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C Culham

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About C Culham

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  1. I will restate what ji has stated, 52.232-5 has nothing, absolutely nothing to do with incurred costs, it has to do with "estimating" the amount of work. Both the government and contractor agree to what "estimated" work has been accomplished and agree on invoice amount and payment is processed. Come on Joel you are digging a horrible hole that does not reflect common practice in Federal construction contracting to try to defend a position you have taken about bonding . You know full well "progress payments" can be made without acceptance of work and 52.232-5 at (h) and FAR 52.246-12 Inspection of Construction supports this. A practice that has been around forever. Your bias is based on USACE procedures - payment for sub bonds not allowed, automated formats and forms, etc.. Here is how I have experienced/assisted firms in processing payments for construction contracts with the USACE, USDA, HHS, FHA, DoD, and various other agencies in my 50+ year career. Assumptions - Up front the contractor and government agreed after contract award at the prework conference that material would be delivered to site, agreed where it would be stored and agreed what the cost of pipe would be versus the installation cost of the pipe. They agreed how it would be handled with regard to para. (b)(2) of the payment clause. It was also agreed that as bonds were required and the contractor was also requiring bonds of the subs that payment in accord with para. (g) of the clause would be made out of the mobilization CLIN. INVOICE NO. 1 CONTRACT EARNED THIS PERIOD TOTAL PAID CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT 1 Mobilization 1 LS $1,000.00 $1,000.00 0 $500.00 0 $500.00 2 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 0 $0.00 2a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00 2b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 0 $0.00 0 $0.00 EXPLANATION AND REMARKS For CLIN 1 this period the $500 is for bonds received and substantiated. For CLIN 2 Delivered material payment based on invoice for materials delivered to site and confirmed INVOICE NO. 2 CONTRACT EARNED THIS PERIOD TOTAL PAID CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT 1 Mobilization 1 LS $1,000.00 $1,000.00 1 LS $500.00 1 LS $1,000.00 2 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 100 $0.00 2a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00 2b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 100 $300.00 100 $300.00 EXPLANATION AND REMARKS For CLIN 1 the contractor has completed mobilization to site. For CLIN 2 Contractor has installed 100 feet of pipe. INVOICE NO. 3 CONTRACT EARNED THIS PERIOD TOTAL PAID CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT 1 Mobilization 1 LS $1,000.00 $1,000.00 1 LS $0.00 1 LS $1,000.00 2 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 110 $0.00 2a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00 2b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 10 $30.00 110 $330.00 EXPLANATION AND REMARKS For CLIN 2 additional 10 feet of pipe installed this period. And here is how it would be done if there was only one CLIN. Use your imagination for any other scenarios. INVOICE NO. 1 CONTRACT EARNED THIS PERIOD TOTAL PAID CLIN DESCRIPTION QTY/UNIT UNIT PRICE AMOUNT QTY/UNIT AMOUNT QTY/UNIT AMOUNT 1 Sewer Pipe Install FEET/500 $12.00 $6,000.00 0 $0.00 0 $0.00 1a Sewer Pipe Delivered FEET/500 $3.00 $3,000.00 500 $3,000.00 500 $3,000.00 1b Sewer Pipe Installed FEET/500 $3.00 $3,000.00 0 $0.00 0 $0.00 1c Bond Reimbursement $500 EXPLANATION AND REMARKS CLIN 1 - Delivered material payment based on invoice for materials delivered to site and confirmed and $500 payment is for bond substantiated by contractor pursuant to FAR 52.232-5(g) as no other items in contract payment made from CLIN 1
  2. Agreed. Interesting that there is no argument that a "contractor" can be paid for material delivered to site, even if delivered under a subcontact, but by golly do not pay contractor for a bond delivered by a subcontractor???????????? Same way that you do for bonds if only provided by the prime. Geez Joel haven't your exhausted this yet. There is an alternative way to emphasize the Digest just to humor you but my hope is that you look at the matter in the here and now of the FAR. "MATTER Reimbursements of TOTAL performance or payment bond premiums to contractor in first progress payment. DIGEST: Reimbursement to Government contractors of the TOTAL AMOUNT OF PAID PERFORMANCE AND PAYMENT BOND PREMIUMS …"
  3. FACTS – Bond premiums of a subcontractor are an allowable cost. (FAR 31.205-4) therefore they may be a direct cost. There is no Federal regulation as to where a contractor when pricing a Federal contract must place this allowable cost in their pricing and in an instant contract CLIN structure. Likewise there is no privity of the government to stipulate to a prime contractor the terms and conditions of a subcontract with regard to subcontractor bond premiums and how such bond cost will be placed subcontractor pricing. Therefore a subcontract agreement can stipulate that the prime contractor will reimburse a subcontractor for subcontractor bond premiums upon presentation/substantiation of the subcontractor’s payment for bonds and the prime contractor can show this cost as a direct cost in their contract pricing. Payments under FAR 52.232-5 are not contract financing payments (FAR 32.001) As a payment under 52.232-5 is an invoice payment it is subject to the Prompt Payment Act (FAR 32.001). Subject to the Prompt Payment Act FAR 52.232-27 prescribes certain requirements for placing prompt payment terms in subcontracts and recognizes the ability of a prime contractor and its subcontractors to address payment for subcontractor bonds. 52.232-5 as well as 52.232-27 requires the prime contractor to certify that invoice payments received have been used to pay subcontractors and that timely payments will be made from the instant payment requested in accordance with subcontract agreements. As a subcontractor agreement can provide for reimbursement of bond premiums the prime contractor can therefore certify a subcontractor bond premium payment. 52.232-5(g) provides that bond premiums may be reimbursed after the Contractor has furnished evidence of full payment to the surety and that retainage provisions do not apply to the reimbursement. 52.232-27 provides a nexus to the 52.232-5(g) reference on reimbursement of bond premiums with no retainage as relating to subcontractor bonds where at 52.232-27(d)(1) it states “Retainage permitted. Permit the Contractor or a subcontractor to retain (without cause) a specified percentage of each progress payment otherwise due to a subcontractor for satisfactory performance under the subcontract without incurring any obligation to pay a late payment interest penalty, in accordance with terms and conditions agreed to by the parties to the subcontract, giving such recognition as the parties deem appropriate to the ability of a subcontractor to furnish a performance bond and a payment bond.” 52.232-5(g) does not provide that only contractor bonds provided under the Miller Act will be reimbursed what it does provide is that the government will “reimburse the Contractor for the amount of premiums paid for performance and payment bonds” These facts from the FAR substantiate that a prime may require subcontractors to provide bonds, that the cost for such bonds is an allowable and direct cost to a contract; that payment for such cost is not contract financing (nor advance payment) but an invoice payment and as such the prime can be reimbursed upon invoice substantiation of subcontractor bonds.
  4. How dare you! I strongly suggest that you remove this post. Wrong! "Where a subcontractor furnishes a bond, however, the obligee may be the owner or the prime contractor or both." NACM’s Manual of Credit and Commercial Laws, 104th edition. aka Dual-Multiple Obligee Rider I will read this thread but I will not be responding further as it is clear that no reference can be provided that supports that a subcontractor bond cost can not be reimbursed in the manner I have repeated in a couple of posts. When a reference is provide d I will respond as appropriate.
  5. JHKim - The advice provided to date is good in general but noting a few of the facts you provided in your original post brings a thought to my mind. That is every situation with regard to a contract and its scope depend entirely on the facts of that contract. While the best advice is checking with your legal counsel I did wonder if you utilized all the tools in WIFCON to assist in your research when I read your original post. With this wonderment in mind did you by example review GAO protests regarding scope of contract found here..... http://www.wifcon.com/pd6_001.htm
  6. And once again your conclusions are skewed to support your position without reference. Seriously Joel what the heck are coinsurance and reinsurance agreements for but to reduce the cost liability and risk of costs to an insurance company and the prime contractor. And yes you are right subcontractor bonds do the same thing. Bonds assure performance and payment, insurance insures against loss. All walk like a duck, quack like a duck and should be paid for in the same manner. Get it!
  7. Consider application of the inspection clause in the contract and the remedies it provides for failure of work to meet contract requirements.
  8. I would hope that a CO would also consider whether it is the usual practice/policy of the contractor to require sub bonding. As noted in my posts many construction firms have such a policy. My only purpose was to demonstrate that firms do get sub bonding and that agencies do consider such bonding for reimbursement. I do understand is not spot on as to a BCA taking a definitive position that the clause allows such reimbursement for sub bonding. My research shows no definitive decision either way. @ALAL The discussion is about payment. Payment to the contractor means payment to that contractor for those costs attributable to subs, happens all the time. Remember a prime may in fact pass all clauses down to a sub as they are found in the primes contract...inclusive of bonding and payment.
  9. Seriously Joel get off the 1977 decision. The actual FAR clause in a contract is what counts! And as such it says nothing about first progress payment. 52.232-5(g) says you can reimburse them and that is it.
  10. I am done with the back and forth on the 1977 decision. I am waiting instead for your definitive reference that subcontractor bonding which is an allowable cost when appropriately substantiated and billed to the prime (contractor) and in turn billed by the prime (contractor) to the government is not reimbursable in the first contract progress payment. Thank you.
  11. Not quite from my point of view....here is how I see it. In the old days, before 1977, the prevailing thought was that bond premiums were not reimbursable up front because of a fear of advance payment, so all bond premiums had to be pro rata reimbursed over the life of the contract. In 1977 the BRAB Committee study recommended that bond premiums be reimbursed up front as a cost saving measure in government contract bids. Their recommendation was based on the BRAB study that found that bond premiums for both primes and subs if paid for on a reimbursable basis would result in the cost savings in bids to the government. In 1977, the BRAB requested GAO provide guidance on reimbursed bond premiums up front, as it was feared that such reimbursement might be a advance payment based on previous GAO decisions and interpretation of 31 U.S.C. 529. In the 1977 decision GAO is absent the "required by law" wording. The GAO actually opined in the last paragraph of the decision "that 31 US.C. 529 does not preclude Government from providing in a contract for full reimbursement of bond premiums (where otherwise appropriate) upon presentation of receipted invoices. While not necessarily the only alternative, this could be accomplished by amending the standard progress payment clauses…" The 1977 case addressed reimbursement of a prime contractor's and subcontractors bonds, because the facts presented by the BRAB study addressed both prime and sub bond costs and the same was noted in quotes by non-government entities in the case. All of the above was before the FAR existed. The FAR came into existence in 1983. At existence FAR 31.204-5 provided and still provides that "Bonding costs arise when the Government requires assurance against financial loss to itself or others by reason of the act or default of the contractor. They arise also in instances where the contractor requires similar assurance" and that such costs are allowable inclusive of "costs of bonding required by the contractor in the general conduct of its business are allowable to the extent that such bonding is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances. At existence FAR 52.252-5 at (e) allowed for reimbursement up front for premiums paid for performance and payment bonds. FAR 52.232-5(e) and now at (g) does not expressly limit its applicability to bond premiums incurred by the prime contractor. Joel thinks subcontractor bond premiums may not be reimbursed in a fixed-price construction contract; Carl thinks they may be. References other than the GAO decision which has already been provided - https://www.govinfo.gov/content/pkg/FR-1983-09-19/pdf/FR-1983-09-19.pdf#page=1 https://books.google.com/books?id=-JMrAAAAYAAJ&pg=PA21&lpg=PA21&dq=B-112376&source=bl&ots=_jdt8lGjA6&sig=ACfU3U1mYCpQsMVn6C3Yp9VQiAZu3-ag_g&hl=en&sa=X&ved=2ahUKEwiZ2ZqRidnkAhXB854KHe56BqwQ6AEwAXoECAkQAQ#v=onepage&q=B-112376&f=false
  12. Joel , Exactly. The matter was brought to the Comp Gen by the then National Research Council, Building Research Advisory Board, Standing Committee on Procurement Policy (BRAB Committee) which was made of up Federal entities involved in construction based on a conclusion and recommendation of the BRAB that reimbursement for premiums paid would be a cost savings to the Government by contractors reducing bid amounts due as it would relieve them of the cost of money (my term) for having to pro rata the premium costs over a contract period. The BRAB Committee recommendation was supported by the National Association of Surety Bond Producers and the Associated General Contractors of America who by statement provided that "'The general contractor, moreover, has an additional expense in the bids he receives from his subcontractors unless he pays them the full bond premiums for their subcontractor bonds running in his favor as the cost of their expense for borrowing to pay bond premium will be included in their bids to him and passed on by him in his bid to the owner." It is this context on which wording for clauses regarding reimbursement of bond premiums became drafted and now resides in the current FAR. It is also in this context that the decision you want to argue matters less than the current clause that is placed in contracts which does not, let me repeat does not, provide wording that limits payment of premium amounts to that of the prime but rather by its wording allows for reimbursement "for the amount of premiums paid for performance and payment bonds (including coinsurance and reinsurance agreements, when applicable) after the Contractor has furnished evidence of full payment to the surety." Of note the preceding quote read carefully provides a contractor can be reimbursed for coinsurance and reinsurance agreements. So in your argument a contractor can not be reimbursed for bond premiums (adequately supported and proven) but can be reimbursed for a reinsurance agreement. Subcontractor bonds transfer risk from the prime to the sub, reinsurance agreements do the same. All said we disagree. I put my conclusion specifically on the current clause and the facts that I have found to date that bond premiums of subcontractors are allowable (FAR 31.205-4) and as they are allowable can be reimbursed through invoice to the prime who in turn invoices the Government and the Government reimburses per the clause. Here I note noting in the FAR limits the allowable cost of a subcontractor bond to a pro rata payment methodology. These conclusions are based on my limited ability of research where I have reviewed BCA cases and other documents and can find no definitive answer, and noting that Federal entities do reimburse for bond premiums inclusive of those premiums of a sub in the manner I have noted in this paragraph that doing so is appropriate. I therefore hereby agree to disagree until such time you can provide a definitive reference that says sub bond premiums, if billed and substantiated to the prime, can not be reimbursed to the prime.
  13. To add.....as this is an 8(a) the standard on bottom-line price is "fair market price" so one should also consider FAR 19.001, 19.806 and 19.807
  14. Take a read here. I agree it is not spot on but in this case it seems the CBCA thought markup by a prime on subs bonding costs was appropriate. https://www.cbca.gov/files/decisions/2011/SHERIDAN_11-16-11_1539__RELIABLE_CONTRACTING_GROUP_LLC_508.pdf
  15. Argue as you may because primes do require bonding by subs and you can pay the premium that is why. I believe market research especially utilizing the internet will provide adequate substantiation that requiring bonding by subcontractors is industry practice. You will find that many firms have a policy that for subcontract work over a stipulated dollar amount bonding is needed. As I also pointed out it may very well be the requirement of a bonding company that a prime secure bonding of subs before the bonding company will provide the prime with bonds. Likewise I refer back to my post of FAR 31.205-4 and the GSBCA decision that provides further substantiation that bonding by subs is allowable and done. I would add the reminder of FAR part 31 allowably of a cost is determined by the following which must be considered in whole - A cost is allowable only when the cost complies with all of the following requirements: (1) Reasonableness. (2) Allocability. (3) Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the circumstances. (4) Terms of the contract. As ji points out if you think it does not meet this standard then move on but your argument so far has not addressed the standards to reject the costs for subcontractor bonding you are encountering as unallowable you just don't like the idea of it. Regarding SBA, have you read FAR subpart 19.8 in detail? If not I suggest you do. Most agencies now use a tripartite contract format for 8(a) awards so my quick reference for you to refer to is 52.219-17 which states in the very beginning - "By execution of a contract, the Small Business Administration (SBA) agrees to the following: (1) To furnish the supplies or services set forth in the contract according to the specifications and the terms and conditions by subcontracting with the Offeror who has been determined an eligible concern pursuant to the provisions of section 8(a) of the Small Business Act, as amended (15 U.S.C. 637(a))."
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