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ohnoudidnt14

FAR 52.215-23 Limitations on Pass-Through for FFP

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Scenario: A competitive-bid solicitation for a FFP general construction Navy contract in GA under any of the various socio-economic categories.

This solicitation includes FAR clauses 52.215-22 and 52.215-23: Limitations on Pass-Through Charges, with the obvious intention of applicability to any change orders. Whereas these clauses are not intended for FFP contracts “awarded based on adequate competition” per 15.408(n)(2)(i)( B )(1)(i), the contracting officer responded to a solicitation question by quoting 15.408(n)(2)(ii) that states “The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added).

Forgetting for the moment that this acquisition is NOT below the threshold for obtaining cost and pricing data (and thus 15.408(n)(2)(ii) should not apply), as a general contractor managing a very multi-discipline project with multiple working subcontractors, there is hardly a modification that I can contemplate that a subcontractor, lower-tier subcontractor, or some combination thereof, is not performing at least 70% of the cost of the work.

So I guess my question is: Do I have any reason to be concerned that these clauses are included given that 52.215-23(a) specifically excludes “charges for the cost of managing subcontracts and any applicable indirect costs and associated profit/fee based on such cost” from the definition of “Excessive pass-through charge”?

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Bear with me, while I round out the specific clauses and get to my point/opinion.....

Since the "Pass Through" clauses are in the contract, albeit by a CO who want to apparently "exert" their right to insert a clause because the FAR says they "can" - - sure would like to see the documentation on why they feel it is that important....

Within your proposal you are required per 52.215-22 to:

1.Identify in its proposal the total cost of the work to be performed by the offeror, and the total cost of the work to be performed by each subcontractor, under the contract, task order, or delivery order.

2. Identify any subcontract more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order, to include the proposed amount of the offeror’s indirect costs and profit/fee applicable to the work to be performed by the subcontractor(s); and(ii) A description of the added value provided by the offeror as related to the work to be performed by the subcontractor(s).

Additionally, If any subcontractor proposed under the contract, task order, or delivery order intends to subcontract to a lower-tier subcontractor more than 70 percent of the total cost of work to be performed under its subcontract, the offeror shall identify in its proposal the same information for the work to be performed by the lower-tier subcontractor(s).

So before we get to 52.215-23, you are clearly, within your proposal explaining to them what you intend to make on your subcontractor based on the proposed cost and explicitly stating what your added value to the contract is. So the CO is clear on your intent, I feel this is very important.

Now with 52.215-23, Limitations on Pass-through charges, the key words related to the above are:

“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).

“Excessive pass-through charge”, with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs).

“No or negligible value” means the Contractor or subcontractor cannot demonstrate to the Contracting Officer that its effort added value to the contract or subcontract in accomplishing the work performed under the contract (including task or delivery orders)

And it states in "General" The Government will not pay excessive pass-through charges. The Contracting Officer shall determine if excessive pass-through charges exist

So to my final point..

If you clearly state within your proposal all applicable subcontract cost, especially those related to the "70%" or more items, outline your profit/OH detail, the CO MUST make a determination as to the whether or not the pass through charges exist. If they make the award of a FFP contract for services as proposed without mention of issues with your proposed subcontract cost, in my opinion they have approved and stated that "No pass through charges" exist and as such all costs are allowable. I feel this would be the same as to any FFP modification proposed, negotiated and awarded. The key is to show your "added value" and why your costs associated to the subcontracting management roles is invaluable to the cost proposed.

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Thanks. As with any contract modification, I would disclose all of these costs anyway. It just seems like a lot of trouble to go through for a clause that shouldn't be in this contract in the first place.

Worse, I just know this contracting officer to be uncooperative based on years and years of experience with him. He's never worked these clauses in before and feels that GC's add no value and are only in business for the mark-up. I can see that he's working them in now to try to eliminate as much mark-up as possible and having to go to battle with every change.

I need to retract my previous interpretation on the definition excluding "charges for the cost of managing subcontracts and any applicable indirect costs and associated profit/fee based on such cost". This means that the GC can markup their own costs, but markup on subcontractors may still be deemed "excessive pass-through" by the CO.

So, now I have a significant objection to these clauses being included. Does everyone else interpret 15.408(n)(2)(ii) the same way that I do? That is, The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added). Because of the word "and", this contracting officer's discretion to use the clause is only applicable if the total estimated contract is below the simplified acquisition threshold...right?

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Reading the prescription as a whole, it lists the circumstances under which the CO should insert the clause, then lists exceptions based on dollar value and contract type, then provides the CO the flexibility to include it if s/he determines it to be appropriate. I do not agree that the COs authority to insert the clause if they determine it to be appropriate for one of the excepted contract types is limited only to those circumstances where the total estimated value is below the thresholds identified in 15.408(n)(2)(i). Why would that make sense? Just because of the grammar ("and" instead of "or")? Setting that aside, if the CO believes it is appropriate and the clause is included, you are going to have to deal with it as instructed above.

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Subs, thanks for the input. I'm surprised that we haven't hear from Vern and Joel on this topic yet...but WHY would you set aside the language of the FAR that clearly states "and" and not "or"? There is plenty of case precedence that essentially ruled that if the lawmaker intended it to be "or" they would have said so. Meanwhile, it reads "and" until such time as the language is changed. Perhaps I'm too anal on this one, but isn't that what the courts would see.

I'm looking to get this clause taken out of the solicitation because I can see it turning into the CO attempting to deny a prime contractor markup on his subcontractor. On a FFP construction project that is crazy and would put most GCs out of business.

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Does everyone else interpret 15.408(n)(2)(ii) the same way that I do? That is, The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added). Because of the word "and", this contracting officer's discretion to use the clause is only applicable if the total estimated contract is below the simplified acquisition threshold...right?

I do not read the FAR as you do.

1. In your last sentence, the reference to below the simplified acquisition threshold is incorrect. The Navy (the contracting activity you identified in your post) is part of DoD, and for DoD (n)(2)(i)(B) says the clause is required only for contracts or orders in excess of the threshold for obtaining cost or pricing data, not the simplified acquisition threshold. Your sentence is probably a result of typing too quickly rather than misreading the FAR.

2. I read 15.408(n)(2)(ii) (as applied to Navy contracts) as giving the contracting officer discretion to include the clause as follows:

  • "When the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i)" gives the contracting officer the discretion to include the clause in contracts below the threshold for cost or pricing data.
  • "And for any contract type" gives the contracting officer the discretion to include the clause in contracts above the threshold for cost or pricing data when the clause would not otherwise be required because of the contract type (e.g., the contracting officer may include the clause in a contract above the threshold for cost or pricing data when it is a "firm-fixed-price contract awarded on the basis of adequate price competition").

3. If your reading were correct, the proper word would be "regardless" rather than "and".

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Scenario: A competitive-bid solicitation for a FFP general construction Navy contract in GA under any of the various socio-economic categories.

This solicitation includes FAR clauses 52.215-22 and 52.215-23: Limitations on Pass-Through Charges, with the obvious intention of applicability to any change orders. Whereas these clauses are not intended for FFP contracts “awarded based on adequate competition” per 15.408(n)(2)(i)( B )(1)(i), the contracting officer responded to a solicitation question by quoting 15.408(n)(2)(ii) that states “The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added).

Forgetting for the moment that this acquisition is NOT below the threshold for obtaining cost and pricing data (and thus 15.408(n)(2)(ii) should not apply), as a general contractor managing a very multi-discipline project with multiple working subcontractors, there is hardly a modification that I can contemplate that a subcontractor, lower-tier subcontractor, or some combination thereof, is not performing at least 70% of the cost of the work.

So I guess my question is: Do I have any reason to be concerned that these clauses are included given that 52.215-23(a) specifically excludes “charges for the cost of managing subcontracts and any applicable indirect costs and associated profit/fee based on such cost” from the definition of “Excessive pass-through charge”?

1. Is this an IFB for a set-aside, FFP single award construction contract? You said that it is a competitive bid solicitation.

2. If this is a Part 14 IFB, and I was concerned and were bidding it, I would submit a bid inquiry concerning the use of provision 52.215-22 and whether the government intends to require this information with the bid itself. You aren't submitting a "contract proposal" under Part 14. According to 15.400 -- Scope of Subpart., "This subpart prescribes the cost and price negotiation policies and procedures for pricing negotiated prime contracts (including subcontracts) and contract modifications, including modifications to contracts awarded by sealed bidding." This is is a "provision". The prescription for inclusion of 52.215-22 is under 15.4, although the prescription says to use it when the clause at 52.215-23 is in the solicitation. Thus, I don't know if the provision at 52.215-22 would be applicable to modifications after award of the FFP contract under an IFB. I don't think that FAR 15.4 is applicable to the original bidding process. However, I'm not 100% sure of either of those two assumptions and would probably include those type questions in a pre-bid inquiry.

EDIT: The point: Even though the prescription for the clause says to use it when clause at 52.215-23 is in the solicitation, I don't think that Subpart 15.4 applies to thie initial award; it comes under Part 14 I don't know if this provision is applicable after award or if it requires any submission of information with the bid.

3. You indicated that there is an "obvious intention of applicability to any change orders." For an IFB, I would tend to agree that if the the clause at 52.215-23 were in the contract, it would apply to modifications . In that case, it would appear that the K.O. wants some horsepower to enforce any limitations on subcontracting and to avoid "front" type prime-subcontractor arrangements by making the prime justify its participationn and management role of subcontractors, especially on modifications.

EDIT: The point: 52.215-23 would apply after award to changes in subcontracts and to modifications.

4. For modifications, I would expect that the prime should provide enough detail in its proposals for the KO to determine the prime-subcontract cost relationship and who is going to perform the modification work, who was going to perform deleted work, etc. anyway. The KO can question the reasonableness of the need for and the proposed levels of subcontracting, tier arrangements, pricing, etc. in negotiation of modification work - with or without the clause at 52.215-23. So, if you are going to actually manage the construction contract as the prime and perform at least your minimum required self-performed work, I don't think that this should be a problem - but I could be wrong. Is the prime construction contractor required to perform 30 or more percent of the work under the contract?

5. FAR 15.408(n )(ii) does not fall under 15.408 (n )(i )( B ) for DoD. And there is an exception for FFP contracts with adequate competition at 15.408 (n )(i )( B )( 2) ( i ).

EDIT: The point: FAR 15.408(n )(ii) stands on its own, irrespective of 15.408(n )(i)

6. I suggest consulting your counsel rather than rely on these answers so far, including mine.

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Agree with Joel but would like to add a suggestion. If complying with the clause requirements will add performance costs, why not bid those costs (and clearly show them)?

Hope this helps.

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Agree with Joel but would like to add a suggestion. If complying with the clause requirements will add performance costs, why not bid those costs (and clearly show them)?

Hope this helps.

H2H, if this is an IFB, I don't think that there is a way to clearly identify added performance costs to comply with the clause - at least without possible repercussions or possibly a gov't determination of non-responsiveness of the bid, if it looks like the bidder is adding conditions. I may be wrong. Plus, the decision to add those costs should be weighed in consideration of the quest for award as the lowest, responsive and responsible bidder.

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wvanpup: Thank you for your kindness in calling it a typo. Yes, the clause is referring to the threshold for obtaining cost or pricing data. However, to interpret this as you do in your items #1 and #2, why would the first part of this be necessary? Again the clause reads:

The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i)

AND for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.”

What you are saying is that you read the clause the same as if the words "when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and" were not there???!!!

Joel: Great to hear from you (yes, I'm donning my usual camouflage).

1. This IS an IFB for a set-aside, FFP single award construction contract?

2. The information NOT required with the original bid.

3. The intent is clearly to apply to modifications and the K.O wants that horsepower...but how do we counter the "front" type accusations when we are a GC and the contract is a very multi-discipline contract with 10-12 first-tier subcontractors. Any modification would likely result in subs performing 70% or more of the work for that change.

4. As a SDVOSB, SB, EDWOSB, WOSB, or 8(a) set-aside, the prime contractor performance requirement is 15% of the labor (disregarding any discussions on "similarly situated entities" that may help satisfy the 15% requirement).

5. The "exception for FFP contracts with adequate competition" is precisely why these clauses do not belong in this contract.

6. Good suggestion to consult counsel, just a major expense for a (very) small business to have to consult counsel when bidding just because a few clueless contracting officers want to exert their will. Most contracting officer's aren't this way, but a few bad eggs!

Finally to H2H (and Joel's response): As an IFB, I can include any costs that I want............then sit back and watch the low bidder do the work.

So, I am deeply concerned that the KO will use this clause to disallow a significant amount of my normal mark-up in what could be substantial changes. I argue that this clause is clearly not applicable to a "FFP contract awarded on the basis of adequate price competition" [15.408(n)(2)(i)( B )(2)(i)] and is NOT subject to addition at the contracting officer's discretion because the total estimated contract value is anticipated to be above the threshold for certified cost and pricing data [15.408(n)(2)(ii)].

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ohnoudidnt14,

I think you are misinterpreting FAR 15.408(n)(2). Here's the relevant text:

Except as provided in paragraph (n)(2)(ii), the contracting officer shall insert the clause 52.215-23, Limitations on Pass-Through Charges, in solicitations and contracts including task or delivery orders as follows:

(i) [...]

(B ) For DoD, insert the clause when—(1) The total estimated contract or order value exceeds the threshold for obtaining cost or pricing data in 15.403-4; and

(2) The contemplated contract type is expected to be any contract type except—

(i) A firm-fixed-price contract awarded on the basis of adequate price competition;

(ii) A fixed-price contract with economic price adjustment awarded on the basis of adequate price competition;

(iii) A firm-fixed-price contract for the acquisition of a commercial item;

(iv) A fixed-price contract with economic price adjustment, for the acquisition of a commercial item;

(v) A fixed-price incentive contract awarded on the basis of adequate price competition; or

(vi) A fixed-price incentive contract for the acquisition of a commercial item.

(ii) The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.

FAR 15.408(n)(2)(i) requires use of the clause when the two stated conditions are met. FAR 15.408(n)(2)(ii) provides guidance on the use of the clause when the stated conditions are not met. The guidance is the same regardless of whether the first condition or second condition is not met. It has the same meaning if it were written as:

"The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) when the contracting officer determines that inclusion of the clause is appropriate. The clause may also be used for any contract type when the contracting officer determines that inclusion of the clause is appropriate."

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Don. I've always appreciated your input to postings on Wifcon. Glad you chimed-in here.

So, even the way you have re-written the clause at (n)(2)(ii), it still doesn't give the KO authority to include the clause IF the order value is ABOVE the thresholds of 15.408(n)(2)(i). The exclusion for "A firm-fixed-price contract awarded on the basis of adequate price competition" from (n)(2)(i)( B )(2)(i) is, thus, still valid?

If this isn't right, then there is no reason to have the exclusions of (n)(2)(i)( B )(2) because the KO would have the authority to include it at their discretion on any action.

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Ohno, For what it's worth, I agree with Don's interpretation that the KO may insert the clause for solicitations with a value less than the stated thresholds when appropriate and may use it on any contract type when considered appropriate.

If the prime is performing it's required share of the work and the prime is actually managing its subs and there isn't unnecessary tie ring of subcontracts, I don't see what leg the KO would have to stand on if he decided to withhold normal markups for overhead and profit based upon a measuring stick of 30%. This is construction with many specialty subcontractors after all.

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Ohno, For what it's worth, I agree with Don's interpretation that the KO may insert the clause for solicitations with a value less than the stated thresholds when appropriate and may use it on any contract type when considered appropriate.

If the prime is performing it's required share of the work and the prime is actually managing its subs and there isn't unnecessary tie ring of subcontracts, I don't see what leg the KO would have to stand on if he decided to withhold normal markups for overhead and profit based upon a measuring stick of 30%. This is construction with many specialty subcontractors after all.

Thanks Joel, you are putting my mind at ease. Don's interpretation "that the KO may insert the clause for solicitations with a value less than the thresholds when appropriate and may use it on any contract type when considered appropriate" addresses two separate issues...what about when the value is ABOVE the stated threshold? Doesn't the exclusion at (n)(2)(i)( B )(2)(i) apply? If not, then why have it?

For what it's worth, for this GC contract, we generally would not satisfy the "measuring stick" of 30% on any reasonably conceivable modifications...thus the concern in the first place.

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Ohno, the exclusion at 15.408(n)(2)(i)( B. )(2)(i) [i HATE tracking down these subsubsubparagraphs and I hate autocorrect] does apply to recovery of excessive charges in the existing contract price in paragraph ( d ) of the clause at 52.215-23.

Have you inquired of the govt how they intend to apply this clause considering that the public policy for construction contract subcontracting under your type of set-aside for a construction contract or for any type of general construction does not require 30% of contract or individual mod costs to be expended or performed by the prime?

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The standard for limitations on subcontracting by the prime contractor on a competitively bid FFP general construction contract (i.e., multiple trades involved) under any of the various socio-economic categories has been established by law and is already expressed in the construction contract. It isn't 30% of the contract cost for mods or for the original work and that amount isn't consistent with general industry practice for competitively bid FFP construction contracting that I am aware of. Some cities or states might use similar standards but the federal government hasn't done so on a widespread basis so far, to my knowledge.

There are still primes that self-perform a large share of work but this is becoming more rare now days. Actually the contractual limitations on subcontracting for the various set-aside programs aren't even based upon "percent of the total cost of work to be performed under the contract". That is a totally different yardstick that would seemingly conflict with the various limitations on subcontracting under FAR 19.

I would expect the prime contractor to self-perform at least the required share of work and moreover would fully expect the prime contractor, as the general contractor on a multi-trade project, to actively manage and integrate the safety, cost, schedule and quality of its own work and that of its subs. I would expect that the prime as well as its subs would propose and price modification work based upon a reasonable need for first or second tier subcontracting that wouldn't be prudent for the prime or higher level sub to self-perform. The proposal should be consistent with the concept that it originally bid the work competitively, so had to reasonably limit excessive layering of work and subcontracting. The mod proposal should not reflect unnecessary tiering of the work to simply maximize prime and/or subcontractor markups on work performed by subs or sub-subs.

If it isnt necessary and reasonable to subcontract or sub-subcontract the work - especially if the originally required, work associated withj a change wasn't organized that way, I would challenge that during negotiations. I could use the clause (if it was in the contract) as a negotiating tool. But I wouldn't arbitrarily use "30%" as the yardstick. The yardstick isn't consistent with established public policy for such contracts as described here.

(SORRY - I CAN'T CRACK THE CODE FOR CONSISTENTLY FORMATTING FONT SIZE ABOVE)

[EDIT: One of my duties in the 1990's was to negotiate and/or to supervise negotiations of all sole source and competitively negotiated construction contracts for a USACE District. If I sound theoretical or idealistic - believe me that we successfully rejected front type contracting schemes during the process. We were able to get the SBA to replace firms with ones that could at least propose a reasonable approach to the project or made the proposed prime adjust its proposed approach to accomplish the work. I couldn't control what actually occurred after award in the field but at least was able to exert some control and restraint upon the award process.

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Don Mansfield or NAVFAC WIFCON folks, is there a NAVFAC policy concerning use of this clause on set-aside FFP, competitively bid construction contracts?

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Thanks again Joel. I'm going to save some of your language for use in the inevitable future negotiations. Meanwhile, I'm hopeful that the KO will come around and just take the clause out. Any modification proposal will be consistent with the original bid concept and will not have any unnecessary layering. That said, there are several subs and sub-subs that will be performing on-site, it's the nature of the project.

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ohno wrote:

wvanpup: Thank you for your kindness in calling it a typo. Yes, the clause is referring to the threshold for obtaining cost or pricing data. However, to interpret this as you do in your items #1 and #2, why would the first part of this be necessary? Again the clause reads:

The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i)

AND for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.”

What you are saying is that you read the clause the same as if the words "when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and" were not there???!!!

I am not saying anything close to what you are implying. For DoD, the clause is not required for one of two reasons. The first reason is because the contract is below the TINA threshold. The second reason is because the contract, while above the TINA threshold, is of a certain type. I am saying that the provision gives the contracting officer the discretion to include the clause regardless of the reason it is not required. I am saying that "and of any contract type" applies independently of "below the threshold." The reason I am saying this is threefold.

  • There is no "contract type" associated with the below the threshold provision for not including the clause. Therefore, adding the contract type language would be unnecessary.
  • If the contract type language is to be tied to the below the threshold language, the proper word would be regardless (i.e., the contract type does not matter).
  • It makes absolutely no sense to say that the contracting officer can use his discretion to include the clause in a contract below $700,000, but cannot use his discretion to include the clause in a contract of $150,000,000 (pick any large contract value). If I were drafting a regulation and wanted to impose a limitation on the contracting officer's discretion, it would be to prohibit the clause in the small contract where the amount in question is minimal, and authorize the clause in large contracts where the amount in question is significant.

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This solicitation includes FAR clauses 52.215-22 and 52.215-23: Limitations on Pass-Through Charges, with the obvious intention of applicability to any change orders. Whereas these clauses are not intended for FFP contracts “awarded based on adequate competition” per 15.408(n)(2)(i)( B )(1)(i), the contracting officer responded to a solicitation question by quoting 15.408(n)(2)(ii) that states “The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added).

* * *

So I guess my question is: Do I have any reason to be concerned that these clauses are included given that 52.215-23(a) specifically excludes “charges for the cost of managing subcontracts and any applicable indirect costs and associated profit/fee based on such cost” from the definition of “Excessive pass-through charge”?

Answer to the question: Yes.

Do you have any other questions?

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Don. I've always appreciated your input to postings on Wifcon. Glad you chimed-in here.

So, even the way you have re-written the clause at (n)(2)(ii), it still doesn't give the KO authority to include the clause IF the order value is ABOVE the thresholds of 15.408(n)(2)(i). The exclusion for "A firm-fixed-price contract awarded on the basis of adequate price competition" from (n)(2)(i)( B )(2)(i) is, thus, still valid?

If this isn't right, then there is no reason to have the exclusions of (n)(2)(i)( B )(2) because the KO would have the authority to include it at their discretion on any action.

ohnoudidnt14,

You're hung up on the "and" at FAR 15.408(n)(2)(ii). You think that two conditions must be met in order for the CO to exercise their discretion to include the clause. That's not what it says. The CO may include the clause, at their discretion,--

1. When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i) and the contract type is one that is not listed FAR 15.408(n)(2)(i)( B )(2), or

2. When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i) and the contract type is one that is listed FAR 15.408(n)(2)(i)( B )(2).

I think that you are having a problem seeing this because you want it to say something different.

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Don Mansfield or NAVFAC WIFCON folks, is there a NAVFAC policy concerning use of this clause on set-aside FFP, competitively bid construction contracts?

Not that I know of.

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Thanks again Joel. I'm going to save some of your language for use in the inevitable future negotiations. Meanwhile, I'm hopeful that the KO will come around and just take the clause out. Any modification proposal will be consistent with the original bid concept and will not have any unnecessary layering. That said, there are several subs and sub-subs that will be performing on-site, it's the nature of the project.

Since you are concerned, I suggest that, if time permits, you should submit a pre-bid inquiry regarding how the government intends to apply the clause after award. Bear in mind that recovery of excessive charges in the existing contract price in paragraph ( d ) of the clause at 52.215-23 should not be applicable (at least according to my interpretation of the plain language of the clause). You could ask them to verify that interpretation.

I would at least want to know what yardstick they intend to apply to pricing of construction contract modifications in lieu of or in addition to the other limitations on subcontracting. In reading the contract, as a whole, and in considering common practice for general construction contracting where most specialty work is often subcontracted, this clause is unclear in its intent and as to its appropriateness for inclusion here. That's my non-lawyer advice.

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Don, 52.215-23 is based in part on section 852 of P.L. 109-364. The relevant part of 852 says

Not later than May 1,
2007, the Secretary of Defense shall prescribe regulations to
ensure that pass-through charges on contracts or subcontracts
(or task or delivery orders) that are entered into for or on
behalf of the Department of Defense are not excessive in
relation to the cost of work performed by the relevant
contractor or subcontractor.
(2) Scope of regulations.--The regulations prescribed under
this subsection--
(A) shall not apply to any firm, fixed-price
contract or subcontract (or task or delivery order) that
is--
(i) awarded on the basis of adequate price
competition; or
(ii) for the acquisition of a commercial item,
as defined in section 4(12) of the Office of
Federal Procurement Policy Act (41 U.S.C.
403(12)); and
(B) may include such additional exceptions as the
Secretary determines to be necessary in the interest of
the national defense.

How do you square this with your interpretation of 15.408(n)(ii)?

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