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Limitations on Subcontracting considering owners direct effort

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Help and Retread:

You guys are more afraid of DCAA than I am. Anyway, I checked the ASBCA decisions to see if any case about FAR 52.249-14 mentioned DCAA, and did not find any. I doubt that very many FFP construction contracts involve certified cost or pricing data, since most are awarded pursuant to adequate price competition, but there are undoubtedly some. I know of no standard FFP contract clause that gives the CO the right to make special requests for audits that are not covered by the Audit and Records clause. I know of nothing in the DCAA Contract Audit Manual or audit guidance about the limitations on subcontracting clause, but there might be something I missed. In any case, the original poster is obviously very small and unlikely to attract DCAA's attention. So why don't we just answer the guy's question without needlessly raising his fears. He'll probably never meet a DCAA auditor.

Help:

Costs don't have to be paid to be incurred. See GaN Corp., ASBCA 57834, 12-2 BCA ¶ 35103.

Sad that this thread went through 20-some posts without anyone venturing a reasonable answer to the original question based on the language of the contract clause. What's up with that? What's even sadder is the poor guy thanking everyone for their "insight".

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Vern,

I'm not at all afraid of DCAA. I'm afraid of unallowable litigation expenses generated by DCAA audit reports that are endorsed by Contracting Officers who lack knowledge and experience to evaluate those audit reports critically, and reach independent conclusions that differ from those of the DCAA auditors.

I'm afraid of an acquisition environment in which it's easier to toss out a CoFD and a Demand Letter, and proceed to litigation, rather than negotiate a compromise that might subject a CO to criticism from his/her leadership or lead to a DCAA auditor calling the IG.

I am afraid because that's what I live with, five days a week, 50 weeks a year. It's my real world experience that informs my fears.

Client confidentiality prevents me from saying more.

H2H

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Vern – Please refer back to my post at #6. I did answer the question in my view but your post has pointed to some missing thoughts on my part. Here they are.

I believe your post #23 is based on a mis-placed conclusion that subcontracting limitation is calculated on actual cost of performance. Why? Subcontracting limitation is matter of responsibility and as such is an effort that is used to determine a prospective contractor not a contractor in actual performance. Therefore the Davis-Bacon payrolls would be nonexistent and could not be used for the determination of meeting the subcontracting limitation. My references for this position are FAR Part 9.00 which notes that the subpart is for “prospective contractor responsibility” and specific to a small business FAR Subpart 19.6 which refers to “receiving and performing” “apparent successful small business offeror”. Nothing in FAR Part 9 and FAR Part 19.6 discusses reviewing a business, and more specifically a small business, for matters of responsibility after award. I would offer that an after the fact review is a matter of performance evaluation.

My conclusion based on the FAR references is supported by the CFR at 13 CFR 125.6 which notes “to be awarded” and continues with several references to the future tense. As I did in my post #6 I again note that it is different for the 8(a) Program where subcontracting limitation not only a matter determined at award but is monitored as a matter of compliance with 8(a) Program regulations and post contract award review of subcontracting limitation is done with regard to IDIQ contracts pursuant to 13 CFR 124.510.

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VernI believe your post #23 is based on a misplaced conclusion that subcontracting limitation is calculated on actual cost of performance. Why? Subcontracting limitation is matter of responsibility and as such is an effort that is used to determine a prospective contractor not a contractor in actual performance.

Carl:

I didn't misconstrue anything.

The original poster wanted to know how a CO would determine compliance with FAR 52.219-14, Limitations of Subcontracting (NOV 2011). He didn't say why the CO would be making that determination.

FAR 52.219-14 is a contract clause. When it is in a solicitation it notifies offerors that the contractor will have to perform in accordance with its terms. After award, it requires the contractor to perform in accordance with the terms.

Compliance with a subcontracting limitation can come up either before or after award. Before award, an offeror's prospective compliance with the limitation is a matter of either proposal acceptability or prospective contractor responsibility. See, e.g., Reliable Builders, Inc., GAO Dec. 402652, 2010 CPD ¶ 260:

While, as a general matter, an agency's judgment as to whether a small business offeror will be able to comply with a subcontracting limitation presents a question of responsibility not subject to our review, see 13 C.F.R. sect. 125.6(f) and 4 C.F.R. sect. 21.5( b )(2), ( c ), where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal's acceptability, which we will review. TYBRIN Corp., B–298364.6, B–298364.7, Mar. 13, 2007, 2007 CPD para. 51 at 5.

The Court of Federal Claims has seen it the same way, as either a matter of proposal acceptability or contractor responsibility. See Excel Manufacturing Ltd v. U.S., 111 Fed. Cl. 800, 809 (2013), quoting Kira, Inc., GAO Dec. B-287573.4, 2001 CPD ¶ 153. The Federal Circuit has concurred, see Centech Group, Inc. v. U.S., 554 F. 3d 1029 (2009):

We take due notice of the procurement regulation at 48 C.F.R. § 19.601(d) and the SBA regulation at 13 C.F.R. § 125.6(f). The former provides that “[w]hen a solicitation requires a small business to adhere to the limitations on subcontracting, a contracting officer's finding that a small business cannot comply with the limitation shall be treated as an element of responsibility and shall be subject to the COC process.” 48 C.F.R. § 19.601(d). The latter provides that “[c]ompliance [with the LOS clause is] considered an element of responsibility and not a component of size eligibility.” 13 C.F.R. § 125.6(f). Centech cites these regulations in making its argument that GAO and the Air Force should have deferred to the SBA's determination that Centech would comply with the LOS clause. These two regulations do not change the result in this case, however. The reason is that, as GAO stated in its decision, the issue was not whether Centech could comply with the requirements of the LOS clause—the matter to which § 19.601(d) is directed. See 19 C.F.R. § 19.601(d) (referring to “a contracting officer's finding that a small business cannot comply with the [subcontracting] limitation” (emphasis added)). Rather, the issue was whether, in its proposal, Centech agreed that it would comply with the requirements of the LOS clause. The record fully supports GAO's determination that, in its proposal, Centech did not agree to comply with the clause. The Air Force acted rationally in following GAO's recommendation based upon that determination.

Subcontracting limitations can come up after award, also, as a matter of contract administration. See, for example, In re Sarang-nat'l. Joint Venture, ASBCA 54992, 07-1 BCA ¶ 33512. There have been about 18 BCA decisions involving disputes over or involving FAR 52.219-14.

In either situation, before award or after award, under the terms of the current clause the problem is the same. It is how to measure the prospective or actual prime contractor's participation in performance as required by FAR 52.219-14. Whatever the reason for the determination, the calculation for a construction contract must be based on the cost of contract performance -- anticipated, or proposed, or actual, or a combination of anticipated and actual. Whatever the reason for the calculation, the general method of calculation should be pretty much the same, although the input data base might be different -- anticipated versus actual cost.

After reading this thread, it struck me that somebody ought to at least try to provide a reasonable answer to the question, which is what I have done.

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Help:

Lots of people have had bad experiences with DCAA. I was hired as an expert witness in the United Technologies (Pratt & Whitney) "Great Engine War" defective pricing - false claims case, which currently stands at about $500 million in common law damages and false claims damages and penalties. See Wynne v. United Technologies, 463 F.3d 1261 (2006) and the follow-on decisions. I know exactly how DCAA can be, so I know where you're coming from. But the original poster in this thread is a small construction contractor performing small contracts. He is unlikely ever to see DCAA at his front door. Why raise specters that will never haunt him?

DCAA develops opinions and makes recommendations based on its review of records. In the matter that we have been discussing, DCAA has no authority or mandate to determine whether a contractor has complied with a subcontracting limitation or make recommendations in that regard. We're not talking about cost allowability, CAS compliance, or defective pricing. In this matter DCAA can only provide findings that a CO can consider when making that determination. The interpretation of DCAA findings and the uses to which the findings are put with respect to determining compliance with a subcontracting limitation are not described in any regulation or the audit manual that I could find.

The limitations on subcontracting clause requires the contractor to perform a certain percentage of the work.measured in terms of the "cost of the contract". Neither the clause nor the related SBA regulations, 13 CFR 125.6, say that "cost of the contract" means incurred cost or paid cost. Neither the FAR nor the SBA regulations provide any guidance on measuring the "cost of the contract". If the parties have to make a compliance determination, and if the contractor can prove that an employee has worked, then whether the contractor uses cash or accrual accounting, paid the person or not, or charges the government for the work or not, the work has been done by the prime. The fact that the clause states the percentages in terms of the cost of the contract thus requires that any work done be converted to a cost number. It would be silly for DCAA or the CO to argue that the prime did not work because no dollar amount was recorded or no employee was paid. The fact that work was done by the prime would have been established. If the parties can't agree on the dollar value of the work they can exercise their respective dispute rights and responsibilities under the contract.

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Vern,

As always you make good points in support of your position. I can't argue with them, except for one, which is your assessment of the probability that DCAA would ever show up at the original poster's front door.

You're wrong about that.

I've worked with fixed-price construction small businesses in the past. They skate for a while until a CO decides s/he doesn't like what the contractor is doing, and then there's an audit. Which rarely if ever goes well. Which is when I get called.

H2H

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Help:

I'm not sure that we really disagree. I think that the probability of the original poster being audited by DCAA is low. The only thing I think he is likely to be audited for is a claim or an REA, and only if it is for significant money. If the contract is with a civilian agency I think it even more unlikely that he will see DCAA. But I cannot back that up with hard data. But if that is all we disagree about, I'm happy to cede the point.

I do not doubt that if he is audited it won't go well, since most small business have dubious books and are not familiar with the contract cost principles.

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Vern – Okay then let’s talk during actual performance and use of actual costs to some degree. The question raised by the original poster paraphrased was how the work time he did not pay himself for but actually work be calculated? Or in other words is it a “cost” of doing the work. In the context of FAR 52.219-14 I say no.

I reason my no answer as follows. FAR Part 2 does not define cost but in discussing cost/pricing data notes that a cost must be “verifiable” and the verifiable concept is supported by the full discussion of FAR Subpart 15.6. You note using Davis Bacon payrolls as the verification. We have heard from the original poster that he is exempt from Davis Bacon requirements. This agrees with my knowledge of the requirement where he would simply show his name and position on the payroll and nothing more so in other words no labor cost data to verify. Further the WH-347 payroll form and its supporting FAR Clause – 52.222-8 Payroll and Basic Records - require certification that folks shown on the payroll have received “pay”. Again the original poster has stated that he has received no pay in some cases.

Next is 13 CFR 125.6 which carries the following definitions –

(e) Definitions. The following definitions apply to this section:

(1) Cost of the contract. All allowable direct and indirect costs allocable to the contract, excluding profit or fees.

(2) Cost of contract performance incurred for personnel. Direct labor costs and any overhead which has only direct labor as its base, plus the concern's General and Administrative rate multiplied by the labor cost.

FAR 31.205-8 states that “Contributions or donations, including cash, property and services, regardless of recipient, are unallowable, except as provided in 31.205-1(e)(3).” so in context of the 13 CFR 125.6 his donated time is not a cost of the contract as it is unallowable.

Additionally as aside admitting this is really h2h’s world but the contractor has in essence done an in kind contribution and as his accounting system is cash there is no way to verify, again, the cost of the labor he has donated.

In the end I suspect we will just disagree but DCAA audit or not I would be very concerned in advising a contractor that when they have a donation to a project whether it be labor or materials that it can be claim as a “cost” in performing the calculations of subcontracting limitation.

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Not really.

So, if you were the contracting officer just doing a check for your own satisfaction and all you had to go on was certified payroll that showed the owner's hours, but not wages....what would you assume as the owner's base rate for the purpose of evaluating the prime contractors portion of the labor performed? 1) the applicable Davis-Bacon rate for the nature of the work, 2) $1/hr more than the highest paid individual reported (if any), 3) $0, 4) some other arbitrary figure?

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Carl:

1. I don't think the rules about cost or pricing data have anything to do with this problem.

2. I did not say to use Davis Bacon payrolls (DOL Form WH-347) as "verification". I didn't say anything about "verification" and I did not mention payroll forms. I am not talking about verifying costs. I am talking about using DOL wage rates to price out the owner's time working as a laborer in order to measure the prime contractor's contribution to the cost of the contract, i.e., the contractor's contribution to performance. (By the way, I am not sure that the owner is exempt from payroll reporting requirements when he is working as a laborer. I am looking into that, but it has no bearing on my position on this matter.)

3. The contractor's decision not to pay himself is not a contribution or donation as that term is used in FAR 31.205-8. The contributions and donations referred to in the cost principle are charitable contributions that are deductible for Federal income tax purposes, not "contributions" to contract performance. See Manos, Government Contract Costs and Pricing § 15:3:

The cases have interpreted the term “contributions or donations” fairly narrowly to mean charitable contributions that are deductible by the donor for Federal income tax purposes. Moreover, contributions or donations made in exchange for a benefit are allowable even if the costs are deductible by the donor.

The owner was not contributing or donating his services to the government or to a charitable institution. As he said, he was doing it for the business. Unless his business is a charity, he cannot deduct his "contribution or donation" from his taxes. Moreover, the cost of the owner's work as a laborer is not unallowable just because he did not pay himself. Not paying himself means that the cost was not paid. It does not mean that the cost was not incurred or that it was unallowable.

(Really, Carl, that contribution or donation business was silly. Why didn't you look that up?)

In sum, if that's all you got, then, yeah, we will disagree.

Rather than engage in this kind of b.s., why aren't you trying to help the original poster by coming up with a reasonable interpretation of the clause and a recommendation? I don't get that.

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Vern - It always escapes me that you have to revert to personalized castigating. Don't get it and never will.

Otherwise thanks for the insights they are helpful but I will disagree on a final point. While you do not agree I presented a recommendation I did. That recommendation was for the contractor to simply pay himself when he is working on a project where the limitation applies. An approach that presents, in my view, the least risk of interpretation on what does and does not count or in other words a reasonable approach. This is exemplified by Oh's most recent post on asking what Davis - Bacon wage to use. If your reasoned approach of using Davis Bacon is used I would hope that to be verifiable that Oh's or any other contractor’s approach would be to show their effort in Davis Bacon wages in as close compliance with Davis-Bacon regulations and not just some “arbitrary” figure derived from Davis Bacon wages/benefits.

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To castigate is to reprimand severely. I think that your statement, "I would be very concerned in advising a contractor that when they have a donation to a project whether it be labor or materials that it can be claim as a 'cost' in performing the calculations of subcontracting limitation" was a mild reprimand of me, based, unfortunately, on a misconstrual of the cost principles. I think that my reprimand of you, if that's what it was, was also mild. But If you think I reprimanded you severely, then I apologize.

As for telling the original poster to pay himself, I remind you that he said: "I often go without pay, if I chose [sic] to do so, for the betterment of the business."

My goal has been to help him do that by suggesting a way of thinking about the problem he posed that violates no law or regulation, is consistent with the intention of the law, is honest, and is reasonable. I made my career by solving program managers' problems, not by engaging in the kind of naysaying for which contracting practitioners have been too often justifiably accused.

I don't participate in Wifcon Forum much anymore. I posted in this thread only because I couldn't understand (or stand) the responses to the original post, and because someone important to me has been mad at me for dropping out. I hope he'll start answering my emails soon.

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Somewhere above, Vern mentioned that he wasn't sure whether or not the DBA applies to an owner performing labor on a construction project that is otherwise subject to the DBA (or if the owner had to report himself/herself on the payrolls?). I believe the answer is that the owner under the conditions presented in this thread is not subject to the DBA. As to reporting requirements, I found different requirements during a Google search. One site said that the owner must include himself on the payroll but did not have to include any rates or wages. I found the following US Department of Energy webpage: "ANSWERS TO QUESTIONS SUBMITTED DURING THE JUNE10, 2010 DAVIS-BACON ACT WEBINAR" at:
http://www.energy.ca.gov/contracts/IFB_200-10-203/Reference_Documents/US%20DOE%20Webinar%20June%202010%20dba_faq_list.pdf
"Contractors Who Own the Business but also Perform Labor•
Does a self-employed contractor need to completeand submit DB payroll forms weekly, indicating onthem that he has paid himself at least the prevailing wage? If so, what happens when the contractor ispart way through the project and realizes that he under-bid, and his policyis to not change the contractedamount. In other words, he guarantees that he will only charge $xx for the job, no matter how long it takes him. Now he is not compliant with DB for the remainder of the project.
Please see answer below.
If the owner of a private company is self-performing labor, on an EECBG project & public building, arethey required to pay themselves prevailing wage?
Please see answer below.
What about a small business owner who owns the business and also does the work.....Do they pay themselves based on the Davis Bacon rates?
Answer:
A business ownerwho is the contractor and works with his/her employees, is not required topay him/herself DBA wages. Bona fide owners who are exempt pursuant to Department of Labor regulations, found at 29 CFR Part 541,are not laborers and mechanics and are not subject to the DBA. DOE recommends that owners of a business who also perform construction work list themselves on the certified payroll and under the column for "Work Classification" insert theword "owner." The owner does not have to put in his/her hours or wage rate.If the business owner is a sole proprietor, the contracting entity must determine that the person they are contracting with is truly a bona fide sole proprietor of a company. The contracting entity must maintain a record of the company Federal Tax ID number and a copy of the business license in the contracting file. Additionally, prior to awarding the contract, ask whether the sole proprietorplans to hire anyone to assist with the work – as those hired workers will be subject to the DBA. If the sole proprietor is not going to hire anyone, the owner is exempt from DBA and there is no requirement for certified payrolls.Workers classified as independent contractors or “1099 workers” are covered by the DBA and must be paid the DBA wages and listed on the contractor’s certified payroll record.NOTE: If the grantee/subgrantee hires an individual who is “self-employed”, but not a “sole proprietor”, the grantee/subgrantee must pay the independent contractor the DBA wages and complete thecertified payroll."
Okay - I am not a lawyer. This is free advice and I am not getting paid to do research on this. So take it for what it is worth. I have amplified my response in additional posts, below.

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As a follow up to my post above, the DBA payriolls don't necessarily capture all of the contractor's labor costs or the contractor's share of the work. Please also note that the DBA only applies to work that is performed "at the site of the work" In additon, the Contractor is only required by contract clause 52.222-8 -- Payrolls and Basic Records to submit payrolls for work performed at the site of the work. There are other locations that work on the contract may be performed which are are exempt from the DBA and from payroll reporting requirements. Some examples are permanently established fabrication shops, home office fab shops, etc. Well, this would be work actually performed by the prime contractor but not included in the payrolls. SO - one cannot rely solely on the payrolls to prove the share of the work performed by the prime.

You might say, "Well, the contractor should have other records to show what the off-site workers actually cost the company, so the owner should also prove what his time cost the contract." True enough. However, it shows that one cannot simply state the the D-B payrolls must be used to prove the self-performed percentage of cost .

I think that one must look beyond the mechanics of DBA payrolls and other records to determine the true intent of the "Limitations on Subcontracting" Clause at 52.219-14.

Congress intended to control such practices as brokering contracts by those various classifications of Small Business firms that Congress established set-asides for. It also intended to discourage or prevent "front" operations by large business contractors or other small business contractors, using SB's to obtain contracts for the other business to perform as "subcontractors" to the privileged set-aside firm.. This clause was intentionally different from the normal clause used in full and open competition for construction contracts at FAR 52.236-1 "Performance or Work by the Conteractor". That clause itself is not up to date, because it limits the measured share of work to work performed "at the site of the work". That is another topic for another debate.

This topic is too deep to fully cover here but I read a lot about it and also discussed it with the SBA Regional Office back in the days that my office negotiated sole source contracts and issued RFP's for competitively negotiated, set-asides. I'm sure the reason that the -14 clause focused on labor was that many firms were counting, for example, the purchase of materials that would then be installed by the subs. That obviously was simply a money shuffling procedure. Another example was "renting equipment" from a sub and then "hiring" the sub's normal employees to operate the equipment. It was obvious that the sub was running its own equipment with its own employees. I negotiated and/oir supervised the negotiation of many sole source SB, SDB and 8(a) construction contracts for about 7 1/2 years. We saw all sorts of attempted machinations to attempt to convince us that the prime was "performing" its required minimum share of the work. I won't go into detail here but we could usually see through the smokescreens. We would reject such proposed manipulative approaches. If it could not be resolved to our satisfaction, we asked the SBA to find another firm. They always cooperated with our office. At any rate, somebody apparently suggested the method that is used in the -14 clause and Congress adopted it.

I'm sure that Congress' intent is that the prime contractor actually perform a certain minimum amount of work itself - not sub or broker it out. Here, the contractor is actually self-performing work (literally!). His/her problem is in calculating the "cost" of his contribution because he apparently pays himself out of what is left over rather than pay himself a salary.

Somehow there needs to be a way to cut this guy some slack and figure out a way to credit the company for the work that is actually being self-performed. As mentioned above, the DBA payrolls themselves don't even necessarily capture all labor costs.

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My suggestion to the original poster is to keep track of all of your hours as a laborer on a project and to include them on the payrolls. If you personally perform some of the off-site share of the work that is not otherwise subject to the DBA if it would be performed by your employee(s), then also keep records of those hours. You are trying to prove that your company is self-performing its share of the work. It appears to me that this company must be performing small jobs anyway, if your personal efforts constitute a significant share of the labor on a project.

For gosh sakes, most of the government offices that I am familiar with don't seem to even enforce the intent, let alone the letter of the self-performed work clauses in our construction contracts. I never saw DCAA get involved in trying to enforce such clauses. We can't even get them to perform audits when we need them. When they do, they generally use broad sampling techniques that I doubt if they would go to the time and trouble to go into that detail.

I'm not an accountant so I can't advise you whether or not to assign yourself a salary or to pay yourself by the hour. Others here have already suggested that.

EDIT: The poster asked: "Can anyone give me any insight into how the SBA (or any other auditing agency) would figure this (including any references)? " It has been stated above that the SBA doen't enforce the -14 clause. I have NEVER seen the Small Business Administration audit any of our construction contracts to verify compliance with the -14 clause. That is not to say that it couldn't happen but that is my experience. And, as of late 2012, I haven't been able to even get DCAA to perform construction contract audits on some large Civil Works projects that really needed audit support. Civil Works projects are funded outside of the DoD budget, so DCAA doesnt have to agree to audit them even though such audits are performed on a reimbursible basis. And DCAA has seldom performed audits in the depth that I would like to see for negotiating major changes and claims on DoD construction contracts. They are understaffed, underloved and apparently overworked.

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Mr. Edwards, I believe anyone who visits this forum regularly has noticed the decline in your participation, and is disappointed to have lost the benefit of your expertise and perspective. One can understand how it could become often tedious for you. The format here of deep knowledge and intelligent (sometimes brilliant) exploration, coupled with the juxtaposed viewpoints of multiple experts, makes this site the best Government contracting continuous learning forum there is, from both Government and industry perspectives. No doubt the vast majority of participants wish you would reconsider. If you don't, thanks very much for the many things I've learned here from you.

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Vern - And it is good you posted and I too hope you do not decide to not participate, your comments in fact needed in this forum. I am just sorry that my contributions are silly and b.s. because in fact I do attempt to keep my posts from meeting either one of those standards.

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Joel makes a good point. While I wouldn't condone getting sloppy or complacent, it's worth noting that I've never seen any Contracting Officer or other government officials aggressively enforcing the Limitations on Contracting clause as it is literally written, or taking militant positions on some of the more ambiguous issues surrounding this clause. If you are in fact performing a majority of the work, and can demonstrate it, I'm not terribly concerned about you getting hammered on technicalities regarding the Limitations on Subcontracting clause. Of course there are other important reasons to properly allocate your costs that concern DCAA, not related to the Limitation on Subcontracting clause.

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Joel makes a good point. While I wouldn't condone getting sloppy or complacent, it's worth noting that I've never seen any Contracting Officer or other government officials aggressively enforcing the Limitations on Contracting clause as it is literally written, or taking militant positions on some of the more ambiguous issues surrounding this clause. If you are in fact performing a majority of the work, and can demonstrate it, I'm not terribly concerned about you getting hammered on technicalities regarding the Limitations on Subcontracting clause. Of course there are other important reasons to properly allocate your costs that concern DCAA, not related to the Limitation on Subcontracting clause.

Good points. I do wonder if the DCAA would ever audit one of the original poster's contracts or perform a compliance audit of self-performance. If his/her share of the self-performed work constitutes a significant share of the contract effort, I think that the contract size would not be large enough for DCAA to audit.

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I generally agree with what Joel wrote. However, see Post # 38:

Somewhere above, Vern mentioned that he wasn't sure whether or not the DBA applies to an owner performing labor on a construction project that is otherwise subject to the DBA (or if the owner had to report himself/herself on the payrolls?). I believe the answer is that the owner under the conditions presented in this thread is not subject to the DBA. As to reporting requirements, I found different requirements during a Google search. One site said that the owner must include himself on the payroll but did not have to include any rates or wages. I found the following US Department of Energy webpage: "ANSWERS TO QUESTIONS SUBMITTED DURING THE JUNE10, 2010 DAVIS-BACON ACT WEBINAR" at:

"Contractors Who Own the Business but also Perform Labor•
Does a self-employed contractor need to completeand submit DB payroll forms weekly, indicating onthem that he has paid himself at least the prevailing wage? If so, what happens when the contractor ispart way through the project and realizes that he under-bid, and his policyis to not change the contractedamount. In other words, he guarantees that he will only charge $xx for the job, no matter how long it takes him. Now he is not compliant with DB for the remainder of the project.
Please see answer below.
If the owner of a private company is self-performing labor, on an EECBG project & public building, arethey required to pay themselves prevailing wage?
Please see answer below.
What about a small business owner who owns the business and also does the work.....Do they pay themselves based on the Davis Bacon rates?
Answer:
A business ownerwho is the contractor and works with his/her employees, is not required topay him/herself DBA wages. Bona fide owners who are exempt pursuant to Department of Labor regulations, found at 29 CFR Part 541,are not laborers and mechanics and are not subject to the DBA. DOE recommends that owners of a business who also perform construction work list themselves on the certified payroll and under the column for "Work Classification" insert theword "owner." The owner does not have to put in his/her hours or wage rate.If the business owner is a sole proprietor, the contracting entity must determine that the person they are contracting with is truly a bona fide sole proprietor of a company. The contracting entity must maintain a record of the company Federal Tax ID number and a copy of the business license in the contracting file. Additionally, prior to awarding the contract, ask whether the sole proprietorplans to hire anyone to assist with the work – as those hired workers will be subject to the DBA. If the sole proprietor is not going to hire anyone, the owner is exempt from DBA and there is no requirement for certified payrolls.Workers classified as independent contractors or “1099 workers” are covered by the DBA and must be paid the DBA wages and listed on the contractor’s certified payroll record.NOTE: If the grantee/subgrantee hires an individual who is “self-employed”, but not a “sole proprietor”, the grantee/subgrantee must pay the independent contractor the DBA wages and complete thecertified payroll."

Setting aside for the moment the question of whether that answer is correct, I must point out that the Department of Energy has no special authority with respect to the interpretation of the Davis Bacon Act. While the quote from the DOE publication cites 29 C.F.R. Part 541, it provides no specific citation within that part.

The DOE's answer is only partially correct. Bona fide executives are exempt from Davis Bacon minimum wage and fringe benefit requirements. The term "bona fide owner" does not appear anywhere in the Davis Bacon regulations in Title 29 of the Code of Federal Regulations.

29 C.F.R. 541(a) states the general exemption for bona fide executives. However, 29 C.F.R. 541.2 warns: "A job title alone is insufficient to establish the exempt status of an employee."

20 C.F.R. 541.100(a) defines "executive employee employed in a bona fide executive capacity." It says:

(a) The term “employee employed in a bona fide executive capacity” in section 13(a)(1) of the Act shall mean any employee:

(1) Compensated on a salary basis at a rate of not less than $455 per week (or $380 per week, if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging or other facilities;

(2) Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

(3) Who customarily and regularly directs the work of two or more other employees; and

(4) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

( b ) The phrase “salary basis” is defined at §541.602; “board, lodging or other facilities” is defined at §541.606; “primary duty” is defined at §541.700; and “customarily and regularly” is defined at §541.701.

Note that the definition does not use the word "owner", which we have been using in this thread. Now see 29 C.F.R. 541.101, "Business owner", which says:

The term “employee employed in a bona fide executive capacity” in section 13(a)(1) of the Act also includes any employee who owns at least a bona fide 20-percent equity interest in the enterprise in which the employee is employed, regardless of whether the business is a corporate or other type of organization, and who is actively engaged in its management. The term “management” is defined in §541.102. The requirements of Subpart G (salary requirements) of this part do not apply to the business owners described in this section.

Owners are not in a special category of their own. "Owners" are treated as employees. Note that you're not an owner just because you own 20 percent. And note that the 20 percent has to be an "equity interest". Owners are not exempt because they are owners, but because they are employees employed in a bona fide executive capacity. Owners who are not actively engaged in management are not bona fide executives and thus are not exempt.

Now see 29 C.F.R. 541.106, "Concurrent duties", paragraph (a):

(a) Concurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption if the requirements of §541.100 are otherwise met. Whether an employee meets the requirements of §541.100 when the employee performs concurrent duties is determined on a case-by-case basis and based on the factors set forth in §541.700. Generally, exempt executives make the decision regarding when to perform nonexempt duties and remain responsible for the success or failure of business operations under their management while performing the nonexempt work. In contrast, the nonexempt employee generally is directed by a supervisor to perform the exempt work or performs the exempt work for defined time periods. An employee whose primary duty is ordinary production work or routine, recurrent or repetitive tasks cannot qualify for exemption as an executive.

( b ) For example, an assistant manager in a retail establishment may perform work such as serving customers, cooking food, stocking shelves and cleaning the establishment, but performance of such nonexempt work does not preclude the exemption if the assistant manager's primary duty is management. An assistant manager can supervise employees and serve customers at the same time without losing the exemption. An exempt employee can also simultaneously direct the work of other employees and stock shelves.

( c ) In contrast, a relief supervisor or working supervisor whose primary duty is performing nonexempt work on the production line in a manufacturing plant does not become exempt merely because the nonexempt production line employee occasionally has some responsibility for directing the work of other nonexempt production line employees when, for example, the exempt supervisor is unavailable. Similarly, an employee whose primary duty is to work as an electrician is not an exempt executive even if the employee also directs the work of other employees on the job site, orders parts and materials for the job, and handles requests from the prime contractor.

Moreover, the Department of Labor Field Operations Handbook, dated 29 Nov 2010, says, at 22a08, "Employee working in both exempt and nonexempt positions":

When an employee performs work in more than one capacity for an employer, for example, an office assistant, -- a position that is typically nonexempt, and as a manager -- a position that is typically exempt, the standard for determining whether the combined duties are exempt is the primary duty test, which considers the character of the employee's job viewed as a whole. If the exempt managerial duties are the primary duty, the employee will be exempt. If the nonexempt office assistant duties are the primary duty, the employee will be nonexempt. If the employee is determined to be nonexempt, normal regular rate principle apply in calculating overtime due to the employee.

I don't believe that I have answered any question in this post. My point is that issues in government can be a lot more complicated than one might expect. As contracting practitioners, one of our jobs is to research, interpret, and apply regulations in the efficient conduct of acquisitions. Although we may need the advice and assistance of lawyers, we, not the agency lawyers, are supposed to be the experts in acquisition regulations and in the conduct of acquisition operations. We are not necessarily expected to be "on hand" experts in all topics, but we are expected to be able to do expert research, interpretation, and application when needed.

We at Wifcon Forum who answer questions should apply that practitioner standard to ourselves. I think that sometimes we (and I include myself in that "we") are too hasty.

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Hi all. Obviously this has been a very thought provoking posting and I appreciate all of the input. My apologies for my misplaced #34, it was in response to Vern's #20.

Usually, I attempt to satisfy any limitations on subcontracting solely on direct labor cost (construction is still based on "labor" costs, not total contract). Any contracting officer can see, based on certified payrolls, that I've already satisfied the requirements without even considering indirect labor costs and it is not an issue. For some contracts the limitations were recently increased. Adding to that my (owner/officer) direct effort, the wage rate of which is not reported via certified payrolls, my success satisfying such limits is not as obvious.

You've put my mind at ease, that I'm probably not subject to any type of audit anytime soon. Unfortunately, I am dealing with an inexperienced, unreasonable, and even belligerent contracting officer. I have repeatedly stopped her from imposing her will, by citing either contract or FAR clauses (how DARE I actually read the contract, huh?). I was (and remained somewhat) concerned that she will take actions to entice an audit, just to be vindictive, rather than work with me. My next battle is probably going to be quantifying my costs for a delay by the Government.

Thank you all again.

PS Vern, please stay active. I have enjoyed reading your posts on several discussion threads.

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