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wayforward

AFFILIATES, SUBSIDIARIES, AND PRIMING

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My company is considering bidding as a primary subcontractor on a large systems engineering effort---a U.S. Govt procurement. The prime contract will be an IDIQ. T&M and FFP-LOE task orders are contemplated. We will have 2 "second tier" subs. who are related to us ---one is a wholly owned subsidiary (but legally separate US business unit), the other is a foreign subsidiary (we share a common parent). Both of these enities will develop their own burdened labor rates based on actual labor rates, indirect rates and will expect their usual fee or close to it.

We as prime (1st tier) subcontractor are more than likely to receive less than 30% of the work under any task orders awarded to us (because we do not have the qty. of direct labor (qualified engineering staff) as our affiliates). Other factors for us considering being the lead subcontractor include location, facilities, etc.

Question: if we know we may receive less than 30% for the work due to our labor skillset, can we still take the lead as a primary sub? is doing a composite rate or an average of the 3 rates the best approach for developing the IDIQ rates.

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My company is considering bidding as a primary subcontractor on a large systems engineering effort---a U.S. Govt procurement. The prime contract will be an IDIQ. T&M and FFP-LOE task orders are contemplated. We will have 2 "second tier" subs. who are related to us ---one is a wholly owned subsidiary (but legally separate US business unit), the other is a foreign subsidiary (we share a common parent). Both of these enities will develop their own burdened labor rates based on actual labor rates, indirect rates and will expect their usual fee or close to it.

We as prime (1st tier) subcontractor are more than likely to receive less than 30% of the work under any task orders awarded to us (because we do not have the qty. of direct labor (qualified engineering staff) as our affiliates). Other factors for us considering being the lead subcontractor include location, facilities, etc.

Question: if we know we may receive less than 30% for the work due to our labor skillset, can we still take the lead as a primary sub? is doing a composite rate or an average of the 3 rates the best approach for developing the IDIQ rates.

Hi wayforward,

The term "primary subcontractor" is a new one to me. I checked FAR 2.101 (definitions) and the definitions section of FAR Part 44, and I didn't find it. Where did you encounter it? If, as I suspect, it is not a formal term of U.S. Gov't. procurement, then why would you think there would be any conditions associated with it? Specifically, where did you get the notion that the percentage of work performed affected whether your company could be a "primary subcontractor" or no?

Let me be a bit pedantic for a minute. I apologize in advance if I've misread your situation.

If you don't see a solicitation clause in your RFP (or "tender" if you prefer) that discusses a particular term, or if you don't see a FAR or FAR supplement clause in the regulations that discusses a term, then that term is very likely not relevant to your company's bid. You probably want to review the clauses that are in the solicitation and also understand what representations and certifications you are signing in Section K of your proposal. You probably want to review FAR and FAR supplement clauses that you expect to be in your contract (if awarded). You will want to make sure that your company understands each clause and each rep/cert, because the clauses become performance promises after award -- i.e., non-compliance with a clause could be construed as a contract breach or have other serious repercussions. Reps/certs that are intentionally or even negligently inaccurately executed could taint the contract award, and may lead to litigation.

With respect to your question on whether to bid blended rates or individual rates for each affiliated entity, a review of the applicable T&M payment clause will very likely lead you to the right answer. You may also want to consider the "Excessive Pass-Through" clause found in the DFARS, if your Government customer will be the Department of Defense.

Here's some additional advice: If you don't feel comfortable interpreting the various clauses, and don't have a clear idea how your company will develop a strategy to comply with those clauses, then you will want to get some expert assistance. Yes, hiring an experienced Government contract attorney, or professional consultant, will be expensive. Yes, implementing compliant practices may involve burdensome impacts to existing business processes. No, hiring such experts and developing compliant practices will not be more expensive than failing to comply with solicitation requirements, or applicable contract requirements after award.

Hope this helps.

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Primary Subcontractor sounds like a teaming agreement term. If you have negotiated a TA with your company as a first tier primary subcontractor good for you. You need to look to the TA for what it means and what are the terms and conditions associated with it - not the regulations. I would hazard a guess that it doesn't make any difference to your teaming status whether you actually perform 0% or 100% of the work awarded to you. Composite rates are usually not desireable for a selling vendor - they are hard to manage. I would recommend that you talk with your business people or controller on what they prefer. Look to the TA for any restrictions.

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If you have have different parties (subs and yourself) providing the same labor categories, compostite rates might make sense. For example if you and one or more subs provide "Senior System Analysts" positions, you wouldn't want to have multiple rates for that category.

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If you have have different parties (subs and yourself) providing the same labor categories, compostite rates might make sense. For example if you and one or more subs provide "Senior System Analysts" positions, you wouldn't want to have multiple rates for that category.

formerfed: sometimes a contractor is not allowed to blend rates. For example:

==========

252.216-7002 Alternate A, Time-and-Materials/Labor-Hour Proposal Requirements ? Non-Commercial Item Acquisition with Adequate Price Competition.

As prescribed in 216.601(e), substitute the following paragraph © for paragraph © of the provision at FAR 52.216-29:

ALTERNATE A, TIME-AND-MATERIALS/LABOR-HOUR

PROPOSAL REQUIREMENTS ? NON-COMMERCIAL ITEM ACQUISITION

WITH ADEQUATE PRICE COMPETITION (FEB 2007)

© The offeror must establish fixed hourly rates using separate rates for each category of labor to be performed by each subcontractor and for each category of labor to be performed by the offeror, and for each category of labor to be transferred between divisions, subsidiaries, or affiliates of the offeror under a common control.

==========

Hope this helps.

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Thank you all. I agree that composite rates make sense for same labor categorues and the regs. seem clear on T&M non commerical competitive procurements.

Yes, we are the main sub. in the teaming agreement but I know that our firm may perform less than 20% of the work and our affiliates or sister companies much more. So, from a procurement integrity standpoint, it doesn't seem right to me, to go in with one set of labor rates (ours) to cover affiliates' labor. Again, there are other reasons for our business center taking the lead....some more analysis is required.

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