Jump to content
The Wifcon Forums and Blogs

Leslie

52.219-14 Subcontract Limitations

Recommended Posts

I need help understanding how to calculate the percentage for subject clause. I found a Subcontracting Percentage Worksheet with the Department of the Interior Acquisition Policy Release (DIAPR) 2011-06. This worksheet only focuses on labor using the primes or Subs total labor cost not including fee / total prime + sub labor not including fee. I guess that makes sense because the FAR reads "50% of the cost of contract performance incurred for personnel shall be expended for employee of the concern (its own employees)."

However, after reading the FY13 NDAA sec 1614 I'm not sure how to calculate. The NDAA reads: in the case of a contact for services, may not expend on subcontractors more than 50% of the amount paid to the concern under the contract.

By not including the words " performance incurred for personnel" it looks like we need to divide the primes or subs cost excluding fee / by the total contract funded value.

help would be appreciated. Thank you

L

Share this post


Link to post
Share on other sites

Neither the SBA nor the FAR has implemented section 1614 through the issuance of regulations. In the meantime, you should comply with 13 CFR 125.6 paying particular attention to paragraphs (a) and (e).

Share this post


Link to post
Share on other sites

Thank you! So regarding the formula to use now (excluding fees):

Sub or Prime labor

___________________ = % of labor cost

Sub labor + Prime labor

Thanks!

Share this post


Link to post
Share on other sites

Don't forget the indirect costs associated with direct labor costs. Also, a big issue that has not been answered is the role that prime G&A that is allocated to a contract because of subcontract costs plays in this calculation.

Share this post


Link to post
Share on other sites

http://www.doi.gov/pam/programs/acquisition/upload/DIAPR_2011-06.pdf

Thank you! This is a link to the DIAPR 2011-06 document that breaks down how the calculation works. The instruction is silent on including the G&A that the prime tacks on to the subcontract costs. So I think I will use the direct labor + indirect / the sum of the total cost for both.

As far as I can tell the government does not distribute this type information very well. Is their a reliable source out on the web somewhere that can help/notify contractors to stay current on this type of policy stuff? Usually, I find these things by stumbling over it accidentally or by vigorously searching to satisfy an immediate need. Case in point- the amendment to the calculation that appears in sec 1651.

Leslie

Share this post


Link to post
Share on other sites

Like Wifcon.com?

Also, Contract Management magazine always contains a section with legislative/regulatory updates. So does The Government Contractor.

Share this post


Link to post
Share on other sites

To throw another wrinkle in, the GAO issued a decision which apparently assumes that the new Section 46 of the Small Business Act (FY13 NDAA sec 1614) is already the standard to follow. See this link:

http://smallgovcon.com/gaobidprotests/limitations-on-subcontracting-clause-allows-small-business-subcontractors-says-gao/#more-2776

For what it's worth, I spoke with our SBA 8(a) Business Development Specialist because I was concerned about which standard to comply with, and she told us that we should be following the new standard in the Small Business Act.

I've also observed that many contracting officers have been applying a "total value of contract" type standard for some time, because the "cost of personnel" formula is rather confusing and difficult to verify compliance.

I understand that FAR 52.219-14 and 13 CFR 125.6 have not yet been amended. But regulations may be invalid to the extent that they conflict with the U.S. code.

Since compliance with the Limitation on Subcontracting clause is a matter of contract administration after award, it would be wise to seek the Contracting Officer's direction. For new solicitations, it's worth asking a question during the Q&A period if there is any chance that following the new standard could (in the evaluators' eyes) render your proposal non-compliant on its face.

Share this post


Link to post
Share on other sites

Federal Contractor, my reading of the Sealift decision is different from yours. GAO merely noted the change to the Act in a footnote. It did not base its decision on that change. Instead, its decision was based on a letter from the awardee to the Navy in which the awardee promised to adjust the work shares between its subcontractor and the awardee so that the awardee would comply with the Limitation on Subcontracting clause. If we look at that clause, it is inconsistent with the revised statute. If a contractor attempted to comply with the revised statute, it would be in non-compliance with the clause.

Share this post


Link to post
Share on other sites

I agree that the Sealift decision was not directly founded on this footnote. Still, I think the footnote at least gives the impression that GAO considers Sec. 46 of the SB Act to be in effect now.

The note begins by pointing out that the Defense Authorization Act "passed several months prior to the award of this procurement." One has to wonder why GAO would reference this timeline in context with the procurement in question, if they believed it had no effect until the FAR/CFR is amended, which could be many months/years from now.

The note concludes, "Accordingly, under this framework, the costs incurred by Schuyler’s small business partner, Patriot, would not be considered subcontracted for purposes of the limitation on subcontracting."

Again, why is the GAO drawing this conclusion with regard to the procurement in question, if "this framework" is of no effect?

Share this post


Link to post
Share on other sites

If we look at that clause, it is inconsistent with the revised statute. If a contractor attempted to comply with the revised statute, it would be in non-compliance with the clause.

Retreadfed,

True, but in light of the new law, the 50% requirement as stated in the clause may have no legal effect. In other words, the law may have invalidated that part of the clause. I thought as you do and discussed it with a Government contracts attorney that I trust and he didn't have a problem with what the GAO wrote.

I'm looking forward to reading the reaction of the legal community.

Share this post


Link to post
Share on other sites

I have no problem with what the GAO wrote. My interpretation of the decision is that it was not based on the change in statute. To me, the footnote is nothing more than an observation by GAO that the law has changed, i.e., dicta.

As I read 1651, it is not self executing. Instead, it amended the Small Business Act. Under the Small Business Act, the Administrator is given the authority to issue regulations to carry out the policies of the Act. To me, that means that the Administrator has to issue regulations implementing 1651 before agencies and contractors have to comply with it.

Share this post


Link to post
Share on other sites

Here's what the GAO wrote in the footnote:

We note that the National Defense Authorization Act for Fiscal Year 2013--passed several months prior to the award in this procurement--amended the Small
Business Act to provide that, for purposes of the limitations on subcontracting, costs incurred by a small business prime contractor on its “similarly situated” small
business subcontractor shall not be considered subcontracted costs. Pub. L. No. 112-239, § 1651, 126 Stat. 1632, 2080 (Jan. 2, 2013). Accordingly, under this
framework, the costs incurred by Schuyler’s small business partner, Patriot, would not be considered subcontracted for purposes of the limitation on subcontracting.
I see now that the last sentence can be interpreted as a mere hypothetical (and I hope that's what it is). However, some are interpreting it differently. In the blog posted by Federal Contractor, the blogger wrote:
The GAO’s comment suggests that, in the GAO’s eyes, small businesses need not wait for an amendment to the FAR in order to begin taking advantage of the “similarly situated entity” exception set forth in the NDAA. This is welcome news for small businesses, which may find it much easier to comply with the limitations on subcontracting by relying in part on one or more small business subcontractors.
I think small business concerns are rejoicing in the GAO decision.

Share this post


Link to post
Share on other sites

Don, definitely agree that small business contractors are rejoicing at the new standard and GAO's decision apparently applying it. My view is that the old "cost of personnel" framework is unnecessarily confusing and burdensome for both contractors and KOs. The new standard captures the spirit behind the requirement to ensure that small businesses are performing the majority of small business set-asides as intended. I'd like to see the FAR and CFR amended soon, as we are getting conflicting advice from different contracting officers on which standard is "the law" now.

Share this post


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

×