here_2_help

We agree on the point quoted above. A well-crafted subcontract should lay out the duties and expectations of both parties. That said, subcontracts can be modified to address omissions. Look, here's the deal. I have personally reviewed millions of dollars of subK invoices on behalf of the prime. The subKs were competitors but they were (in this case) also subKs. They wanted the revenue and they understood certain otherwise proprietary information would have to be revealed "for official use only". They grimaced and provided the information. The alternatives included (1) slow pay, (2) minimization of subcontracted work, or (3) a T4C. They got it. In that case (and I assume in this case) the prime had all the leverage. The prime used that leverage. End of deal. The fun part of the above invoice review activity was that we direct-charged it, and it absorbed overhead and it was fee-bearing. I project managed that effort and we averaged a 98% award fee. My only real honest-to-god PM credential.

Retreadfed, That's not the risk that's being mitigated when a prime performs a detailed review of a cost-type subcontractor's invoice. The risk is that unallowable costs are being billed, or perhaps labor is being billed in excess of the amount actually incurred, or perhaps that the subcontractor is using unqualified personnel to perform the work. There is no question that the FAR establishes that the prime contractor is responsible for managing its subcontractors. (Ignore for the moment how that statement has been blown out of proportion by GAO, DCMA, and DCAA.) On DCAA's website is an official presentation that establishes how DCAA interprets that FAR requirement. It says "The prime contractor is primarily responsible for subcontract award, technical and financial performance, monitoring, and payment to the subcontractor for the work accomplished under subcontract terms." What do you think is meant by the term "monitoring"? What activities fall under the umbrella of the term "payment"? When you put those two terms together, do you think that the prime is fulfilling its responsibilities by checking the three items you listed and then paying the amount billed? Is that the level of diligence expected of a prime? Was that the level of diligence expected of DynCorp, who found itself accused of violations of the False Claims Act simply for passing on the costs billed by its subcontractor without doing any checking? Further, DFARS 252.242-7006 establishes criteria for an "acceptable" accounting system. In my first-hand experience, DCAA can and will find that a contractor has a significant deficiency in its accounting system with respect to criteria 1, 8, 12, and/or 17 when a prime contractor performs a perfunctory review of a cost-type subcontractor's invoices and bills its government customer for unallowable or fraudulent costs. Unlike DCAA, I don't believe it's really an accounting system adequacy issue. However, prime contractors that do not perform diligent reviews of their cost-type subcontractor invoices are not, in my view, earning the right to burden those subcontractor billings with indirect costs or with fee, as they are are not adding the value expected by the Federal government.

The buildup MUST be provided and reviewed by the prime. If the subK won't cooperate then find another subK.

The P&P establish the required practices. Periodic file reviews determine whether the procurement team has complied with the required practices. I know of many companies that track lots of metrics, but they are not really focusing on using those metrics as a compliance dashboard. Instead, a procurement/compliance function does file reviews. Hope this helps.

The prime is responsible for reviewing the invoices of its cost-type subKs. Period. There is no alternate approach.

Nope. Here's your quote: For example, the prime could commit in the subcontracting plan to hosting annual or semi-annual outreach efforts for small businesses. If a prime then chose not to or forgot to hold those outreach efforts and failed to meet their goals, one could make an argument that, based on the commitments in the subcontracting plan, the prime did not make a good faith effort. I was explaining why that would accomplish nothing. Which others, including PepeTheFrog, have also tried to explain to you.Then I tried to explain how a CO might actually evaluate the expected efficacy of a contractor's SB plan (which almost none of them actually do; instead, they run a checklist to see if the plan has all the required elements and then file it). And then I suggested two concrete ways of holding a contractor accountable. I'm not here for an argument, and I'm not saying the SB contracting plans are a waste of paper. But you seem to be arguing for the sake of arguing. That doesn't interest me.

As somebody who has been hired to write initial SB plans for prime contractors, I have to say Mr. Fleharty seems to be missing some important observations that others have made. 1. Sure, the prime could commit to host a quarterly or monthly SB outreach effort, but there is no objective means of measuring how effective those efforts are. If the contractor simply puts a notice on its website, "Outreach opportunity on some date and time" that does nothing to ensure that the right small businesses show up--but it might be sufficient to prove a good faith effort. You can't use how many SBs actually show up as a measure of effectiveness because that is (to a very large extent) not in the prime's control. It would be like holding a CO responsible for failing to obtain competition after advertising in FedBizOpps. 2. What makes an SB plan "good" versus "window dressing" has very little to do with efforts to reach SBs. Everybody -- and I mean everybody -- knows to list the usual outreach efforts, the usual industry days, the websites of SB-focused groups. And primes do send people to the usual events! (And then charge the government for doing so.) The people show up and they have booths and they have swag to give away. They take names and business cards, and they hand out brochures about the company and the have detailed instructions as to how to get on the approved vendor list. And it's all for show -- unless the prime finds a SB it wants to do business with. And if the prime doesn't and it doesn't subcontract to any SBs, it can still point to its attendance as evidence of a good faith effort. (And to be clear: It was a good faith effort!) 3. What matters is the stuff nobody reads. The organizational roles and responsibilities, the policies and procedures, the incentives given to PMs if they subcontract to the right categories. The meat of the SB plan is not the external outreach efforts; the meat is how the contractor organizes itself to work toward the goals, how much budget and manpower it allocates to the efforts. If you can't clearly see who has the responsibility for SBLO on an org chart, then you can be confident the contractor is just going through the motions. Anyway, PepeTheFrog is right. It's a trivial matter to show good faith efforts and there is no way I can think of to *make* a contractor work harder than it wants to in this area, short of making actual SB subcontracting amounts an evaluation factor in (a) award fee determinations, or (b) future source selection decisions.

An interesting GAO bid protest decision that may be relevant to this discussion. http://www.gao.gov/assets/670/668912.pdf

A quick Google search came up with this blog post that I think is on point. http://www.apogeeconsulting.biz/index.php?option=com_content&view=article&id=1165:dyncorp-on-hook-for-subcontractors-false-claims&catid=1:latest-news&Itemid=55

JIR17, Having worked for a prime for several years as the SB Plan administrator and the mentor-protege coordinator (we won one of the early Nunn-Perry Awards, if that means anything) ... let me tell you a basic fact. If you want work from a prime, you have to bring something to the party. You have to bring a capability, an expertise, local knowledge, past performance quals, key personnel quals, low-cost business model, or some other kind of competitive advantage. If you have something to offer the prime that the prime wants, then you will get work. If not, then the prime will self-perform or look elsewhere. It's really that simple. Hope this helps

Joel, we don't know. We don't know what the contractor's practices are. We don't know what costs are direct and what costs are indirect--for this particular contractor. For example, contractor folks that are doing prime contract administration could be direct-charging to the contract they administer, or else they could be a G&A function because that's the way the contractor chooses to operate. We just don't know. Having said all that, generally speaking you and I are in agreement on this one. In my experience with JVs (including having audited one DOE M&O JV), the G&A costs are a combination of partner G&A allocations (see CAS 403) and local costs that have been declared to be G&A costs. Because at least some of the G&A pool costs are allocations from the partners, and because at least some of those allocations almost certainly use revenue as at least one allocation base factor (again see CAS 403), Whynot is wrong in his analysis above. The pool can and almost certainly will increase with an increase in JV revenue ... and an additive change will increase JV revenue. JV cost accounting is hard -- as at least one article on the WIFCON reading page discusses.

Joel, I wonder if the OP used the correct terminology re: "LLC partnership" which is a seeming contradiction in terms. I wonder if Joint Venture would have been the more correct terminology. If so, the rules on JV's are complicated and some of your points, while valid in a general sense, would not be correct if applied to a JV. Hope this helps.

No. The contractor's original proposal was priced to include expected G&A associated with the original SOW. Then the contract was changed. The contractor is entitled to be compensated for the cost of the changed work. Total cost includes G&A (see FAR 31 definition of total cost).

Yes, I was. Thanks for clarifying. Still doesn't change any of my responses to Zag2009.

Zag2009, You are still confused. Let me see if I can break it down for you. 1. A T&M subcontract is not a CPPC contract because, normally, fee is not permitted on the variable "M" portion and, instead, is only calculated within the fixed hourly labor rate portion. 2. You are correct that the FAR doesn't apply to you unless you have clauses in a government contract but, in this specific instance, you are proposing to award a subcontract under a government prime contract. Among other things, you are very likely to have to prepare a Consent Package and have that Package reviewed by your contracting officer, who is going to go by the FAR requirements. You want the CO to approve your subcontract award, right? Then you better consider what they will be reviewing for. If you want to use a FAR-based commercial item format, I would suggest that, at a minimum, you will want to have the proper FAR clauses in the subcontract. 3. When you draft a subcontract agreement, you do not just flow down all mandatory prime contract flow-down clauses. You do that, of course. But you also add in "local" clauses and whatever clauses you need to add to make an effective subcontract agreement. This is not a situation where the government CO "forgot" or omitted a clause (since the clauses we are discussing were never required to be included). Instead, this is a situation where you, as the contractor, need to draft an effective agreement. It requires judgment. I don't know what else to say about this. Perhaps somebody else should step in because I fear I'm not being as clear as I ought to be. H2H

A long time ago I participated in a discussion about the "cost" of a commercial item that the government customer wanted to acquire under a FAR Part 15 cost-type contract. I argued the (apparently) unpopular notion that the contractor's cost in a CP environment was the established market price. I'm wondering whether acquisition of a commercial item under this ID/IQ contract might raise similar concerns when the cost and price analyses are performed. And I'm thinking both cost and price analysis would have to be performed since there was never any competition for the commercial items. Just some idle thoughts....

Yes there is an issue. Several, in fact. 1. 52.212-4 Alt 1 applies to acquisitions of commercial items using Part 12 procedures. You are not acquiring a commercial item using Part 12 procedures. 2. You are subcontracting. You have to create your subcontract using the appropriate set of clauses, regardless of whether they are in your prime contract. In other words, your subcontract is not 100% made up only of prime contract flow-downs. Further, of course the 52.232-7 clause wouldn't be in your prime contract, because that's not the proper payment clause for the type of contract you have been awarded. 3. If you want to avoid all the hassle of rate true-ups, just award a FFP or FFP-LOE subcontract. If you insist on awarding a T&M subcontract then you have to take the baggage that comes with it.

1. I believe the clause that controls is the limitation of cost clause (52.232-20). The prime contractor cannot exceed estimated costs without providing adequate advance notice, as specified by the clause. In the scenario described, it appears that adequate advance notice was not provided. If the prime contractor is not in compliance with the requirements of 52.232-20 (or -22) then it may be in a situation where it needs to pay its subcontractor but cannot obtain reimbursement from its customer. 2. As I have stated in my posts above, the prime and the subcontractor can settle the subcontract at any time of their choosing. If they choose to await a DCAA audit that's their choice. 3. The use of the phrase "retainer" in this context is not really helpful. What you are describing is a reserve for settlement of final indirect rates. The parties should be revising provisional billing rates to closely approximate final billing rates throughout contract (and subcontract) performance, so as to minimize any final contract cost adjustments. The question makes it seem that the parties have deferred billing rate adjustments, which is a noncompliance with 52.216-7 as well as other FAR requirements. Hope this helps.

I think your comment is based on the incorrect assumption that a prime must conduct an audit, in lieu of the DCAA, in order to settle indirect cost rates. Further, I think your understanding might be enhanced by reviewing the Court of Federal Claims decision in U.S. Enrichment Corporation v. United States (7/28/2014). Hope this helps.

I don't believe your assessment is correct. If the prime and subcontractor have already settled the indirect rates, then that particular subcontract falls out of the universe audited by [DCAA or whomever]. The rates that are finalized with respect to government prime contract billings do not affect that already finalized and closed subcontract. Your assessment seems to be based on the incorrect notion that the government has privity into the business-to-business contract between a prime and a subcontractor. It does in some areas, but not in this one. 52.216-7 clearly establishes the requirement that the prime is responsible for establishing final billing rates with its subcontractors as part of the close-out process. The few court cases that have dealt with this issue have reaffirmed that proposition. The government has no role to play in that process. Finally, if you are concerned about risk, you can have the subcontractor sign tailored reps and certs that protect the prime, should the situation you fear come to pass. Hope this helps.

And yet ... the PGI section I quoted above clearly and unequivocally states that the Section I payment clauses shall be clearly identified with the CLINs to which they apply. I don't see any other interpretation than the progress payment clause would apply only to the CLINs subject to progress payments. CLINs not subject to progress payments would be subject to different payment clauses.

I think Jamaal nailed it. The PGI @ 204.7108 provides: "When some, but not all, of the fixed price line items in a contract are subject to contract financing payments, the contracting officer shall clearly identify to which line items the payment clause(s) included in Section I apply." So DOD seems to be fine with notion. Thanks!

Thanks I'll go check it out. I reviewed PGI 232 but not 204.

Yep. Contract is FFP.

Can a DOD contract establish progress payments by CLIN? As in, one or more CLINs will establish progress payments based on costs incurred, but not all of them. The other CLINs will be payment on delivery (DD250). (Asking for a friend.)