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RandyMo3

Cost Rates (CPFF-LOE)

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Relatively new at working with Cost rates (most of my contracts were T&M/FFP-LOE before) and looking to see how people administer the bid vs execution rates their subcontractors utilize.

The Prime contract is a large IDIQ with no ceiling rates on CPFF type rates.

Sub bids CPFF-LOE rates

Award

Task Orders start flowing

Multiple TOs go to a single sub

Spend Plans come for each individual Task Order with changing rates

The real question is how do you work with the sub's rates that are not close to what their CPFF bid rates were? Is one able to hold a sub to those rates until the next contract year escalation or is it truly and purely up to a sub to execute as they see fit/as needed?

Any help would be greatly appreciated!

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Hi RandyMo3,

Correct me if I'm wrong, please.

If you award a cost-type subcontract with no indirect rate ceilings, then you must reimburse the subcontractor's actual, allowable incurred costs (both direct and indirect) up to the LoC/LoF limits. Even if, today, they are billing you at rates that are different than the rates they proposed in the past, at the end of the day the billing rates get finalized and you pay them (so long as the subK complied with LoC/LoF clause requirements.)

Do you agree with that statement?

Next, does the subcontract contain a clause that is similar to the 52.216-7 clause in your prime contract? (You are not required to flow the clause down, but I expect you provided some type of billng instructions in your subcontract. What do those instructions require with respect to billing rates?) Is your subK complying with its subcontract in that respect?

The fact of the matter is that indirect rates change over time. There is a lifecycle of indirect cost rates, that starts with estimated rates for future years' performance and ends with negotiated final rates. If you are going to manage cost type subcontracts, I should think you would want to get a good understanding of that lifecycle....

Hope this helps.

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I think the question deals with the delta between bid/proposed rates and actual/bill rates. The basis for proposed rates and actual rates should be identical. I think you need to find out what is driving the large delta between the two. It may be that the skill/experience mix of the labor from initially proposed to current actual is very different. If so, what caused the skill/experience to change, is it driven by the prime requirements or is the subcontractor allowed to use whatever labor they choose. You should get a proposal from the subcontractor for each task order proposal. The proposal and actual should not vary so much for no reason at all.

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The real question is how do you work with the sub's rates that are not close to what their CPFF bid rates were? Is one able to hold a sub to those rates until the next contract year escalation or is it truly and purely up to a sub to execute as they see fit/as needed?

If the subcontract is CPFF, and if it includes a clause like FAR 52.216-7, and if the subcontract does not set ceiling rates, then the sub gets to invoice for its actual allowable incurred costs, no matter what rates it used in its proposal.

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The question really is, what is allowable when the actual vary significantly from what the sub proposed and can the prime exert any control over this. I'm driving now but can comment later on reasonableness as one consideration of allowability.

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Thank you all for the responses, they've been helpful in wrapping my head around this. Looking forward to the response from Joel as that is something that is really causing me grief.

Regards,

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Reasonableness isn't hard. See FAR 31.201-3.

It's a business judgement based on current market information and the contractor's established practices.

It is not based on comparison with the amount proposed.

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