Jump to content
The Wifcon Forums and Blogs

h0other

Allowable Adders To SubK Rates as Prime

Recommended Posts

All,

I'm going to ask this as a mythical situation question but it has an effect on alot of the work I do and I'm sure others do.

The situation:

We are a SBA prime on a IDIQ contract with 8 Subcontractors on a DOD contract. My understanding is that if a SubK of ours on this contract were to bid $100 per hour DL rate for a "Functional Analyst 25" then we would bid this price to the Government as $100 plus our O/H and G/A rate which if a O/H-G/A + profit(if we choose) wrap were 1.35 then we'd bid it at $135.00 hourly. I understand that it'd be preferable to ask our SubK's to have rates under ours and then add on our fillers to have it come to our rate but we have a very low wrap rate and have some very large subs on this contract. Any help and discussion on this topic would be GREATLY appreciated.

Thank you

Share this post


Link to post
Share on other sites

Contract type? Sounds like T&M or Labor-Hour but can't assume.

What is the specific question? Usually on this forum it's somebody else who asks. Discussions often take off on tangents, and it's hard at least for me to guess which ones will peter out quickly and which ones have proverbial legs, but my impression is that it's hard to get one cranked up without a clearly stated question.

Share this post


Link to post
Share on other sites

The Subcontract was issued at a T&M contract. My question is -- What adders is the prime allowed to add to the Subcontractors rates. Is it the primes full G&A and O/H rate since Fringe would be paid by the Subcontractor and not the prime? Or is this just considered a "contract management fee" and is this limited to a specific percentage?

Share this post


Link to post
Share on other sites

For a time-and-materials or labor-hour prime contract, I know of no general restriction in FAR on what a prime may include in an hourly labor rate to be charged for subcontractor hours, unless the subcontractor is a division, subsidiary, or affiliate of the prime. However, see FAR 15.408(n), the solicitation provision at FAR 52.215-22, and the contract clause at FAR 52.215-23 about excessive "pass-through" charges.

If the subcontractor is a division, subsidiary, or affiliate of the prime, then see FAR 16.601( c)(iii) and (iv).

Share this post


Link to post
Share on other sites

Thanks for the information, Vern. We will most likely be performing 50% or more of the work on this contract, the SubK's are not affiliated with us in any way either. I am more so just looking for what is the norm in putting adders on SubK rates. We are not big enough to be able to seperate into a SubK G&A, so we would have to apply our usual G&A and O/H to this. Subcontractor direct labor is however part of the base in establishing our overall wrap rate now so it seems to make sense to add all of it in for this adder. I just want to make sure I am covering our costs but not adding on so much that our rates become too overly inflated.

Share this post


Link to post
Share on other sites
Subcontractor direct labor is however part of the base in establishing our overall wrap rate now so it seems to make sense to add all of it in for this adder.

If you propose adding the "overall wrap rate" to your subcontractor's direct labor, the fact that the direct labor is part of the base that determines the overall wrap rate is an important consideration and likely what the cost/price analyst will want to know if they get to that level of a review of your rates. However, since you will be proposing fixed rates for a T&M contract, you will also be considering other factors such as perceived value to the customer, competition, etc. As a customer getting charged more for the subcontractor's work than the prime's isn't going to set well unless I'm getting more for that uptick as well. Been there, paid more, didn't like it.

Share this post


Link to post
Share on other sites

h0other didn't say what the prime contract type was, other than IDIQ, just that the subcontract was T&M.

The nature of the subcontract doesn't control what you can charge the government; the prime contract does. Is the prime contract T&M or Labor Hour and did the solicitation contain 52.216-29, -30, or -31 or DFARS 252.216-7002? If one of those clauses was in the solicitation, then the offeror's response should answer the question of what he can charge for his subcontractor's work.

If those weren't in there, and assuming the provisions Vern identified also aren't there, I don't know of any restriction on what the prime can charge for his sub's labor hours.

Share this post


Link to post
Share on other sites

The prime contract is a CPAF. Thus am I right to say that since it is a cost-reimbursable contract and our wrap rate build up includes SubK labor in our overall Direct Labor base then we will be doing a poor estimation in our cost proposal to not add in these fee's because they will end up showing up during the Incurred Cost submission anyway?

Also -- in response to where PSW stated: "As a customer getting charged more for the subcontractor's work than the prime's isn't going to set well unless I'm getting more for that uptick as well. Been there, paid more, didn't like it. " -- What is it preferred that a small prime contractor in a cheaper area of the country with a relatively low wrap rate do when they have very large contractors with a much higher wrap rate as part of there team? I'll try to illustrate this below (Hopefully it makes more sense):

Small Prime Contractor:

Position: XXXXX Analyst II

Compensation: $100.00 hourly

Wrap Rate: 1.60

Direct Labor Billable Rate: $160.00 hourly

Large SubK Contractor:

Position XXXXX Analyst II

Compensation: $90.00 hourly (just for example - lets say they have access to more qualified personnel for this position)

Wrap Rate: 2.00

Direct Labor Billable Rate to prime: $180.00 hourly

Small Prime's SubK Wrap: 1.30

Direct Labor Billable Rate To Government by Prime: $234.00 hourly

This is the problem that I am running into. This example was completely hypothetical but with our wrap rate being so low it is impossible to give a work share to big SubK's due to the rates looking extremely high.

If I am doing something wrong of if anyone has suggestions, disagreements, or anything PLEASE chime in. Everything is greatly appreciated.

-Phil

Share this post


Link to post
Share on other sites
The prime contract is a CPAF. Thus am I right to say that since it is a cost-reimbursable contract and our wrap rate build up includes SubK labor in our overall Direct Labor base then we will be doing a poor estimation in our cost proposal to not add in these fee's because they will end up showing up during the Incurred Cost submission anyway?

Also -- in response to where PSW stated: "As a customer getting charged more for the subcontractor's work than the prime's isn't going to set well unless I'm getting more for that uptick as well. Been there, paid more, didn't like it. " -- What is it preferred that a small prime contractor in a cheaper area of the country with a relatively low wrap rate do when they have very large contractors with a much higher wrap rate as part of there team? I'll try to illustrate this below (Hopefully it makes more sense):

Small Prime Contractor:

Position: XXXXX Analyst II

Compensation: $100.00 hourly

Wrap Rate: 1.60

Direct Labor Billable Rate: $160.00 hourly

Large SubK Contractor:

Position XXXXX Analyst II

Compensation: $90.00 hourly (just for example - lets say they have access to more qualified personnel for this position)

Wrap Rate: 2.00

Direct Labor Billable Rate to prime: $180.00 hourly

Small Prime's SubK Wrap: 1.30

Direct Labor Billable Rate To Government by Prime: $234.00 hourly

This is the problem that I am running into. This example was completely hypothetical but with our wrap rate being so low it is impossible to give a work share to big SubK's due to the rates looking extremely high.

If I am doing something wrong of if anyone has suggestions, disagreements, or anything PLEASE chime in. Everything is greatly appreciated.

-Phil

The subk's billing to you (as prime ktr) must be in accordance with the terms & conditions of the subK you awarded to that entity. The subK's billings to you are your contract cost. That cost must be burdened consistently with how you burden other contract costs and, indeed, all other subK billings to all other contracts. Normally your Disclosure Statement describes this but you probably don't have one so you are left with your "established" practices, which you are expected to follow consistently. And, as has been pointed out, your prime contract controls how you bill those costs.

Bottom line -- you need to distinguish between cost accounting and billing practices.

Hope this helps

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×