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Subcontract Ceiling and rate increases (Subcontract Management)

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A Prime Contractor is awarded a number of CPFF Task orders under an IDIQ type contract vehicle.

There are various subcontractors with various subcontract types (T&M, CPFF, FFP) under each of these CPFF Task Orders.

Throughout the life of each Task order, certain subcontractors submit re-pricing actions that add labor categories (on T&M Subcontracts) increase rates (also on T&M Subcontracts) , there has also been requests to increase ceiling on CPFF type Subcontracts.

My question is, since this is CPFF at the Prime Contract Level, would actions like these from the subcontractors constitute re-pricing actions, no-cost realignments, or requests to add additional LCATS via modification from the Government? Since these were not in the original proposal that was submitted and awarded?

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It seems to me the relationship between the government agency and the prime contractor is unchanged. The parties still agree that the prime contractor will deliver a product or perform a service at an unchanged estimated cost and an unchanged fixed fee.

The only thing that has changed is the prime contractor's relationship with some of its subcontractors. If these affect the prime contractor's incurred costs, they are called overrruns or underruns. The prime contractor will want to effectively manage the net effect of the overruns and underruns with its subcontractors so as to best perform in its relationship with the government agency. To me, nothing you described is a basis for re-pricing or re-aligning or modifying the prime contract. If the prime contractor is unable to perform its responsibilities within the estimated cost it agreed to in the prime contract, the government agency will need to decide if it wants to pay more (by obligating funds to cover the overrun) or wants to call it quits sooner.

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Throughout the life of each Task order, certain subcontractors submit re-pricing actions that add labor categories (on T&M Subcontracts) increase rates (also on T&M Subcontracts) , there has also been requests to increase ceiling on CPFF type Subcontracts.

My question is, since this is CPFF at the Prime Contract Level, would actions like these from the subcontractors constitute re-pricing actions, no-cost realignments, or requests to add additional LCATS via modification from the Government? Since these were not in the original proposal that was submitted and awarded?

I assume that the prime contractor is a commercial firm and that its costs are subject to FAR Subpart 31.2.

What's happening is that the prime contractor is incurring subcontract costs and the incurred subcontract costs are exceeding the negotiated subcontract costs for various reasons. If those costs affect the prime's ability to perform within the contract estimated cost, then you have two issues:

1. Are the subcontract costs "allowable" pursuant to FAR Part 31?

2. If the subcontract costs are allowable and will result in an overrun of the prime contract, do you want to increase the estimated cost and fund the overrun?

The fact that incurred costs exceed proposal cost estimates usually does not affect their allowability.

One point: In order to communicate clearly and without causing confusion, you must improve your use of professional terminology:

The term "ceiling" applies to time-and-materials contracts and fixed-price incentive contracts, not CPFF contracts. The proper terms for CPFF are "estimated cost" and "total amount allotted", depending on whether the contract is fully or incrementally funded.

The terms "reprice" and "repricing" are not officially defined. "Reprice" occurs only once in the FAR System, at 15.407-1( c), which says:

The contracting officer shall not reprice the contract solely because the profit was greater than forecast or because a contingency specified in the submission failed to materialize.

"Repricing" appears in five places in the FAR System: 15.408, Table 15-2, III. C. (7); DFARS 231.205-70 and 235.006; and NASAFARSUP 1830.7001-4( b )(1); and in the Cost Accounting Standards, 48 CFR 9904.411-60(e). Generally, repricing refers to the retroaction renegotiation of contract prices based on something like mutual mistake, a price adjustment or renegotiation clause, defective pricing, or a CAS violation. It does not refer to the adjustment of an estimated cost due to a cost overrun or cost growth. Lawyers generally distinguish repricing and equitable adjustment.

I have no idea what you mean by "no-cost realignment" or "additional LCATS".

In order for professionals to communicate with each other, they should use official terms or or widely accepted terms of art and avoid the use of local jargon.

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"My question is, since this is CPFF at the Prime Contract Level, would actions like these from the subcontractors constitute re-pricing actions, no-cost realignments, or requests to add additional LCATS via modification from the Government? Since these were not in the original proposal that was submitted and awarded?"

Assuming LCAT = Labor Category (for billing purposes) the answer to your mult-part question is NO. You have a CPFF prime contract. What happens with your subcontractors is between you and them.

That being said, you still have to comply with the Limitation of Cost/Limitation of Funds clauses in your prime contract. Your subcontractor changes/mods obviously affect your EAC. You need to consider the EAC impact and act accordingly.

Hope this helps.

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Were the subcontract changes driven by changes in the scope of the prime contract that would fall under the prime contract Changes clause, or was there some other situation that is covered by another prime contract clause that would entitle the prime contractor to an equitable adjustment?

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https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=3&cgiQuestionID=120667

Here is the question and answer from DAU's Ask a Professor...

Question -

Since this is CPFF at the Prime Contract Level, would actions like these from the subcontractors constitute re-pricing actions, no-cost realignments, or requests to add additional LCATS via modification from the Government? Since these were not in the original proposal that was submitted and awarded?

Scenario - A Prime Contractor is awarded a number of CPFF Task orders under an IDIQ type contract vehicle. There are various subcontractors with various subcontract types (T&M, CPFF, FFP) under each of these CPFF Task Orders. Throughout the life of each Task order, certain subcontractors submit re-pricing actions that add labor categories (on T&M Subcontracts) increase rates (also on T&M Subcontracts) , there has also been requests to increase ceiling on CPFF type Subcontracts.

ANSWER:

The following response is based solely on the question and background information provided. As we do not have the entire facts particular to your contract, program, and situation, we highly recommend you consult your Contracting Officer and Legal Office for guidance.

The compensation arrangement you mention (Cost-Plus-Fixed-Fee) allows the prime contractor to be reimbursed their allowable incurred costs (up to an established ceiling), plus a negotiated fee that is fixed at the inception of the contract. With this particular compensation arrangement, the contractor has minimal responsibility for the performance costs. Their delivery of a specified end product ("Completion" form) or satisfactory performance across a stated time period ("Term" form) will earn them the full fixed fee, regardless of incurred costs. When the Government has such an arrangement with a prime contractor, the parties have agreed only to: 1) an estimated total cost, and; 2) a fixed fee. There is no requirement for firm prices or labor categories within these contracts.

So, while compensation arrangements between the prime and their subcontractors do not hold sway over the compensation arrangement between the Government and its prime, there will be instances when the Government may modify a contract (task order) to capture an updated picture provided by their prime (generated by the subs). As long as the Government does not believe there exists collusion between the prime and their subs, and as long as the Government can still determine the costs submitted to be allowable, then these sorts of modifications do not harm the integrity of the contract. The prime still gets reimbursed its allowable incurred costs (up to the ceiling), as well as the fixed fee. Additionally, and depending upon the CLIN and SUBCLIN structure, such bilateral modifications may facilitate a cleaner, more organized contract file and billing process.

The alternative would be NOT capturing this true picture, or attempting to dictate the types of compensation arrangements our primes have with their subs - neither are recommended.

Should the Contracting Officer determine compensation arrangements at the subcontract level need additional examination, FAR Subpart 44.2 should be reviewed (especially FAR 44.202-2(9)).

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