What are Direct Productive Labor Hours?

This term is used to account for personnel time on an hourly basis. It normally refers to actual hours worked -- exclusive of vacation, holiday, sick leave, and other absences. The definition may vary within the federal agencies and with the various sponsors. For example, the EPA defines DPLH to exclude hours for administrative support.

Do federal prime awards to Virginia Tech ever contain requirements for DPLH?

NO. You will most likely see DPLH in federal subcontracts or with private sponsors. DPLH should never be in a prime federal award as the federal government is aware this is inappropriate. In subcontracts, the prime federal contract could be a DPLH contract and the prime contractor would want to flow down the same requirements to Virginia Tech.

What type contracts order DPLH?

Contracts for services could order a certain number of DPLH at an estimated $ value. These are usually level of effort (LOE), cost reimbursement contracts. The DPLH is the LOE being ordered. For example, if the EPA orders 100,000 DPLH under a cost reimbursement contract, the contractor would be obligated to provide 100,000 of technical support, but would get paid for all costs including those of the administrative staff. DPLH could be included in time and material (T&M) contracts as a limit on the effort being ordered, but normally T&M contracts will set the limit by a ceiling $ amount as opposed to a DPLH number.

Does Virginia  Tech accept contracts/subcontacts for DPLH?

No, except if there is no other alternative and the PI agrees to do the administrative work to convert and track DPLH.

For-profit and non-profit businesses doing work with the federal government must tract hourly time and maintain daily time cards for each employee. Virginia Tech complies with the federal cost principles that allow colleges/universities to account for employee time on a percentage-of-effort basis. Percentage-of-effort time keeping is not a familiar concept with most businesses, so you will have many questions from them on why we can’t accept DPLH or hourly rate contracts. 

If Virginia Tech accepts a DPLH award, how is this administered?

In order to provide DPLH, the University would have to track time for employees on an hourly basis or else convert to hours from the percentage-of-effort recorded. The University’s conversion from percentage-of-effort to DPLH is based on a 2080 standard year and includes holiday, sick leave, and other absences. You would multiply the percentage-of-effort by a standard 2080 hour person year to get the number of hours for billing.

What exception to DPLH can be taken?

First try to get the contract changed from a DPLH/hourly rate contract to either a cost reimbursement or fixed price. If federally-funded subcontract, the prime contractor does not have to award Virginia Tech the same type contract as the prime.  They have the option to award fixed price or cost reimbursement. You can use the following:

The University can not accept a contract that requires reporting and billing based upon Direct Productive Labor Hours (DPLH) or hourly rates. The University accounts for salaried personnel on a percentage-of-effort basis, not DPLH. This method of accounting is in accordance with OMB circular A-21, Cost Principles for Educational Institutions, and is utilized by the vast majority of universities. This method is accepted on the University’s current contracts and grants. We request the contract be converted to either a fixed price or cost reimbursement contract.

What contract clause should be included in Virginia Tech’s DPLH awards?

To ensure clarification of how the University will track and account for DPLH, make sure the following clause is included in any agreement that orders DPLH.

The parties hereto acknowledge that the University is subject to federal cost accounting standards under OMB Circular A-21"Cost Principles for Educational Institutions" whereby costs are incurred and certified as a percentage- of- effort and not on an hourly basis. It is understood that, wherever Direct Productive Labor Hours (DPLH) are required, the DPLH will be derived from the percentage-of-effort multiplied by a standard 2080 hour person year.  There will be no auditable record to support these DPLH hours except for the percentage- of- effort records. If this contract contains hourly rates, percent- of- effort expended will be converted to hours as indicated herein and billed at the specified contract rate.