So, to clarify (hopefully), Contract2 contractor is ordering and paying for supplies from Contract1 with commercial money (not government money, and not money provided by the Government for the purpose of purchasing stock). Contract2 contractor then stocks a warehouse (wholesale) with the material they ordered. The government is not under any obligation to purchase the material Contract2 contractor purchases/stocks at this point. Contract2 contractor is responsible to make its own stocking decisions - the government does not pay for their stocked inventory. Later, when the government gets retail demands, those demands flow to contractor2, who then ships material to meet those demands. The government pays them as those individual orders are filled. At no time during performance has the government actually spent any money under Contract1 - all Contract1 transactions are commercial to commercial transactions - Contractor1 and Contractor2 basically use Contract1 as a BOA.
@Vern Edwards - you're correct - if the scenario above is interpreted to mean that the Contract1 maximum is reached, I agree that a J&A would be required to increase the maximum. Just not sure whether the above scenario results in any actual work under Contract1 that would count towards the maximum. All government spend occurs under Contract2. Lawyers here think J&A. We may end up going that route (and probably will), but I want to challenge them to think about whether its even necessary to do that under these circumstances. This decision has ramifications to several other contracts.
@here_2_help - the customer for Contract1 can be both Contractor2 and the Government. The difference is that the language of Contract1 indicates that transactions between Contractor1 and Contractor2 are commercial to commercial transactions paid for by Contractor2. But it doesn't clearly state whether those commercial to commercial transactions should count against the contract maximum. All transactions to date have been between Contractor1 and Contractor2 - the government has not spent any money directly on Contract1.
Appreciate the thoughts!