Jump to content
The Wifcon Forums and Blogs

rae.story

Does a SubK need to mirror a Prime's contract type?

Recommended Posts

Is there a requirement that if a Prime is awarded an FFP contract and the Prime has a Sub performing some of the work, that the type of SubK issued must mirror the Prime's contract? If not, what might be some of the advantages and disadvantages of issuing a Cost Reimbursement type SubK and is the Prime allowed to cap the number of hours the Sub may invoice the Prime for?

Share this post


Link to post
Share on other sites

There is no requirement that the subcontract be of the same type as the prime contract.

The disadvantages of using a cost-reimbursement subcontract under a fixed-price prime contract ought to be obvious. Off-hand, I cannot think of any advantage in doing so, but I suppose under some circumstances there might be a necessity.

Yes, the prime can cap the hours that the sub may bill for.

Share this post


Link to post
Share on other sites

There is no requirement that the subcontract be of the same type as the prime contract.

The disadvantages of using a cost-reimbursement subcontract under a fixed-price prime contract ought to be obvious. Off-hand, I cannot think of any advantage in doing so, but I suppose under some circumstances there might be a necessity.

Yes, the prime can cap the hours that the sub may bill for.

Vern; First and foremost, thank you for taking the time to respond to my post.

Understand that under the terms of the contract, the subcontractor must notify the prime when costs approach or exceed this total. Understand the prime

then has the right—but not the obligation—to approve additional costs. Also understand that if the prime approves additional costs, the subcontractor must continue working until the funds are spent or performance is completed.

Excuse my ignorance; However if the prime sets an NTE amount, caps the hours, and monitors the subcontractor during performance of the contract to ensure requirements are being met, is there some other disadvantages I may be overlooking?

Thank you.

Share this post


Link to post
Share on other sites

I don't understand your scenario and the terms you are using in their proper context. Sorry. Maybe someone else has the time to help you.

Share this post


Link to post
Share on other sites

rae.story,

Not sure if you're the prime or sub. I'm going to assume you are the subcontractor.

In the scenario you describe, how is the subcontract cost-reimbursable? How is the scenario you describe different from a FFP contract type? Your hours are capped and the contract has a NTE value. In effect, you have created a FFP contract out of a cost-type contract.

If you have a cost-type subcontract, you have to submit a final indirect rate proposal at year end. You have to wait (and wait) until it's audited, and then you have to support the audit. The auditors may question costs. Then you have to negotiate final rates. And only then do you have a final contract value.

Whereas if you bid FFP smartly, you can set yourself up for change orders and REAs based on significant deviations from your bidding assumptions. And you can avoid all that indirect rate nonsense and simply bill on delivery of units.

If you are the prime and want to award a cost-type subcontract, you better make sure to document how you determined that the scope of work was such that a FFP type wasn't appropriate. You better make sure that the subcontractor has an adequate accounting system, and you better document that determination.

The cost type subcontract may permit the subcontractor to stop work when it reaches the NTE ceiling you established, without delivery. You want to accept that risk?

Hope this helps.

Share this post


Link to post
Share on other sites
How is the scenario you describe different from a FFP contract type? Your hours are capped and the contract has a NTE value.

Help: What if the contract requires the government to pay the lesser of (a) incurred cost or ( b ) the cap/NTE? Is that a fixed-price contract?

Share this post


Link to post
Share on other sites

Is there a requirement that if a Prime is awarded an FFP contract and the Prime has a Sub performing some of the work, that the type of SubK issued must mirror the Prime's contract? If not, what might be some of the advantages and disadvantages of issuing a Cost Reimbursement type SubK and is the Prime allowed to cap the number of hours the Sub may invoice the Prime for?

We dont know the scenario or what the purpose of the contract ot subcontract is to understand the application or perspective.

For a small, simple activity within a larger scope of work, a T&M or reimbursible arrangement with a reliable sub (based on some type of good judgement) may be feasible and possibly simpler than issuing a FFP subcontract.

However, a prime contractor with a FFP contract can face substantial cost and performance risk in issuing a cost reimbusement subcontract for a significant share or the work, especially if there is interaction with its other FFP subs or personnel. In addition, depending upon the type of work involved, the prime should (used strongly here) manage and oversee the cost and schedule performance (earned value) of the sub. The cost sub could also affect productivity of other personnel and subs on the same site.

I was involved on a large multi-billion systems contract to build, systemize, pilot test, operate and remove a plant to destroy chemical weapons. For the construction portion, mechanical and electrical installation were extremely complex and a major share. The prime contractor's home office was unable or unwilling to award a FFP electrical subcontract. Corporate management decided to issue a cost type electrical subcontract to a local firm. The major share of this firm's business volume was cost type contracts, so it had supposedly had earned value and other cost type management systems in place.

The prime lost its shirt on the construction portion of this contract. The electrical sub exceeded the estimated/budgeted electrical manhours by over 65%! I witnessed very low productivty (visibly evident) by the electricians on the site, which affected the cost and schedule productivity of many of the other trades on-site. There were labor/management issues and a couple of major incidents on the site that I won't go into here.

Bottom line - I don't recommend mixing FFP and cost type subcontracts for FFP contracts if the cost sub will have any significant or long lasting interaction with the rest of the workforce.

Share this post


Link to post
Share on other sites

Vern,

Clearly you have found a distinction and you are correct. That would be a "worst of all possible worlds" scenario for the subcontractor.

H2H

Share this post


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

×