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Don Mansfield

Reporting Compliance with Limitations on Subcontracting

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This thread referred to the GAO report that focused on enforcement of the 8( a ) contract requirements for limitations on subcontracting for contracts completed in 2012. I re-read the report this evening. Some of the contracts that GAO selected for review were construction contracts. Based upon the narrative of the report, I don't know who is more ignorant - the contracting offices or the GAO staffers.

In Table 1, page 4, the GAO stated that the existing limitations on subcontracting requirements for general construction contracts (per 52.219-14) is "15 percent of pcersonnel costs"' with 2 footnotes:

"a Personnel costs are considered direct labor costs and associated overhead and general and administrative costs."

"b This excludes the cost of any materials purchased under the contract."

While the footnotes are correct, the basic premise is incorrect. The limitations in 52.219-14 as of November 2011 are:

"(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.

(2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials.

(3) 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."

(4) Construction by special trade contractors. The concern will perform at least 25 percent of the cost of the contract, not including the cost of materials, with its own employees."

There is a difference between construction and services. There are numerous additional aspects to construction contract costs besides "personnel" and materials. Materials are the materials to be incorporated into the work. They don't include supplies, formwork, purchase or rental of formwork, as well as other consumables and support materials that aren't incorporated into the work, small tools, tools and construction equipment, construction offices, equipment shops, fabrication shops and other shops, site maintenance, testing labs, and other site support elements.

Material costs were not to be considered because some contractors were buying the materials (on paper) as their share of the self-performed work. In reality, all they were doing was writing the check after receipt of government progress payments for installation by the subs. The subs determined the material requirements, ordered the materials and installed the materials. James Hunter of SBA told me this many years ago.

The GAO said that many of the contracting offices didn't know " how to monitor the percentage of work that is subcontracted, in part, because they did not have visibility into subcontractor costs" (page 6). We don't know if this referred to construction contracts but if it did, that is false for both cost and firm fixed-price contracts. Construction contractors for FFP progress payments must provide additional support information that includes the amounts subcontracted and the amounts of each subcontract. The government may and should require the contractor to breakdown the CLIN schedule and progress schedule to identify cost of materials to be incorporated into the work so that can be subtracted.

Yet on pages 13-14, the GAO said it could not determine the amount of work subcontracted or what labor was subcontracted. The contract requires government approval to subcontract. The contract labor clauses require weekly payroll data for each employee, so that information is supposed to be available to anyone. Apparently, the GAO staffers didn't know much if anything about what should have been in FFP construction contracts or how to administer one. The contracting officers didn't appear to know either...

If this is any indication of the competence of both GAO and the government's construction contracting community, God help us.

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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)?

To answer your initial question, there is no need to impose any more subcontract reporting requirements for construction contracts. CO's can monitor compliance with clause 52.219-14 with the information that should already be available to them after award and during contract administration and execution.

If the GAO said that additional reporting deliverables are needed for construction contracts, that further reinforces my belief that they know very little about the details of construction contracts or administration of them. And many of the people they interviewed apparently either knew little or didn't fully admit that they don't care as long as the work gets done by someone (see page 9 of the report). That is even a sadder.state of affairs.

Hurricane Joel has hit the Gulf Coast at Category 4 level.

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Just to rekindle this a bit...a colleage of mine (contractor) on the east coast had a CO rate them as "unsatisfactory" in CPARs for failure to satisfy the limitations on subcontracting.

The problem is that they DID satisfy the applicable requirement. Worse, it was a construction contract and, like Joel mentioned, the CO had the certified payrolls that demonstrated compliance. Worse still, the CO worked this in a final revision to the CPARs rating, so the contractor didn't even get the opportunity to comment or rebut.

Happy New Year

(4.5 hrs early, central time zone)

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How did your friend respond to the CPARs rating? Happy New Years to you, ohno!

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She sent a strongly worded letter to the head of the contracting agency, no response yet (chalk it up to the holidays). I suggested to her that the next step is an official request for final ruling from the contracting officer, then a Court of Federal Claims or Board of Contract Appeals filing. Meanwhile, that CPARs with an UNSAT is out there possibly preventing her from getting more work and there'll likely be no recovery of legal fees...which will just about put her SB out of business.

Any other ideas?

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I'm not an expert with the CPARs system but suggest reading FAR 42.15 and follow the link to the instructions for CPARs which provides for contractor rebuttal. The flow chart there seems to say that the status of the rating is supposed to be "pending" for a certain period during which the contractor can rebut or appeal the rating.

The USACE regulation that covered evaluations required the KO to provide the Contractor a rebuttal opportunity before finalizing a performance evaluation, especially any adverse elements*. Although I quickly scanned the FAR and CPARs website, I didn't see where this is clearly required before posting a rating in CPARS. It does have flow charts that mention pending and final ratings. EDIT: See the FAQ's at https://www.cpars.gov/merge-faqs/ctrComments.htm , which appear to state that the rating will be available to source selection officials in the database, within 15 days of posting it.

The contract might or might not address the rating process. I seem to remember that we had a clause but it was deleted after contractors used it as a basis for Disputes.

At any rate, there is a procedure for your friend with time frames in the CPARs instructions.

*EDIT:

1. For USACE service and supply contracts, if applicable, see ER 715-1-19 at http://www.publications.usace.army.mil/Portals/76/Publications/EngineerRegulations/ER_715-1-19.pdf

2. For USACE Construction Contracts, if applicable, see ER 415-1-17 at http://www.publications.usace.army.mil/Portals/76/Publications/EngineerRegulations/ER_415-1-17.pdf

3. See also these FAQ at the CPARS site: https://www.cpars.gov/merge-faqs/ctrComments.htm

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see also 42.1503 ( d ):

"(d) Agency evaluations of contractor performance, including both negative and positive evaluations, prepared under this subpart shall be provided to the contractor as soon as practicable after completion of the evaluation. The contractor will receive a CPARS-system generated notification when an evaluation is ready for comment. Contractors shall be afforded up to 14 calendar days from the date of notification of availability of the past performance evaluation to submit comments, rebutting statements, or additional information. Agencies shall provide for review at a level above the contracting officer to consider disagreements between the parties regarding the evaluation " (Emphasis added)

EDIT: See also this Congressional Research Service Report, entitled "Evaluating the “Past Performance” of Federal Contractors: Legal Requirements and Issues", dated February 4, 2013 at: https://www.fas.org/sgp/crs/misc/R41562.pdf

It includes discussion concerning Contractors' legal rights and jurisdiction of the Boards of Contract Appeals and Federal Courts for disputes/issues concerning performance ratings. It also discusses contractors' ability to protest the use of disputed performance evaluations in source selections or in Responsibility Determinations.

She can also do a simple GOOGLE Search using the key words "contractor claims for performance evaluations" to find some great info. For instance, see this Dec 13, 2013 article:

"Contractor appeals of negative past performance evaluations"

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She has seen most of this already, but I will make sure it gets another thorough review. The problem with this one is that there was an initial evaluation, 14 days contractor comments, then it was revised by the contracting officer (adding the UNSAT and not addressing any of the other disputed issues) and finalized by the "level above the contracting officer" without any chance to comment or refute the revisions.

Thanks for the tips, I'll pass them on.

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She has seen most of this already, but I will make sure it gets another thorough review. The problem with this one is that there was an initial evaluation, 14 days contractor comments, then it was revised by the contracting officer (adding the UNSAT and not addressing any of the other disputed issues) and finalized by the "level above the contracting officer" without any chance to comment or refute the revisions.

Thanks for the tips, I'll pass them on.

ohno, I would guess that, by adding a new reason for an unsatisfactory rating, a reviewing tribunal would rule that the government must allow the contractor the opportunity to respond to the new accusation. However, it looks like the rating may be posted during the period of review. I didn't closely study the instructions but they might not contemplate such a situation. It only makes sense that the contractor should be entitled to due process when the government introduces or adds new bases for a rating that haven't previously been disclosed.

It appears that this is more complex than it appears from the limited information. But if I were the contractor, I would insist on the right to respond to the new government reason in addition to studying the possible courses of action available concerning each of the disputed rating elements.

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If the real complaint is that the government can ruin or bankrupt a (small business in this case) contractor, I fully sympathize with your friend.

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