Neil Roberts

Nothing in your facts indicate that you have any grounds to issue a unilateral change to the contract. If you issue a change about the loss of the laptop and payment, it would usually require the sub to agree. If you think they would, propose that solution to your customer and obtain its advise. Did your company furnish the government property to the sub, or??? I would avoid the talk about "legal" and focus on contracts between the parties and what happened contractually, then re-evaluate your question.

is there a FAR government property clause in your contract with the sub?

@Retreadfed, the clause bothers me and seems ambiguous. And, it may also be more complex than it looks at first glance. I would not issue an inter-organizational order between subsidiaries or joint venture entities because my understanding is there are tax consequences to doing so instead of issuing a subcontract (inter-organizational "order" makes it seem like the parties are one entity). On the other hand, an inter-organizational "transfer" (which poster mentions, and also calls it an inter-organizational "order"), can be issued according to FAR 31.205-26 for commercial work transfer at cost. Commercial work may be "exempt" from CAS. But, poster facts excluded any CAS "exceptions." Due to the complexities, it is suggested poster seek an answer from a well versed attorney or accounting and finance expert.

It is assumed that the subcontractor source selection was justified as a non-competitive transaction and it is below the Truth in Negotiations dollar threshold. You may use any or all of the techniques below (source FAR 15.404-1): (ii) Comparison of the proposed prices to historical prices your company paid in the past for the same or similar item. (A) The prior price must be a valid basis for comparison. If there has been a significant time lapse between the last acquisition and the present one, if the terms and conditions of the acquisition are significantly different, or if the reasonableness of the prior price is uncertain, then the prior price may not be a valid basis for comparison. (B) The prior price must be adjusted to account for materially differing terms and conditions, quantities and market and economic factors (i.e., inflation). For similar items, your company must also adjust the prior price to account for material differences between the similar item and the item being procured. (C) Expert technical advice should be obtained when analyzing similar items, or commercial products or commercial services that are “of a type”, or requiring minor modifications for commercial products, to ascertain the magnitude of changes required and to assist in pricing the required changes (iii) Use of parametric estimating methods/application of rough yardsticks (such as dollars per pound or per horsepower, or other units) to highlight significant inconsistencies that warrant additional pricing inquiry. (v) Comparison of proposed prices with independent cost estimates generated by your company and or a 3rd party company you may hire. You may also engage the services of a government contract experienced audit firm that subcontractor is willing to disclose appropriate information to under a written non-disclosure agreement where the audit firm provides you with an appropriate price analysis disclosing top level information acceptable to the subcontractor. You may wish to consider whether this is so insurmountable that your company buys the subcontractor. You may find it necessary to evaluate whether your company can make the item or provide the service in house. The item or service may need to be re-evaluated to determine whether the work can be included in a higher level sub-assembly or service "design" in such a way that the subcontractor would not be required. The posting would have been enhanced if it included information such as dollar value, whether it was a commercial item or service, dollar value of prime, subcontract and prime contract type, etc.

(b)(2) above bothers me. It indicates that a "segment" order shall be treated as a subcontract. I don't understand this because (b)(2) also states that negotiated subcontracts may be exempt. Segment means one of two or more divisions, product departments, plants, or other subdivisions of an organization reporting directly to a home office, usually identified with responsibility for profit and/or producing a product or service. See FAR 2.101. I have never been able to consider Divisional inter-organizational orders to be negotiated because those segments are part of a common company and are not separate companies. So, it is not clear to me why treating it as a subcontract matters, no CAS exemption seems applicable to me under (b)(2) for inter-organizational orders. This seems contrary to what may have been the intent.

In context of the situation, calling the transaction a subcontract would not be appropriate for an inter-organizational segment order/contract because that term generally connotes an arms length transaction with a party capable of being sued if necessary for breach of contract. A prime contractor with segments, like divisions, can not maintain lawsuits by one segment against another segment because both segments are actually the same party. The potential ambiguity with 48 CFR 9903.201-1 I see is whether the segment is to be considered a subcontract for all paragraphs under (b) or only under (b)(2).

My comment above cited eCFR, which is not the official version. It appears to me that there could be some ambiguity in it. I am checking for the official CFR version and will update the potential format paragraph or subparagraph ambiguity I see if needed.

If FAR 52.230-2 is included in the prime contract, 48CFR 9903.201-1(b) appears to be applicable and provides in part as follows: (a) This subsection describes the rules for determining whether a proposed contract or subcontract is exempt from CAS. (See 9904 or 9905, as applicable.) Negotiated contracts not exempt in accordance with 9903.201-1(b) shall be subject to CAS. A CAS-covered contract may be subject to full, modified or other types of CAS coverage. The rules for determining the applicable type of CAS coverage are in 9903.201-2. (b) The following categories of contracts and subcontracts are exempt from all CAS requirements: (2) Negotiated contracts and subcontracts not in excess of the Truth in Negotiations Act (TINA) threshold, as adjusted for inflation (41 U.S.C. 1908 and 41 U.S.C. 1502(b)(1)(B)). For purposes of this paragraph (b)(2), an order issued by one segment to another segment shall be treated as a subcontract. (5) Contracts and subcontracts in which the price is set by law or regulation. (6) Contracts and subcontracts authorized in 48 CFR 12.207 for the acquisition of commercial items. (7) Contracts or subcontracts of less than $7.5 million, provided that, at the time of award, the business unit of the contractor or subcontractor is not currently performing any CAS-covered contracts or subcontracts valued at $7.5 million or greater.

FAR 16.102 is as follows: "c) The cost-plus-a-percentage-of-cost system of contracting shall not be used..."

@general_correspondence. Obtaining reps and certs from bidders as to bidder's NAICS code, if any, for the described work...the truth and veracity belongs to the bidder, not the prime. Prior representations by a bidder to the prime as to NAICS code, if any for the prior described work, is irrelevant to me if only due to passage of time. Also, companies can have multiple NAICS codes for different products and/or services. I am not aware of any requirement that a prime contractor ensure that SBA is involved with a subcontractor' SBA relationship or coordination.

In my experience, there are a variety of ways that primes execute requirements. With respect to excluded parties, I am familiar with handling it by contracting for a service that provides the listing to the prime as they are effective. The service may use SAM or perhaps a government generated listing updated and published daily or as required. In any event, the excluded parties list is provided internally to Information Technology to enter the name and other information in the prime's supplier database. Purchase transactions will lock down and not be generated by the procurement system for a supplier identified on the listing until such time as they may be removed. That kind of process is driven by the cost to supplier management if every procurement contract representative had to search SAM. I can't say how or to what degree primes as a group review existing subcontracting processes against new and changed regulations. Ours were driven by a team that met weekly to plan, brief management and execute processes for new or changed regulations.

@LeighHar, just to clarify: 1. my focus was on FAR 52.204-8 only where the prime is required to obtain a rep and cert from the subcontractor. I do not think it is a good practice for a prime to obtain and rep and cert from a subcontractor unless specifically required to do so in the solicitation and subcontract or reasonably required for related substantiated business reasons. Not every clause/provision listed in 52.204-8 requires prime to obtain a rep and cert from the subcontractor. 2. The approach was to obtain the prime developed standard rep and cert for subcontractor solicitations and transactions where 52.204-8 is applicable. The rep and cert was incorporated into each contract with a subcontractor. 3. I think that "accepting" SAM certifications made by a subcontractor in lieu of obtaining a rep and cert directly from a subcontractor is not what is called for in the requirement. Also, the rep and cert was made to the Government, not the prime. This tends to put the prime in a weak position to sue for contract breach in the event "something goes wrong" relating to the rep and cert. 4. Annual reps and certs were tried many years prior and found to be more costly to enforce, access accurately without questions, and administer the database properly than obtaining individual reps and certs.

My experience was with two major prime contractors. Standard Reps and Certs were obtained with each transaction over a certain standard dollar threshold. Topics included debarment, payments to influence federal transactions, foreign and small business status with applicable NAICS Code(s), non-segregated facilities, affirmative action, counterfeit parts and other matters. In each case the business determined that annual certs were not as audit defensible to the customer and/or traceable as to the subcontractors response at any give time as needed to best run the business. In addition, on balance, managing to ensure annual certs were on file and covered everything needed in each year, was administratively inconvenient and expensive. Also, there was a view that SAM certified to the Government, not to the contractor and therefore, did not fulfill some government contract requirements to "obtain" this or that rep or cert from a subcontractor.

You said "any input," Patrick, so here is mine. My experience about how to handle it contractually...I don't know if it resolves the auditor concern or not, or creates new ones. The issued subcontract could indicate that the article is customer (prime) furnished. Alternatively, if the cost of the item was already included in the subcontract, prime should furnish it and reduce the price of the subcontract by the appropriate amount included in the subcontract for the item.

It sounds to me that the contract may have directed the contractor to purchase this equipment. Was special test equipment ruled out? The cost of special test equipment is included in a proposal but dispositioned at the end of the contract by the government. Also, it sounds to me like the equipment might qualify as capital equipment. Was that ruled out? Capital equipment should not be included as a direct cost to the contract.

In my experience with two major prime contractors, It was not unusual that a subcontractor insisted on "sanitizing" its proposal details in bidding to us. It was acceptable provided there was a justifiable concern about competition even though it was more challenging for us to substantiate the proposed cost/price.

T's & C's observation and comment. With respect to your company dealings with its customers, the process should request or receive customer proposed terms and conditions with receipt of the request to propose. You should address major concerns in responding to the proposal or at least identify those that look troublesome or in non-familiar territory that you should work ASAP. You may have put yourself at a negotiation disadvantage and or make your customer uncomfortable, if the customer license requirement was already a proposed term and condition. If the customer did not make you aware of any proposed terms and conditions with the request to propose, you may wish to reconsider who you are dealing with. If the customer is now changing its proposed terms and conditions, you should emphasize that it is a surprise and not contemplated. As indicated above, this area is very complicated and needs professional advise.Obtain it and then make your business decision about terms and conditions.

@Oversight, can you please state the proposed contract price, quantity, item description and delivery schedule you and or the program official are talking about, with and without a "contract ceiling" and with and without a "total estimated potential value?"

FAR 4.1403(b) might be a reason why.

@Contractor500, previous posts of yours indicate your company may be a subcontractor at times. If so, I would not ignore a prime contractor's flowdown of 52.230-1 reps and certs since it may not be exactly as written in FAR. For example, a prime contractor I am familiar with adds a section of its own at the end of 52.230-1 that is not in FAR and asks the potential bidder If bidder's proposal exceeds CAS threshold but bidder claims an exemption from the requirements of CAS as set forth in 48 CFR Subparagraph 9903.201-1 (b), If so, bidder is then asked to mark the box below. ( ) bidder represents that It is a small business concern as set forth in FAR Part 19

@Ksenia, aside from the clarification that has been requested regarding the clause number in question, are you realizing that the supplier would not normally want to reveal its actual labor hours because it is a FFP contract type, and your company did not flow any contract requirement for it to obtain access to the suppliers books and records and/or require the supplier to report such actuals to your company?

Hi Joel. Nice to hear from you. Maybe the world would have been better off if I had just said, report labor hours that are classified as "direct" unless of course, they are not.

I do not see that in 52.204-25 Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment, either. Your post did not indicate what clause was in your contract so I assumed from the language you used in your post, that it might have been 52.204-14 Service Contract Reporting Requirements. Please clarify what contract reporting clause you are concerned with.

FAR 52.204-14 requires the reporting of direct labor hours expended unless the work was charged to overhead or G&A. There does not seem to be an exception for FFP contract types.

seems to me you are required to report the total amount you invoiced the government, not the total amount subcontractors invoiced you. Did you invoice a credit to the government for this subcontractor "refunded" amount during the applicable year? If not, that amount is not reported for the paragraph in question in the regulation. However, you may have some other kind of issue with this "refund" depending on the reason for the refund, your contract type, etc.