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Don Mansfield

Reporting Compliance with Limitations on Subcontracting

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How many of you think that contracting officers are responsible for imposing a subcontract reporting requirement on 8(a) contractors so that COs can monitor compliance with the limitations on subcontracting clause (FAR 52.219-14)? The reason I ask is because the GAO recently faulted COs for not imposing such a requirement in 8(a) contracts awarded pursuant to agency partnership agreements (PA) with the SBA. The most recent PA that I could find between DoD and the SBA contained the following DoD "responsibility":

shall include monitoring and oversight provisions for all contract awards, modifications, options, and purchase orders to ensure that all contracts comply with the performance requirements (Limitations on Subcontracting) of FAR 52.219-14 and 13 CFR 124.510 and 125.6;

I assume that similar language appears in PAs between the SBA and other agencies.

Note that FAR 52.219-14 does not require subcontract reporting. Nothing in the FAR or DFARS requires COs to obtain the information or the contractor to report it. OMB has not approved an information collection under the Paperwork Reduction Act for reporting subcontract information other than the reporting required for contractors with subcontracting plans.

Some questions that come to mind:

1. If a contracting officer were to impose the subcontract reporting requirement that the GAO thinks they should be imposing, would that be a deviation from the FAR?

2. Do contracting officers have the authority to impose the subcontract reporting requirement that the GAO thinks they should be imposing without the requirement going through the rulemaking process? (41 U.S.C. 1707 requires that procurement rules be published for comment in the Federal Register when they have "a significant effect beyond the internal operating procedures of the agency or have a significant cost or administrative impact on contractors or offerors.”)

3. If contracting officers started requiring the subcontract reporting that the GAO thinks they should be requiring, would that be an authorized "collection of information" under the Paperwork Reduction Act?

In my opinion, the COs have not done anything wrong. I think that it's up to the DAR Council to put the requirement through the rulemaking process. They have either neglected to do so or made a conscious decision not to do so.

What's your opinion?

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A CDRL. Right now most agencies require items like costs billed for the month, cumulative totals, balance remaining, etc. I'm think it would be easy to require submission of data about subcontracting.

The contract imposes a limitation on subcontracting. It is reasonable to have the contractor report on compliance.

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formerfed,

If the Data Item Description cited on the CDRL required reporting of subcontract costs, then I don't think there would be a problem with the Paperwork Reduction Act. However, I think that a policy requiring the submission of such reports whenever awarding contracts under the 8(a) program would be a FAR deviation and subject to the public notice and comment process pursuant to 41 U.S.C. 1707.

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Why would any CO ask for information about subcontracting so that they could enforce the limitations on subcontracting clause? FAR does not expressly require them to enforce it. FAR does not state what is to be done if a contractor does not comply. Who wants to use precious resources to enforce the clause? Why go looking for trouble?

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Don,

At least for services, DoD Contracting Officers could monitor/ensure compliance with 52.219-14 through eCMRA (electronic Contractor Manpower Reporting Application). My understanding is that subcontract labor must be accounted for separately. Not sure you could get the exact data you would need in terms of "cost incurred for personnel", but it would be easy to look at prime direct labor dollars and subcontract direct labor dollars and if the latter is more than 50% of the total, start asking questions. This may be after the fact, because I believe they only need to report once annually. See the memo here: http://www.acq.osd.mil/dpap/policy/policyvault/Enterprise-wide_Contractor_Manpower_Reporting_Application_memorandum.pdf It has a note in the text of the memo about the OMB data collection requirement.

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For construction contracts it is fairly easy. The prime and subs must provide Payroll info on a weekly basis anyway. The ACO office can track compliance. The GAO didn't say that the contractor must submit compliance data or provide the calculations did it?

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First I suggest all do a full read of any agency SBA agreement before making a conclusion. Sorry Don but your quote is misleading.

Also, I am surprised that anyone would provide reference to support any conclusion beyond the language of the agreement. FAR etc. doesnot matter the agreement (contract in any other venue) is what rules.

Or in other words why the heck have an agreement if one side doesnot want to adhere to it. Get real!

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Joel,

I think payrolls would not provide the information necessary to ensure a contractor is abiding by 52.219-14. FAR 52.219-14( c)(3) states,

"General construction. The concern will perform at least 15 percent of the cost of the contract, not including the cost of materials, with its own employees."

Payroll data is un-burdened labor rates for employees on the project excluding certain classifications of employees. So the payrolls would not include all the costs associated with the work, including indirect costs (prime and sub), the employees exempt from payroll reporting, etc, to determine if the prime contractor is performing 15% of the effort.

I guess one could pull the cost and pricing data or other than cost and pricing data to determine the appropriate rates to apply to the direct rates presented in the payrolls.

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jrt, if the contract is sole source, we would have negotiated the price. I would have determined before award what the prime intended to self-perform to meet the requirements. I would have the cost data necessary to make a rough determination of whether the contractor is in compliance.

In addition, there are always negotiated changes that provide the cost data if this were a competitively awarded contract.

Actually, I don't think that anyone gives a tinker's damn whether the prime is performing 14.8,15.2, 49.6, 50.4 etc. percent of the actual effort. If the prime is making a reasonable effort to comply and if we are making a reasonable effort to track compliance certainly beats doing NOTHING, which is apparently the norm.

I don't buy the argument that, unless there is some specific FAR or Agency policy to enforce the limitation on subcontracting, we aren't required to track compliance. That is a ridiculous argument. It is part of the contract administration office' s job to enforce the contract requirements, including limitations on subcontracting.

I generally provided the ACO office with copies of the contractors contract proposal and the records of negotiation so they would have the basic info needed to help them administer the contract.

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Meeting the spirit and intent of the Limitation on Subcontracting, to me is the prime objective here. Too many government offices just look the other way. I think it would be going overboard to require a CDRL submission of exact calculations and data to prove that the contractor is complying, at least for construction contracts. If it is apparent that the prime is not complying then I feel that it would be entirely reasonable for the ACO or KO to require them to show that they are complying or to indicate how they will meet the requirement. This includes any data needed to make the determination.

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Don's post leaves out important information. More than a year ago Congress changed the law, 15 USC 657s, to make the limitations clearer and easier to apply, but SBA has not yet changed its regulations to implement the new law and the FAR councils won't do anything until they do.

The law was changed because the current rules are extremely difficult to apply, impose no reporting requirement on contractors, and say nothing about what is to happen if a contractor does not comply, leaving T for D as the only contractually stipulated remedy, which is extreme and uncertain of outcome. It is not clear whether the statutory change renders the current clauses unenforceable if inserted into contracts after the date on which the statute required new rules to have been published. Moreover, it is unclear what the effect of contract modifications would be on the application of the limitations and what defenses it might provide to a contractor against a charge of noncompliance. A contract mod might entitle a contractor to an equitable adjustment of the limitations.

COs can and should do nothing about this. SBA and the FAR councils must implement the new law first. Any CO who tries to demand reporting data and then enforce the existing rules is asking for trouble. Moreover, writing a clause to require submission of such data would require publication in the Federal Register to be enforceable and might necessitate compliance with the Paperwork Reduction Act.

As a CO I would consider the current limitations to be unenforceable on both legal and practical grounds and would attempt no enforcement action.

I discussed all of this at greater length in "Limitations on Subcontracting: Are they being enforced? Will they ever be?", The Nash & Cibinic Report (August 2014).

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Joel, are you looking for me? I think your post no. 11 shold be addressed to someone else.

Since I'm here, I recall a recent thread on this subject at http://www.wifcon.com/discussion/index.php?/topic/2601-percent-of-cost-of-performance-incurred-for-personnel/. I still think the clause is one for post-award administration rather than pre-award evaluation, absent some reason for a pre-award evaluation based on procurement history or so forth. And post-award, I still think the best approach is to observe generally and to inquire of the contractor only if there is some observation that the contractor might not be complying -- and in that case, a simple inquiry will likely answer the question.

I'm content to wait for the SBA and FAR Council to do their jobs.

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First I suggest all do a full read of any agency SBA agreement before making a conclusion. Sorry Don but your quote is misleading.

Also, I am surprised that anyone would provide reference to support any conclusion beyond the language of the agreement. FAR etc. doesnot matter the agreement (contract in any other venue) is what rules.

Or in other words why the heck have an agreement if one side doesnot want to adhere to it. Get real!

Carl,

What did you find misleading about my quote? The GAO was assessing compliance with that specific provision of the PA.

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COs can and should do nothing about this. SBA and the FAR councils must implement the new law first. Any CO who tries to demand reporting data and then enforce the existing rules is asking for trouble. Moreover, writing a clause to require submission of such data would require publication in the Federal Register to be enforceable and might necessitate compliance with the Paperwork Reduction Act.

I agree with that. However, the GAO thinks that for 8(a) contracts awarded under PAs, contracting officers are currently required to include clauses requiring reporting. They think that because that's what they were told (from p. 5 of the report):

The partnership agreements explicitly address subcontracting limitations in a few ways by requiring the agencies to
• at the time of the contract award, conduct and document an assessment of the 8(a) firm’s ability to comply with the subcontracting limitations;
• include monitoring and oversight provisions in all 8(a) contracts to ensure that the contractors comply with the subcontracting limitations; and
• ensure that 8(a) contractors comply with the subcontracting limitations.
SBA, DOD, DHS, and HHS officials responsible for administering the 8(a) program stated that contracting officers are responsible for implementing these requirements.

When the contracting officers interviewed for the report stated that they didn't think they could compel subcontract reporting, the GAO report implied that they were wrong. From p. 10 of the report:

Further, six contracting officers also expressed confusion about their ability to monitor subcontracted work performed under 8(a) contracts, stating that they did not have access to the costs of the subcontracted work. These contracting officers generally stated it was their understanding that only large businesses could be compelled to report on subcontracted work. Large businesses awarded contracts that are expected to exceed a certain amount are required to develop a plan detailing the extent to which they will subcontract work to small businesses, which is evaluated by contracting officers prior to awarding a contract. These businesses are then required to report on the amount of work subcontracted to those small businesses on a federal government website. While the FAR exempts small businesses from the requirement to submit a subcontracting plan, it does not prohibit contracting officers from requiring that small businesses report on subcontracting for the purposes of demonstrating compliance with the subcontracting limitations.

I think that agencies are going to read this report and believe that their contracting officers should have been imposing subcontract reporting requirements in 8(a) contracts awarded under PAs. As a result, I think we may see more contracting officers imposing these requirements before the rulemaking process has run its course.

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Don:

The GAO thinks a lot of things. So what. Who cares? Thinking something does not make it correct.

As for contractor reporting, the GAO is wrong if it thinks that individual COs can legally impose new ad hoc reporting requirements on contractors at their own initiative. You know that from your own research and writing. They can try it, and unsophisticated contractors might comply, but if a contractor refused to provide such information what could the CO do? What contract term would the contractor have breached? What remedy could the CO impose?

What GAO really wants is for OFPP, SBA and the FAR councils to develop policies and procedures. GAO did not recommend that COs act on their own initiative. It recommended that OFPP initiate policy development.

Stop worrying. There is no crisis and no need for any immediate action by COs or individual agencies.

Any CO who acts on his or her own based on the GAO's report is a dummy.

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Joel, are you looking for me? I think your post no. 11 shold be addressed to someone else.

Since I'm here, I recall a recent thread on this subject at http://www.wifcon.com/discussion/index.php?/topic/2601-percent-of-cost-of-performance-incurred-for-personnel/. I still think the clause is one for post-award administration rather than pre-award evaluation, absent some reason for a pre-award evaluation based on procurement history or so forth. And post-award, I still think the best approach is to observe generally and to inquire of the contractor only if there is some observation that the contractor might not be complying -- and in that case, a simple inquiry will likely answer the question.

I'm content to wait for the SBA and FAR Council to do their jobs.

Ji, you were correct. I should have addressed "jrt132" in post 11. However, I disagree that evaluation to ensure compliance is solely a post award duty. When I negotiated and supervised the negotiation of sole source construction contract we always made sure that the prime was intending to self-perform it's required share of the contract work. We had agreements with the SBA on what constituted self-performance for 8(a ) contracts.

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Joel,

I figured you were talking to me. I think may post may have insinuated a position that I didn't not intend. Don't disagree with anything you said. I have worked with with Business Prime contractors (at a large business) who will not subcontract any further work to large businesses to the determent of the project.

I was just point out that one would have a hard time with payrolls only determining compliance with the clause.

JRT

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Joel,

I think payrolls would not provide the information necessary to ensure a contractor is abiding by 52.219-14. FAR 52.219-14( c)(3) states,

"General construction. The concern will perform at least 15 percent of the cost of the contract, not including the cost of materials, with its own employees."

Payroll data is un-burdened labor rates for employees on the project excluding certain classifications of employees. So the payrolls would not include all the costs associated with the work, including indirect costs (prime and sub), the employees exempt from payroll reporting, etc, to determine if the prime contractor is performing 15% of the effort.

I guess one could pull the cost and pricing data or other than cost and pricing data to determine the appropriate rates to apply to the direct rates presented in the payrolls.

As a government employee, I urge readers here to not bury your head in the sand and use the information already available to enforce the contract requirements. As I was told on the first day of my civil service career, this is a fundamental duty of our employment as servants of the taxpayers.

My initial military experience in the Air Force was as a civil engineer at an Air Base where, with the exception of two contracts, I never saw nor met the prime contractor during performance... That left an impression that I sought to change during my subsequent civil service career.

Jrt, for construction contracts, as part of the progress payment application, the contractor must submit data concerning any subcontracts that are part of the requested payment . This includes the amount of each subcontract as well as the amounts performed by each subcontractor. With the original negotiation information, the progress payment info and payrolls as well as data we get with change proposals, it's not rocket science to determine if it appears that the contractor is or isn't complying with the requirements. Payrolls also identify who each employee actually works for. It's not exact, although our analysis would yield approximate results - which are close enough in my opinion. Certainly beats doing nothing as an alternative.

Over 22 years ago, I developed guidelines for what was considered to be self- performed work in coordination with the Regional SBA office. For our District's field offices and for negotiating new contracts. I also developed guidelines for full and open contracts which use a different clause, which we used for competitive RFPs and for after award purposes.

As for 8 ( a ) sole source contracts, as well as on SDB set-asides during a short-lived DOD program, we saw all sorts of machinations and schemes to hide front type arrangements during the pre-award phases. We took whatever action needed to require a compliant contract award. We did the same for full and open RFP's, when we needed price breakdowns for price evaluations.

When necessary, we rejected proposers during the competition. We sometimes rejected the nominated sole source 8( a ) subcontractor with SBA's concurrence and found a replacement who could comply. We disqualified the lowest priced proposer as well as two other front arrangements in one SDB competitive set-aside and prevailed in the Agency protest by the low (front) proposer team.

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jrt, I just noticed that you mentioned "15 percent of the effort" above when referring to construction contracts. The current clause Limitation of Subcontracting clause at 52.219-14 requires self-performance of 15% of the cost of the contract, not including materials. This involves more than just labor costs. Even so, it is possible to estimate or to determine the prime's self-performance share. The HUBZone and SDVOSB set-asides and sole source programs apparently measure labor only to meet the required percentages.

P.S., there are other clauses in 8( a ) contracts which require both the SBA's and the Contracting Ageny's approval before the firm can subcontract work...

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Don

Sorry for the delayed response....traveling.

Honestly I did not read the GAO report. My comments were/are based on this.....

The PAa I have seen carry multiple reference to limitation matter. Ref. Most current DoD PA and paragraphs B4, B5, B8, and B9.

As I have stated in previous threads on the limitation matter remember compliance for an 8a awarded contract effects eligibility for the program as such I believe through a PA the SBA is transferring their responsibility on monitoring which could be concluded to be different than monitoring non 8a contracts where compliance goes to matters of responsibility.

Most important to ne is who cares what the FAR says an agency signed an AGREEMENT to do something and should do it and if they don't then it is breach of the agreement.

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Don

Sorry for the delayed response....traveling.

Honestly I did not read the GAO report. My comments were/are based on this.....

The PAa I have seen carry multiple reference to limitation matter. Ref. Most current DoD PA and paragraphs B4, B5, B8, and B9.

As I have stated in previous threads on the limitation matter remember compliance for an 8a awarded contract effects eligibility for the program as such I believe through a PA the SBA is transferring their responsibility on monitoring which could be concluded to be different than monitoring non 8a contracts where compliance goes to matters of responsibility.

Most important to ne is who cares what the FAR says an agency signed an AGREEMENT to do something and should do it and if they don't then it is breach of the agreement.

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As a government employee, I urge readers here to not bury your head in the sand and use the information already available to enforce the contract requirements. As I was told on the first day of my civil service career, this is a fundamental duty of our employment as servants of the taxpayers.

* * *

Over 22 years ago, I developed guidelines for what was considered to be self- performed work in coordination with the Regional SBA office. For our District's field offices and for negotiating new contracts. I also developed guidelines for full and open contracts which use a different clause, which we used for competitive RFPs and for after award purposes.

The limitations are complex and unclear. Here is Angela Styles, a practicing attorney and former OFPP administrator, in testimony before Congress this past July:

In practice, what constitutes the “cost of contract performance” for personnel has been impossible to understand or implement. So for example, if a small business prime contractor was awarded a $100,000 contract to maintain trucks at a military base and the small business prime contractor wants to subcontract engine maintenance to a large business, the small business prime contractor would have to convert the firm fixed price into a “cost of performance” metric and compare their cost of performance for personnel to the cost of performance of the large business subcontractor. No one (the businesses or the government) really knows if they are administering the limitations on subcontracting correctly and this uncertainty has led to many disputes with the government and between prime and subcontractors.

The FAR includes absolutely no guidance about how to apply and enforce the limitations. The SBA regs do not provide adequate interpretation and application guidance, and I see no reason to believe that regional SBA offices are reliably knowledgeable. Congress simplified the statute in order to fix the problem described by Ms Styles. However, the SBA is late (as usual) in promulgating implementing regulations, and the FAR councils are far behind as a result. The current SBA regs and FAR clauses do not reflect the new statute, which was enacted more than a year ago.

Unless a breach is obvious and beyond question, COs simply must seek higher level guidance before stepping into the minefield. A mistaken interpretation or mistaken application could be very costly to the government, both in terms of performance and cost. Make sure you know (know) what the terms of the clause mean and make sure that you have legal access to the data you need to apply them before doing anything. Get advice from a knowledgeable attorney before taking any enforcement action.

COs have many things to worry about. They shouldn't take on the problem of clearing up a mess that the Congress and the regulators have created and allowed to exist for many years.

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