Jump to content
The Wifcon Forums and Blogs

Recommended Posts

Working in R&D contracting, we sometimes encounter a situation where a subcontractor does not want to submit their business proposal through the prime, for proprietary reasons. Are we obligated to accommodate this, or are we able to require the subcontractor to submit their business proposal through the prime? We are developing a system to receive proposals electronically (no more boxes of paper copies all over people's offices) and I am trying to determine if this is an option the subcontractor is entitled to (and therefore if we have to build the system to accommodate this option). I can't find an example of when this has come up. Thank you!

Share this post


Link to post
Share on other sites

Are you asking only about certified cost or pricing data? Normally, subcontractors submit cost or pricing data to the prime contractor. See FAR 15.403-4( b ). However, FAR 15.404-3( c )( 1 ) and ( 2 ) provide some instances where a subcontractor might submit cost or pricing data directly to the Government. Even so, the prime contractor still has a responsibility to negotiate a fair and reasonable price for the subcontract, and the prospective subcontractor has to give something to the prime contractor.

Or are you talking about the entire business proposal? Do you want to leave the prime contractor completely in the dark? Would that be unreasonable?

Share this post


Link to post
Share on other sites

I'm the government, so I don't necessarily 'want' anything either way, from that perspective. However, I think it's asinine for a subcontractor to expect to work side by side with a prime (including on invoices!) without disclosing cost/pricing/business-proposal-related information. But what do I know? I'd like to not have to give them this option (and therefore not have to accommodate this behavior in our system, having to do so would complicate it immensely) but wanted to see if anyone knew of a rule that I couldn't find that specifically requires us to allow this practice.

Share this post


Link to post
Share on other sites

It often happens that today's prospective prime and subcontractor for one program are also today's (or tomorrow's) competitors for another. The government often demands information in a cost (business) proposal that is much too sensitive to provide to a prospective competitor. It is not asinine for firm to want to team with each other and at the same time want to withhold competition-sensitive information from each other. It's certainly not uncommon in the private sector.

The government benefits from the policy of allowing a prospective subcontractor to submit its proposal directly to the government, because it facilitates teaming between competitors that is essential to program success and ultimately benefits the government. Think of Boeing and Lockheed, two sometimes intense competitors, teaming for the Air Force's new bomber program. It's an especially important policy in the R&D world, and I'm surprised that someone involved in R&D contracting thinks it's asinine. I'm astonished, actually.

The policy has been in effect throughout the 40 years that I have been in this business, and it is entirely understandable and sound to anyone who understands the government contracting market. Many programs could not be executed without it.

Share this post


Link to post
Share on other sites
Guest jrt132

My experiences with prime and subcontract proposals is similar to Vern's (With less than half Vern's years of experience). I have received proposals as a Government Contracting Officer and submitted proposals as a prime/subcontract as a contracting and procurement professional with private industry. In those roles, subcontractors have submitted a non-proprietary proposal to the prime contractor, while submitting a proprietary proposal to the Government, if required.

Share this post


Link to post
Share on other sites

Interesting. In about 10 years, it has only happened here about 3 times (according to those who have been here that long). So it's not nearly as common here as Vern's DoD experience suggests it is elsewhere. That being said, if it is something that is necessary for the good of the programs we are trying to effect, I'm all for it, but at what point do they open the books? We do not negotiate directly with the sub, but how can we effectively negotiate with a prime contractor if the prime does not know what is in the sub's proposal? It would seem that in order to negotiate effectively, much less manage the contract, at a certain point everyone has to be on the same (transparent) page.

As a follow-up to Vern's response, 'The policy has been in effect throughout the 40 years that I have been in this business'--could you point me to the policy you reference? I cannot find it (hence my asking it here).

Share this post


Link to post
Share on other sites

If the potential subcontract(s) would be subject to TINA (TCOPD) and the prime contractor is denied access, the prime contractor should require the potential subcontractor(s) to submit certified cost or pricing data to the government [based on FAR 52.215-12(a)]. If your situation is sole/single source at the prime contract level AND subcontract level, obtaining certified cost or pricing data may not help you very much to negotiate a lower price.

In DoD the prime contractor may request field pricing assistance from DCMA for a subcontract proposal, but may or may not receive back any details on why the DCMA price analyst recommends a lower price. There is not much the prime contractor can do in a sole/source situation without competition for leverage. Interestingly, the profit/fee negotiated at the subcontract level may be much higher than that negotiated at the prime level.

Some government customers require the prime contractor to negotiate (reach price agreement on) all subcontracts in advance of prime contract negotiations (with subcontract award after prime contract award). That way the government customer can tell the prime contractor to go back and try again if the government customer does not like the subcontract price. Adequate price competition is the best way to get lower subcontract prices.

Share this post


Link to post
Share on other sites
... but at what point do they open the books?

Maybe never. See Bodenheimer, Defective Pricing Handbook (2011) § 10:10:

In the absence of a contractual agreement, prime contractors have no extra contractual right to audit a subcontractor's books. Accordingly, a prime contractor may only gain such access through the inclusion of an audit clause in the subcontract.

Many subcontractors will submit to Government audit but typically refuse to grant the same access to prime contractors.

As for how common it is:

In one case, the Board [of contract appeals] described such subcontractor positions as "common practice" within the industry[.]

If you have not encountered the practice very often it may be because you are not working with that segment of industry in which major primes often contract with one another, as is the case in major defense systems contracting. When I worked in major systems for the Air Force my experience was that such practice was routine.

The policy must be found by looking at and coordinating different policy statements. FAR 15.404-3( c) alludes to the policy when it says:

( c) Any contractor or subcontractor that is required to submit certified cost or pricing data also shall obtain and analyze certified cost or pricing data before awarding any subcontract, purchase order, or modification expected to exceed the certified cost or pricing data threshold, unless an exception in 15.403-1( b ) applies to that action. (1) The contractor shall submit, or cause to be submitted by the subcontractor(s), certified cost or pricing data to the Government for subcontracts that are the lower of either — (i) $12.5 million or more; or (ii) both more than the pertinent certified cost or pricing data threshold and more than 10 percent of the prime contractor’s proposed price, unless the contracting officer believes such submission is unnecessary. (2) The contracting officer should require the contractor or subcontractor to submit to the Government (or cause submission of) subcontractor certified cost or pricing data below the thresholds in paragraph ( c)(1) of this subsection and data other than certified cost or pricing data that the contracting officer considers necessary for adequately pricing the prime contract.

Emphasis added.

Now look at the DCAA Audit Manual § 9-104.1 d:

In some cases, audits of subcontracts may be performed when requested by the contracting officer prior to completion of the prime contractor's proposal and the prime contractor's analysis of the subcontract proposal provided all of the following guidelines are met... (3) The contracting officer, prime contract auditor, or next higher-tier subcontract auditor requests an audit of the subcontractor proposal and informs the subcontract auditor that the contracting officer has determined subcontract audit support is required based on DFARS PGI 215.404-3(a)(i). The PGI provides that such assistance may be appropriate when, for example... the contractor has been denied access to the subcontractors records....

See also DCAA Audit Manual 9-104.2 b:

The following items will generally indicate a need for an assist audit... (5) the prospective prime contractor was denied access to the proposed subcontractor's records.

Emphasis added.

You say:

We do not negotiate directly with the sub, but how can we effectively negotiate with a prime contractor if the prime does not know what is in the sub's proposal?

The prime should know what the sub proposed, at least at the top level of information, but might not be given access to all proprietary details. Does that surprise you? It shouldn't. The Government is unusual in what it demands to know about a prospective contractor's business. There is not nearly as much disclosure and sharing in the private sector, which is one reason that the Government adopted the less demanding commercial items policies, so as to encourage firms to do business with it that otherwise wanted no part of Government contracting.

As for how you negotiate with the prime -- you should have information about the sub that you can use, you just can't disclose some of it to the prime. Do you really find that to be very difficult?

It would seem that in order to negotiate effectively, much less manage the contract, at a certain point everyone has to be on the same (transparent) page.

Do you think so? Full sharing and total transparency are not features of most business negotiations. Firms tend to disclose only what they want the other party to know. There must be laws to compel full disclosure in some business transactions. Firms tend to hold their cards close to the vest. The Truth in Negotiations Act, Pub. L. 87-653 was passed into law in 1962 in order to change that in Government contracting and compel full disclosure, and the howls could be heard in high heaven.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.
Sign in to follow this  

×