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FFP general scope - adding labor

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the man hours and type of labor required for performance was estimated with a degree of certainty, however we had a sub add about 50% additional labor. It was an established labor category, but according to his subcontract he was required to advise the prime's subcontract administrator immediately for IN SCOPE directed changes by the prime's technical POC, and to get the prime's written change order to any OUT OF SCOPE work from the prime's Subcontract administrator before starting new work.

Is it in scope or out of scope work? probably in scope, but I'm not sure since the percentage change was high.

over 4 months went by before the primes' subcontract administrator learned people were added and being billed. According to the sub - the primes' customer directed them, not necessarily the prime itself, but of course all that conjecture is meaningless at this point. Because the client is receiving and benefiting to what now appears to be the real required level for performance, can we (the prime) go back to the client requesting equitable adjustment ?

Before someone answers "yeh, you can always ask" - I want to know if there is a winnable argument......somewhere in here.....

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Unless contract terms no longer mean anything, I'd say that there is no winnable argument to an entitlement to an equitable adjustment to the subcontract. Now - if the federal customer's KO somehow directed the subcontractor to increase the level of labor or was aware of the directive and didn't do anything to stop it, there is a possibility that the prime might be able to establish a case for a change. It depends upon the specific circumstances.

At any rate, would the prime be liable to the sub if the sub waited until after the fact and after the expenses were incurred to notify the prime as it billed the prime? Probably not? The prime should normally be require to establish liability to the sub for increased costs as part of the justification for the amount of an equitable adjustment.

Was the additional labor performing work within the scope of the prime contract? Within the scope of the subcontract?

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Yes, the labor was within prime and sub scope of contract.

Thanks for the reply, I am looking into the specific circumstances that can lead us (the prime) to the table for the equitable change becasue I'm sure if the customer did not directly authorize the increase, they were certainly aware and did nothing to stop it.

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If I am understanding you correctly, your subcontractor added personnel, increasing its total labor billing to you by 50%, and you were unaware of this change for over 4 months? Is your contract with the Government FFP?

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My initial response is that under a Firm-Fixed-Price effort, the prime may increase or decrease its labor force as necessary to successfully perform the effort. The fixed price is based upon successful completion of the effort, not the hours expended. As such, the Government has no duty to provide an adjustment in the event that the Contractor incurs additional costs in performance. Further, the Government has no duty to inform the prime that its Sub has increased total personnel to meet the requirements of the effort. It is the Prime's responsibility to manage its Subs.

I'm calling this my initial response, as I'm sure some contract specific facts will be revealed next which may alter the above.

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Yes, the labor was within prime and sub scope of contract.

Thanks for the reply, I am looking into the specific circumstances that can lead us (the prime) to the table for the equitable change becasue I'm sure if the customer did not directly authorize the increase, they were certainly aware and did nothing to stop it.

general, if the customer (who do you consider to be the "customer"?) "directly authorized" the increase, wouldn't it be willing to pay for a change if asked? Only a KO can "directly authorize" a change to the contract. Nobody else generally has the authority to "directly authorize" changes. If the KO directly authorized a change, then it may well be a constructive change.

If the customer didn't directly authorize the increase but "they?" were certainly aware of the increase and did nothing to stop it, it would seem that you, as the prime contractor, should have also certainly been aware of it. Then, you should have protected your interests in the event that the subcontractor later requests a change from you. Am I correct?

If you were NOT aware of the cost increase or change in requirements before it occurred, then it would seem that the sub has no rights to a price adjustment under the terms of its contract with you, as described in your first post, would it? If the sub has no rights to an adjustment, then the government should be careful not to agree to pay additional monies unless and until there is a liability by you to the sub for its increased costs.

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The original poster has not provided enough facts to enable anyone to provide an intelligent answer to the question of whether the argument is winnable.

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here's another fact. The government is more in control over our Subcontractor than we are, we allow it, they assert it, and we live with it because they pay the Bills.

They (U.S. government) are increasing the staffing again, and I have been told a MOD is on the way to the prime's HQ back in the States.

This will be two (2) MODS to a subcontract within two months, that will increased the purchase order to them by a million dollars. (450K 1st mod, 550K, 2nd mod) The prime contract was not modified for this action on the first staffing increase 2 months ago. It would seem from what I am being told, this current staff increase to the subcontract, will be a MOD to the Prime contract.

is this in scope work? That question may not be as relevant any longer .....so due to the short time between subcontractor PO modifications, and if the prime does in fact get modified here shortly as I am being told it is...., would certified cost price data be required of subcontractor, when the 2nd subcontract modification is executed- if no exemption existed?

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here's another fact. The government is more in control over our Subcontractor than we are, we allow it, they assert it, and we live with it because they pay the Bills.

You are in complete control of your subs. If you allow your subs to take direction from the Government, you are asking for the kind of trouble you are now experiencing. It is a false dilemma to believe that if the Government technical customer is not in direct control of your subs he will be unsatisfied. Subcontractor management is part of your overall technical and management solution (hopefully). You need to clearly articulate to both the customer and the sub your (value-added) role as the prime contractor.

They (U.S. government) are increasing the staffing again, and I have been told a MOD is on the way to the prime's HQ back in the States.

What kind of mod? A change order? A bilateral mod?

This will be two (2) MODS to a subcontract within two months, that will increased the purchase order to them by a million dollars. (450K 1st mod, 550K, 2nd mod) The prime contract was not modified for this action on the first staffing increase 2 months ago. It would seem from what I am being told, this current staff increase to the subcontract, will be a MOD to the Prime contract.

You issued two subcontract mods at risk for ~$1M? Who told you the prime contract mod was on its way? Did you provide a proposal for the increase?

is this in scope work? That question may not be as relevant any longer .....so due to the short time between subcontractor PO modifications, and if the prime does in fact get modified here shortly as I am being told it is...., would certified cost price data be required of subcontractor, when the 2nd subcontract modification is executed- if no exemption existed?

The question of scope is definitely relevant. The short time between PO mods to the subcontractor is not. Certified cost or pricing data may be required depending on the circumstances. See FAR 15.403-4 and 15.404-3 for more information.

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