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Profit on Subcontractor Services under a T&M Contract


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We are prime on a T&M contract with the government. The FAR defines "materials" which receive no profit as:

A. Direct materials, including supplies transferred between divisions, subsidiaries, or affiliates of the contractor under a common control;

B. Subcontracts for supplies and incidental services for which there is not a labor category specified in the contract;

C. Other direct costs (e.g., incidental services for which there is not a labor category specified in the contract, travel, computer usage charges, etc.); and

D. Applicable indirect costs.

A sub to us is providing services which are not "incidental services for which there is not a labor category specified in the contract;" (see B. above). Accordingly, it seems as if the prime's profit could be applied to these services. If you agree, do the rates inclusive of the prime's profit need to be included in the prime contract or could the prime and the government agree on the profit percentage to be applied without having to incorporate the rates in the contract?

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Guest Vern Edwards

What is the FAR number and the date of the payment clause in the prime contract? Ia it 52.232-7? If so, what is the date?

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One more question, what provision was in the solicitation (52.216-29, 30 or 31) telling you how to price the contract and how did you price the subcontract work for the contract? Have you reviewed 52.232-7 for how you get paid for each hour of labor?

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Hi, All three clauses were in the solicitation (titles copied/pasted in below). L-20 applied to the solicitation so the subcontract work was priced in accordance with the following: "The offeror must establish fixed hourly rates using separate rates for each category of labor to be performed by each subcontractor and for each category of labor to be performed by the offeror, and for each category of labor to be transferred between divisions,subsidiaries, or affiliates of the offeror under a common control".

Regarding payment per 52.232-7, the following applies: (a)(3)"The hourly rates shall be paid for all labor performed on the contract that meets the labor qualifications specified in the contract. Labor hours incurred to perform tasks for which labor qualifications were specified in the contract will not be paid to the extent the work is performed by employees that do not meet the qualifications specified in the contract, unless specifically authorized by the Contracting Officer.

(a) (4) The hourly rates shall include wages, indirect costs, general and administrative expense, and profit. Fractional parts of an hour shall be payable on a prorated basis

L-6 52.216-29 TIME-AND-MATERIALS/LABOR-HOUR PROPOSAL REQUIREMENTS -- NON COMMERCIAL FEB/2007

ITEM ACQUISITION WITH ADEQUATE PRICE COMPETITION

L-17 52.216-30 TIME-AND-MATERIALS/LABOR-HOUR PROPOSAL REQUIREMENTS--NON-COMMERCIAL FEB/2007

ITEM ACQUISITION WITHOUT ADEQUATE PRICE COMPETITION

L-20 252.216-7002 ALTERNATE A, TIME-AND-MATERIALS/LABOR-HOUR PROPOSAL REQUIREMENTS--NON- FEB/2007

COMMERCIAL ITEM ACQUISITION WITH ADEQUATE PRICE COMPETITION

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Doesn't L-20 answer your question? Separate rates are to be established for the prime and subcontractors. Those are the rates at which you bill the government. Once established, those rates do not change except as provided for by other terms of the contract. Thus, you would not add prime profit on the subcontractor rates once they are established.

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