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Interpretation of FAR 52.244-2 Subcontracts


Capobian

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Hey All,

Got a question related to the interpretation of FAR 52.244-2 and want to get the sagacious advice of the broader CO community.

FAR 52.244-2(e)1) reads

"The Contractor shall notify the Contracting Officer reasonably in advance of placing any subcontract or modification thereof for which consent is required under paragraph (B), ©, or (d) of this clause, including the following information:"

Now, I interpret that to mean that any modification of a subcontract which consent was originally required, requires additional advanced notification. DCMA also interprets it this way (see DCMA-INST 143 Section 2.2.1). Some even go further and say that consent is required for those modifications. I understand that this may be administratively burdensome, but one could tweak the interpretation to say that only all non-administrative modifications to those subcontracts (e.g. any modification that changes scope, price/cost, or period of performance) require the advance notice.

I have a contractor (a fairly large one) pushing back on this interpretation. The say:

"Once the original consent is received, bilateral fixed price modifications require consent under the same parameters as the original subcontract consent requirements at 52.244-2. It would be impractical and administratively burdensome for COs to have to consent to EVERY single increase in an already approved fixed price subcontract, which is why the FAR defines the requirements for approval of fixed price modifications at the same levels as the original consent requirements, i.e. above $150,000 for. Put another way, the Prime may elect to have a separate fixed price subcontract issued under the small purchase threshold to the same supplier and not require consent per 52.244-2, so issuing a fixed price modification would be no different.

The regulatory parameters work out as follows:

The definition of “contract” under FAR Subpart 2.1 includes “bilateral modifications”, i.e. modifications signed by both parties. Such modifications meet definition of “contract” under FAR Subpart 2.1 and, therefore, meet the definition of “subcontract” under FAR 52-244-2 (a) for the purpose of consent requirement.

As such, the Contracting Officer’s consent is required for subcontracts AND bilateral modifications that are either 1) cost reimbursable, time and materials or labor-hour type of any value, or 2) fixed price AND either exceeds the simplified acquisition threshold (currently set at $150,000) or exceeds 5% of the total estimated price of the prime (See FAR 52.244-2 ©(2)(ii))."

As some background, this is a T&M contract and the contractor does not have an approved purchasing system. This is for a particular subcontract (fixed-price over $150,000), but I'm more interested in the larger interpretation.

So, what do you all think?

PS: Sorry for the fairly long post.

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From DCMA Instruction 143:

"CHAPTER 2

RESPONSIBILITIES

. . .

2.2. PRIME CONTRACTOR. The Prime Contractor:

2.2.1. Notifies the ACO in advance of awarding any subcontract or making a modification to a subcontract, for which consent is required."

I interpret this to mean notification is required in advance of awarding any subcontract for which consent is required or making a modification for which consent is required. In essence, if an action will require consent, then advance notice of that action is required. If a modification does not otherwise require consent, then advance notice of it is not required.

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So, then under that logic a contractor could potentially execute a fixed-price subcontract for $155,000, and then modify that subcontract 5 times adding $100,000 each time, and never have to notify the USG. That seems like it's not what the clause is intended to do.

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Capobian,

If the contractor has an approved purchasing system, and the subcontract effort isn't listed in the para. ( d ) fill-in, and isn't otherwise covered by para. ( b ), ( c ), or ( d ), why would the Government want a notice under para. ( e )( 1 )?

I'm assuming the five modifications were honestly entered into -- if the prime contractor purposefully split the subcontracting need into smaller units for the purpose of evading the intent of the consent to subcontract provision, well, that's an entirely different story.

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Okay, I think I see your point better now.

For a T&M contract where the contractor does not have an approved accounting system, the question is whether para. ( e )( 1 ) of the Subcontracts clause applies to (a) the original subcontract AND also to either--

  • all subsequent modifications; or
  • any subsequent modification that itself is dovered by ( c )( 1 ) or ( c )( 2 ).
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So, then under that logic a contractor could potentially execute a fixed-price subcontract for $155,000, and then modify that subcontract 5 times adding $100,000 each time, and never have to notify the USG. That seems like it's not what the clause is intended to do.

If the contractor was going to split purchases to avoid getting consent, he would have issued the original award for $150,000 and avoided the issue completely, so I'm going to assume the additional 5 purchases are righteous individual, unrelated buys. If they are, then I think the result is precisely what the clause intended.

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Capobian, 52.244-1(e)(1) says a contractor is to give notice to the contracting officer before issuing a modification "for which consent is required under paragraph (B), ©, or (d) of this clause." A fundamental question, where are modifications addressed in (B), ©, or (d)? Do you attributate any significance to the fact that modifications to subcontracts are only mentioned in (e)(1)? If the term "subcontract" includes modifications to subcontracts, isn't the mention of modifications in (e)(1) redundant?

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ji20874,

Yes, that would better condense my question.

Navy,

They wouldn't be 5 additional purchases, they'd be 5 modifications of the same contract. But I understand your point.

Retreadfed,

Section (e)(1) of the clause read "...advance of placing an subcontract or modification thereof...", hence the question which ji put much more eloquently than I. Modifications are addressed in two places in the clause before (e)(1), both in the definition. The first is the reference to Subpart 2.1 and the second is the reference to "...changes or modifications to purchase orders." I do attribute significance to the specific mention of modifications in (e)(1), especially given that the definition talks about certain modifications being considered "subcontracts". I don't think the Council would be redundant in this case if they didn't intend to call special attention to modifications.

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Capo, you missed my point. I asked where are modifications mentioned in (B), © or (d), not elsewhere in the clause. (e)(1) requires notification when consent is required in accordance with either of those three paragraphs. My question is where do those three paragraphs require consent for a modification to a subcontract?

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Capobian, 52.244-1(e)(1) says a contractor is to give notice to the contracting officer before issuing a modification "for which consent is required under paragraph ( B), ©, or (d) of this clause." A fundamental question, where are modifications addressed in ( B), ©, or (d)? Do you attributate any significance to the fact that modifications to subcontracts are only mentioned in (e)(1)? If the term "subcontract" includes modifications to subcontracts, isn't the mention of modifications in (e)(1) redundant?

Yes, it's redundant.

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