Identifying Subcontractors as an ODC

[LM_ABITWT]

I have a Time & Material IDIQ Contract with a list of specified "teammates" with rate tables (for each company) incorporated at the prime contract level. Within this IDIQ, we have task orders where we have needed to utilize a new subcontractor who did not have rates on contract so we were told by the Contracting Officer (at that time) to simply propose these subcontract costs under our ODC section of our cost proposal. Those proposals were evaluated and ultimately approved by the USG. Several years later, we have a new Contracting Officer who is questioning the allowability of Subcontractors as an Other Direct Cost.

During my conversation with the (new) Contracting Officer, I mentioned that his predecessors have condoned this practice and actually were the ones who recommended that we handle subcontractors in this manner.

A couple of questions:

Is anyone else familiar with Subcontractors being treated as a non-labor expense under ODCs?

Can the Contracting Officer simply undo what a prior CO allowed/authorized in the past?

Thanks!

[Retreadfed]

I have a Time & Material IDIQ Contract with a list of specified "teammates" with rate tables (for each company) incorporated at the prime contract level. Within this IDIQ, we have task orders where we have needed to utilize a new subcontractor who did not have rates on contract so we were told by the Contracting Officer (at that time) to simply propose these subcontract costs under our ODC section of our cost proposal. Those proposals were evaluated and ultimately approved by the USG. Several years later, we have a new Contracting Officer who is questioning the allowability of Subcontractors as an Other Direct Cost.

During my conversation with the (new) Contracting Officer, I mentioned that his predecessors have condoned this practice and actually were the ones who recommended that we handle subcontractors in this manner.

A couple of questions:

Is anyone else familiar with Subcontractors being treated as a non-labor expense under ODCs?

Can the Contracting Officer simply undo what a prior CO allowed/authorized in the past?

Thanks!

Does the contract contain the Feb. 2007 version of 52.232-7?

[here_2_help]

If you want the right answer you need to tell us what payment clause is in the contract.

[LM_ABITWT]

The Basic Contract includes the older version of the payments clause. Not Feb 2007. That supports my position that SubKs can be included as an ODC, no?

[contractor100]

See the third paragraph in this memo:

http://www.dcaa.mil/mmr/07-PPD-023.pdf

[Retreadfed]

See the third paragraph in this memo:

http://www.dcaa.mil/mmr/07-PPD-023.pdf

What authority does DCAA have to issue interpretative memos that are binding on anyone other than auditors?

[contractor100]

None. But quite a few COs adopted DCAA's interpretation before the rewrite came out in 2007. I know this from personal experience/industry exchanges. LM_ABITWT may be dealing with a CO that has done so. Verbum sapientis, is all.

[Retreadfed]

None. But quite a few COs adopted DCAA's interpretation before the rewrite came out in 2007. I know this from personal experience/industry exchanges. LM_ABITWT may be dealing with a CO that has done so. Verbum sapientis, is all.

Do you have access to the old version of the clause so that you can us point to language in it that contracting officers were interpreting in agreement with DCAA?

[contractor100]

Old version pasted below.

As readers of this board know, this and other clauses were not clear on how to treat subK labor on T&M contracts, as was recognized by all. (See, among others, http://www.gpo.gov/fdsys/pkg/FR-2006-12-12/html/06-9610.htm)

DCAA said all subcontract labor fell in b below. http://www.dcaa.mil/mmr/m04pac022.pdf

Note the markup on such labor is limited by ((4)(iii).

Others said subcontract labor fell in a. In other words, any subcontractor could bill at preapproved rates in the contract, even if those rates had been approved for another subcontractor, or the prime (absent a separate requirement to get approval for subcontract.

The controversy arose on GSA schedule contracts, because GSA was issuing T&M contracts on what was arguably NOT a commercial vehicle, which was forbidden before the SARA legislation in 2004 and because permission to subcontract had to be affirmatively required in a GSA task order. (And because GSA told everyone to bill their subs at prime’s GSA rates.)

Sounds as though the first CO on this contract went with DCAA’s interpretation. I guess the second CO either takes the non DCAA read, or isn’t aware that the new clause is not in the contract. You are sure that it was not added by modification?

If it was, then there should be other clauses that will outline requirements for bidding rates for prime v sub. Which of those new clauses is in the contract will vary depending on whether your contract is commercial and whether it was awarded noncompetively.

Final question - Can you actually fit your subcontractors in to labor rates you already have on your contract, or will you have to get a mod?

https://www.acquisition.gov/far/05-11/pdf/FAR.book.pdf

52.232-7 Payments under Time-and-Materials and

Labor-Hour Contracts.

As prescribed in 32.111(a)(7), insert the following clause:

PAYMENTS UNDER TIME-AND-MATERIALS AND LABORHOUR

CONTRACTS (AUG 2005)

The Government will pay the Contractor as follows upon

the submission of invoices or vouchers approved by the Contracting

Officer:

(a) Hourly rate. (1) The amounts shall be computed by

multiplying the appropriate hourly rates prescribed in the

Schedule by the number of direct labor hours performed. The

rates shall include wages, indirect costs, general and administrative

expense, and profit. Fractional parts of an hour shall

be payable on a prorated basis. Vouchers may be submitted

once each month (or at more frequent intervals, if approved by

the Contracting Officer), to the Contracting Officer or designee.

The Contractor shall substantiate vouchers by evidence

of actual payment and by individual daily job timecards, or

other substantiation approved by the Contracting Officer.

Promptly after receipt of each substantiated voucher, the Government

shall, except as otherwise provided in this contract,

and subject to the terms of (e) of this section, pay the voucher

as approved by the Contracting Officer.

(2) Unless otherwise prescribed in the Schedule, the

Contracting Officer may unilaterally issue a contract modification

requiring the Contractor to withhold amounts from its

billings until a reserve is set aside in an amount that the Contracting

Officer considers necessary to protect the Government's

interests. The Contracting Officer may require a

withhold of 5 percent of the amounts due under paragraph (a),

but the total amount withheld for the contract shall not exceed

$50,000. The amounts withheld shall be retained until the

Contractor executes and delivers the release required by paragraph

(f) of this clause.

(3) Unless the Schedule prescribes otherwise, the

hourly rates in the Schedule shall not be varied by virtue of the

Contractor having performed work on an overtime basis. If no

overtime rates are provided in the Schedule and overtime

work is approved in advance by the Contracting Officer, overtime

rates shall be negotiated. Failure to agree upon these

overtime rates shall be treated as a dispute under the Disputes

clause of this contract. If the Schedule provides rates for overtime,

the premium portion of those rates will be reimbursable

only to the extent the overtime is approved by the Contracting

Officer.

(Materials and subcontracts. (1) The Contracting

Officer will determine allowable costs of direct materials in

accordance with Subpart 31.2 of the Federal Acquisition Regulation

(FAR) in effect on the date of this contract. Direct

materials, as used in this clause, are those materials that enter

directly into the end product, or that are used or consumed

directly in connection with the furnishing of the end product.

(2) The Contractor may include reasonable and allocable

material handling costs in the charge for material to the

extent they are clearly excluded from the hourly rate. Material

handling costs are comprised of indirect costs, including,

when appropriate, general and administrative expense allocated

to direct materials in accordance with the Contractor’s

usual accounting practices consistent with Subpart 31.2 of the

FAR.

(3) The Government will reimburse the Contractor for

supplies and services purchased directly for the contract when

the Contractor—

(i) Has made payments of cash, checks, or other

forms of payment for these purchased supplies or services; or

(ii) Will make these payments determined due—

(A) In accordance with the terms and conditions

of a subcontract or invoice; and

( Ordinarily within 30 days of the submission

of the Contractor’s payment request to the Government.

(4)(i) The Government will reimburse the Contractor

for costs of subcontracts that are authorized under the subcontracts

clause of this contract, provided that the costs are consistent

with paragraph ((5) of this clause.

(ii) The Government will limit reimbursable costs in

connection with subcontracts to the amounts paid for supplies

and services purchased directly for the contract when the Contractor

has made or will make payments determined due of

cash, checks, or other forms of payment to the

subcontractor—

(A) In accordance with the terms and conditions

of a subcontract or invoice; and

( Ordinarily within 30 days of the submission

of the Contractor’s payment request to the Government.

(iii) The Government will not reimburse the Contractor

for any costs arising from the letting, administration,

or supervision of performance of the subcontract, if the costs

are included in the hourly rates payable under

paragraph (a)(1) of this clause.

(5) To the extent able, the Contractor shall—

(i) Obtain materials at the most advantageous prices

available with due regard to securing prompt delivery of satisfactory

materials; and

(ii) Take all cash and trade discounts, rebates, allowances,

credits, salvage, commissions, and other benefits.

When unable to take advantage of the benefits, the Contractor

shall promptly notify the Contracting Officer and give the reasons.

The Contractor shall give credit to the Government for

cash and trade discounts, rebates, scrap, commissions, and

other amounts that have accrued to the benefit of the Contractor,

or would have accrued except for the fault or neglect of

the Contractor. The Contractor shall not deduct from gross

costs the benefits lost without fault or neglect on the part of

the Contractor, or lost through fault of the Government.

©

Total cost. It is estimated that the total cost to the Government

for the performance of this contract shall not exceed

the ceiling price set forth in the Schedule and the Contractor

agrees to use its best efforts to perform the work specified in

the Schedule and all obligations under this contract within

such ceiling price. If at any time the Contractor has reason to

believe that the hourly rate payments and material costs that

will accrue in performing this contract in the next succeeding

30 days, if added to all other payments and costs previously

accrued, will exceed 85 percent of the ceiling price in the

Schedule, the Contractor shall notify the Contracting Officer

giving a revised estimate of the total price to the Government

for performing this contract with supporting reasons and documentation.

If at any time during performing this contract, the

Contractor has reason to believe that the total price to the Government

for performing this contract will be substantially

greater or less than the then stated ceiling price, the Contractor

shall so notify the Contracting Officer, giving a revised estimate

of the total price for performing this contract, with supporting

reasons and documentation. If at any time during

performing this contract, the Government has reason to

believe that the work to be required in performing this contract

will be substantially greater or less than the stated ceiling

price, the Contracting Officer will so advise the Contractor,

giving the then revised estimate of the total amount of effort

to be required under the contract.

(d)

Ceiling price. The Government shall not be obligated

to pay the Contractor any amount in excess of the ceiling price

in the Schedule, and the Contractor shall not be obligated to

continue performance if to do so would exceed the ceiling

price set forth in the Schedule, unless and until the Contracting

Officer shall have notified the Contractor in writing that

the ceiling price has been increased and shall have specified

in the notice a revised ceiling that shall constitute the ceiling

price for performance under this contract. When and to the

extent that the ceiling price set forth in the Schedule has been

increased, any hours expended and material costs incurred by

the Contractor in excess of the ceiling price before the

increase shall be allowable to the same extent as if the hours

expended and material costs had been incurred after the

increase in the ceiling price.

(e)

Audit. At any time before final payment under this contract

the Contracting Officer may request audit of the invoices

or vouchers and substantiating material. Each payment previously

made shall be subject to reduction to the extent of

amounts, on preceding invoices or vouchers, that are found by

the Contracting Officer not to have been properly payable and

shall also be subject to reduction for overpayments or to

increase for underpayments. Upon receipt and approval of the

voucher or invoice designated by the Contractor as the “completion

voucher” or “completion invoice” and substantiating

material, and upon compliance by the Contractor with all

terms of this contract (including, without limitation, terms

relating to patents and the terms of (f) and (g) of this section),

the Government shall promptly pay any balance due the Contractor.

The completion invoice or voucher, and substantiating

material, shall be submitted by the Contractor as promptly as

practicable following completion of the work under this contract,

but in no event later than 1 year (or such longer period

as the Contracting Officer may approve in writing) from the

date of completion.

(f)

Assignment. The Contractor, and each assignee under an

assignment entered into under this contract and in effect at the

time of final payment under this contract, shall execute and

deliver, at the time of and as a condition precedent to final payment

under this contract, a release discharging the Government,

its officers, agents, and employees of and from all

(FAC 2005–05)

S

UBPART 52.2—TEXT OF PROVISIONS AND CLAUSES 52.232-9

52.2-201

liabilities, obligations, and claims arising out of or under this

contract, subject only to the following exceptions:

(1) Specified claims in stated amounts, or in estimated

amounts if the amounts are not susceptible of exact statement

by the Contractor.

(2) Claims, together with reasonable incidental

expenses, based upon the liabilities of the Contractor to third

parties arising out of performing this contract, that are not

known to the Contractor on the date of the execution of the

release, and of which the Contractor gives notice in writing to

the Contracting Officer not more than 6 years after the date of

the release or the date of any notice to the Contractor that the

Government is prepared to make final payment, whichever is

earlier.

(3) Claims for reimbursement of costs (other than

expenses of the Contractor by reason of its indemnification of

the Government against patent liability), including reasonable

incidental expenses, incurred by the Contractor under the

terms of this contract relating to patents.

(g)

Refunds. The Contractor agrees that any refunds,

rebates, or credits (including any related interest) accruing to

or received by the Contractor or any assignee, that arise under

the materials portion of this contract and for which the Contractor

has received reimbursement, shall be paid by the Contractor

to the Government. The Contractor and each assignee,

under an assignment entered into under this contract and in

effect at the time of final payment under this contract, shall

execute and deliver, at the time of and as a condition precedent

to final payment under this contract, an assignment to the

Government of such refunds, rebates, or credits (including

any interest) in form and substance satisfactory to the Contracting

Officer.

(h)

Interim payments. (1) Interim payments made prior to

the final payment under the contract are contract financing

payments. Contract financing payments are not subject to the

interest penalty provisions of the Prompt Payment Act.

(2) The designated payment office will make interim

payments for contract financing on the ______________

[

Contracting Officer insert day as prescribed by agency head;

if not prescribed, insert "30th"

] day after the designated billing

office receives a proper payment request. In the event that

the Government requires an audit or other review of a specific

payment request to ensure compliance with the terms and conditions

of the contract, the designated payment office is not

compelled to make payment by the specified due date.

(End of clause)

Alternate I (Mar 2000)

. If the nature of the work to be performed

requires the Contractor to furnish material that the

Contractor regularly sells to the general public in the normal

course of business, and the price is under the limitations prescribed

in 16.601((3), add the following paragraph (6) to

paragraph ( of the basic clause:

((6) If the nature of the work to be performed requires the

Contractor to furnish material that the Contractor regularly sells

to the general public in the normal course of business, the price

to be paid for such material, notwithstanding the other requirements

of this paragraph (, shall be on the basis of an established

catalog or list price, in effect when the material is

furnished, less all applicable discounts to the Government, provided

that in no event shall such price be in excess of the Contractor’s

sales price to its most favored customer for the same

item in like quantity, or the current market price, whichever is

lower.

Alternate II (Feb 2002)

. If a labor-hour contract is contemplated,

and if no specific reimbursement for materials furnished

is intended, the Contracting Officer may add the

following paragraph (i) to the basic clause:

(i) The terms of this clause that govern reimbursement for

materials furnished are considered to have been deleted.