188 --> 01:41:17.410 already said this is all we're going to 01:41:17.410 --> 01:41:19.720 pay . But , but we need to figure out 01:41:19.720 --> 01:41:22.540 how to work on our , on our cost so 01:41:22.540 --> 01:41:24.818 that we can maximize our profitability , 01:41:24.818 --> 01:41:27.040 right ? So that's one thing . The other 01:41:27.040 --> 01:41:29.970 is that we've had people develop 01:41:29.970 --> 01:41:32.137 pricing and they say , well , I just , 01:41:32.290 --> 01:41:34.401 I know what , I know what my previous 01:41:34.401 --> 01:41:36.346 employer charged or I know what my 01:41:36.346 --> 01:41:39.080 previous employer's rates were , or I 01:41:39.080 --> 01:41:41.191 guessed or somebody said I should use 01:41:41.191 --> 01:41:43.720 this number . OK , that's not , that's , 01:41:43.779 --> 01:41:46.057 those are not good data points , right ? 01:41:46.057 --> 01:41:48.112 So , so that's an important thing to 01:41:48.112 --> 01:41:51.830 know . Um , Next question , what 01:41:51.830 --> 01:41:54.209 is , so wrap rate profits , what's the 01:41:54.209 --> 01:41:56.899 suggested profit percentage ? So a 01:41:56.899 --> 01:41:59.066 couple of things really quickly . I do 01:41:59.066 --> 01:42:01.288 want to clarify that when we talk about 01:42:01.288 --> 01:42:03.399 the term rates , there are some other 01:42:03.399 --> 01:42:05.629 terms out there . So a wrap rate is 01:42:05.629 --> 01:42:08.750 inclusive of profit or fee . A burdened 01:42:08.750 --> 01:42:10.990 rate is really your break-even rate , 01:42:11.149 --> 01:42:14.589 right ? So that's my , that's my costs 01:42:14.589 --> 01:42:17.350 rolled up . So a burdened rate would be 01:42:17.350 --> 01:42:19.572 a break-even rate without any profit or 01:42:19.572 --> 01:42:22.470 fee . Your provisional billing rates 01:42:22.470 --> 01:42:24.581 would be the rates that you've agreed 01:42:24.581 --> 01:42:26.748 to oftentimes with DCAA that they give 01:42:26.748 --> 01:42:28.859 you an approved billing rate that you 01:42:28.859 --> 01:42:30.637 can use . So this would be your 01:42:30.637 --> 01:42:34.049 provisional billing rates . Um . Profit 01:42:34.049 --> 01:42:36.750 or fee is a great question . Uh , there 01:42:36.750 --> 01:42:40.549 are only a few regulatory limits to 01:42:40.649 --> 01:42:43.529 profit or fee , and those are around 01:42:43.529 --> 01:42:46.250 cost type contracts . So your cost type 01:42:46.250 --> 01:42:50.169 rewards for R&D , it's an R&D contract , 01:42:50.890 --> 01:42:54.290 the profit or fee is limited to 15% of 01:42:54.290 --> 01:42:57.870 estimated costs . Uh , all other cost 01:42:57.870 --> 01:43:00.629 type rewards are limited to 10% of 01:43:00.629 --> 01:43:03.709 estimated costs . There's another limit 01:43:03.709 --> 01:43:06.520 around total price of A&E contracts . 01:43:06.580 --> 01:43:08.580 It has nothing to do with fee , but 01:43:08.580 --> 01:43:11.430 there is a total on that . And then 01:43:11.430 --> 01:43:13.486 otherwise , I don't want to say that 01:43:13.486 --> 01:43:15.708 the sky is the limit because that's not 01:43:15.708 --> 01:43:17.874 true , but I would say that especially 01:43:17.874 --> 01:43:19.763 if you are providing a commercial 01:43:19.763 --> 01:43:21.986 product or service , you should be able 01:43:21.986 --> 01:43:24.250 to charge a commercial product . Or 01:43:24.250 --> 01:43:26.370 service fee or rate , right , based 01:43:26.370 --> 01:43:28.569 upon what the market is doing . And 01:43:28.569 --> 01:43:30.569 there's a deeper conversation about 01:43:30.569 --> 01:43:32.625 commercial products and services and 01:43:32.625 --> 01:43:34.736 does it qualify and some stuff around 01:43:34.736 --> 01:43:36.979 that . But if you're selling an 01:43:36.979 --> 01:43:39.090 electrical engineer to the government 01:43:39.090 --> 01:43:41.201 and the going price for an electrical 01:43:41.201 --> 01:43:43.500 engineer one is $250 an hour , and then 01:43:43.500 --> 01:43:45.556 that's what the government should be 01:43:45.556 --> 01:43:47.500 paying you regardless of what your 01:43:47.500 --> 01:43:49.611 costs are and regardless of what your 01:43:49.839 --> 01:43:53.669 profitability is in that , right ? Now , 01:43:53.750 --> 01:43:56.549 does that mean , uh , I , I mean , you 01:43:56.549 --> 01:43:58.382 know , probably if you're hiring 01:43:58.382 --> 01:44:00.605 electrical engineers , you're not going 01:44:00.605 --> 01:44:02.605 to get super high profit margins in 01:44:02.605 --> 01:44:06.250 there , but something to consider . I 01:44:06.250 --> 01:44:10.049 will say that we see clients again 01:44:10.049 --> 01:44:13.250 on fixed price work often able to 01:44:13.250 --> 01:44:16.390 calculate in 1518 , 20% , 01:44:17.439 --> 01:44:19.661 sometimes more . I've seen a few higher 01:44:19.661 --> 01:44:22.649 ones , but , you know , 15 to 20% as a 01:44:22.649 --> 01:44:26.419 profit or fee on fixed price work we do 01:44:26.419 --> 01:44:30.350 see happen quite often . All right , um , 01:44:31.140 --> 01:44:33.251 I want to say thanks to everybody for 01:44:33.251 --> 01:44:35.418 sticking around . I'll give you just a 01:44:35.418 --> 01:44:37.418 couple of more minutes . I think we 01:44:37.418 --> 01:44:37.169 answered all the questions . If I 01:44:37.169 --> 01:44:39.660 missed something , please let me know 01:44:39.660 --> 01:44:42.779 or jump in here . Uh , thank you again 01:44:42.779 --> 01:44:44.890 for the opportunity , Jim . We always 01:44:44.890 --> 01:44:46.946 appreciate it . And if anybody's got 01:44:46.946 --> 01:44:49.001 any follow-up questions that come to 01:44:49.001 --> 01:44:51.299 you later today , next week , shoot 01:44:51.299 --> 01:44:53.410 them to us at support@fframepro.com . 01:44:54.450 --> 01:44:57.569 Yeah . Thank you so much , Robert . Uh , 01:44:57.669 --> 01:44:59.836 we will , we will be doing a follow-up 01:44:59.836 --> 01:45:01.836 after this , so , uh , send out the 01:45:01.836 --> 01:45:04.910 slides and I'll send the recording to 01:45:04.910 --> 01:45:07.077 some of the folks that weren't able to 01:45:07.077 --> 01:45:10.290 attend today but did register , um , so 01:45:10.290 --> 01:45:12.750 yeah . And if Robert , if you can 01:45:12.750 --> 01:45:14.972 provide me the slides , I can take care 01:45:14.972 --> 01:45:18.879 of that for you and And do a sound good . 01:45:19.290 --> 01:45:21.290 Sounds good . Thank you again . All 01:45:21.290 --> 01:45:23.457 right , cool . All right guys , have a 01:45:23.457 --> 01:45:25.679 great rest of your day and enjoy that , 01:45:25.679 --> 01:45:28.009 uh , sunny California weather , Robert . 01:45:28.509 --> 01:45:31.569 I it is cloudy today , so I'll give you 01:45:31.569 --> 01:45:33.609 that . Oh , it is cloudy . Sounds 01:45:33.609 --> 01:45:37.129 terrible . All right , 01:45:37.569 --> 01:45:39.569 great seeing you again too . Yeah , 01:45:39.569 --> 01:45:41.330 thanks , we'll see you , bye .