How contract administration costs are billed

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1. The surcharge and the people it pays

Buyers pay a contract administration services (CAS) surcharge on sales procurements, and the surcharge in turn pays the Defense Department offices that do the work (FMR Vol. 15, Ch. 7, para. 16.3.1). Section 7 of Chapter 8 of Volume 15 of the Financial Management Regulation sets out how those offices bill for their costs (FMR Vol. 15, Ch. 8, para. 7.0). It covers actual administrative costs, actual CAS costs, transportation and packing. This piece takes the first two. The surcharge rates and the countries exempt from them are covered in what goes into the price, and what can be waived.

2. Administrative costs

Actual administrative costs are funded by an allotment based on an approved administrative budget (FMR Vol. 15, Ch. 8, para. 7.1). Obligations and outlays against that allotment must be supported by documents showing the obligation was proper. The allotment holder keeps those source documents for audit and reports use of the allotment on the required status reports.

3. A monthly voucher for CAS

Components that perform contract administration or audit on sales cases bill monthly (FMR Vol. 15, Ch. 8, para. 7.2.1). They submit a certified SF 1080, the voucher for transfers between appropriations or funds, to their servicing accounting office. The bill covers quality assurance, contract management and audit, and reflects the actual or proportionate share of the CAS attributable to sales.

The performing organization validates every bill before submitting it, attesting to the computation (FMR Vol. 15, Ch. 8, para. 7.2.2). The approved reimbursable rate and the unfunded civilian retirement rate are published by fiscal year. Any adjustment or correction must be made within 30 days of its discovery.

Each SF 1080 for actual costs carries a supporting schedule (FMR Vol. 15, Ch. 8, para. 7.2.4). It names the organization, the type of effort and the cost recoupment basis. It shows the annual hourly rates for CAS set by the Comptroller’s office, plus unfunded civilian retirement costs. It also cites the authority for the work, and explains why the normal billing arrangements for the authorized components cannot be used.

4. Who may bill, and on what basis

The regulation lists the components authorized to bill for CAS, and gives each an allocation method (FMR Vol. 15, Ch. 8, para. 7.2.3). Army ammunition plants allocate contract management and quality assurance by the ratio of sales disbursements to total net disbursements (FMR Vol. 15, Ch. 8, para. 7.2.3.1). Naval Sea Systems Command bills for the Navy Supervisors of Shipbuilding, Conversion, and Repair, allocating by actual hours (FMR Vol. 15, Ch. 8, para. 7.2.3.2). Two Air Force organizations also allocate by actual hours (FMR Vol. 15, Ch. 8, para. 7.2.3.3).

Each of those components computes the unfunded civilian retirement rate and shows it on the monthly bill. The Defense Contract Audit Agency, outside its headquarters offices, allocates contract audit by actual hours spent on sales work (FMR Vol. 15, Ch. 8, para. 7.2.3.6). Any other activity may bill only under an exception granted by the Comptroller’s office, which sets the recoupment method (FMR Vol. 15, Ch. 8, para. 7.2.3.7).

5. The Defense Contract Management Agency rate

The Defense Contract Management Agency (DCMA) works in the United States on an annual command rate, set by August 1 for the following fiscal year (FMR Vol. 15, Ch. 8, para. 7.2.3.4.1). The rate is the ratio of net sales contract disbursements to total Department net contract disbursements, over twelve months of prior data. The regulation’s example uses January to December 2010 data for the fiscal year 2012 billing period, with the rate due by August 1, 2011.

The numerator is twelve months of net trust fund contract disbursements from the relevant disbursing stations (FMR Vol. 15, Ch. 8, para. 7.2.3.4.1.1). It leaves out disbursements covered by reciprocal agreements and other CAS waivers. It also leaves out payments that are not contract costs, such as in-house work by civil servants financed by the administrative surcharge. The denominator is twelve months of total Department net contract disbursements (FMR Vol. 15, Ch. 8, para. 7.2.3.4.1.2).

Each quarter DCMA updates the count of full-time equivalents doing CAS on sales work in the United States (FMR Vol. 15, Ch. 8, para. 7.2.3.4.2). In that computation, hours and work force figures are rounded to whole numbers, and dollars and percentages to the second decimal point. Each month it prepares an earnings computation sheet and certification memorandum (FMR Vol. 15, Ch. 8, para. 7.2.3.4.3). Monthly earnings, and the unfunded civilian retirement amount, are computed with the annual command rate and the listed data sources (FMR Vol. 15, Ch. 8, para. 7.2.3.4.3.1). Overtime is shown separately, and the unfunded retirement factor is not computed on overtime hours, because it applies to basic pay only (FMR Vol. 15, Ch. 8, para. 7.2.3.4.3.2).

6. DCMA International

Work by DCMA International is reimbursed on actual costs, based on net disbursements processed by the Defense Finance and Accounting Service (FMR Vol. 15, Ch. 8, para. 7.2.3.5.1). Military pay is computed and reimbursed as well. The surcharge account pays all costs of full-time sales employees there, including equipment, vehicles and housing, so their monthly bills rest on total actual cost (FMR Vol. 15, Ch. 8, para. 7.2.3.5.2).

Part-time staff are treated differently. They are reimbursed at the Department’s CAS hourly rate plus the unfunded retirement rate, with no other support costs except overseas temporary duty. Bills must exclude all costs tied to countries with CAS waivers or reciprocal agreements (FMR Vol. 15, Ch. 8, para. 7.2.3.5.3). Contract administration performed for work outside sales cases is charged under the separate reimbursable rules (FMR Vol. 15, Ch. 8, para. 7.2.5).

Key terms

SF 1080	The voucher for transfers between appropriations or funds, used to bill actual CAS costs.
Annual command rate	DCMA’s ratio of sales to total net contract disbursements, set by August 1 for the next fiscal year.
Functional work force	DCMA’s count of full-time equivalents on sales CAS, updated each quarter.
Unfunded civilian retirement rate	The published rate added to civilian salary costs, not computed on overtime.
DCMA International	The part of DCMA whose sales CAS is reimbursed on actual costs.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

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