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52.215-23 Limitations on Pass-Through Charges

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Greetings,

First, I'm new to the forum and will start out by saying thank you to all those that contribute. These forums are extremely helpful!

Questions:

  1. Assume an existing DoD contract that meets the prescription in FAR 15.408(n) for inclusion of the clause 52.215-23 Limitation on Pass-Through Charges. The clause is not included in the Contract. Would this clause be read into the contract by operation of the Christian Doctrine? 52.215-22 is also not included in the contract, in case you are wondering.
  2. Assume the answer to 1. is "yes", and the prime contractor later intends to award a subcontract that was not included in the contractor's original proposal. The subcontractor's proposal to the prime includes lower-tier subcontractor costs that exceed 70% of the total estimated cost of the subcontract. In this situation, could the indirect costs or fee on work performed by the lower-tier subcontractor be considered excessive pass-through? It is debatable whether the subcontractor adds no or negligible value to the lower-tier subcontract. Would you submit the notification pursuant to 52.215-23© considering your answer to 1. above?

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Good Morning,

Experts like Vern, Don, and H2H will be able to answer your question about the Christian Doctrine. I would have a statement ready about the value added by the subcontractor, but I would not submit it to the contracting officer unless requested to do so. Here is a similar topic thread that you may find useful:

http://www.wifcon.com/discussion/index.php?/topic/1433-limitations-on-pass-through-charges/?hl=%2Bpass+%2Bthrough

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@InNeedofWisdom. Thanks for your reply.

I suppose another question is: Are there any generally accepted standards to use in determining whether the contractor, or subcontractor in this case, provides "added value"? Everyone thinks that what they do adds value, right?

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Of Course! :) I am not sure if there are generally accepted standards besides the definition for "added value" from FAR 52.215-23(a). It looks like the writers of this clause intentionally gave examples that some might otherwise question. If a contractor cannot qualify for at least one of the examples below, it seems like they could have a hard time persuading the contracting officer of "added value."

FAR 52.215-23(a) “Added value” means that the Contractor performs subcontract management functions that the Contracting Officer determines are a benefit to the Government (e.g., processing orders of parts or services, maintaining inventory, reducing delivery lead times, managing multiple sources for contract requirements, coordinating deliveries, performing quality assurance functions).

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Yes, the examples are listed there. I was thinking that almost any prime contractor, service contractor in particular, that has two or more subs could assert that they do all of those things. I was wondering if there were any general standards by which those assertions are measured. Or, if anyone has had direct experience with a situation where this clause was a factor, or had to defend their added value.

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To me, the more logical question would be "why can't you subcontract directly with the firm that will actually perform the work?" Then let them justify why they can't or shouldn't.

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Good point.

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In reply to the original question from subs, I would be shocked if a court determined that the 52.215-23 clause was to be read into the contract via Christian Doctrine, because it was an ingrained strand of public policy. Even it it were read in, I would be even more shocked if the prime contractor would be found to have been required to flow-down a non-existent contract clause (even though the clause in question is a mandatory flow-down clause). Thus, I'm thinking "leave the poor subcontractor alone" (but do try to understand why the prime is subcontracting with it when more than 70% of the subcontracted work is itself being subcontracted to a lower tier).

We are just now seeing DCAA dig into this area and, so far, they seem to be very concerned with processes and controls to identify excessive pass-through costs at the time of proposal and post-award -- but less concerned with the flow-down aspects (as is natural, since that will be the province of the DCMA CPSR team). Based on what I'm seeing, I suggest your best course of action is to make sure your procurement manual describes how such costs are identified at the time of proposal and post-award -- including adding the clause to your list of key clauses in your contract briefs. I'm thinking that worrying about Christian Doctrine should not be your main focus.

Hope this helps.

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@here_2_help. That is very helpful information. Thank you.

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@here_2_help. That is very helpful information. Thank you.

subs, you said that the existing contract meets the prescription in FAR 15.408(n) for inclusion of the clause 52.215-23 Limitation on Pass-Through Charges. If that means that the contract is a cost reimbursement type, I suggest again that you ask - as soon as possible - "Why can't you subcontract directly with the firm that will actually perform the work?" Then let them justify why they can't or shouldn't (see FAR 31.201-3( a ) Determining reasonableness).

You already have some managment tools to use on cost type contracts instead of having to rely only on that fairly recent (2009) clause.

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@joel hoffman. I am most definitely asking that question. Just so you understand my involvement in this, I am the subcontract administrator for the prime. I asked the question about the clause, and continue to question our guys, to ensure I am properly protecting the company.

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Good luck, subs!

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