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Help! I am a prime contractor working on a (competitively bid, edwosb set-aside) FFP Air Force construction project in NW Florida. I am processing a change order and the government contracting officer is indicating that I will not be able to add overhead and profit markups on my subcontractor’s markups. I AM permitted to account for my additional labor, materials, and supervision hours (with markups), and normal OH and profit markup to the subcontractor’s direct cost, but NO OH or profit markup on the portion of my total subcontractor’s price that result from his OH and profit markup. These costs are a part of my subcontractor’s price and are my “direct cost” (as I read FAR 43.203( b )(2)). Further, there is no place on the AF Form 3052 to segregate these costs as subcontractor costs would be added as a direct cost in column 9.

The subcontractor effort will probably be less than 70% of the change, but this isn’t relevant since FAR clauses 52.215-22 or 52.215-23 “Limitations on Pass-Through Charges” are NOT included in the contract and, as I understand them, are intended for cost reimbursable type contracts anyway. The contract does include standard limitations on subcontracting that apply to the total value of the contract (labor, as this is a construction project), not to a specific change order.

Can anyone give me a definitive source that I can reference for this Contracting Officer confirming that a prime contractor’s overhead (and profit) markup on subcontracted efforts (based on total subcontract price) is allowable? Of course, I am willing to negotiate in good faith if they return the same.

If it helps, like most small business, CAS is not applicable and we do not have separate G&A and Overhead pools, only one comprehensive overhead rate. Thanks

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Hi ohnoyoudidnt14,

There is no regulation (that I'm aware of) that permits the CO to disallow proposed costs as you described. I suspect the CO is negotiating with you. Rather than try to prove a negative, why don't you ask the CO for the statute or regulation that supports his/her position?

Hope this helps.

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Don't forget that since this is a change order, if you cannot agree on the equitable adjustment, the contracting officer can issue a decision under the Disputes clause setting the amount of the adjustment. In that case, you would be faced with the decision of accepting what the contracting officer decided or appealing that determination.

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OK, so the CO and the contractor disagree. Prime contractor mark-up is the only remaining area of disagreement after negotiations. Neither will budge and the CO is issuing a contract mod based on what she thinks it "should be".

She, the CO, processed the mod on a SF30 and added a "release of claims" clause. Ok, so we're clearly not going to sign that, but can someone help me with the process here? As see it, even though it is a unilateral change, once I get the "release of claims" clause removed, shouldn't I sign the SF30 to acknowledge the change confirming that we will "proceed diligently with performance of the contract" per the Disputes clause.

Following that, if I submit a claim, the CO will not issue a COFD that contradicts her own position...so I will be forced to appeal or file suit (and unlikely able to recover legal fees). Any suggestions?

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Is this ( A ) a unilateral change order, ( B ) the unilateral settlement of a change order, or ( C ) the bilateral settlement of a change order?

If ( C ), the contractor should not sign it unless it agrees with the settlement adjustment. Or, in other words, the contractor should sign it only if it agrees with the settlement adjustment.

If ( A ) or ( B ), the contractor doesn't sign, period. Still, the obligation to proceed diligently already exists in the contract's Disputes clause. No signature on the SF-30 is required to turn on the proceed diligently requirement.

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It isn't a claim until the contractor makes it one. Once it is a claim, proposal preparation and attorney costs won't be chargeable to the Government (directly or indirectly). So the contractor might want to keep negotiations open as long as possible -- keep ( B ) from happening for as long as possible, and maybe never if the parties can come to agreement.

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