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Is there any law or regulation that prohibits a government prime contractor from awarding a fixed price subcontract for R&D work? A prime contractor, who has a federal cost reimbursement R&D contract, asked my company to perform some research work for a fixed price. My company will have deliverables, which will derive from the research we will perform. The total effort will run well in excess of the simplified acquisition threshold. I understand that the prime will have to obtain approval from the government under FAR 44.201-2. Does anyone have experience with this issue? I would like to know whether the government has allowed such arrangements.

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Is there any law or regulation that prohibits a government prime contractor from awarding a fixed price subcontract for R&D work? A prime contractor, who has a federal cost reimbursement R&D contract, asked my company to perform some research work for a fixed price. My company will have deliverables, which will derive from the research we will perform. The total effort will run well in excess of the simplified acquisition threshold. I understand that the prime will have to obtain approval from the government under FAR 44.201-2. Does anyone have experience with this issue? I would like to know whether the government has allowed such arrangements.

There is no prohibition against such an arrangement. The only subcontract type that is prohibited is a cost plus percentage of cost contract when consent to subcontract is required.

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Not aware of any such prohibition, and such an arrangement would likely be preferred by the government rather than prohibited.

Subcontracting is generally not subject to FAR but to the prime's policies, procedures, and practices ("contractor purchasing system"), which may or may not have Government approval, and to applicable clauses in the prime contract.

Although not strictly subject to the entire FAR, most primes use FAR principles, including those governing (sub)contract type. A clearly defined scope and set of deliverables would point towards a fixed price subcontract, regardless of prime contract type.

The simplified acquisition threshold doesn't mean much in subcontracting unless the prime's purchasing system parallels the FAR in this area, although the monetary amount might make a difference, depending on how one of the blanks is completed in the "Subcontracts" contract clause in the prime contract.

The prime would not be asking for "approval from the government under FAR 44.201-2," first, because that is not a clause and would not be in the prime contract, and second, "approval" is such an inaccurate word in this context that it often provokes a negative reaction from government folks. Only the government is bound by 44.201. The prime and the government both would be bound by a contract clause that implements 44.201. Rather than "approval" the prime would more likely be asking for "consent to subcontract" under the contract clause at FAR 52.244-2, depending on how the blanks in the clause are filled in (among other assumptions).

In my 37 years' experience, the government not only allows but prefers its cost reimbursement primes to subcontract on a fixed price basis when practical, as this reduces risk to the program for the portion of performance subcontracted on a fixed price basis.

Others may give a more academically researched answer and may disagree, but based on my experience which is mainly in the trenches, this is my $0.02 worth.

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In my 37 years' experience, the government not only allows but prefers its cost reimbursement primes to subcontract on a fixed price basis when practical, as this reduces risk to the program for the portion of performance subcontracted on a fixed price basis.

I have no problem with Cajuncharlie's answer, but I hope that one day the government, and the Primes, will wake up and realize that awarding FFP subcontracts does NOT reduce program risk. In fact, it often increases it.

I could rant here for a long time and provide concrete examples. But I'll simply say that the cost associated with managing change orders often exceeds the cost of the changes themselves, especially when one factors in the opportunity cost -- i.e., engineers and program managers (not to mention contracting folks) who spend their time reviewing change orders and modifying program baselines, instead of executing the program.

The two parties involved here -- the Prime who wants to award a FFP R&D subcontract and the SubK who is thinking about accepting a FFP R&D subcontract with deliverables based on the research -- are both extremely foolish.

Just my opinion, of course.

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