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gboyle

Certified cost or pricing data required to add new sub?

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I support a prime contract that requires consent for all new subs, and the CO is hell-bent on performing a cost analysis of each addition before granting approval. This presents a problem because the CO demands to know indirect rates and "fee" even when the sub is a self-employed independent consultant charging a fixed labor rate. I have appealed to reason and explained that indirects and fee do not exist in these circumstances because the subs use market-based rates. These explanations have been ignored (or were not understood).

What I am wondering now is if the desire to perform a cost analysis is wholly misplaced, and I am looking for feedback on whether I am drawing the right conclusions on these facts:

1. The base contract is a MATOC, and we are seeking to add a sub to a Task.

2. The base contract solicitation was competitive and explicitly stated that "Submission of certified cost or pricing data is not required." The resulting contract does not contain clause 52.215-20.

3. The contract does, however, contain the cost or pricing data clause for modifications, 52.215-21.

4. We do not expect that the addition of the subcontractor will increase the total estimated amount of the Task.

The rule requiring certified cost or pricing data says regarding the award of subcontracts that certified cost or pricing data is required of the subcontractor if it was required of the prime. 15.403-4(a)(1)(ii). In this case, certified cost or pricing data was not required of the prime, therefore, it is not required of the subcontractor, unless there is some reason to require it in 52.215-21.

Requests for consent to subcontract, especially when the approval of the subcontract would not require the modification of other terms, do not seem to be modifications for the purposes of 52.215-21, Table 15-2 of 15.408, and 15.408(m).

I can only figure that the CO's belief that a cost analysis is necessary comes from (1) the language in 52.244-2 which discusses the potential requirement for certified cost or pricing data; and (2) Table 15-2, which directs one to "conduct cost analyses for all subcontracts when certified cost or pricing data are submitted by the subcontractor," see Section IIA. I have asked and a rationale was not provided, merely a restatement of the assertion that cost details are absolute requirements for consent.

However, if a cost analysis is not required and the mere addition of a subcontractor is not a modification, then cost details are not required. They may be requested per 15.402, but they are not absolute requirements without which consent may not be granted.

Have I gone wrong anywhere or left out any relevant facts?

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The CO can ask for a breakdown of the sub's price even if the sub is not required to submit certified cost or pricing data. See FAR 15.403-3.

I feel for you, because I, too, am sometimes asked to provide a breakdown of a commercial price. Some COs just cannot get it through their heads that not all businesses set their prices by determining the cost of performance and adding a markup. I refuse to provide a breakdown. I have never bothered to calculate an overhead rate, and I don't measure profit on a per sale basis.

So if the sub is not required to submit certified cost or pricing data, then all I can suggest is that you try to make the CO understand that you determine the reasonableness of the sub's rate based on comparisons with market data, i.e., through price analysis, not cost analysis.

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gboyle,

As Vern noted, there is CERTIFIED cost or pricing data and there is UNCERTIFIED cost or pricing data. Your CO appears to be requesting the latter and not the former.

In any case, how did you determine that the subK's price was fair and reasonable? How did YOU evaluate the pricing?

Hope this helps.

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We performed a price analysis of the rates by comparing them to rates from other subs already performing on the contract and to some rates from other contracts.

I think the CO files our price analyses in the round filing cabinet. I posted about this issue before. In that case the proposed sub was a self-employed consultant charging a rate 40% less than other similarly qualified people in his labor category. The CO still demanded more. She insisted that she had to be told what his fee and G&A. What is the fee % that an IC makes on a fixed rate after expenses? 0%? 100%? In my opinion, that line of inquiry is not useful for the purpose of determining if a prime should be able to add a sub.

I understand that the CO can request uncertified cost or pricing data, but that is discretionary. I suspect that our CO is mistaking something that is optional for something that is an absolute requirement. There is not, as I understand, a requirement to obtain cost data if a determination of fairness/reasonableness can be made using a price analysis. Is that an accurate statement?

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Based on what you're telling us, the CO is being unreasonable. But we haven't heard her side.

Have you asked the sub for the information? Maybe they have it and will give it to you, in which case your problem is solved. If they say they don't have that information because they don't use it or if they refuse to give you a breakdown, ask for their answer in writing. Tell the CO and give her a copy of the letter. Reemphasize that you have found the rate to be fair and reasonable and say again on what basis. Tell her that you need the consent or her refusal with a reason as soon as possible.

I really don't know what else to tell you.

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Maybe I am missing something here, but where is the requirement for the ACO to do a cost or price analysis on a subcontractor? As I read the FAR, the ACO is to review the prime contractor's cost or price analysis and determine whether it is adequate.

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See FAR 15.404-1(a)(3):

Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required.

FAR 15.404-1( c)(1):

Cost analysis is the review and evaluation of any separate cost elements and profit or fee in an offeror's or contractor's proposal....

FAR 15.404-3(a):

The contracting officer is responsible for the determination of a fair and reasonable price for the prime contractor, including subcontracting costs. The contracting officer should consider whether a contractor or subcontractor has an approved purchasing system, has performed cost or price analysis of proposed subcontractor prices, or has negotiated the subcontract prices before negotiation of the prime contract, in determining the reasonableness of the prime contract price. This does not relieve the contracting officer from the responsibility to analyze the contractor's submission, including subcontractor's certified cost or pricing data.

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These FAR references all relate to pricing of a contract. However, as I read the facts of this case, the contract (task order) is already priced and the question is whether the ACO needs to do a cost analysis of a subcontractor's proposed price when granting consent to subcontract. Maybe I have not understood the facts, but I don't see any requirement for the ACO to do a cost analysis of the proposed sub when granting consent.

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These FAR references all relate to pricing of a contract. However, as I read the facts of this case, the contract (task order) is already priced and the question is whether the ACO needs to do a cost analysis of a subcontractor's proposed price when granting consent to subcontract. Maybe I have not understood the facts, but I don't see any requirement for the ACO to do a cost analysis of the proposed sub when granting consent.

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Some thoughts to consider -

15.400 Scope of subpart.

This subpart prescribes the cost and price negotiation policies and procedures for pricing negotiated prime contracts (including subcontracts) and contract modifications, including modifications to contracts awarded by sealed bidding.

42.301 General.

When a contract is assigned for administration under Subpart 42.2, the contract administration office (CAO) shall perform contract administration functions in accordance with 48 CFR Chapter 1, the contract terms, and, unless otherwise agreed to in an interagency agreement (see 42.002), the applicable regulations of the servicing agency.

42.302 Contract administration functions.

(a) The contracting officer normally delegates the following contract administration functions to a CAO. The contracting officer may retain any of these functions, except those in paragraphs (a)(5), (a)(9), (a)(11) and (a)(12) of this section, unless the cognizant Federal agency (see 2.101) has designated the contracting officer to perform these functions. .....

(4) Review and evaluate contractors’ proposals under Subpart 15.4 and, when negotiation will be accomplished by the contracting officer, furnish comments and recommendations to that officer.

The whole of 44.202-2 Considerations with regard to Consent.

The CO may not be that far (pardon the pun) off in requesting the information but possibly providing a consent request that addresses the considerations the CO is responsible for might just help bridge the gap for the CO's understanding as to why fee and indirect is not available to provide.

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gboyle, maybe I missed it but I didnt see whether this is awarded task order is firm fixed price or some type of cost reimbursable task. Please clarify for me thanks.

If this is a FFP, awarded task order, I believe that this subcontract award is not a pricing action under the scope of Subpart 15.4 (subpart 15.4, Don?). If this is a cost reimbursement or other type of task order, where the subcontractor's price can affect the total cost or price that the government pays, then I'd say that it is a pricing action under 15.4.

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This is a CPFF Task Order. I agree that 15.4 is applicable and that the CO is permitted to request detailed rate information as part of the determination of fairness and reasonableness.

Our disagreement is over the requirements of 15.4. The CO says that "all cost elements are required for review for fair and reasonableness to the Government," and "a review for fair and reasonableness to complete this effort cannot be performed" without full disclosure of the subcontractor's costs (emphasis mine). Yes, cost data MAY be demanded by a CO doing a pricing review, FAR 15.402(a)(ii)( B ), but I cannot find the source that says it is REQUIRED for the review or that a review CANNOT otherwise be performed. I have asked the CO to cite the requirement and they have repeated the above assertion.

Assuming that only data other than certified cost or pricing data is required, I believe I have my answer--the CO is not in the wrong by asking for the information but also not in the right for believing it is a requirement.

However, I'm still not sure that I understand whether this is a scenario that is covered by 52.215-21. If, for example, our original estimate was for $1M and we will rejigger our spend plan to accommodate the new sub to stay within our $1M ceiling. Is that a pricing adjustment? According to way the FAR defines the calculation of a price adjustment to include the new work and work it replaced, the answer would seem to be yes. But if we allow a sub to work slightly more hours than we proposed or shift hours originally intended for a sub back to the prime, we would not be treating this as a price adjustment, but it seems no different in substance. Any thoughts on this?

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If, for example, our original estimate was for $1M and we will rejigger our spend plan to accommodate the new sub to stay within our $1M ceiling. Is that a pricing adjustment? According to way the FAR defines the calculation of a price adjustment to include the new work and work it replaced, the answer would seem to be yes. But if we allow a sub to work slightly more hours than we proposed or shift hours originally intended for a sub back to the prime, we would not be treating this as a price adjustment, but it seems no different in substance. Any thoughts on this?

Yes, I have a thought: Do you spend a lot of your time coming up with questions like that?

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Yes, I have a thought: Do you spend a lot of your time coming up with questions like that?

I'm with Vern on this one.

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Yes, my last post was unfocused. I know that is irritating, so I'm sorry.

I am struggling to understand whether a modification with a net zero pricing change is a pricing adjustment.

FAR 15.403-4(a)(1) and (a)(1)(iii) discuss contract modifications requiring certified cost or pricing data. The example used is a reduction of $500k and an increase of $300k resulting in a $200k modification. Even though the net change is $200k, the change is $800k for the purposes of evaluating whether the threshold was exceeded.

If the reduction is $400k and and increase is $400k, that would also be an $800k change as far as the threshold is concerned, but, as there is no net change, the price is not modified. An administrative modification approving the subcontractor will be issued. It will not address price.

Must the modification alter the price to trigger the requirement to submit certified cost or pricing data, or is the administrative modification sufficient to trigger that requirement?

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What's the difference between the two scenarios below?

(1) $400,000 reduction and $400,000 increase = net zero.

(2) $400,001 reduction and $400,000 increase = net $1 change.

I don't see a difference -- if certified cost or pricing data is required for (2), then it will be for (1) also.

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I am struggling to understand whether a modification with a net zero pricing change is a pricing adjustment.

Why are you struggling? The answer is YES. The regulation, FAR 15.403-4, could not be clearer. The way the FAR describes it, for purposes of determining whether the threshold has been met when there is both an increase and a decrease (you add some work and you delete some work), you disregard the minus sign of the decrease and add the two amounts. Thus, if you have an increase of $700,000 and a decrease of $700,000 you have a price adjustment of $1,400,000. Not a price increase or a price decrease -- a price adjustment.

Price adjustment amounts must consider both increases and decreases (e.g. a $200,000 modification resulting from a reduction of $500,000 and an increase of $300,000 is a pricing adjustment exceeding $700,000).

Now scroll up and read Don Acquisition's question in Post #15. If the contract is not going to be modified in some way, then there is no price adjustment for purposes of FAR 15.403-4. A change in the cost of performance does not entail a price adjustment if it is not the result of a contract mod.

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Navy: You're right. You caught me in the middle of my editing process. I corrected it. My wife looked over my shoulder, saw what I had typed, called me an idiot, and walked off. We're in Hanoi and my mind is addled by jet lag and lack of sleep. Thanks.

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You're right again, but I woke up at 3am and could not get back to sleep. I started poking around on the Internet, got to Wifcon, and made the mistake of reading. Sorry.

Just got back here from Dien Bien Phu, a place I've wanted to visit for many years. A buddy of mine is with us and we climbed up three of the strongpoints and shook our heads at what happened here. Beautiful valley. Terrible history. The people are as nice as can be. I might do a blog post about it if Bob doesn't mind.

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gboyle, in regard to your post #17, I am having trouble understanding what the facts of your case are. As I understand it, you have an existing task order. That task order is CPFF and has been priced. You intend on awarding a subcontract to a firm that you did not identify in your proposal for the task order. The government has not made a change to the work required under the task order. The new contractor will perform work that was identified in the task order as issued. The ACO insists that (s)he must do a cost analysis on the cost of the new subcontract before consent can be granted. To perform the cost analysis, the ACO is demanding certain cost data regarding the new subcontract. Have I missed anything?

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