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I've read a number of postings concerning intercompany transfers. It appears to always devolve into CAS and price vs cost approach. For a small business not subject to CAS, but having an adequate accounting system, I have a question concerning the document used as between the Offeror and its sister or affiliate or division. 

Have an ID/IQ capable of Fixed Price as well as Cost Reimbursement (services) Task Orders. Was issued under a competitive Small Business Set-Aside. Fixed Price rates are hard coded into the ID/IQ for 5 years. Proposed under DoD along with a sister company and proposal stated sister (as sub) will perform using the exact cost / pricing as Offeror.  FAR 52.244-2 names the sister company by name as an approved sub within the ID/IQ.  

Question - what is the form of document that should be used as between the Offeror / Prime and its sister company?  There is no existing internal policy in place that addresses this. 

Some internal individuals state a subcontract is necessary, along with all terms and conditions, including FAR / DFAR flowdowns is required. Others say, perhaps a two page document stating, as a policy, inter-organizational transfers will be treated at cost (e.g., no markup) and that's it, no subcontract needed. 

If a subcontract document is used, find it difficult to believe the Prime would ever have occasion to invoke termination for convenience or default, let alone a myriad of other terms and conditions against its sister, including trying to secure an insurance cert naming Prime as an additional insured, waivers of subrogation, etc., among other. 

For those internal individuals that say, don't use a subcontract, just create an internal policy and this should be sufficient and the Prime will address the work via the accounting system. While others say, need to use an actual subcontract with stated scope, labor categories, physical invoicing, etc. 

Is there anything definitive as to what physical document, if any, is necessary to be in place as between the Prime and its sister company per FAR, DFAR, or other authority when dealing with inter-organizational transfers? Thank you.

 

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@Guest108830Just so you know, FAR uses the term interorganizational transfer, not "inter-organizational transfer" or "intercompany transfer."  See FAR 15.408, Table 15-2, Section II, Subsection A.1. and A.2. and FAR 31.205-26(e). 

1 hour ago, Guest108830 said:

Question - what is the form of document that should be used as between the Offeror / Prime and its sister company?  There is no existing internal policy in place that addresses this. 

I am not aware of any requirement that an interorganizational transfer be recorded on any particular form of record or document. Whatever record/document your company uses should be acceptable.

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This is the first instance the company is crossing this bridge.

I can find nothing that requires use of an actual subcontract document or any guidance that alludes to the actual mechanism for such. I've seen posts that call out policies and determinations of commercial items vs non-commercial and how to address the make vs buy for the record. But have not seen any support that states, Prime must provide all mandatory flowdowns, etc. to sister and treat as Prime / sub relationship even though its an inter-organizational transfer. We all know it's incumbent upon the person(s) advocating use of a subcontract to come forward with its authority as opposed to others having to disprove.  And at the same time, I'm trying to advocate that a subcontract is not necessary. Can't find authority one way or another. 

Additional concern is if company opens the door to using subcontract documents, it also opens the door to audit of said subcontract, whether by DCMA or otherwise. Whereas, if addressed via accounting only, company can explain its rationale at the accounting level with DCAA or otherwise.  

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I think your company should consider this be handled by a function other than supplier management. I suggest your company provide the sister company with a complete copy of the prime contract attached to a document entitled, Intercompany Transaction. The document should state 1. what goods and services are being transferred 2. Sister company is required to comply with the prime contract requirements as necessary to meet prime contract obligations, including but not limited to quality and flowdowns to sister company suppliers. 3. It is contemplated that sister company shall identify and coordinate these requirements in meetings between applicable sister company functions and prime contractor functions as necessary.    

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@Guest108830You are raising a different issue, which is whether an interorganizational transfer is made via a subcontract or an accounting transaction (See FAR 31.205-26—"sold or transferred"). If one part of a company sells materials under contract to another part, then the interorganizational transfer is done via subcontract (sale) and flowdowns must be made. See the definition of subcontract at FAR 44.101:

Quote

Subcontract means any contract as defined in subpart  2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders.

Subcontractor means any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor.

If it is done via accounting transaction, it requires no flowdowns.

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2 hours ago, Guest108830 said:

But have not seen any support that states, Prime must provide all mandatory flowdowns, etc. to sister and treat as Prime / sub relationship even though its an inter-organizational transfer. 

Vern is correct. If the company treats the situation as a contract between affiliated entities, then that's what it is. It is a buy. If the company treats the situation as an interorganizational transfer then no contract is necessary as it's a make.

See FAR 15.401 Definitions, as well as FAR 15.407-2(b) Definition.

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If a prime is considered to be making an item, the prime is already under contract for the terms and conditions for such work. You shouldn't have to issue a duplicate contract to yourself. Yet, "yourself" now includes an organization that is legally a separate company so you need to communicate the customer requirements to it just as if this was a new factory floor of yours. 

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Sister company is not selling any materials to the Prime, only services (people) and at the same cost the Prime would charge the Gov't, but sister is without fee. I assume FAR 31.205-26 applies regardless if company is not subject to CAS (but as a result of holding an adequate accounting system as determined by DCAA)? 

Seems if this can all be done via accounting system, then inter-organizational. If sister "sells" is services to Prime, which would include profit / fee, then not an inter-organizational transfer and subcontract is required.

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