ARCHITECTURAL AND ENGINEERING CONTRACTS
FINANCIAL DOCUMENT REQUIEMENTS FOR A&E FIRMS CONTRACTING WITH CALTRANS
Attachment 1: Tables 5-4, Sample Indirect Cost Rate Schedule
Attachment 2: Tables 5-5, Sample Indirect Cost Rate Schedule (w/Field Rate)
Attachment 3: Chapter 8 / Selected Areas of Cost
Frequently Asked Questions
What level of financial detail is Caltrans able to request? Will they be able to re-examine the components of a firm’s previously audited Indirect Cost Rate?
Financial documents are basically what we would be asking for as described in the webinar. This would include the review of an audited Indirect Cost Rate. If errors in the audited Indirect Cost Rate are noted, then an adjustment could be made.
Why isn't the Internal Control Questionnaire (ICQ) used as the starting point for negotiations?
The Internal Control Questionnaire summarizes the consultant’s policies and procedures, and the accounting treatment for costs. The treatment of costs in the consultant’s cost proposal must be consistent with the underlying accounting treatment for the costs.
Has Caltrans considered requiring the independent auditors to attach the Internal Control Questionnaire to their audit report?
This wouldn’t be practical for the CPA firm as it is outside the scope of their audit. Generally, the CPA firm does examine and evaluate the Internal Control Questionnaire as part of their audit procedures.
Did you consider giving firms a chance to work with their independent auditor on the Labor Distribution Report before making it a requirement? (i.e. Waiting a year to make it a requirement)
Generally, this would not require work by the independent auditor. We expect that most firms would have systems that are capable of providing labor summary information. In providing this information, the format is less important than the content. We recommend reviewing this requirement in advance of a contract submittal.
Why has Caltrans performed so few cognizant work paper reviews? There is a perception that this is creating an uneven playing field. For example, a large firm recently received a cognizant letter. Many of us have not had the same opportunity.
A cognizant work paper review is performed for Prime Consultants on contracts of $3.5 million or more. We have many contracts in Caltrans under this threshold amount, and utilize different tools to review/audit contract costs. The reality is that we cannot perform a cognizant work paper review for every consultant.
With respect to the cognizant letter issued for the large firm, happens to be the result of a multi-state CPA work paper review undertaken due to concerns several state DOT auditors identified with the firm’s Indirect Cost Rate. Multi-state CPA work paper reviews have occurred a number of times over the years and I expect that they will continue to be performed as need arise.
Caltrans’ notes on cost proposals imply they do not anticipate or desire consultants to change accounting practices and treatment of costs (i.e. delta fringe, Other Direct Cost items, etc.) in different fiscal years. Is this true? How is it reasonable for firms to retain their same accounting practices when owner agencies regularly change their interpretation of FAR sections and are not always consistent?
The expectation is that a firm would apply their accounting practices consistently within a fiscal year and across all contracts. While there is an expectation that firms generally would be consistent from one year to the next that does not mean a firm couldn’t change their accounting policies based on an evaluation of their accounting and business practices.
What is the thought process behind asking for workpapers on a specific issue during project specific negotiations but not doing an entire workpaper review?
It would generally be uncommon for Caltrans to do so during a financial document review. Caltrans procedures require assessing the risk related to specific cost areas, so in some cases, it might be necessary to examine the CPA’s workpapers related to that specific risk area, while it is not necessary to review all of the CPA’s workpapers.
Is it okay to prepare a field rate or project specific rate after having been chosen for a contract?
It is possible, but it would be challenging to complete and submit the field rate calculation in the timeframe required. Once a consultant is notified of selection, there is a four-calendar day turnaround for the submission of financial documents. Just like the INDIRECT COST RATE schedule, this is an item that should be completed in advance of submitting a Statement of Qualification for a contract that would require a field rate.
AASTHO Guide Table 8.1 says contributions or donations are unallowed. How should we show participation in community service activities such as blood bank drives, charity drive, disaster assistance, which are allowed?
The consultant should record these type of activities in a separate account identified as allowable community service activities, for example, and show it separately on the Indirect Cost Rate schedule. The Consultant must be able to provide support for cost allowability.
Are contractor travel costs limited to state rates? If yes, what is the citation for it?
We should clarify that they are limited to state rates for reimbursement of direct travel costs on contracts, but travel costs included in the Indirect Cost Rate are subject to Federal Travel Regulation limits in accordance with FAR Part 31.
Can you elaborate on required rate for all personnel proposed consistent with contract advertisement date? Does this mean hourly rates should be as of the contract advertisement date?
Yes, hourly rates should be as of the contract advertisement date. A consultant may have to call on the use of a temporary or on-call or seasonal employees and have to provide an offer letter at a later date would be an exception.
How does A&I evaluate different field overhead rates for different business lines and/or geographical regions? What precautions do you recommend a consultant take to ensure the proper rate is used for a specific contract (i.e. a negotiator requesting a lower overhead rate without an understanding of the details?
Consultant should clearly describe their presentation of field rates and the methodology used to calculate the field rates. A&I will be reviewing field rates and making the recommendations to DPAC as to what rate to be applied to the contract.
Does a completed AASHTO Internal Control Questionnaire replace the need to submit individual internal control, overtime policy, and uncompensated overtime documents?
No, but to clarify, the list of required attachments to the Internal Control Questionnaire are included in the Financial Documents Submittal Checklists. The checklists are posted on DPAC’s website under A&E Contracting Process- Negotiation
For how long can a Consultant use a Safe Harbor Rate in lieu of Indirect Cost Rate?
The intention of the Safe Harbor Rate was that firms using the Safe Harbor Rate would eventually develop an Indirect Cost Rate. The FHWA Test & Evaluation Pilot Project was established originally at three years to see which firms are requesting the SHR, if there are any migrating or leaving the SHR during that time period. Currently, the timeframe for graduating from the Safe Harbor Rate has not been established. We will keep you posted when this has changed.
The presentation stated that "all company employees" will be included in the labor summary report. Does this apply to a very large company (international plus 50,000 employees) or can it be broken to a region or business line?
We discussed the need to define / clarify the requirements for the labor summary report, especially in the context of a very large firm. We discussed the need for consistency as well as the practical aspects of providing so much data. Caltrans’ A&I group is going to discuss this further to propose a solution. The whole group who was there this morning seemed to understand the issue and wants to work to develop a reasonable solution.
When the training is online, will a certificate of completion be issued to the participant that successfully completes the course?
This was discussed, and may be considered. I proposed that I would discuss it with our pilot group in the debrief call I will be scheduling, to see if firms would generally be supportive or see a need for doing so.
Can Caltrans RFQ be amended to make it mandatory that all firms and subconsultants take this webinar (with proof) to be eligible to submit?
We discussed and the general consensus is that Caltrans would not make webinar attendance mandatory, but that it would be strongly encouraged. We noted that a prime could choose to make it a mandatory requirements for subs on their team.
Is there a higher level of scrutiny for firms with contracts exceeding $7M? If so, what are those requirements?
No, the requirements are the same for any contracts equal to or greater than $3.5 million.
Can a small business submit an ICR to A&I for a cursory review, or meet in person to discuss with A&I?
A&I is happy to be a resource to small businesses who can submit questions related to specific items or costs. Generally, A&I would not meet or review the ICR in advance of a contract submittal.
Are there any alternatives for sub-consultants to provide information directly to A&I? (There are times when consultants team with competitors and are not comfortable sharing information with the prime)
A&I and DPAC have been working together to streamline the contracting process, including the submittal of financial related documents. As a result, we hope to roll-out the new on-line reporting process early next year. Stay-tuned for more information.
FAR defines uncompensated OT as the hours worked without additional compensation in excess of an average of 40 hours per week by “direct charge employees” who are exempt from the Fair Labor Standards Act. How does A&I recommend consultants treat salaried employees that are not “direct charge employees” who have uncompensated overtime? Is this covered in FAR? What constitutes a “direct-charge employee”?
Uncompensated overtime applies to all employees (direct and indirect). Direct-charge employees are any employees who work on direct projects. Refer to the Uncompensated Overtime Interpretive guidance found on A&I’s website.
Can ICQ be parent company's or does it have to be contracting company's ICQ?
Has to be the contracting company’s ICQ, not the parent company.
If Consultant is a subsidiary of another Consultant, and both have audited ICRs, which ICR should it submit?
The entity entering into contract directly with Caltrans or with the Prime.