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ohnoudidnt14

Percent of cost of performance incurred for personnel

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As in every case when discussing the nuisances of Federal contracting there is a probable exception and with regard to the review and proving of limitations on subcontracting there is.

First, remember the “clause” for subcontracting limitation does change with regard to certain set-asides and I would suggest the emphasis of pre and post contract review does too as the matter of responsibility is important to the eligibility to participate in a specific set aside program. By example see FAR 52.219-23 for SDB’s, 52.219-27 for SDVOB’s, 52.219-29 for economically disadvantaged women owned businesses, and 52.219-30 for women owned businesses.

The most glaring example is with regard to 8(a). In the case of 8(a) the 52.219-14 clause is used and not only does it go to a matter of responsibility it is with regards to a firm’s eligibility in the 8(a) Program. As such SBA emphasizes in its partnership agreements with agencies the requirement for an agency to affirmatively review the matter of subcontracting limitation by requiring imperative (shall) assessment of the limitation at contract award and requires imperative (shall) monitoring and oversight of the limitation throughout contract performance (modifications by example). As a singular reference see the current partnership for DoD found here….http://www.acq.osd.mil/osbp/docs/dod-sba-8a-partnership-agreement-20121031.pdf

Bottom line a one size general statement about the CO’s effort with regard to administration of the 52.219-14 clause and subcontracting limitation overall might be covered in this thread but there are specific places where the CO’s effort is greater than what is being implied.

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ji, I strongly disagreed with several statements that you made in your post number 7:

"I think people are making this far more important than it is. There is simply no need to evaluate 52.219-14 compliance before award"

and:

the clause's real relevance is only post-award,

Here is your entire post for the sake of context.

Posted 02 July 2014 - 11:35 AM, ji20874 said:

I think people are making this far more important than it is. There is simply no need to evaluate 52.219-14 compliance before award -- the only pre-award concern should be if there is something in the proposal that suggests the contractor will not comply -- the clause's real relevance is only post-award, and there it ought to be readily apparent whether or not the contractor is fulfilling the agreement -- if it is not apparent, the contracting officer should simply ask.

DISCLOSURE: My concerns over self-performance of work by the Contractor over my career were not limited to small business set-asides, the various categories of small, disadvantaged business set-asides or sole source awards.

As Chief of Contract Administration Division within the USACE Chemical-Demilitarization Directorate and previously as Chief of a C.A. Section within Contract Administration Branch for a Corps of Engineers Construction Division, I oversaw or performed proposal evaluations during sole source negotiations and source selections for construction contracts. I also provided policy and oversight of numerous ACO offices that were administering construction contracts that were either bid or negotiated. As part of those duties, my employees and I took seriously, the public policies for requiring prime contractors to self-perform a certain amount of work, as expressed in various contract clauses. Part of my zealousness was formulated from my experience in my fist year as an Air Force Civil Engineer in 1971. During that year, I was assigned to inspect and technically administer several construction and repair projects at an AF Base where I never saw or met the prime contractor. The second low bidders performed each of those contracts. After going to the work for the USACE, where we administered the entire contract, I was taught the whole spectrum of construction contract formation and administration. We learned that ignoring the requirements before award, then relying only on ACO offices to monitor and enforce the self-performance of work requirements was entirely ineffective on both unrestricted contracts and on preference type awards.

In 41 Comp.Gen. 106 (1961), the GAO discussed the reasoning behind the (unrestricted) self-performance of work requirements: "The Chief purpose of the limitation on subcontracting and the required information as to work to be performed by the bidder's own organization is to limit award to bona fide contractors and to preclude award to those firms whose chief purpose in bidding is to acquire a valuable asset, whichin effect may be "peddled" to others interested in performing the work called for. In our judgment, therefore, the purpose of the information is to determine the responsibility of the bidder." This was quoted from a US Claims Court Decision, BLOUNT, INC. VS. U.S. No. 90-3974C Dec 20, 1990. The Court went on to also conclude that, in the particular case, the matter was also a matter of bid responsiveness, where the bid clearly indicated that the bidder did not intend to comply with the material requirements of the IFB. The relevant clause was 52.236-1, Performance of Work by the Contractor. FAR 36.501 states "(to) assure adequate interest in and supervision of all work involved in larger projects, the contractor shall be required to perform a significant part of the contract work with its own forces.."

As part of the statutes that establish the various small business and small disadvantaged business preference programs for set-asides, sole-source awards and price preferences, Congress has included various Limitations on Subcontracting, as expressed in the clause 1t 52.219-14 and in other clauses or requirements. For construction contracts, someone (wisely) decided to consider "personnel" rather than simply a percentage of work or percentage of cost. I think that this was due to primes trying to manipulate the system by renting equipment from their subs (often using the subs' operators as temporary employee's of the prime) or renting equipment for their subs, who were actually performing the work; or by simply purchasing (paying for) construction materials that were actually being installed by subs. These were all "paper exercises", rather than true self-performed work.

At any rate, I think for the integrity of the acquisition process, that this is an extremely important aspect of both contract formation and contract admin.

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I believe that the answer was something to the effect that if you can't determine the personnel cost share of a subcontract then you count the whole subcontract cost as subcontracted personnel. However, I suggest that you seek the answer in Title 13 of the CFRs.

In reviewing my saved hardcopy "Limitations on Subcontracting" folder this morning I found copies of correspondence with and records of conversations with the SBA Southeast Regional Office in Atlanta from the 1980's and early 1990's. These related to construction contracts that used clause 52.219-14 Limitations on Subcontracting. I saw where Mr. James Hunter of the SBA had advised me to remove profit as well as to remove the prime contractor's G&A on subcontracts, where it could be determined. Also, we were to remove all profit, bonds and materials from the computations. He is the person who told me that, where the prime could not determine those portions of subcontracts, we were to consider the entire subcontract cost to the prime as the subcontract share. Of course, that was years ago and reflected internal SBA procedure and interface with us at the time.

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Joel,

I agree the limitation on subcontracting agreement should be taken seriously. All aspects of our job should be taken seriouosly.

It might be helpful to look at a comparison with another serious clause -- Buy American Act--Construction Materials. Under that clause, the contractor agrees it will use only domestic construction material in performing the work (this is the general rule, as always, there exceptions). So the agreement is estabished in the contract. But when evaluating offers pre-award, do we require the offerors to PROVE that all of their materials will be domestic? Do we require pre-award material lists all the way down to screws and washers? No.

I see the limitation on subcontracting agreement in much the same way.

For a simple fixed-price competitive sealed bid construction contract, we include the Federal, State, and Local Taxes clause. Under that clause, the contractor promises that its price includes all applicable federal, state, and local taxes (again, there are exceptions, but I'm not talking about exceptions). So the agreement is established in the contract. But when evaluating bids, do we require the bidders to PROVE that their prices don't include those taxes? Do we require pre-award price breakdowns all the way to the lowest element, so we can make sure no taxes were included? No.

I see the limitation on subcontracting agreement in much the same way.

All that said, and in consonance with what I already said, if your experience in the chemical demilitarization marketplace showed serious patterns of noncompliance with the limitation on subcontracting agreement, well, there might be a basis for a contracting officer looking a little deeper pre-award. But it is an overreach to demand that every contracting officer, for every acquisition, must PROVE pre-award that the proposed contractor will comply with the limitation on subcontracting agreement. That's all I'm saying. I'm not dismissing the limitation on subcontracting agreement as unimportant.

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ji, to clarify, we didn't evaluate the extent of subcontracting on IFB projects before award and we didn't have any problems on the Chem-Demil projects. I used the IFB case as a source for some of the government policy concerning limitations on the extent of subcontracting.

We did try to enforce the self-performance of work clause on IFB's after award as well as on RFP's, both pre-award and post-award. For the preference type set-asides, sole source and price preference programs, this was a significant challenge, so it was emphasized.

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The clause at 52.219-14 can come up before award and after award.

Before award, the clause comes up in two ways. First, it comes up as a matter of responsibility. See 13 CFR 125.6(e) and FAR 9.104-3(d)(2), Second, it can come up as a matter of proposal acceptability. See Sealift, Inc., GAO Decision B-409001, 2014 CPD ¶ 22:

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. Spectrum Sec. Servs., Inc., B–297320.2, B–297320.3, Dec. 29, 2005, 2005 CPD ¶227 at 6. However, 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. TYBRIN Corp., B–298364.6, B–298364.7, Mar. 13, 2007, 2007 CPD ¶51 at 5.

As a matter of proposal acceptability, the GAO says:

In a negotiated procurement, any proposal that fails to conform to material terms and conditions of the solicitation is unacceptable and may not form the basis for award. Sealift Inc., B–405705, Dec. 8, 2011, 2011 CPD ¶271 at 3; Alpha Tech. Servs., B–250878, B–250878.2, Feb. 4, 1993, 93–1 CPD ¶104 at 3. The procuring agency has primary responsibility for evaluating the technical information supplied by an offeror and determining the acceptability of the offeror's item; we will not disturb such a determination unless it is shown to be unreasonable. Id. Although an agency generally may rely on information in a proposal to determine compliance, an agency may not accept at face value a proposal's promise to meet a material requirement where there is significant countervailing evidence reasonably known to the agency evaluators that should create doubt whether the offeror will or can comply with that requirement. See Sealift Inc., supra at 3; Maritime Berthing, Inc., B–284123.3, Apr. 27, 2000, 2000 CPD ¶89 at 6.

After award, compliance with FAR 52.219-14 is a matter of contract administration. Failure to comply would be default. What responsibility does a CO have to ensure that a contractor is complying or has complied with the limitation? That appears to be is an open question in this thread. I have interpreted the OP's opening question to be about post-award enforcement of the clause, and that's the way that I answered it. It seems to me that ji20874 has not been clear in his posts as to whether he is addressing the issue in terms of pre-award or post-award implications, and I think he should do that.

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I regret not being understood.

The limitation on subcontracting agreement is a matter of contract administration. That's post-award.

Pre-award, it is not necessary for every contracting officer, for every acquisition, to PROVE that the proposed contractor will comply with the limitation on subcontracting agreement. In some cases, such as where there is some information suggesting a need for further inquiry, a contracting officer might inquire into the prospective contractor's intention to comply with the agreement. This is affirmed by Joel's cited case, where such information is apparent "on the face of [the] proposal" -- it is further affirmed by Vern's cited case "where there is significant countervailing evidence reasonably known to the agency evaluators." But absent this information, it is not necessary for the contracting officer to PROVE that a proposed contractor will comply with the limitation on subcontracting agreement. That's all I'm saying. To use the words from Vern's cited case, the general rule is that "an agency generally may rely on information in a proposal to determine compliance."

Does that help?

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ji, how do you reconcile your latest post in regard to pre-award issues with FAR 9.103(B ), which states in part that "In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility"?

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ji20874:

Yes, it helps. You have been talking about pre-award considerations. I have been talking about post-award considerations based on my interpretation of the OP's original question. Different issue, different conclusion.

Although, Retread asks an interesting question. It's similar in kind to the one I asked in Post #17.

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ji, how do you reconcile your latest post in regard to pre-award issues with FAR 9.103( B ), which states in part that "In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility"?

And - for DoD, see also Carl's post #27 and read the current 8(a) Partnership Agreement between DoD and the SBA at http://www.acq.osd.m...nt-20121031.pdf

Note paragraphs IV B. 4., 5. and 9., in particular. These paragraphs describe the DoD's responsibilities regarding Limitations on Subcontracting.

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Simple -- the pre-award question under FAR 9.104-3( d )( 2 ) is the prospective contractor's ability to comply with the limitation on subcontracting agreement -- showing that a prospective contractor has the ability to comply with the limitation on subcontracting agreement is different from having to PROVE, pre-award, that the contractor actually will comply with the agreement, post-award. Showing the ability to comply is all that is needed for a pre-award responsibility determination, absent other information suggesting otherwise (such as from the face of the proposal).

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Well, if the contractor's history shows a pattern of compliance on similar contracts, that might suffice for the purposes of FAR 9.104-3( d )( 2 ).

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ji, the Court of Federal Claims disagrees with your assessment that the pre-award question is whether an offer or has the ability to comply with the LOS clause, but whether it promises to comply with it. This promise is to be determined from a detailed and close examination of an offeror's proposal. See, Hyperion V. U.S. COFC No. 13-1012C at the link below.

https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2013cv1012-37-0

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Retreafed,

The very new Hyperion case agrees with my position! :-) I wrote, and have argued consistently, "Showing the ability to comply is all that is needed for a pre-award responsibility determination, absent other information suggesting otherwise (such as from the face of the proposal)." In the Hyperion case, the court found that there was other information directly from the proposals suggesting otherwise, and so a deeper inquiry was appropriate. This case turns entirely on the fact that the inability or meet the limitation on subcontracting agreement was apparent from the face of the proposal.

I have consistently included the caveat that what I am saying is conditioned on the absence of other information suggesting otherwise (such as from the face of the proposal). Yet readers here consistently ignore the caveat and proceed to tell me that I’m wrong.

Here are some extracts from the decision—

Hyperion argues that [Offeror A], [Offeror B], and TCSC submitted proposals that facially show they will be unable to comply with FAR § 52.219-14, "Limitations on Subcontracting," which was incorporated into the solicitation.

Hyperion correctly states . . . and the government acknowledges, that “a proposal that, on its face, leads an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation is technically unacceptable and may not form the basis for an award.”

It is readily apparent, on the face of TCSC’s proposal, that it would not and could not comply with the limitations on subcontracting incorporated into the solicitation, and the Army should have found its proposal to be technically unacceptable.

The salient question in this respect is whether [Offeror A]’s proposal demonstrates that it would comply with the 50% self-performance requirement, not whether it could. . . . In this case, the Army did not engage in discussions with [Offeror A] regarding its ability to comply with the limitation on subcontracting despite the facial implausibility of its ability to comply, even though it engaged in discussions about other issues of technical compliance.

Overall, like [Offeror A]’s proposal, [Offeror B]’s proposal demonstrates a significant likelihood that it would not comply with the limitation on subcontracting.

Hyperion has succeeded on the merits by showing that the Army acted unreasonably in finding that TCSC, [Offeror A], and [Offeror B] all submitted technically acceptable proposals. Each of their proposals facially demonstrated a strong likelihood that the businesses would be unable to comply with the limitations on subcontracting.

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ji, you missed the point in the Hyperion decision. The issue is not whether a proposal evidences an offeror's ability to comply with the LOS clause but its intent to comply. For example, the Court stated "The court noted that the pertinent question was not whether the awardee could comply with the limitation-on-subcontracting clause, but rather whether it would comply with the limitation." Later the Court observed "In short, the parties agree that the 50% self-performance requirement applies to this procurement, but they disagree over whether the Army could have reasonably concluded that the other three offerors’ proposals demonstrated that they would comply with the self-performance requirements." As a final example of this focus on intent instead of ability, the Court noted "The salient question in this respect is whether [Offeror A]’s proposal demonstrates that it would comply with the 50% self-performance requirement, not whether it could."

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So, would you say that sealed bidding cannot be done when there is a limitation on subcontracting requirement? (In sealed bidding, there is no proposal explaining how the work will be done, but you seem to be saying that a technical proposal is always required when there is a limitation on subcontracting requirement.) Or would you require a proposal along with the sealed bid?

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Retread and ji20874:

Sealed bidding is not at issue here. The rules are different. There is no "proposal". Prior to award the subcontracting limitations are handled exclusively as matters of responsibility. In both sealed bidding and negotiated procurements, absent an express requirement or intention to determine responsibility with respect to a specific element of performance, most COs presume responsibility in the absence of evidence to the contrary. Whether they should do that is another matter, but, sound contracting principles notwithstanding, regulations and practical considerations will determine the course of action that most COs will take. In sealed bidding, after bid opening and identification of the low responsive bidder, and as a step in responsibility determination, a CO could ask for information that would enable him or her to determine whether the bidder can comply.

With respect to the question of proposal acceptability in negotiated procurements, the question is what COs should do. Prospective compliance with subcontracting limitations is not a mandatory evaluation factor in competitive negotiated acquisitions. Should it be? It depends on how seriously you take the statute and the clause. There are many clauses that implement statutes for which no special effort is made to determine specific intent to comply. If a firm submits an offer and takes no express exception, then, absent a regulation requiring specific review, a CO has every right and reason to expect that the offeror intends to comply, just as with any other contract term.

During review of a proposal cost or price breakdown, I believe that the CO should be concerned about anything in the breakdown that suggests that the offeror will exceed the subcontracting limitations. The CO must then decide whether to seek clarification and verification or conduct discussions. If it's decided that the matter cannot be addressed without discussions, then I think you have a proposal deficiency that renders the proposal unacceptable and the offeror ineligible for award, even if the offeror expressly indicated that it intends to comply,

Of course, it is always possible to require offerors to provide information in their cost or price proposals to demonstrate intent to comply with the limitations and to make that question a pass or fail evaluation factor. it ought to be easy to do. It's up to each CO.

None of the above applies to the discussion of a CO's post-award responsibilities.

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Thank you all for contributing to a very interesting discussion. The issue of Limitations on Subcontracting may well become a hot area for both protests and compliance issues as the "similarly situated" language from NDAA for FY2013 discussed in Footnote 4 of GAO's Sealift, Inc., B-409001 decision winds its way through the process. One would have to sympathize with a contractor who got hit with a Show Cause Notice based on hearsay, innuendo, anecdotal reports or perhaps even "suggestions" from competitors to agency folks. Is it so far fetched to imagine that a frustrated offeror would opt not to protest given the uphill battle they would face challenging an award on the LoS issue, when they could potentially create havoc during contract performance by "blowing the whistle" enough to get contracting officials to make inquiries, especially where the "similarly situated" subcontractors may not be open and obvious to the competitors?

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Do you think that under the “similarly situated” framework that any similarly situated second tier subcontractors (subcontractor’s subcontractors) could also be considered in the prime self performance calculation? It would seem to maintain the same spirit and intent of the clause.

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