USA Overhead Costs / SG&A - Per Diem


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Hi All,

We have a problem with one of our contractors. We have a T&M contract and we agreed to pay a $10 per diem per hour plus a 10% profit from the sub-contractor rates.

We found out that the $10 per diem was not being paid to their employees/labor source company ABC, and they were keeping it. We are talking about $100,000.00 in per diem charges. When we asked about this, they responded back that the $10.00 charged per hour is for Direct burden costs and SG&A, but also they are charging 10% overhead costs on top of that.

We know that this information is an excuse to explain their overcharges and are not accurate. How can we respond back to them asking them for evidence of these charges?

This is the email we received from them:

"The agreed to rates in the subcontract includes all of our cost including our direct burden, which covers the operation of our facility (i.e. lease, taxes, electric, water…). ABC Company is just a labor source for us, so we have to add our direct burden on top of their rates for the operation of our facility. Our direct burden rate is $16/hr for our shop employees and it includes all of our FICA, SS, unemployment & insurance. Since, ABC Company has this covered in their labor rates we are able to reduce our direct burden to $10/hr which you will see gets us very close to our billing rates."

Thank you!
 
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It all depends on the verbiage in the contract or po/proposal. With that said, their email stating they are agreed upon rates leads me to believe you have no recourse....in that scenario, it wouldnt matter if their overhead was 1 or 100 dollars bc its not a cost plus profit contract where you would likely have the right to audit their calculations...further, and i apologize for saying, why are you concerned with what they pay their resources? ...the other side of the arguement is that their use of the term per diem was misleading, which it is, but any judgement would likely see the money dispersed amongst the contract employees for which you would have paid their legal costs
 

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