When does a competitive procurement become sole source

[siwilliams]

My company submitted a proposal to a prime contractor responding to a competitive RFP. The prime was awarded the contract and we therefore received the subcontract. We're nearing completion of the EMD phase of the program but at the prime's request will need to push out the date for LRIP. In an effort to keep the production lines hot the prime has requested a proposal for the production of spares. This is not necessarily a govt requirement at this time and not in the original scope of the competitive award. The prime intends to add this order on the same subcontract but is requesting cost and pricing data (which we would never give to anyone but the govt). Question is, how can the prime put this order on the same subcontract when its not part of the govt order? If is turns out to be part of the govt order, why would we be required to submit cost and pricing data (which we would send directly to the government) if our award was part of a competitive procurement?

[Guest Vern Edwards]

You asked two questions about a prospective subcontract modification:

1. "Question is, how can the prime put this order on the same subcontract when its not part of the govt order?"

Easy. Nothing prevents it. The subcontract is between two private parties. The two of you can add any work you want to it. The prime wants to buy spares. I presume that you want to sell them. Why not add it to the existing subcontract?

2. "If [it] turns out to be part of the govt order, why would we be required to submit cost and pricing data (which we would send directly to the government) if our award was part of a competitive procurement?"

The original subcontract was awarded competitively, but the mod adding the production of spares seems to be sole source. The prime probably plans to use the spares for government work or sell the spares to the government at a later time. If the mod for spares production will exceed the dollar threshold in FAR 15.403-4, the prime will need to show that they got cost or pricing data from you when they include what they pay you in what they charge the govt. Read your subcontract -- it probably includes the clause from FAR 52.215-12, Subcontractor Certified Cost or Pricing Data, or from FAR 52.215-13, Subcontractor Certified Cost or Pricing Data -- Modifications.

[ron vogt]

Adding the spares as a mod to the first subcontract probably makes the spares order subject to all subcontract requirements, even though I think there is a genuine issue as to whether the second order by itself would be a subcontract under a government contract. There is no government requirement for it; it is not required for the performance of the government contract; it is not a part of the prime contract scope or SOW. Without a government requirement for it in a prime contract, it falls short of the many definitions of a subcontract in the FAR. All there is is an expectation that the government will order them. In short, the prime is ordering them at risk before there is any government need for them. If the government never adds these to the prime contract, the prime is left on the hook for them.

If the spares order is done as a separate, independent contract to the supplier rather than as a mod, I think there's an argument that it can be done as a normal commercial order between buyer and seller -- no C or P data, no government flowdowns, nothing except the specs and the requirements for the products themselves. If the government eventually places an order with the prime for these items, there would be no subcontract because the prime already owns them and would deliver them out of inventory. Of course, the prime would need to include any specs necessary so that the prime could deliver a compliant product, such as the specialty metals requirement.

Another way to look at it is -- if the government were to T for C the prime before it ordered any spares, would the prime be able to recover its costs for these spares in its T for C settlement? Probably not. Why should the government pay for something it never ordered? Similarly, why would it be a subcontract if it was done as a separate contract for things that were never in the prime contract?

[Guest Vern Edwards]

Those are interesting observations, but they don't make the modification illegal or even improper or unwise. We don't know why the prime has chosen the course that it has, and we don't know what the prime knows and may have been told by the government.

[siwilliams]

Thanks - appreciate the feedback