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GOOD MORNING

[00:00:01]

EVERYONE.

GOOD MORNING.

OH, SO THAT WAS GREAT.

SO IF YOU WERE HERE IN DECEMBER, WELCOME BACK IF YOU ARE NEW TO A TP.

WELCOME.

UH, THESE ARE OUR HOME SPACES, SO WE'D LIKE TO INVITE YOU IN TO SEE WHERE WE WORK AND WHAT WE DO EVERY DAY.

UM, I AM GONNA PAUSE AND DO A SAFETY MOMENT.

WE'RE GONNA TRY TO BUILD THESE INTO EVERYTHING THAT WE DO FROM NOW ON.

SO, FIRST OF ALL, OUR EXITS ARE OBVIOUSLY THESE DOORS HERE AND THEN OUT THE FRONT.

UM, WHO IN THE AUDIENCE CAN CALL 9 1 1 IN AN EMERGENCY? WHO WANTS TO CLAIM THAT? AND WHAT'S YOUR NAME, SIR? KEVIN YANG.

KEVIN YANG.

I GOT YOU.

WHO IN THE, IN THE AUDIENCE KNOWS? CPR, UH, IN THE BACK.

I, I ALREADY KNOW YOUR NAME.

SO YOU'RE IN, YOU'RE IN CHARGE OF THAT.

WE DO HAVE AEDS LOCATED IN THE KITCHEN.

AND IF YOU'RE LOOKING FOR FIRE EXTINGUISHERS, KITCHEN AREA AND IN THIS, UM, UH, OUTSIDE EATERY AREA.

OTHER THAN THAT, UM, WELCOME TO THE ROOM FOR THE DAY.

THIS MORNING IS ALL ABOUT YOU ALL TO LEARN ABOUT DBES EDUCATION ON WHAT THE PROGRAM IS AND HOW TO GET INVOLVED IN, IN A TP PROJECTS.

IN THE AFTERNOON, IT'LL BE NETWORKING, NETWORKING, NETWORKING.

SO STAY HERE ALL DAY, ENJOY THE DAY WITH US.

THE LUNCHTIME HOUR, WE DO HAVE A FOOD TRUCK OUT OUTSIDE FOR YOU TO PURCHASE FROM TO MAKE IT EASIER.

SO LET'S GET STARTED.

I WANNA INTRODUCE, FIRST OF ALL, ONE OF OUR ESTEEMED A TP BOARD MEMBERS, JUAN GARZA, WHO IS AN ADVOCATE AND A CHAMPION FOR LOCAL BUSINESS HERE IN AUSTIN.

AND HE'LL GIVE A FEW WELCOME REMARKS.

THANK YOU, COURTNEY.

I WOULD USE THE MIC 'CAUSE MY VOICE IS KIND OF FALTERING TODAY.

UH, NORMALLY I DON'T LIKE TO READ SOME PREPARED REMARKS, BUT THIS IS SUCH AN IMPORTANT, UH, GATHERING THAT, UM, I FELT I WANT SURE THAT I COVERED EVERYTHING THAT NEEDS TO BE COVERED.

UH, FIRST OF ALL, WE REALLY ARE, UH, BUT, UH, GRATEFUL THAT YOU'RE HERE, UH, TO HELP US, UM, WHEN A TP WAS FORMED, THAT IT WAS OBVIOUS TO ALL OF YOU, I THINK ALL OF YOU, ALL OF YOU, THAT, THAT, UH, THAT PARTICULAR ATTENTION WAS THAT THIS IS A TRUE PUBLIC PRIVATE VENTURE.

IT, THE WORK CANNOT BE DONE WITHOUT THE PRIVATE SECTOR PARTNERING WITH US TO GET IT DONE.

SO THANK YOU FOR BEING HERE THIS MORNING.

A LOT HAS HAPPENED SINCE OUR LAST, UH, GATHERING BACK IN DECEMBER, UM, HERE IN THIS VERY BUILDING.

THE UPDATE THAT PROBABLY OF MOST INTEREST TO ALL OF YOU IS THAT WE HAVE NOW ANNOUNCED PUBLICLY THAT WE INTEND TO BEGIN CONSTRUCTION IN 2027, AND WE HAVE TO HAVE THE FIRST TRAINS RUNNING BY 2023.

THE MUCH WORK MEANT TO BE DONE BETWEEN NOW AND THEN, INCLUDING MAKING SURE THAT WE HAVE THE CONTRACTORS AND WORKERS THAT WE NEED TO SUCCESSFULLY COMPLETE THE PROJECT.

TODAY'S EVENT IS ESPECIALLY DESIGNED, UH, TO OFFER SMALL AND MINORITY OWNED BUSINESSES INTERESTED IN WORKING IN THE CLOUD PROJECT, THE OPPORTUNITY TO CONNECT TO INFORMATION AND POTENTIAL PARTNERS TO HELP THEM, UM, UH, GET ON THIS JOURNEY WITH US.

UM, FOR SUMMARY OF THE PROCESS, IT WILL BEGIN BY QUALIFYING FOR THE FEDERAL DISADVANTAGED BUSINESS ENTERPRISE PROGRAM, DPE PROGRAM.

IT'S A LITTLE MORE STRINGENT THAN THE CITY'S, UH, M-B-A-W-B PROGRAM, AND IT MEANS FILLING OUT A BUNCH OF FORMS. BUT THE GOOD NEWS IS THAT, UH, QUALIFYING FOR THIS FEDERAL, UH, PROGRAM OPENS DOOR TO OPPORTUNITIES NOT ONLY TO PARTICIPATE WITH US, BUT ALSO OTHER FEDERALLY FUNDED PROJECTS SUCH AS THE I 35 CORRIDOR AND THE AIRPORT EXPANSION.

SO THAT'S GOOD NEWS, BUT IT STILL MEANS FILLING OUT FORMS. SO WE HAVE STAFF MEMBERS HERE TO HELP YOU IN THAT PROCESS TO GET YOU STARTED IN THAT PROCESS.

SO, UH, DON'T, UH, BE PUT OUT BY THAT.

UM, THE SECOND PART OF TODAY IS EVENT.

IT'S DESIGNED TO INTRODUCE SMALL AND MINORITY OWN BUSINESSES TO LARGER, UH, PARTNERS.

UM, THIS IS REALLY, REALLY IMPORTANT IN MY CAREER, I HAVE SEEN, UH, STARTUPS, UH, REALLY DO VERY WELL BY PARTNERING AND THEN BEING VERY EFFECTIVE PARTNERS WITH THE LARGE CORPORATIONS.

AND WE HOPE THAT WE CAN HELP YOU DO THAT AND, UM, AND GET SO SIMPLE BECAUSE AT THE END OF THE DAY, THE SMALL FIRMS THAT ARE LOCATED HERE IN AUSTIN PAY LOCAL TAXES.

THEY HIRE LOCAL PEOPLE FOR THEIR, AS THEIR EMPLOYEES.

THEY SPEND THEIR MONEY HERE.

IT IMPROVES OUR ECONOMY.

SO WE WANT TO DO BUSINESS WITH YOU.

UM, THEN MANY OF THE PARTNERS, IN FACT, ALL THE PARTNERS THAT WE WILL DO BUSINESS WITH, WILL HAVE HAD A LOT OF EXPERIENCE BUILDING LARGE SUCCESSFUL PROJECTS, UM, IN THE PAST.

AND, UM, IT WILL BE OF GREAT BENEFIT TO ALL OF YOU TO BE PARTNER WITH THEM AND AGAIN, TO BE VERY SUCCESSFUL WITH THEM.

UM, WE WANT YOU TO GAIN EXPERIENCE, GET, UH, CLOSE WITH THOSE PARTNERS, UH, SO MAYBE IT CAN LEAD TO MORE WORK FOR YOU IN THE FUTURE.

UM, WE HOPE THAT TODAY'S, UH, SESSION IS VALUABLE TO YOU.

WE LOOK FORWARD TO HELPING YOU AND WE LOOK, UH, FORWARD TO DOING BUSINESS.

THANK YOU FOR BEING HERE AGAIN THIS MORNING.

WE REALLY, REALLY APPRECIATE YOU.

THANK YOU.

YOU CAN GO AND HAVE A SEAT.

I'LL MOVE MY BOARD MEMBER RIGHT ON OVER.

SO THIS MORNING, THE FIRST SESSION OF OUR MORNING IS ABOUT

[00:05:01]

OVERHEAD RATES, WHICH MAY SOUND SUPER EXCITING AND FUN.

UM, WHAT WE HAVE SEEN ON OUR CONTRACTS ON THE PROFESSIONAL SERVICES SIDE IS THAT SOMETIMES THIS IS A CHALLENGE OF UNDERSTANDING WHAT IT IS WE'RE ASKING FOR, FOR OVERHEAD RATES, WHY WE NEED THEM, AND HOW TO GET THERE.

BECAUSE FOR SMALL BUSINESSES, UM, THIS IS A CHALLENGE.

SO OUR GOAL HERE IS TO MAKE SURE THAT WE MAKE IT AS SIMPLE AS PO POSSIBLE.

SIMPLIFY THE PROCESS HOWEVER WE CAN, AND HEAR YOUR CONCERNS AND ANSWER TO THEM.

UH, SO WE HAVE A GREAT TEAM HERE FROM EY WHO'S PUT TOGETHER A PRESENTATION FOR US TO WALK YOU THROUGH IT.

AND SO ENJOY, CLICK, TRUST ME, YOU'RE GONNA ENJOY IT.

AWESOME.

UH, THANKS COURTNEY.

UM, IS CLICKER ON BY CHANCE? UH, IT'S NOT ONE.

OH, THERE WE GO.

THAT WAS ME.

OH, OKAY.

WELL, UH, YEAH.

NICE TO MEET EVERYONE.

UM, SO MY NAME IS SHHE .

I'M A SENIOR MANAGER IN OUR GOVERNMENT CONTRACTS PRACTICE AT ERNST AND YOUNG.

SO OUR, OUR PRACTICE, WE HAVE EXPERIENCE HELPING SMALL BUSINESSES TO FORTUNE 50 COMPANIES JUST NAVIGATE THE REGULATORY COMPLEXITIES OF DOING BUSINESS WITH THE GOVERNMENT, RIGHT? SO THAT INCLUDES FEDERAL CONTRACTS, GRANTS, AND REALLY ACROSS ENTIRE LIFE CYCLE.

WE FOCUS ON PRICING, COST, ACCOUNTING, PROCUREMENT, OTHER OPERATIONAL COMPLIANCE MATTERS.

SO REALLY JUST HELPING YOU NAVIGATE HOW TO DO BUSINESS WITH THE GOVERNMENT, AND ALSO DEALING WITH ANY OVERSIGHT AGENCIES SUCH AS DEPARTMENT OF TRANSPORTATION OR OTHER GOVERNMENT AGENCIES.

UM, I SHOULD GO TO THE NEXT SLIDE, PLEASE.

UM, SO TODAY WE ARE GONNA GO THROUGH OVERHEAD, OVERHEAD RATES.

SO WE'RE GONNA GO THROUGH THE CONS, PRINCIPLES THAT GOES UNDER THE OVERHEAD RATES, HOW TO DEVELOP OVERHEAD RATES, AND REALLY EVEN THE, THE AUDIT LIFE CYCLE OF HOW TO PROCURE AUDITORS AND HOW TO GET THROUGH A AUDIT OVERHEAD RATE.

I THINK THIS DOES SEEM LIKE A LOT, BUT A LOT OF TIMES THIS IS BENEFICIAL.

SO THIS DOES PROVIDE AN OPPORTUNITY FOR YOU TO RECOVER CERTAIN BACK OFFICE COSTS OR COSTS OF EVEN DOING COMPLIANCE WITH THINGS LIKE DEVELOPING OVERHEAD RATES.

THERE IS OPPORTUNITIES TO COMPLIANTLY DEVELOP OVERHEAD RATES, AND ALSO, UH, RECOVER COSTS IN A COMPLIANT MANNER THROUGH THE, THROUGH, UH, GOVERNMENT FUNDED, UH, AWARDS.

UM, JUST INTRODUCTION FOR OUR TEAM.

SO MYSELF SHOW OGGI.

UM, I HAVE JOHN GALT, UH, WHO'S WITH ME, WITH HERE WITH ME AS WELL.

BUT OUR, OUR TEAM HAS, UH, WE'RE A TEAM OF EXPERIENCED CONSULTANTS AS WELL AS FORMER GOVERNMENT AUDITORS AND INDUSTRY PROFESSIONALS.

UM, WE ALSO HAVE FOLKS THAT, UH, HAVE EXPERIENCE WITH OVERHEAD AUDITS.

SO JOHN IS ACTUALLY ONE OF THEM.

SO IT WOULD BE GREAT TO HEAR SOME INSIGHTS AS IT RELATES TO WHAT HE LOOKS FOR AND HOW TO REALLY GET THROUGH THE AUDITS, UH, AND HAVE A AUDIT, UH, AUDITED OVERHEAD RATE IN PLACE TO DO BUSINESS WITH THE GOVERNMENT.

SO I'LL PASS IT ON TO JOHN TO START OFF WITH THE, UH, ACTUALLY GO TO THE NEXT SLIDE, PLEASE.

SO, AGENDA TODAY, WILL, JOHN WILL KICK THINGS OFF GOING THROUGH THE COMPLIANCE REQUIREMENTS.

UM, I'LL GO THROUGH HOW TO REALLY DEVELOP, MONITOR, AND ADMINISTER INDOOR COST RATES.

UM, WE'LL GO THROUGH THE RISKS OF NON-COMPLIANCE.

SO JUST WHY, WHY COMPLIANCE IS IMPORTANT OVERALL FOR THESE, UH, OVERHEAD RATES.

UM, NAVIGATING THE OVERHEAD AUDIT PROCESS ITSELF.

AND THEN WE'LL KIND OF TALK ABOUT NEXT STEPS.

SO THINGS THAT YOU CAN DO IN THE SHORT TERM, UM, AND AS WELL AS THE LONG TERM AS YOU'VE CONTINUED YOUR JOURNEY WITH, UH, A DP AND OTHER, UH, OPPORTUNITIES FOR FEDERAL FUNDING.

I'LL PASS OVER TO JOHN.

ALRIGHT, THANKS SHAY.

YEAH, JOHN GOT HERE.

GREAT TO MEET EVERYONE.

UM, LOOKING FORWARD TO SPEAKING THROUGH THE COMPLIANCE REQUIREMENTS.

UM, AND I, HE SAID I HAVE EXPERIENCE WITH OVERHEAD AUDITS AND, UM, WORKING THROUGH THOSE, DEALING WITH THE COGNIZANT AUDIT AGENCY.

SO WE'LL TALK THROUGH THAT.

UH, IF YOU CAN CLICK ON THE NEXT SLIDE AND THEN THE NEXT ONE.

ALRIGHT, COOL.

SO I GUESS THE FIRST THING IS, WHAT'S THE PURPOSE OF TODAY? I MEAN, SO, UH, A TP IS A LOCAL GOVERNMENT CORPORATION.

THEY'RE SUBJECT TO SPECIFIC PROCUREMENT STANDARDS UNDER TWO CFR, UM, SUB SUB PART D.

AND ONE OF THAT, I'LL JUST SUMMARIZE WHAT'S LISTED UP HERE.

THEY BASICALLY HAVE TO GO WHEN THEY'RE GOING OUT TO BID FOR, UH, PRIME CONTRACTORS AND SUBCONTRACTORS, THEY HAVE TO NEGOTIATE A PRICE THAT'S CONSIDERED FAIR AND REASONABLE, UM, BASED ON GOVERNMENT STANDARDS INCLUDING, UH, FEDERAL COST PRINCIPLES.

SO WHAT'S THAT, WHAT THAT MEANS FOR YOU ALL IS THAT THEY'RE LOOKING FOR YOU ALL TO PROVIDE, UM, UH, PROPOSE AS WELL AS BILL ON YOUR, ON YOUR CONTRACTS USING RATES THAT HAVE BEEN, UM, COMPLIANT PURSUANT TO THE FEDERAL COST PRINCIPLES.

AND THAT MEANS YOUR, YOUR OVERHEAD RATES REALLY.

SO THAT'S KIND OF LIKE THE APPLICABILITY OF TODAY'S CONVERSATION, UM, AND WHY WE'RE HERE.

UH, AND THAT INCLUDES EVERYTHING FROM THE, THE LIFECYCLE PREPARING YOUR PROPOSED ESTIMATE TO BILLING.

SO YOU MAKING SURE THAT YOUR, UH, THAT OVERHEAD RATE'S BUILT IN THE PROPOSED AUDIT AND IT'S AUDITED AND YOU'RE PROPOSING IT TO THE A TP AND THEN THROUGHOUT YOUR BILLINGS THAT YOU'RE SCRUBBING YOUR DIRECT COSTS FOR, FOR THOSE UN ALLOWABLE COSTS THAT ARE PURSUANT TO THE THOROUGH COST PRINCIPLES.

SO, UM, IF WE CAN GO TO THE NEXT SLIDE AND WE'LL TAKE ANY QUESTIONS ANYONE HAS TODAY AS WE GO THROUGH THOSE SLIDES.

SO FIRST, THE FEDERAL, UH, FAR PART 31 COST PRINCIPLES.

THESE ARE ALSO UNDER CFR SUBPART E AS WELL.

[00:10:01]

BUT THE, FOR THE, FOR-PROFIT ENTITIES THAT ARE SUBJECT AS YOU ALL, THAT'S, UH, FAR PART 31.

COST PRINCIPLES ARE THE SAME THING AS WHAT'S IN CFR SUB PART D.

UM, SO REALLY THE APPLICABILITY, THIS IS APPLICABLE TO COST TYPE CONTRACTS AND SUBCONTRACTS, UM, FIXED PRICE CONTRACTS TO THE POINT THAT IT'S A THRESHOLD THAT'S ABOVE A CERTAIN, UM, LIMITATION WHERE YOU HAVE TO SUBMIT CERTIFIED COST AND PRICING DATA, UM, IN THE GOVERNMENT LENS.

THAT WOULD BE, UH, IF ATP'S PROCURING SOMETHING AND THEY NEED TO GO OUT TO MARKET FOR SOMETHING THAT'S GREATER THAN $2 MILLION.

SO, UM, THEY HAVE TO MAKE SURE THEY NEGOTIATE THAT BASED ON CERTIFIED COST AND PRICING DATA.

AND THAT'S ON BEHALF OF YOU ALL'S THE POPULATION TO SUBMIT THAT INFORMATION.

UM, AND THE COST PRINCIPLES ARE IN EFFECT WHEN THE, WHEN CONTRACTS AWARDED APPLICABLE FOR THE LIFE OF THE CONTRACT WITH CERTAIN SECTIONS AND APPLIES TO FEDERAL AND STATE CONTRACTS AND SUBCONTRACTS.

UM, UH, SOME OF THE THINGS, THE OVERHEAD CERTIFICATES AND PENALTIES FOR LIABLE COSTS.

SO BASICALLY, WHENEVER YOU'RE CERTIFYING THAT ON YOUR, UH, PROPOSAL THAT YOU'VE, YOUR RATES, PART OF YOUR OVERHEAD RATE HAS BEEN AUDITED, PART OF THAT, UM, PROPOSED, UH, AN OVERHEAD RATE IS THAT YOU'RE CERTIFYING TO THAT.

SO THERE COULD BE A RISK OF DOUBLE AND TREBLE DAMAGES AND INTEREST IF THAT IS ACTUALLY, THAT CERTIFICATION IS ACTUALLY NOT, NOT CORRECT.

SO, UH, THAT'S THE IMPORTANCE OF HAVING AN AUDITED RATE FROM A EXPERIENCED AUDITOR TO MAKE SURE THAT KIND OF PROVES OUT THAT, UH, STAMPS YOUR APPROVAL, THAT THE OVER RATE YOU'RE USING IS, UM, UH, ACCURATE.

SO I'LL GO TO THE NEXT SLIDE.

ALRIGHT, SO TWO OF THE KEY CONCEPTS AROUND, UH, JUST AN OVERHEAD RATE IN GENERAL IS YOU HAVE YOUR DIRECT COST, THE COST THAT YOU'RE ON THE FRONT FOR PART OF YOUR INVOICE, YOUR LABOR, YOUR DIRECT LABOR, UM, SOME OF YOUR MATERIALS AS WELL AS YOUR OTHER DIRECT COSTS.

SO MAYBE LIKE SOME TRAVEL THAT'S INCURRED THAT, THAT IS RELATED DIRECTLY TO THAT EFFORT.

UM, SO THE ACTUAL DEFINITIONS LISTED ABOVE, AND IT'S REFERENCED AT THE FEDERAL ACQUISITION REGULATION TWO PART TWO, WHICH IS WHERE ALL THE DEFINITIONS ARE, ARE HOUSED.

UM, SO IT'S SOMETHING THAT RELATES TO A PARTICULAR COST OBJECTIVE AND CAN BE TRACED TO, UM, SOMETHING THAT'S SPECIFICALLY IDENTIFIABLE WITHIN THAT PARTICULAR COST, UH, CONTRACT OR COST OBJECTIVE.

UM, IN INDIRECT COSTS ARE THOSE OTHER COSTS THAT ARE REMAINING THAT ARE NOT IDENTIFIABLE TO THAT PARTICULAR PIECE OF WORK YOU'RE WORKING ON, WHETHER IT'S, UH, AN OVERHEAD TYPE FUNCTION THAT'S PERFORMING ASSISTANCE TO SUPPORT MULTIPLE OBJECTIVES WHERE YOU CAN'T, IT, IT, IT WOULD BE TOO COST AND EFFICIENT TO IDENTIFY THAT SPECIFIC PERSON'S WORK AND, AND BE ABLE TO, UH, SEGREGATE IT THAT WAY.

SO THOSE TYPES OF INDIRECT COSTS ARE YOUR OVERHEAD TYPE FUNCTIONS THAT SUPPORT THE WORK YOU'RE DOING IN THE FIELD ON SITE.

SO THAT'S WHAT AN INDIRECT COST IS.

UM, AND THAT'S ULTIMATELY ALLOCATED TO THE COST OBJECTIVE, UH, VIA AN ALLOCATION BASE.

MOST OF THAT, MOSTLY THAT WOULD BE DIRECT LABOR, UM, PAYROLL FOR, UH, UM, ENGINEERING CONSTRUCTION TYPE INDUSTRY.

SO I'LL GO TO THE NEXT SLIDE, PLEASE.

UM, SO DIRECT COST, THIS IS JUST GETTING BACK INTO THE, THE CONTRACTOR'S RESPONSIBLE FOR DEFINING THE TYPES OF COSTS THAT WILL, THAT WILL ACCOUNT FOR AS DIRECT COST.

UM, SOME OF THE COSTS ARE NORMALLY DEFINED AS DIRECT COST.

I MENTIONED THIS EARLIER, IT'S YOUR MATERIAL SUBCONTRACT COST, YOUR DIRECT LABOR, AND THOSE, UH, DIRECT PERFORMANCE TYPE LABOR.

THAT'S FOR THE ACTUAL PERFORMANCE OF THAT, OF YOUR AWARD.

UM, THERE'S SOME COSTS THAT ARE DE DEFINED AS DIRECT COST BY SOME, BUT, UH, OTHERS THAT ARE INDIRECT.

AND THIS WOULD BE THOSE INSTANCES WHERE, UM, MAYBE LIKE THE, YOUR, YOUR AGREEMENT WITH, UH, A TP COSTS FOR LIKE SPECIFIC PROJECT MANAGEMENT, SO LIKE YOUR BILLING PROJECT MANAGEMENT, SO THAT SOMETIMES THAT COULD BE PART OF THAT CONTRACT WOULD BE PROJECT MANAGEMENT VIA A DIRECT COST OR SIMILAR TO QUALITY ASSURANCE TYPE COST.

SO, UM, AND I GUESS DEFINING WHAT'S ACCOUNTED FOR AS DIRECT COST, THAT DIRECT COST INVOLVE INVOLVES BALANCING THE ACCURACY OF THE COST ACCOUNTING AND THE ADMINISTRATIVE BURDEN COST.

SO LIKE I MENTIONED, YOU MAY BE, YOU MAY BE ABLE TO CERTAIN THINGS, CERTAIN TYPES OF FUNCTIONS WHERE YOU CAN FIGURE OUT THAT, OH, WE'RE ABLE TO TRACK THIS AND DEFINE IT, THAT THIS PERSON'S WORKING THIS AMOUNT OF TIME ON THIS CONTRACT.

WELL, THEN OTHER TIMES IT COULD BE LIKE A-A-C-E-O TYPE EXECUTIVE OR WHERE YOU CAN'T REALLY, IT'S TOO COST PROHIBITIVE TO TRY AND TRACK THEIR TIME FOR THE LITTLE PIECES.

THEY MAYBE, UH, WORK ON THE, UH, DIRECT CONTRACT.

SO THAT PERSON IS A OVERHEAD TYPE FUNCTION, GNA TYPE FUNCTION, AND THEY'RE, UM, REIMBURSED THROUGH THE OVERHEAD RATE.

SO I'LL GO TO THE NEXT SLIDE.

LOOKS LIKE I HAVE THE CLICKER.

UH, OKAY.

UH, AND THEN INDIRECT COSTS.

THOSE ARE NORMALLY ALLOCATED THAT BENEFIT FROM THESE COSTS.

SO THESE ARE USUALLY GROUPED INTO COMMON POOLS AND CHARGED THE COST OBJECTIVES THROUGH AN ALLOCATION OR INDIRECT RATE.

UM, THE ALLOCATION BASE ATTEMPTS TO INDIRECT OR ALLOCATE THE INDIRECT COST TO THE PROJECT BASED ON RELATIVE BENEFIT RECEIVED.

THIS IS CALLED THE CAUSAL BENEFICIAL RELATIONSHIP.

SO,

[00:15:01]

UH, THE WAY THAT THE, THE FEDERAL ACQUISITION REGULATIONS SUB PARTY DEFINE IT, YOU, YOU WANT TO GROUP ALL OF YOUR, UM, CO INDIRECT COST AND HOMOGENOUS, THAT'S THE DEFINITION.

THEY USE HOMOGENOUS TYPES OF COSTS TOGETHER, AND THAT WILL BECOME YOUR POOL.

AND THEN THAT WILL BE ALLOCATED OVER YOUR BASE, WHICH, IF YOUR BASE IS REALLY MADE UP OF, I MEAN, YOUR POOL IS MADE UP OF DIRECT LABOR AND LABOR MANAGEMENT TYPE OF, I MEAN, IF YOUR POOL IS MADE UP OF MANAGEMENT TYPE FUNCTIONS, THEN YOUR BASE IS ALWAYS GONNA BE A SORT OF A PAYROLL DIRECT LABOR TYPE ALLOCATION BASE, UM, WHICH I THINK IS MOST APPLICABLE TO YOU ALL.

UH, THE OTHER SIDE IS IF YOU HAVE, IT'S NOT, IT'S NOT MANAGEMENT FUNCTIONS IN YOUR POOL AS YOUR, YOUR OVERHEAD ARE NOT MANAGEMENT FUNCTIONS.

IT'S REALLY A RESOURCE OUTPUT, WHICH IS WHAT YOU SEE IN LIKE A ASSEMBLY LINE TYPE CONSTRUCTION WHERE THERE THE RESOURCE OUTPUT IS THE BASE.

SO, UM, OTHER THAN THAT.

ALRIGHT, COOL.

SO GETTING DOWN TO THE ALLOWABILITY CRITERIA.

SO REALLY THE A CO THE WAY THAT THEY JUST DEFINE IT IS THAT EVERY COST IS, UH, SUBJECT TO A TEST OF ALLOWABILITY, WHICH MEANS THAT THE ABILITY TO CLAIM THAT AS A COST ON MY, ON MY PROJECT OR CONTRACT WITH, FOR INSTANCE, A TP, UM, THERE'S THREE, THERE'S A FEW, UH, THERE'S FIVE OF 'EM LISTED HERE, LIKE THE, UH, COMPETENCIES YOU HAVE TO MEET TO BE ABLE TO PASS THE ALLOWABILITY TESTS.

AND THAT'S REALLY BASED ON THESE, THE REASONABLENESS, THE APPLICABILITY OF THE COST, WHICH IS DOES THAT COST, IS IT APPLICABLE TO THIS? UM, IS IT APPLICABLE TO THIS CONTRACT OR IS IT APPLICABLE TO THIS OVERHEAD POOL? MAYBE WE HAVE A, A POOL FOR THAT'S ON SITE OVER OVERHEAD, OR WE HAVE OFFSITE, UH, OVERHEAD POOL.

SO MAKING SURE THAT THOSE COSTS ARE ELIGIBLE TO THAT, UM, TO THAT PARTICULAR OBJECTIVE.

UM, THE COST ACCOUNTING STANDARDS ARE LISTED HERE, ARE OTHERWISE GENERALLY ACCEPTED PRINCIPLES AND PRACTICES APPROPRIATE TO THE CIRCUMSTANCES.

SO WHAT THIS IS SAYING IS THAT, UH, THE COST ACCOUNTING STANDARDS ARE ANOTHER, LIKE, I WOULD SAY ANOTHER STEP UP OF, OF, UM, REQUIREMENTS.

BUT THIS IS LISTED IN THE FAR PART 31 SECTION HERE BECAUSE THERE'S CERTAIN, UM, COST PRINCIPLES THAT INCORPORATE COST ACCOUNTING STANDARDS BY REFERENCE.

AND I'LL JUST TRY TO GIVE A A BRIEF EXAMPLE.

ONE OF THE, UH, COST PRINCIPLES IS AROUND, UM, COMPENSATION.

THEY HAVE TONS OF JUST WHAT HAPPENS WHEN I HAVE BIG SEVERANCE OR ARIF REDUCTION IN FORCE, OR WHAT HAPPENS, UM, WHEN I, WHAT DO I DO WITH MY PENSION COSTS? HOW DO I MEASURE THEIR ACCOUNT FOR THOSE AND ASSIGN THOSE.

AND REALLY WHAT IT SAYS THAT YOU HAVE TO, YOU HAVE TO ASSIGN AND ALLOCATE AND MEASURE THOSE IN ACCORDANCE WITH YOUR, YOUR CAST STANDARDS.

SO THERE'S LIKE CERTAIN STANDARDS THAT YOU'RE INCORPORATED BY REFERENCE TO, UM, TO, UH, TO ADHERE TO THANK YOU .

UH, AND IN THE TERMS OF THE CONTRACT, SO THERE COULD BE DIFFERENT THINGS THAT ARE SUBJECT TO THE CONTRACT WHERE YOU HAVE TO, UM, YOU'LL BE UPHELD TO SPECIFIC, IF IT'S A MUTUALLY AGREED UPON ALLOWABILITY OF A COST, THEN YOU HAVE TO, UM, ADHERE TO THAT IN TERMS OF, SO THAT'S AN EXTRA LAYER TO CHECK ON EACH CONTRACT, REALLY, MOST OF 'EM ARE GONNA BE UPHELD TO THE FAR COST PRINCIPLES, BUT THERE COULD BE THAT NUANCE THERE.

UM, AND THEN THE FAR SUBPAR, 31.2 LIMITATIONS.

SO THERE'S SOME 2 0 2 0 5 THERE SELECTED COSTS WHERE THEY ACT ACTUALLY SPELL OUT EXPRESSLY UN ALLOWABLE COSTS, UM, ENTERTAINMENT AND ALCOHOL.

WE'LL GET TO THOSE UH, IN A MINUTE.

ALRIGHT.

AND THEN THE ONE, SO RIGHT HERE WE'RE TALKING ABOUT REASONABLE, SO THEY GO INTO MORE DETAIL AS TO WHAT EQUATES TO REASONABLENESS.

AND THAT'S REALLY LIKE, WHAT IS, IS THIS A COST THAT'S BEING DONE IN THE NATURAL COURSE OF BUSINESS? IS IT BASED ON THOSE, THOSE COMPETENCIES AROUND ACCEPTED BUSINESS PRACTICES IN ARMS LEAGUE TRANSACTION? UM, IS IT MEET, IS IT IN ACCORDANCE WITH FEDERAL AND STATE LAWS? UH, SO IT'S REALLY, ARE YOU NOT DEVIATING FROM YOUR ESTABLISHED PRACTICES WHEN YOU'RE, UH, WHEN YOU'RE PERFORMING, WHEN YOU'RE DOING, WHEN YOU'RE CLAIMING THIS TYPE OF COST.

UH, SO IT'S REALLY JUST, IS THAT COST REASONABLE IN THE NORMAL COURSE OF BUSINESS? AND IS IT IN COMPLIANCE WITH, UM, NORMAL ACCOUNTING STANDARDS LIKE GAP AND REASONABLENESS? SO APPLICABILITY, THIS IS REALLY, I TRY TO, I PROBABLY WENT THIS EARLIER, BUT THE FACTORS FOR DETERMINING APPLICABILITY, THOSE ARE THE, THE COSTS ARE SPECIFICALLY, UH, ENCOURAGED SPECIFIC FOR THE CONTRACT THAT COULD BE OUT, THAT WHEN THE APPLICABILITY TRACE AND OTHERS AROUND THE REASONABLE PORTION OF THE WORK TO THE BENEFITS RECEIVED, THIS IS REALLY GETTING INTO THE, UH, INDIRECT COST AND THAT CAUSE A BENEFICIAL RELATIONSHIP TO DETERMINE IF SOMETHING'S APPLICABLE TO THE CONTRACT, UM, AND THEN COST NECESSARY TO THE OVERALL OPERATION OF THE BUSINESS.

UM, NO DIRECT RELATIONSHIP TO ANY PARTICULAR COST OBJECTIVE.

SO, UH, THE APPLICABILITY PART IS WHERE YOU CAN GET, UM, HURT.

THERE IS REALLY WHEN YOU HAVE, UH, IF YOU HAVE CERTAIN PRACTICES WHERE YOU'RE TREATING COSTS DIFFERENTLY FOR LIKE CIRCUMSTANCES.

SO I THINK IT'S, IT'S GOOD TO HAVE A SET PRACTICES IN PLACE WHERE I'M GONNA, YOU KNOW, IF I'M ON, IF I'M DOING TRAVEL, IT'S GONNA BE BASED ON A SPECIFIC, UH, POLICY WHERE I'M INCURRING TRAVEL DIRECT FOR A CONTRACT, I'M GONNA CHARGE IT DIRECT.

IF IT'S INDIRECT, I'M GONNA CHARGE IT HERE.

SO HAVING THOSE GUIDELINES

[00:20:01]

IN PLACE, UM, THIS KEY, I'LL KEEP GOING.

AND THEN CREDITS, THE REAL, UH, RUB ON THIS IS THAT ANYTIME YOU'RE GETTING ASKING FOR REIMBURSEMENT FOR A COST, WELL THEN THE GOVERNMENT WANTS TO PARTICIPATE IN THAT REFUND OR A CREDIT.

IF SOMETHING HAPPENS OR YOU GET A CREDIT OR A DIS OR YOU AFFORD A DISCOUNT, THE GOVERNMENT WANTS TO PARTICIPATE IN THAT, THAT CREDIT, WHICH MEANS THAT IF I INCUR SOMETHING AND CHARGE IT THROUGH MY OVERHEAD, UH, LET'S SAY I, I, IT TURNS OUT THE AMOUNT WAS THERE WAS A, A FAT FINGER I HAD TO GET, I GOT REFUNDED ON THAT INVOICE.

WELL, THAT INVOICE SHOULD BE CREDITED TO THE POOL IT WAS INCURRED TO.

THAT'S KIND OF THE CONCEPT THERE.

UM, ALL RIGHT, SO ACCOUNTING FOR UN ALLOWABLE COSTS, AND THIS IS REALLY THE, THE CRUX OF, UM, DESCRIBING, YOU KNOW, THE DIFFERENT PARTS OF CONNECT FOR AN ALLOWABLE COST, AS I MENTIONED EARLIER, YOU HAVE, ONCE YOU'RE DETERMINED THAT IT'S REASONABLE, APPLICABLE, THEN YOU'RE, YOU'RE LEFT WITH A STANDARD OF, IS IT, IS IT MEET THE, THE GOVERNMENT'S, YOU KNOW, RIGHT, TO GET REIMBURSEMENT FOR? IS IT, IS IT AN EXPRESSING ALLOWABLE COST? SO THESE ARE THINGS THAT ARE RE MENTIONED EXPLICITLY IN THE FAR PART, UH, 31, 2 0 5.

THIS IS CALLED THE SELECTED COST SECTION.

AND THIS REALLY SPEAKS TO LIKE THINGS THAT ARE, UM, THAT ARE UNALLOWABLE, UH, PURSUANT TO LAW REGULATION.

THIS RELATES TO ALCOHOL COSTS, UM, EXECUTIVE COMPENSATION.

SO EVERY, EVERY YEAR THE OFPP PUBLISHES THE, THE, UM, A LIMITATION FOR EXECUTIVES, AND THAT RELATES BACK TO THE COST PRINCIPLE AROUND COMPENSATION.

AND I THINK THIS YEAR IT'S, IT'S AROUND 646,000 PER PER INDIVIDUAL.

THAT'S THE, THAT'S SORT OF THE THRESHOLD FOR, UH, ANYTHING ABOVE THAT'S UN ALLOWABLE FOR YOUR EXECUTIVES.

SO I THINK THAT'S REALLY TRYING TO MAKE SURE THAT THERE'S NO, UH, GOLDEN PARACHUTES IN THE, IN YOUR, IN YOUR OVERHEAD RATE WHEN YOU'RE GETTING REIMBURSED.

MAKE SURE THERE'S A, A THRESHOLD TO WHAT YOU'RE CHARGING THROUGH FOR THOSE EXECUTIVES THAT WORK, UM, IN THE OVERHEAD OR GNA FUNCTIONS.

UM, AND THERE COULD BE MUTUALLY AGREED UPON UN ALLOWABLE COSTS.

THAT'S ALSO MENTIONED IN, IN THIS FAR SUBPART.

UH, AND THEN YOU HAVE THIS CONCEPT OF DIRECTLY ASSOCIATED COSTS.

SO LIKE, THESE ARE THE COSTS THAT, UM, YOU INCURRED BECAUSE YOU WERE, UH, BECAUSE YOU AT THE INCURRENCE OF THE DIRECT OF THE COST THAT WAS UN ALLOWABLE ALREADY.

SO AN EXAMPLE WOULD BE IF I'M, UM, GOING TO A, UH, AN EVENT THAT'S ENTERTAINMENT, IT'S UNALLOWABLE WHEN I TRAVEL, YOU KNOW, IF I HAVE TO TRAVEL BY PLANE TO GET TO THAT EVENT, THEN THOSE DIRECTLY ASSOCIATED COSTS ARE ALLOWABLE AS WELL.

SO BEING ABLE TO, UH, CAPTURE THAT IN YOUR, UM, IN YOUR PRACTICES AND POLICIES TO MAKE SURE THAT ANY TIMES YOU MAYBE HAVE SOMETHING THAT'S UN ALLOWABLE OR RELATES TO THAT, THEN YOU TAG THOSE DIRECTLY ASSOCIATED ALLOWABLE COSTS AS WELL.

I THINK ANOTHER EXAMPLE WE'VE SEEN IS A LOT OF, UM, UH, LOBBYING ACTIVITIES.

SO THERE'S LIKE CERTAIN GROUPS YOU CAN BE A PART OF THAT, YOU KNOW, MAYBE DON'T HAVE THAT INHERENT LOBBYING, UM, CONCEPT, BUT THEN YOU GO TO CERTAIN MEETINGS WITHIN THAT, UM, MEMBERSHIP THAT ARE RELATED TO LOBBYING.

SO IT'S REALLY TAGGING THAT, THOSE KIND OF THINGS IN YOUR POLICIES AND PROCEDURES AT THE POINT OF EITHER ENTRY, WHICH IS WHENEVER YOU RECORD THE COST OR YOU REVIEW IT AFTER THE FACT IN YOUR, UM, WHAT I CALL THE SCRUB FOR UN ALLOWABLE COST WHENEVER YOU'RE BUILDING YOUR INDIRECT OVERHEAD RATE.

UM, LET'S SEE, OKAY, EXAMPLES OF EXPRESSING UN ALLOWABLE COST.

SO THESE ARE JUST A FEW.

THERE'S, I THINK THERE'S, IN THE FORTIES OR FIFTIES, THE AMOUNTS OF SUBPARTS HERE, THEY GO IN ORDER ALPHABETICALLY, BUT WE JUST CAUGHT OUT A FEW, UM, BAD DEBTS.

THIS IS LIKE IF I DON'T MAKE, IF SOMEONE'S NOT MAKING PAYMENT AND I CHARGE A BAD DEBT EXPENSE, THAT'S UN ALLOWABLE, UM, CONTRIBUTIONS OR DONATIONS, THE, THOSE ARE UN ALLOWABLE WITH THE EXCEPTION OF, UH, THERE'S A MINOR EXCEPTION FOR COMMUNITY SERVICE TYPE WORK WHERE IT RELATES BACK UP TO PUBLIC RELATIONS, UM, FOR A COST PRINCIPLE.

ENTERTAINMENT COST, OBVIOUSLY THOSE ARE, THOSE ARE ALLOWABLE.

SO ANYTIME YOU HAVE A, A SORT OF AN EVENT HAPPY HOUR, UM, IF YOU CAN'T, YOU CAN'T, UM, CATEGORIZE IT IN THE TERMS OF LIKE A MORAL EMPLOYEE MORALE EVENT, THEN IT'S, IT'S ENTERTAINMENT, UM, WHICH WAS UN ALLOWABLE.

UM, THE FINES AND PENALTIES, VIOLATION OF LAWS, THOSE ARE UN ALLOWABLE, UM, INTEREST ON BORROWINGS, UH, THOSE ARE ALLOWABLE.

AND THEN, YOU KNOW, GOODWILL IS ALSO PRICE EXCESS OF THE FAIR VALUES UN ALLOWABLE.

AND THEN ALCOHOLIC BEVERAGES ARE ALSO UN ALLOWABLE.

SO ANYTIME YOU HAVE THOSE, THAT'S A, UM, I THINK MOST COMPANIES HAVE A WAY OF TRACKING THOSE TYPES OF COSTS IN THEIR ENTRY FOR THEIR EXPENSE REPORTING.

BUT, UM, THAT'S, THOSE ARE SOME OF THE ONES THAT COME OUT A LOT.

UM, THAT'S A QUESTION.

YEAH.

HAVE RECEIPTS ALL TIMES.

YOU HAVE RECEIPTS AS ALCOHOL AND FOOD.

YEAH.

SO IS THAT ALRIGHT TO SHOW THAT RECEIPT FOR THE ALCOHOL AND STRIKE THAT OUT AND JUST TOTAL FOR THE

[00:25:01]

BUSINESS MEDIA? OR DO YOU WANT SEPARATE RECEIPTS, ALTHOUGH ONE RECEIPT? DOES THAT MAKE SENSE? YEAH, YOU CAN HAVE IT AS ONE RECEIPT.

I THINK THERE'S A, THERE'S A RULE WHERE YOU JUST GOTTA MAKE SURE IT'S ITEMIZED SO THAT THEY CAN, YOU CAN, YOU'RE ABLE TO SHOW THAT YOU SCRUB THAT OUT.

LIKE WHEN, IF THAT PERSON'S GETTING REIMBURSED FOR THE A HUNDRED DOLLARS AND 10 OF IT'S ALCOHOL, THEY JUST WANNA MAKE SURE THAT, UM, YEAH, 90, YEAH, YEAH, NO PROBLEM.

UM, YEAH, I THINK IT DEPENDS ON LIKE COMPANY POLICY TOO, RIGHT? BUT LIKE ONE WAY, THE WAY YOU SAID THAT IT ABSOLUTELY CORRECT.

RIGHT? SO YOU CAN RECEIVE, STRIKE OUT THE ALCOHOL, THAT'S THE EASIEST.

IS THAT ONE WAY OF DOING IT? UM, DIGITAL GOVERNMENT RATES, RIGHT? SO IF YOU THINK ABOUT IT, IF YOU WANT TO AVOID JUST RECEIPTS AND KIND SCRIPT, THEY JUST SAY, FOR MY GOVERNMENT PROGRAMS, I WANT TO MY EMPLOYEES GETTING REIMBURSED AFTER.

AND THAT JUST MAKES THINGS A LOT EASIER FOR, FOR EVERYONE ACROSS.

SO IT'S SOMETHING THAT'S CONSIDER, YEAH.

OKAY.

THESE ARE THE FAR SOME OF THE RESOURCES HERE, UM, AROUND JUST THE FAR IS, I MEAN THE FAR IS HUGE.

UH, 50 PLUS PARTS.

WE TALKED ABOUT PART 31 AROUND COST PRINCIPLES, WHICH IS WHAT'S APPLICABLE TO DEVELOPING A OVERHEAD RATE THAT'S, THAT IS, UM, AUDITABLE AND THEN IT CAN GET AUDITED AND GET THAT STAMP OF APPROVAL THAT THIS, UM, OVERHEAD RATES, THE RISK OF IT'S, YOU GET THE OPINION THAT THE RISK OF MATERIAL STATEMENTS RELATED TO FAR COST PRINCIPLES IS, UM, IS OKAY.

SO THAT'S KIND OF WHAT WE'RE TALKING ABOUT HERE IS PART 31.

AND THEN WE ALSO REFERENCE THE COST ACCOUNTING STANDARDS.

'CAUSE LIKE I I MENTIONED, THERE'S, IF YOU GO, IF YOU READ SOME OF THOSE FAR, UH, 31 2 0 5 SELECTED COSTS, THEY'RE GONNA INCORPORATE SOME OF THE COST ACCOUNT STANDARDS BY REFERENCE.

AND THAT'S, THAT'S SORT OF REALLY AROUND LIKE, UM, UH, PENSION, UM, SOMETIMES DEPRECIATION REFERENCE BACK, UM, IF YOU HAVE ANY BIN PROPOSAL, IRD TYPE COST OF REFERENCE BACK TO THE STANDARDS, UM, THE COST SCANNING STANDARDS.

BUT I GUESS JUST BEING COGNIZANT OF THAT IS, IS PART OF YOUR, UM, SOME OF THE REQUIREMENTS YOU'RE SUBJECT TO.

UM, I THINK THAT'S SCENE OF THIS COMPLIANCE REQUIREMENT SECTION, BUT WE'LL, DOES ANYONE HAVE ANY OTHER QUESTIONS? UH, IS THE NUMBER ONE MISS AND HAPPEN WHEN THEY'RE DOING OVERHEAD GENERATION AND TRACKING COSTS? NUMBER ONE, WHICH IS THE BIGGEST, MOST COMMON MM-HMM.

I GUESS WE'LL GET TO IT.

AND THE NEXT, THE NEXT SECTION IS ACTUALLY BUILDING INDIRECT RATES.

SO I THINK, I THINK TO ANSWER YOUR QUESTION, I THINK THE DEFINITION OF LIKE CONSISTENTLY TREATING THINGS AS DIRECT OR INDIRECT, WHICH WILL KIND OF GET INTO NOW WITH BUILDING RATES, I THINK IS THE BIGGEST PART OF JUST, I THINK JUST CBES, BUT ALSO JUST COMMERCIAL COMPANIES DOING BUSINESS WITH THE GOVERNMENT OR WITH GOVERNMENT CONTRACTING FOR THE FIRST TIME, BEING ABLE TO CLASSIFY COSTS.

I THINK THE COST LIABILITY LIABILITY SECTIONS IS DEFINITELY IMPORTANT.

AND THERE IN DEPENDENCY, THERE ARE MORE DETAILS AROUND LIKE, KIND OF ONE THAT THERE'S THINGS THAT ARE ALLOWABLE ON UNLOVABLE AND THEN THERE'S A GRAY AREA OF SOMETIMES ALLOWABLE, SOMETIMES UN SO THAT'S JUST ONE REGULATIONS, WHICH UM, COULD BE COMPLEX ON ITS OWN, BUT REALLY THEN IT COMES DOWN TO RECORDING COSTS CONSISTENTLY, BUT ALSO IN APPROPRIATE BUCKETS ALONG WITH REGULATIONS.

YEAH, I, I ECHO THAT.

I THINK SOMETIMES THAT THE WAY THAT THE, THE AUDIT, YOU PUT THE AUDIT LENS ON, THERE'S CERTAIN COSTS IN YOUR, BASED ON YOUR RISK PROFILE THAT YOU'RE GONNA ALWAYS, THAT YOU'RE GONNA LOOK AT, YOU'RE GONNA ALWAYS MAKE SURE REALLY, UM, UP TO PAR ON TRAVEL COST SCRUBS, YOU WANNA MAKE SURE YOU'RE GETTING ALL THOSE, UM, ABOVE PER DIEMS, THE FIRST CLASS FLIGHTS, ALL THOSE THINGS DONE.

SO YOU CONSIDER THAT'S KIND OF YOUR HIGH RISK ACCOUNTS.

THERE'S ALWAYS THOSE LIKE LOW RISK AREAS WHERE YOU'RE NOT INCURRING THOSE TYPES OF COSTS MUCH, BUT IT, IT, IT CAN HURT YOU, SUCH AS WE'VE SEEN LIKE TUITION REIMBURSEMENT.

THEY HAVE SOME WEIRD RULES, UH, AROUND THE, UM, SOME COMPANIES WE'VE SEEN, THEY'VE HAD POLICIES WHERE THEY, THEIR POLICIES ARE WRITTEN WHERE IF, IF THE PERSON LEAVES WITHIN A CERTAIN TIME AFTER RECEIVING THE REIMBURSEMENT, THEY HAVE TO GET, THEY HAVE TO, UH, THEY SAY THAT COST HAS TO BE PAID BACK.

WELL THAT'S ALSO, THAT HURTS YOU IN TERMS OF YOUR OVERHEAD RATES.

'CAUSE NOW YOU GOTTA NOW YOU GOTTA SCRUB THAT COST OUT EVEN THOUGH IT MAYBE WASN'T EXPLICITLY A UN ALLOWABLE COST.

SO IT'S LIKE MAKING SURE YOU, YOU RISK YOUR RISK PROFILE AND YOU UNDERSTAND THAT AND YOU KIND OF PERFORM YOUR UN ALLOWABLE COST ANALYSIS AT A GOOD, YOU KNOW, UNDER LIKE THOSE KEY RISK AREAS SO THAT LIKE IN YOUR AUDIT, YOU WON'T GET DINGED.

UM, ALRIGHT, LET'S SEE.

THE NEXT SECTION, I'LL PASS IT.

SO I GUESS WE'RE GONNA TALK THROUGH DEVELOPING MONITORING AND ADMINISTERING INDIRECT COST RATES.

SO, I MEAN, EVEN WE WENT THROUGH ALL THESE COMPLIANCE REQUIREMENTS AND THERE WAS, YES, THERE WAS A LOT OF JUST RED TAPE AROUND DOING BUSINESS WITH THE GOVERNMENT, BUT ALSO KIND OF PLUSES, RIGHT? SO I THINK FOR INDIRECT COST RATES, YOU CAN RECOVER YOUR BACKUPS COST OF DOING BUSINESS, YOU CAN RECOVER PARTS OF IT IF IT'S ATTRIBUTABLE.

SO A

[00:30:01]

ELIGIBLE, RIGHT? SO THE PORTION OF YOUR BUSINESS THAT'S ATTRIBUTABLE TO GOVERNMENT CONTRACTS, SUBCONTRACTS, SUB-AWARDS GRANTS, YOU CAN RECOVER IT, RIGHT? YOU'RE, YOU HAVE BACK OFFICE HR COSTS, FINANCE COSTS, EXECUTIVE COSTS THAT COULD BE RECOVERED AS PART OF THESE RATES, COSTS OF YOU EVEN DOING COMPLIANCE REQUIREMENTS.

SO LIKE ALL THESE, ALL THESE COMPLIANCE REQUIREMENTS THAT REQUIRE YOU TO HIRE ADDITIONAL FOLKS OR ADDITIONAL TIME OR CONSULTANTS OR WHATEVER IT MIGHT BE, RIGHT? SYSTEM, UH, SYSTEM ENHANCEMENTS, THOSE ARE TYPES OF INDIRECT COSTS THAT YOU CAN, WHEN YOU CAN COMPLY DEVELOP IT, YOU CAN RECOVER IT.

SO I THINK YOU JUST WANT TO, IT COULD BE INTIMIDATING, BUT THERE'S DEFINITELY BENEFITS OF ESTABLISHING THESE RATES.

UM, AND ALSO ENABLES YOU TO PURSUE THESE TYPES OF CONTRACTS AND GRANTS MOVING FORWARD FOR OTHER CUSTOMERS OR OTHER PRIMES.

SO JUST, UH, THINK OF IT AS AN OPPORTUNITY TO, UH, GROW REVENUE AND ALSO BE COMPLIANT WITH REGULATIONS TO ENABLE YOU TO PURSUE OTHER AWARDS.

UM, I THINK I COVERED THAT HERE.

SO I GUESS THE LIFECYCLE OF INDIRECT COST RATES.

SO I, I THINK THERE'S THREE, THREE BUCKETS THAT YOU COULD THINK ABOUT IT.

SO THERE'S PRICING RATES AND BILLING RATES, WHICH COULD BE ONE AND THE SAME FOR, FOR EVERYONE REALLY TO THINK ABOUT IT AS WHAT YOU USE TO PRICE YOUR SOLICITATIONS, AND THEN WHAT YOU USE TO BILL YOUR CUSTOMER THROUGHOUT THE KNOW LIFE THROUGHOUT THE COURSE OF THE YEAR.

UM, SO THAT COULD BE ONE IN THE SAME, IN A SENSE THAT IF YOU PRICE SOMETHING THAT COULD BE THE VERY SAME ESTIMATES THAT YOU ANTICIPATE TO INCUR THROUGHOUT THE COURSE OF THE YEAR, RIGHT? YOU WANNA BE ABLE TO MAKE SURE YOU'RE CONSISTENT WITH HOW YOU ESTIMATE AN ACCOUNT FOR COST.

THAT'S GONNA BE A, THE THEME ACROSS THIS WHOLE SECTION OF DEVELOPING RATES, BUT GOING, GOING ACROSS THAT ROUTE.

UM, THE LAST PART IS LIKE FINAL INDIRECT COST RATES, WHICH COMES DOWN TO THE AUDIT.

SO YOU'RE LOOKING AT IT FROM A PERSPECTIVE OF THESE ARE COST BASED RATES, SO YOU ESTIMATE RATES AND THEN ULTIMATELY YOU, YOU SHOULD BE ABLE TO RECALCULATE THEM USING ACTUAL COST INCURRED.

SO THAT'S THE FINAL RATES WHERE YOU ARE RECALCULATING THE RATES AND THEN YOU DO A TRUE UP OR THOSE THAT TRUE UP MAY BE HIGHER OR LOWER.

AND THAT MAY IMPACT, UH, YOU KNOW, OBVIOUSLY YOU WANT, YOU WANNA BE ABLE AS CLOSE AS POSSIBLE, SO YOU'RE NOT, THERE'S NOT A CREDIT ISSUED OR YOU, YOU KNOW, THE GOVERNMENT KNOWS YOUR MONEY OR YOUR PRIME BEST MONEY.

UM, FROM A SYSTEM, SYSTEM SET UP PERSPECTIVE, A FEW THINGS THAT WE DO WANNA KEEP IN MIND.

SO WE WENT THROUGH ALL THESE REGULATIONS THAT KNOW THAT JOHN WENT OVER FROM PERSPECTIVE.

THE THINGS YOU WANT DO WANT TO LOOK, LOOK AT IS REALLY SETTING UP, HAVING ABLE TO ACCUMULATE COSTS IN MANNER.

SO YOU'RE LOOKING AT YOUR, YOUR ACCOUNTING SYSTEM TO TRY BALANCE YOUR GYM ACCOUNTS, BEING ABLE TO IDENTIFY ACCOUNTS THAT, UH, WE'LL GET INTO POOLS AND BASES, BUT REALLY JUST SIMPLE WAY OF THINKING ABOUT IT'S NUMERATOR DOMINANT, RIGHT? SO IS THERE A WAY TO CLASSIFY COSTS IN CONSISTENT MANNER, WHETHER IT'S USING GL ACCOUNTS, COST CENTERS, BOARD NUMBERS, YOU KNOW, DEPENDING ON THE ACCOUNTING SYSTEM THAT YOU'RE USING OR YOUR P SYSTEM USING, THAT COULD CHANGE OR WHAT, UM, I, I GUESS JUST FOR SHOW OF HANDS, HOW MANY OF YOU HAVE EXPERIENCED WITH INDIRECT RATES, OVERHEAD RATES IN THE PAST? OKAY, SO A FAIR NUMBER OF YOU GUYS, THAT'S AWESOME.

UM, I GUESS HOW MANY OF YOU HAVE GONE THROUGH AUDITS IN THE PAST? SO, OKAY.

OKAY.

SO I, I THINK JUST THINKING ABOUT A PERSPECTIVE OF, YOU KNOW, BEST WAY TO SET THINGS UP.

I THINK ONCE ADMINISTRATIVE RUN AS MUCH AS POSSIBLE, RIGHT? THESE ARE, YOU DON'T WANT TO SPEND AS MUCH, YOU DON'T WANNA SPEND TIME ADMINISTERING THE OVERHEAD RATES IF THERE'S NOT A LARGE BENEFIT FOR IT.

SO LOOKING AT FROM THAT PERSPECTIVE, BUT ALSO THINKING ABOUT A STRUCTURE THAT, YOU KNOW, ALLOWS YOU TO RECOVER, RECOVER AS MUCH OF YOUR COST AS POSSIBLE, RIGHT? IN A COMPLIANT MANNER.

THAT'S THE BEST WAY TO THINK ABOUT IT.

UM, AND THEN ALSO LOOKING AT FROM A RISK PERSPECTIVE, MAKE SURE IT'S COMPLIANT, RIGHT? YOU DON'T, THERE'S, THERE'S A COST CARRY PIECE, BUT ALSO MAKING SURE THAT YOU'RE COMPLIANT WITH THE FEDERAL REGULATIONS.

UM, AND THEN THERE'S ALSO A COMPETITIVENESS COMPONENT OF YOU WANNA MAKE SURE THAT YOU'RE NOT, YOUR, YOUR RATES AREN'T TOO HIGH, RIGHT? YOU WANNA, YOU'RE THINKING ABOUT COST CARRY, BUT BALANCING THE COMPETITIVENESS BECAUSE, YOU KNOW, ULTIMATELY HIGHER RATES MAY, UM, BUT YOU HAD A COMPETITIVE DISADVANTAGE.

UM, ORGANIZATIONAL CONSIDERATIONS.

SO I THINK THE WAY YOU STRUCTURE RATES, WE'RE TALKING ABOUT DENOMINATORS AND RATES.

SO IT REALLY COMES DOWN TO HOW YOUR BUSINESS IS STRUCTURED, RIGHT? SO LOOKING AT HOW MANY BUSINESS UNITS YOU HAVE OR HOW MANY LOCATIONS, YOU KNOW, WHAT'S, WHAT, WHAT'S THE SUPPORT FUNCTION, WHAT'S THE NATURE OF YOUR BUSINESS THAT REALLY DRIVES HOW THESE RATES COULD BE STRUCTURED.

SO THINGS COULD BE VERY SIMPLE.

SO WE'LL GO THROUGH SOME EXAMPLES THAT ARE VERY SIMPLE.

UH, IT'S A, IT'S AN OVERHEAD RATE AND A FRINGE RATE, AND THAT'S REALLY IT, THAT'S A VERY COMMON STRUCTURE FOR, UH, FOR, FOR, UH, SMALLER COMPANIES.

WHEREAS IF YOU'RE LOOKING AT A, YOU KNOW, BECOME A MEDIUM SIZED BUSINESS OR A LARGE BUSINESS THAT MAY HAVE A, A RATE STRUCTURE THAT HAS 70 PLUS, RIGHT? SO THERE'S, THERE'S A DRASTIC DIFFERENCE, BUT ULTIMATELY IT'S GETTING TO THE SAME POINT OF YOU'RE RECOVERING BACK OFFICE OR COST MANAGEMENT FUNCTIONS THAT SUPPORT VARIOUS PARTS OF YOUR BUSINESS, BEING ABLE TO RECOVER A PORTION OF THAT AS MUCH AS POSSIBLE.

UM, SO I THINK, I THINK WE WENT THROUGH THIS, BUT REALLY JUST, I, I THINK THE BIGGEST PART HERE IS JUST

[00:35:01]

GOING THROUGH AND EMPHASIS ON CONSISTENCY CAUSE AND BENEFICIAL RELATIONSHIP, RIGHT? SO CONSISTENCY, MAKING SURE THAT, FOR EXAMPLE, IF PROJECT MANAGEMENT COSTS ARE TREATED AS INDIRECT OR OVERHEAD COSTS FOR YOUR, YOUR WARDS, MAKING SURE THAT IF, YOU KNOW, EACH BUSINESS UNIT IS ACCOUNTING FOR THAT CONSISTENTLY AS OVERHEAD COST VERSUS, YOU KNOW, TREATING AS A DIRECT COST OR CHARGING IT AS A DIRECT LABOR LABOR ITEM FOR YOUR CONTRACT.

SO BEING ABLE TO EMPHASIZE THAT, UM, AND THEN FROM, AND THEN JUST MAKING SURE THAT, I THINK THAT'S BEING, YEAH, FALLING, FALLING THAT CONSISTENTLY.

AND THEN, UM, ALLOWING FOR YOUR STRUCTURE TO BE REFLECTIVE OF YOUR CURRENT CURRENT BUSINESS, RIGHT? SO I THINK YEAR OVER YEAR YOUR BUSINESS CAN CHANGE.

SO I THINK BEING ABLE TO EVALUATE YOUR INDIRECT RATE STRUCTURE YEAR OVER YEAR OR AS, AS LARGE BUSINESS EVENTS THAT OCCURRED TO MAKE SURE THAT THAT'S ACTUALLY A STRUCTURE THAT YOU WANNA MAINTAIN MOVING FORWARD.

UM, THE IMPORTANT PART HERE, THERE'S GENERAL GUIDANCE IN WHAT'S CONSIDERED A DIRECT COST, INDIRECT COST, RIGHT? BUT IT'S, IF YOU THINK ABOUT IT, IT JUST SAYS, IF YOU'RE SUPPORTING A PROJECT DIRECTLY, THAT'S THE DIRECT COST AND INDIRECT COST ARE THINGS THAT BENEFIT THE ORGANIZATION.

I THINK JUST TO KEEP IN MIND, THAT'S VERY VAGUE.

IT'S VERY HIGH LEVEL, IT'S VERY VAGUE.

I THINK JUST BEING ABLE TO THINK ABOUT IT IN THE SENSE THAT, YOU KNOW, YOU CAN, YOU CAN, YOU CAN RECORD TIME OR RECORD PARTS OF YOUR MATERIALS OR REALLY ANYTHING AS A DIRECT COST, BUT JUST MAKING SURE THAT YOU ALLOCATE THAT CONSISTENTLY OR RECORD THAT CONSISTENTLY.

THEN ALSO JUST THE TRADE OFF OF ADMINISTRATIVE BURDEN, RIGHT? SO IF YOU'RE THINKING ABOUT, UH, I THINK JOHN MADE AN EXAMPLE OF A CEO WORKING ON A DIRECT PROJECT, LIKE THEY COULD SPEND AN HOUR OF THEIR TIME WORKING ON A DIRECT PROJECT, BUT WHAT, WHAT'S, YOU KNOW, WHAT'S THE ADMINISTRATIVE BURDEN OF MAINTAINING THAT AND HAVING THAT INDIVIDUAL, YOU KNOW, MAINTAIN TIME SHEETS, FOR EXAMPLE, ON A REGULAR BASIS.

UM, SO WE'RE OUTLINING THE INDIRECT COST POOLS AND THE ALLOCATION BASIS HERE, BUT I THINK JUST GOING BACK ON THE WHOLE THEME OF, UH, CAUSE AND BENEFICIAL RELATIONSHIP.

SO INDIRECT COST POOLS SHOULD BE IN LOGICAL COST GROUPING.

SO AGAIN, FOR A SMALLER BUSINESS, YOU'RE LITERALLY GONNA SEE ONE OR TWO, TWO POLES.

SO YOU COMMONLY SEE A OVERHEAD POOL, A FRENCH POOL, AND POTENTIALLY A G AND A POOL, REALLY A VERY SIMPLE STRUCTURE.

WHEREAS IF THERE ARE MULTIPLE BUSINESS UNITS OR MULTIPLE LOCATIONS, SO SAY FOR EXAMPLE, YOUR BUSINESS HAS A, AN AUSTIN, AUSTIN FS, A DALLAS OFFICE, FOR EXAMPLE, THOSE MAY HAVE SEPARATE OVERHEAD RATES.

YOU MIGHT HAVE A AUSTIN OVERHEAD RATE AND A DALLAS OVERHEAD RATE.

THAT'S A GOOD EXAMPLE BECAUSE THE, WE'RE CALLING LAW SCHOOL GROUPINGS.

THERE'S, THERE MAY BE OVERSIGHT FUNCTIONS OR FACILITY COSTS THAT ARE SPECIFIC TO THAT LOCATION, WHEREAS IF YOU HAVE ONE LOCATION, IT MIGHT ONLY MAKE SENSE STUFF.

WHAT I RIGHT, UM, THINK THIS IS REPETITIVE, I GUESS THE GOOD THING HERE, YEAH, SOME EXAMPLES HERE AS IT RELATES TO BENEFIT.

SO WE'LL GO THROUGH SOME EXAMPLES OF OVERHEAD RATES OR INDIRECT RATES.

SO FRINGE BENEFITS IS A COMMON POOL.

SO IT'S, YOU'LL SEE PEOPLE'S BENEFITS, COSTS, OR EVEN NON-WORK TIMES LIKE PTO, VACATION, HOLIDAY, BEING ABLE TO INCLUDE THAT, THOSE COSTS AS WELL AS ANY BENEFITS COSTS, AND ALLOCATE THAT OVER TOTAL LABOR.

SO BASICALLY EVERY LABOR RECEIVE A, CALL IT 20 OR 30% BURDEN BASED ON THAT KINDA NUMERATOR DENOMINATOR CALCULATION.

UM, OVERHEAD POOLS ARE TYPICALLY RELATED TO THINGS THAT SUPPORT PROJECTS.

SO IF PROJECTS DON'T EXIST, THESE OVERHEAD COSTS WOULDN'T EXIST, RIGHT? THINK ABOUT AS PROJECT SPECIFIC INDIRECT COSTS OR PROJECT MANAGEMENT COSTS, AND THAT'S TYPICALLY DONE.

UM, AND THEN G AND A POOLS, UM, THOSE ARE TYPICALLY THINGS OF LIKE COST OF DOING BUSINESS.

SO EVEN IF YOU DIDN'T HAVE PROJECTS, YOU SORT OF NEED, YOU KNOW, COST OF SUPPORTING EMPLOYEES COSTS OF RUNNING THE BUSINESS.

THAT'S TYPICALLY WHAT'S CAPTURING UNDER THERE.

SO EVEN IF PROJECTS DON'T EXIST, THERE'S STILL THOSE COSTS THAT, UH, NEED, NEED TO BE INCURRED TO RUN THE BUSINESS.

UM, THIS, YOU, YOU'LL LIKELY NOT GO THROUGH THIS MUCH AT ALL, BUT THERE'S ALSO WASTE INTERMEDIATE COST POOL.

SO THINK ABOUT, SEE WE'RE TALKING ABOUT CAUSE OF BENEFICIAL RELATIONSHIPS.

IT COSTS HR COSTS, THEY BENEFIT BOTH EXECUTIVES AS WELL AS DIRECT PROJECT EMPLOYEES.

SO HOW DO YOU ALLOCATE THAT? THERE'S LICENSE SUCH AS HEADCOUNTS, BASICALLY WHAT WE CALL IT INTERMEDIATE.

IT'S ACTUALLY ALLOCATING BETWEEN THE INDIRECT COST POOLS WHERE IT'S, YOU'RE SAYING BASED ON HEADCOUNT, WE'RE ACTUALLY GONNA ALLOCATE, THERE'S ANOTHER ALLOCATION COMING INTO THE ALLOCATION ALLOCATION POOL.

SO G AND A IS RECEIVING AN ALLOCATION OF IT OR HR.

SO WITH OVERHEAD RATES AND BEING ABLE TO SPREAD THOSE COSTS BASED ON THE HEADCOUNT OF WHERE THE INDIVIDUAL SIT, AGAIN, THIS IS PROBABLY NOT SOMETHING THAT YOU LIKELY WILL NEED TO NEED TO DO OR YOU MAY DO, BUT THIS IS AN OPTION TO FURTHER RECOVER COSTS OR TO BETTER ALLOCATE COSTS BASED ON KIND OF GOING BACK TO COMPETITIVE PERSPECTIVE OR HOW TO RECOVER MORE COSTS.

THERE'S ANOTHER METHODOLOGY TO RECOVER MORE COSTS IN A LOT MANNER.

UM,

[00:40:01]

I KNOW JOHN WENT IN DEPTH WITH THE ACCOUNTING UNRELIABLE COSTS, SO DO WANNA JUST ADD A HIGH LEVEL POINT BACK TO HOW TO ACCOUNT FOR THEM OVERALL.

SO IN DEPENDENCIES FOR THESE SLIDES, THERE ARE SOME PRESCRIPTIVE GUIDANCE ON HOW TO KIND OF TREAT SPECIFIC COSTS OF, UH, COST ELEMENTS.

BUT TO YOUR POINT OF REFERENCE, THE BEST WAY TO ACCOUNT FOR RELIABLE COSTS AND SEGREGATE THEM IS TO, AT THE POINT OF ENTRY, RIGHT? SO YOU, AS YOUR RECORDING COSTS SAYING, IS THIS RELIABLE? CREATE UNRELIABLE ACCOUNTS OR PROJECTS AND JUST EXCLUDE THAT FROM YOUR BILLINGS.

THAT INCLUDES YOUR DIRECT INVOICE, YOUR INVOICES TO INVOICES TO YOUR CUSTOMERS OVERALL, BUT ALSO WHEN YOU'RE CALCULATING INDIRECT RATES, EXCLUDING THEM FOR YOUR RECALCULATIONS FROM YOUR NUMERATOR.

UM, THERE ARE ALSO WAYS TO, WE CALL STATISTICALLY SAMPLE.

SO THERE, THERE ARE THINGS, THERE ARE METHODOLOGIES, THE REGULATIONS ACTUALLY HERE WERE, UM, ESTABLISHING STATISTICAL SAMPLING.

SO YOU BASICALLY PULL SAMPLE TESTING.

UM, I THINK JUST ONE, DEVELOPING YOUR INTRODUCTORY STRUCTURE TO MATCH YOUR, HOW YOUR BUSINESS IS SET UP, UM, AND THEN ALSO MAKING SURE THAT ALLOCATION BASE ARE TRULY WHAT'S BENEFITING FROM, UH, THE ALLOCATION POOL ITSELF.

SO I THINK THERE ARE, UH, FALSE CLAIMS AS SUITS THAT HAVE RECENTLY COME UP THROUGH COMPANIES THAT THEY'VE GOTTEN DINGED OR THROUGH AUDITS AND OR, UM, LAWSUITS AS IT RELATES TO PEOPLE, YOU KNOW, INCLUDING THINGS IN THE ALLOCATION BASIS OR ALLOCATION POOLS THAT REALLY JUST DON'T BENEFIT, RIGHT? SO LIKE THINGS IN THE ALLOCATION POOL THAT DON'T BENEFIT THE BASIS, AND ULTIMATELY THEY'RE, THEY'RE, THEY'RE CLAIMING THAT IT'S AN OVERCHARGED, SO THERE'S THINGS THAT DO POP UP.

SO BEING CAREFUL WITH THOSE, UH, ITEMS ARE IMPORTANT JUST AS RELATES TO, UH, FROM A COMPLIANCE PERSPECTIVE.

UM, AND THEN JUST CONSIDERING SOME OF THESE ITEMS, I THINK WE TALKED ABOUT, UH, THE BALANCING THE COST RECOVERY, BUT ALSO COMPETITIVENESS AND THEN LEVERAGING INTERMEDIATE ALLOCATIONS UNNECESSARY.

UM, SO DO HAVE SOME OPTIONS HERE.

SO THIS IS ACTUALLY FROM THE ASTO AUDIT HEAD, UH, AUDIT ACCOUNTING GUIDE, WHICH WE'LL GO THROUGH A LITTLE BIT MORE AFTER WE DECIDE, BUT THIS IS AN EXAMPLE OF A INDIRECT RATE STRUCTURE.

SO I THINK WE'LL SEE HERE.

SO ALL THE INDIRECT RATES DO NEED TO BE CALCULATED THROUGH THE BOOKS OF RECORDS.

SO THINKING ABOUT YOUR ACCOUNTING RECORDS, RIGHT? SO THE EASIEST WAY POTENTIALLY CALCULATE INTERIM OR CALL PROVISIONAL RATES COULD BE USING YOUR LAST YEAR'S DATA AND BEING ABLE TO CALCULATE NU DENOMINATOR FOR YOUR RATES.

UM, THIS THE SIMPLEST WAY OF CALCULATING IT.

SO THERE'S AN OVERHEAD RATE RATE AND UM, IT IS A COMPANY WIDE COST THAT'S HERE AS AN EXAMPLE, UM, A SECOND EXAMPLE HERE, WHICH I MEAN, IT'S STILL A VERY SIMPLE STRUCTURE, BUT ALMOST LOOKING AT IT FROM A SENSE OF YOUR HOME OFFICE, YOUR HOME OFFICE AS WELL AS A FIELD OFFICE.

UM, AND REALLY JUST COMES DOWN TO, YOU KNOW, GOING BACK TO THE MULTIPLE, RIGHT? LOOKING AT HOME OFFICE, INDIRECT COSTS OF LET'S LOOK AT WHAT'S IN, WHAT THE LABOR INCURRED IN YOUR HOME OFFICE, SO YOU KNOW, UH, IN YOUR POOL.

SO SUPPORT FUNCTIONS THERE WITH THE DIRECT LABOR BASE OF THE DIRECT PEOPLE SUPPORTING THE PROJECT DIRECTLY.

AND THEN IF YOU HAVE THE, YOU KNOW, USING THE DALLAS DALLAS OFFICE EXAMPLE, IF YOU HAVE PEOPLE WORKING IN THE DALLAS OFFICE, THE INDIRECT SUPPORT FUNCTIONS THERE.

AND THEN THE ALLOCATION BASE IS DIRECTLY BEFORE US WORKING ON THE PROJECT THERE.

SO JUST SOME EXAMPLES OF MULTIPLE OVERHEAD RATES.

UM, AND THEN ALLOWABLE COST.

THERE IS A KIND OF A, IT'S A LITTLE BIT HARD TO SEE IN THE SCREEN HERE, BUT THERE IS A CALL FOR ANY ADJUSTMENTS FOR AN ALLOWABLE COSTS.

SO THEY COULD BE THROUGH ACCOUNTS, IT COULD BE THROUGH THE STATISTICAL STANDPOINT, BUT BEING ABLE TO IDENTIFY AND SEGREGATE THESE UNLOVABLE COSTS.

YEAH, AND YOU INCLUDE THESE IN YOUR NOTES, YOUR SCHEDULE, YOU, THESE NOTES DOWN WILL BE ON PROBABLY A SEPARATE PAGE AND LIKE, YOU NEED TO MAKE SURE REFERENC CORRECT CONTRACTORS GET IN TROUBLE WHEN THEY'RE BILLING IN TERMS OF THEIR REPORTING PROCESS.

THESE, THESE REFERENCES HERE, MAYBE LINE WITH ACTUAL, SO LAST RECENTLY, SO, OKAY, I'LL PASS ON JOHN.

ALL RIGHT.

RISK, RISK OF NON-COMPLIANCE.

UH, SO WE'LL TALK ABOUT, THERE'S LIKE A, BASICALLY A CONTINUUM HERE.

UM, YEAH, I MEAN, YOU'RE SUBJECT TO CIVIL ADMINISTRATIVE AND CRIMINAL NON-COMPLIANCE RISK.

WHEN YOU'RE BUILDING A, WHEN YOU'RE CERTIFYING THAT YOUR RATES ARE, UH, FREE OF THE, UH, UN LIABLE COST AND, AND BUILDING THAT AUDITED PROOF RATE, THE LOWEST PIECES YOU GET AN ADVERSE AUDIT, GOVERNMENT AUDIT INVESTIGATION FINDING.

UM, AS WE GO DOWN, YOU CAN GET DISAPPROVED COST

[00:45:01]

PAYMENT WITHHOLDS, UH, AS I MENTIONED EARLIER, CAN BE TROUBLED DAMAGE, TROUBLED PENALTIES.

UM, YOU CAN HAVE CONTRACT TERMINATION, UH, AS WELL AS, YOU KNOW, JUST HAVING YOUR NAME IN THE, IN, UH, IN THE NEWSPAPER OR, OR WORD GETS AROUND YOU JUST CAN HURT REPUTATIONAL HARM IF, IF YOUR RATES AREN'T, UM, IF THERE'S ANY, UH, NON-INTENTIONAL, UH, NON-COMPLIANCE WITH THE, UH, WITH FAR PART 31.

AND THEN ONCE YOU GET STARTS GOING DOWN HERE, THE DISBARMENT INABILITY TO WIN FUTURE WORK.

AND THEN THE VERY BOTTOM IS REALLY THAT, UH, CRIMINAL, INCLUDING IMPRISONMENT FOR WHICH IS THE PRIMARY, UH, ENFORCEMENT TOOL FOR THIS.

AT THE VERY BOTTOM IS REALLY THE FALSE CLAIMS ACT.

SO THAT'S THE PRIMARY TOOL THAT USED TO KIND OF GET, UH, CONTRACTORS FOR THAT, WHAT I CALL FRAUDULENT INTENTIONAL MISREPRESENTATION, UM, AND MAKING FALSE STATEMENTS.

SO YEAH, SO LIKE GETTING IN THIS ENVIRONMENT IS, IS GREAT, UH, FOR THE BUSINESS, BUT THERE'S ALSO COMES THAT, YOU KNOW, THAT WITH RISK AS WELL.

UH, LET'S SEE.

AND THE FALSE CLAIMS ACT, I MENTIONED THAT'S ONE OF THE MOST IMPACTFUL ENFORCEMENT TOOLS AROUND THE INTENTIONAL ACTS OF FRAUD, WASTE, AND ABUSE.

UH, MANY STATES HAVE THEIR OWN FCA LAWS.

UM, I GUESS THE, SOME OF THE ONES THAT WE'VE SEEN RECENTLY THAT THEY'VE PUBLISHED THESE AREAS, THEY'VE BEEN FOCUSED A LOT LATELY ON, UM, THE PANDEMIC RELIEF FRAUD THAT'S BEEN GOING OUT.

'CAUSE ALL THAT MONEY WAS JUST FLOODED OUT.

SO I GUESS A LOT OF CONTRACTORS ARE GETTING IN TROUBLE FOR THAT.

UM, UH, SOME ARE GETTING, WE SEE OTHER THINGS AROUND BED RIGGING BETWEEN COMPANIES.

UM, NON-CONFORMING PARTS.

THERE'S ALSO SOMETHING THAT CAME OUT WITH THE, THE, WE CALL THE KEY TIME PROVISIONS OF THE FALSE CLAIM BACK WHERE YOU HAVE WHISTLEBLOWERS THAT'LL GET A, YOU KNOW, A PIECE OF THE SETTLEMENT.

AND THAT WAS IN ONE OF THOSE S WHERE THEY HAD RELATED THEIR RATE STRUCTURE AND THEY GOT IN TROUBLE FOR THAT.

SO I MEAN, THERE'S, UM, THE RISK THERE AND I THINK HAVING A, THE PEOPLE PROCESSES AND SYSTEMS IN PLACE TO ADDRESS THOSE RISK LINE COMPLIANCE IS WHAT'S KEY.

UM, YOU'RE BUILDING THOSE RATES.

LET'S SEE.

ALRIGHT, NAVIGATING THE OVERHEAD AUDIT PROCESS.

SO TALKING ABOUT THE ATOS, THIS IS THE, BASICALLY THE, IN EARLY TWO THOUSANDS, THERE WAS THE, THE STATES JUST HAD ALL KINDS OF, THE STATE DETS HAD ALL KINDS OF DIFFERENT REGULATIONS.

THEY WANTED TO UNIFORM GUIDANCE.

THEY BUILT THIS UNIFORM GUIDANCE WITH THE HELP OF THE AASHTO, UM, TRANSPORTATION ASSOCIATION.

AND REALLY THEY, THEY PUT TOGETHER A GUIDE THAT HELPS THE, UH, THE AUDITORS AS WELL AS THE CONTRACTORS HAVE A, A STREAMLINED SET OF PARAMETERS OF HOW WE'RE GONNA BE AUDITING, WHAT, UM, WHAT WE'RE UPHELD TO IN TERMS OF OUR POLICIES, PROCEDURES, AND TECHNIQUES AND SOURCES FOR POLITICAL REQUIREMENTS, INCLUDING THOSE AROUND FAR.

PART 31, THE CAUSE PRINCIPLES.

UM, THE GUY WAS ACTUALLY UPDATED IN MARCH OF 24 AFTER EIGHT YEARS, AND THAT WAS REALLY AROUND A LOT OF THE GUIDANCE IN THE 2024, UH, GUY WAS REALLY AROUND, UH, THEY'RE STARTING TO FOCUS MORE ON ALIGNING, UM, OVERHEAD AUDITS TO YOUR TYPICAL A-I-C-P-A AUDITS.

SO IT WAS REALLY AROUND MAKING SURE THAT COMPANIES HAVE A RISK ASSESSMENT PROCESS AT THE FINANCIAL STATEMENT ASSERTION LEVEL.

I MEAN, WHAT THAT MEANS FOR OVERHEAD AUDITS IS REALLY THE, THE, THE ASSERTION THAT'S REALLY IN PLAY IS THAT YOU HAVE YOUR FINANCIAL STATEMENTS, BUT THEN YOU HAVE YOUR AUDITED TRIAL BALANCE.

THEN DO YOU, UM, DO YOU ACCOUNT FOR YOUR UN LIABLE COSTS? IT'S ALMOST THAT LIKE SUPPLEMENTAL PROCESS THAT'S, YOU KNOW, HAPPENS AFTER YOUR AUDIT FINANCIAL STATEMENT.

IT'S REALLY AROUND CLASSIFICATION RISK.

SO THAT'S SORT OF THE REALLY HAVING THOSE ROBUST RISK ASSESSMENT PROCEDURES INTERNALLY, WHICH MEANS, UM, YOU KNOW, DOING TREND ANALYSIS OF ALL YOUR ACCOUNTS.

JUST SEE LIKE HOW YOUR, ARE YOUR TRAVEL INCREASING OR DECREASING? DOES IT MAKE SENSE? DO THE NUMBER OF ACCOUNTS MAKE SENSE? IS THERE ANY LIKE JUST ANOMALIES AT THE FRONT END TO SORT OF PREVENT YOU FROM, YOU KNOW, CATCHING SOME OF THOSE PROCESSES THAT MAYBE AT RISK THAT YOU DON'T UNDERSTAND IN THE BEGINNING.

UM, AND THEN THE, THE GUIDE CANNOT SUPERSEDE IT FAR ANY RELATED LAWS OR REGULATIONS.

UM, IT'S NOT REQUIRED BY FEDERAL LAW, BUT OUR ADDITIONAL STATE DOT QUESTIONING MAY OCCUR IF THE, IF THE FIRM IS NOT FOLLOWING THE AASHTO GUIDE.

SO IT'S, I MEAN, I'VE BEEN ON A FEW OF THESE, UH, OVERHEAD AUDITS WHERE THE, THE COGNIZANT AUDIT AGENCY FROM THE DEPARTMENT OF TRANSPORTATION COMES IN AND ONE OF THE THINGS THEY WANT IS THEY WANT THE, THE CPA WORK PROGRAM, WHICH IS REALLY LIKE THIS THING THAT'S PUBLISHED ON ASTO WEBSITE THAT REALLY JUST, IT'S BASICALLY AN AUDIT PROGRAM MATRIX OF ALL THE DIFFERENT COMPETENCIES YOU HAVE TO MEET FROM LABOR CHARGING, UH, TO EXECUTIVE CONTENT, HOW YOU ACCOUNT FOR YOUR, UM, UN ALLOWABLE COSTS.

AND YOU BASICALLY JUST SHOW WHERE THAT IS IN YOUR WORK PAPER METHODOLOGY FOR AUDIT.

SO WHEN THEY COME IN AND REVIEW OUR WORK PAPERS, WE'RE BASICALLY UPHELD TO THAT ASTO STANDARD.

SO IT BASICALLY KIND OF REINFORCES THAT THE, THE AUDIT COMMUNITIES REALLY FOCUSED ON MAKING SURE THAT IT'S COMPLIANT WITH ASH TASTE'S GUIDE.

[00:50:01]

UM, SOME OF THE THINGS THEY LOOK INTO IS LABOR CHARGING PRACTICES.

UM, WE'VE HAD QUESTIONS ON OUR AUDIT AROUND LIKE, WHY DID WE, WHY DID WE SAMPLE MORE, UH, LABOR TIME SHEETS THIS YEAR? WELL, THE ANSWER WAS, WELL, 'CAUSE THE, THE COMPANY, YOU KNOW, CHANGED THEIR POLICY.

SO WE HAD TO INCREASE OUR SAMPLE SIZE ABOVE THE MINIMUM OF 27 SAMPLES.

WE INCREASED IT TO GETTING SAMPLES ACROSS THE WHOLE YEAR.

SO WE, WE EXTEND OUR EXTENT OF OUR TIME, OF OUR SAMPLE SELECTION AND MAKING SURE THAT, UM, I THINK THAT'S WHAT HAPPENS IN THE AUDIT END, BUT ON YOUR END, YOU KNOW, MAKING SURE THAT, THAT ANYTIME YOU HAVE POLICY AND PROCEDURE UPDATES, THAT THAT'S BEING IMPLEMENTED AND OPERATIONALIZED, UH, AND MONITORED ACCORDINGLY.

SO, UH, FROM THE CONTRACTOR'S POINT OF VIEW, LABOR CHARGING IS REALLY LIKE MAKING SURE THE RULES SAY AROUND YOU SHOULD HAVE DAILY SUBMITTAL OF TIME SHEETS, UH, SEGREGATION VIEWS AROUND THE APPROVER OR, AND, UH, AND REVIEWER.

UM, I THINK AT YOUR PERSPECTIVE, YOU MAY HAVE AUTOMATED TIMEKEEPING SYSTEMS, YOU MAY HAVE MANUAL TIMEKEEPING SYSTEMS. SO I THINK THAT'S ONE OF THE KEY AREAS THEY LOOK INTO THE COST ACCUMULATION REPORTING PROCESS.

SO LIKE BUILDING THAT SCHEDULE, HE MENTIONED ON THE OTHER PAGE AND THE FORMAT AND THE DISCLOSURE.

SO THERE'S A, A SECTION ON LIKE WHAT DISCLOSURES YOU NORMALLY YOU NORMALLY WOULD REPRESENT THAT WOULD GO BEHIND THE ACTUAL SCHEDULE HE SHOWED ON THE SCREEN EARLIER.

UM, AND THOSE TYPES OF DISCLOSURES.

ALRIGHT, SO THIS IS LIKE A TIMELINE EVENTS.

IF I'M GONNA GO OUT TO, TO BID FOR A, AN AUDITOR TO HELP, UM, BASICALLY STAMP MY, MY RATES FOR APPROVAL, I MEAN IT, I'LL GO THROUGH THESE QUICKLY.

IT'S REALLY, UM, ENGAGING THE INDEPENDENT FIRM TO AUDIT YOUR SCHEDULE OF INDIRECT RATES.

UM, THE CONTRACTOR HAVING AN IN, UH, UH, ENTRANCE MEETING, UM, WE'LL, AUDITOR WILL COME IN AND PERFORM RISK RISK ASSESSMENT PROCEDURES.

BASICALLY, THEY'LL COME IN, THEY'LL, YOUR STANDARD AUDIT, THEY'LL ASK FOR, YOU KNOW, UM, THEY'LL DO MANAGEMENT INQUIRIES.

THEY'LL ASK FOR, YOU KNOW, THE YEAR OVER YEAR DIFFERENCES IN YOUR ACCOUNTS.

UM, ANY INTERNAL AUDIT REPORTS YOU HAVE, ANY EXTERNAL PROJECT BASED AUDIT YOU HAVE.

UH, AND THEN THEY'LL, THEY'LL CONDUCT PROCEDURES TO DESIGN TO BASICALLY ADDRESS THE RISK OF MATERIAL MISSTATEMENT RELATED AND NONCOMPLIANCE RELATED TO FAR PART 31.

SO LIKE, THERE'S, THERE'S REALLY TWO OBJECTIVES IN AN ASH TO AUDIT, WHICH IS WHAT YOUR AUDITORS WILL COME IN AND AUDIT FOR.

THEY'LL PRODUCE AN OPINION ON YOUR INDIRECT RATE SCHEDULES AND THEY'LL PRODUCE A REPORT ON YOUR INTERNAL CONTROLS AND COMPLIANCE.

THEY'RE NOT ACTUALLY, THEY'RE NOT, THEY'RE NOT ACTUALLY GOING IN AND DOING AN OPINION ON YOUR, UM, ON YOUR, UH, EFFECTIVE INTERNAL CONTROL.

IT'S NOT THAT, IT'S JUST YOUR REPORT ON INTERNAL CONTROLS AND COMPLIANCE.

SO, UM, THERE'S CERTAIN, YOU KNOW, MOST COMPANIES HAVE A, A, AN EXTRA INTERNAL CONTROL.

THEY HAVE SEPARATE FROM THEIR OTHER, THEIR FINANCIAL REPORTING PROCESS.

THEY HAVE AN ACCOUNTING FOR UN ALLOWABLE COST PROCESS.

SO LIKE A FULL PROCESS PROCEDURE, A POLICY, UM, THOSE INDIVIDUALS THAT ARE, ARE ROLES AND RESPONSIBILITIES TO PERFORM THAT SORT OF, UM, THOSE DUTIES.

THAT'S LIKE A, AN EXTRA LIKE THAT RELATES TO THE INTERNAL CONTROL OF OUR COMPLIANCE PERSPECTIVE.

UM, AND THEN WE'LL ISSUE THE AUDIT OPINION AND THE REPORT ON INTERNAL CONTROL OVER COMPLIANT OVER COMPLIANCE, REPORTING COMPLIANCE AND OTHER MATTERS.

AND THEN ONCE THAT, UH, ONCE THAT REPORT'S ISSUED, UM, AND THE OPINIONS DELIVERED, UM, UH, THE CONTRACTOR CAN USE THOSE AUDITED RATES FOR IMPOSING ON ITS WORK WITH A TP.

SO THAT'S SORT OF WHAT A TP IS LOOKING FOR, IS HAVING THAT AUDIT REPORT, THAT OPINION THAT SUPPORTS YOUR OVERHEAD RATE