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APCAcqu&Asst

Directing a Prime to a specific Subcontractor

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Hi,

We have a multiple award IDIQ that we will be preparing a solicitation under (someone told me these arent called RFTOPs anymore, is this true?). Our technical team would like the prime to partner with a certain specific organization as a sub. This organization would likely be eligible for sole sourcing according to the the FAR or our assistance guidelines if we were contracting with them directly. I suggested we do that, but the technical team feels that the management burden of dealing with this sub would be too much for their office to handle. I just wanted to get some opinions on whether this is possible or if there is a specific way to structure this that would make it feasible.

Instinctually, I feel that this violates the Fair Opportunity procedures and the rules of competition.

The only thing in the FAR that was remotely on point that I could find was FAR 44.203 (B )(3) does not allow any subcontracts that obligate the CO to deal directly with the contractor.

Any guidance would be greatly appreciated.

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Do you want the directed sub to do all or most of the work and are using the IDIQ contract merely as a means of avoiding issuing a separate contract?

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I would not overtly attempt to direct the contractor to a specific sub as I think you increase your risk of protest. Instead, I would list qualifications and proposed subcontractor qualifications as sub-elements under "Technical" and then evaluate whatever comes in. Either some companies may find a new sub that can legitimately do the work, some may have that ability in-house, or if it is truly sole source as you state all the offerors will propose the same sub.

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I'm not certain what the question is here, but if the question is whether directed subcontracting is permissible, the answer is yes. There are many GAO and a few Court of Federal Claims decisions in which directed subcontracting was an issue in some way, and I saw nothing in the decisions to indicate that the practice is illegal. I know of nothing in the FAR prohibiting the practice or regulating it in any way. It should be apparent that it must not be done in order to bypass the laws and regulations about competition in contracting.

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Mr. Edwards - I was under the impression that directed subcontracting was impermissible, since the Government does not have privity of contract with the sub. I'm not looking to start an argument; rather, this would be for my professional interest. I had an issue similar to the OP's a few months ago.

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Jon, why would lack of privity of contract with a sub have anything to do with directing a prime, with whom the government does have privity of contract, to use a certain subcontractor?

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Mr. Edwards - I was under the impression that directed subcontracting was impermissible, since the Government does not have privity of contract with the sub. I'm not looking to start an argument; rather, this would be for my professional interest. I had an issue similar to the OP's a few months ago.

I don't know why you would have that impression. Directing a prime to hire a specific sub is similar to specifying the use of a specific brand of component. See Feldman, 03-03 Briefing Papers 1, "Subcontractors in Federal Procurement: Roles, Rights & Responsibilities."

Indeed, consistent with other FAR clauses, the agency's solicitation may direct that all prospective prime contractors use a particular subcontractor, provided that such a condition reflects the agency's minimum needs and that all prime contractor offerors compete on a common basis.

See, too, Valentec Sys., Inc., Comp. Gen. Dec. B-270880, 96-1 CPD ¶ 231.

When an agency requires contractors to use directed source subcontractors, it must ensure that all offerors are competing on an equal basis. Engineered Sys., Inc., B-184098, Mar. 2, 1976, 76-1 CPD ¶ 144.

Directed subcontracting has been around for a long time.

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If the prime contractor is a small business then they will have to be wary of the limitations on subcontracting clauses when trying to satisfy the Government. Not sure why the technical team thinks that managing a separate prime contract is more work than managing the same work via a different prime.

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If the prime contractor is a small business then they will have to be wary of the limitations on subcontracting clauses when trying to satisfy the Government. Not sure why the technical team thinks that managing a separate prime contract is more work than managing the same work via a different prime.

That would only matter if the award were set aside for small business.

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Boof, under SBA regulations (13 CFR 125.1(v)), if the government directs a small business to use a specific subcontractor "for parts, supplies, or components subassemblies, the costs associated with those purchases will be considered as part of the cost of materials, not subcontracting costs. As such, the labor used to produce those parts is not counted in computing compliance with the 50% rule.

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APC, for clarification, 1) what kind of contract effort is this for and 2) does the staff want to use a prime simply to manage the sub who would actually perform the entire effort?

I tend to agree with Vern. However, there may be other considerations if this is just a convenient way to hire the specific firm to perform the entire effort with a shadow prime and it's associated layered markups.

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Hi. Thanks for all these thoughts. I am quite surprised to hear that directing primes to pick certain subs is ok, it seems to go against my contracting instincts.

The prime is not meant to only manage the sub who will do all the work. The issue with workload is that the sub is a local organization (we are overseas with USAID) and they need some serious capacity building that would be a big drain on our resources. But the prime could do it as part of the award. This organization seems to be the only one who could perform the work we are doing (predominant capability). So that is why they want to direct it towards them. I like the idea of putting it in the evaluation criteria so everyone proposes the same one, but if its permissible, it would be easier to just direct all offerors to propose this specific sub as one of the terms of their offer...

APC

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APC,

Are you sure the directed subK has the ability to perform and to support a determination of price reasonableness. I'm thinking that if the subK is directed there is no competition, which means (most likely) cost and price analysis performed by the prime. It would be nice if the local business had its act together to the extent necessary to support those analyses.

I've heard kvetching from primes about being required to use local entities and then having the costs of those entities questioned downstream for various reasons.

H2H

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I cannot make out what APC is saying about her situation. Let me say in general that directed (aka designated) subcontracting is an old practice. References to the practice can be found in cases dating back to the 1970s. See e.g., Engineering Systems, Inc., GAO Dec. B-184098, 76-1 CPD ¶ 144, March 2, 1976. In a 1985 report, issued before enactment of CICA, The Environmental Protection Agency Should Better Manage Its Use of Contractors, GAO.RCED-85-72, the GAO complained to EPA about direction to prime contractors to award subcontracts to firms selected by EPA:

EPA also, without preparing a justification, directed prime contractors to award sole-source subcontracts to firms selected by EPA in violation of EPA Procurement Directives. According to EPA procurement officials, these sole-source subcontracts are normally made for expediency; the prime contractors do not have to follow federal procurement regulations and can award a sole-source contract more quickly than EPA's procurement offices. However, this process bypasses all the procurement controls that have been established to protect public funds and ensure that the government receives the best services at the most reasonable price. EPA's Procurement Division is aware of this problem and has issued guidance to eliminate the use of directed sole-source procurements.

Note that GAO did not say that the practice violated the Federal Procurement Regulation or its successor, the FAR, only EPA's internal directives.

In a 1990 letter to the FAR Secretariat, the GAO referred to a pending FAR case concerning FAR 44.202-1 that would add what is now paragraph ( c ) of that subsection:

We are concerned, however, about the statement in the proposed change that the “[d]esignation of a specific subcontractor by the Government ... does not in itself satisfy the requirements for advance notification....” In the enclosed report, The Environmental Protection Agency Should Better Manage Its Use Of Subcontractors, GAO/RCED–85–12, at p. 28, we questioned an agency's practice of directing its prime contractors to award sole-source subcontracts to firms selected by the agency. We pointed out that such a practice can be used to bypass procurement controls designed to protect the public interest. While we recognize that there may be circumstances that would warrant use of directed sole-source subcontracts, we believe that an agency should be required to justify directing the use of a particular subcontractor. We therefore suggest that proposed FAR section 44.202–1© provide that the government's designation of a specific subcontractor must be justified.

Emphasis added. Note that GAO did not request that the FAR prohibit directed subcontracts, only that it require that they be justified. The FAR Councils did not follow GAO's recommendation, and to this day FAR does not require justification of directed subcontracting.

The bottom line is that directed subcontracting is an acceptable practice if done for acceptable reasons.

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Would it be prudent to conduct a one on one discussion with the proposed sub ahead of the "solicitation" for the task order in order to come to some common understandings?

I had a similar situation during the first Gulf War where I had to find a qualified sub to an as yet unawarded prime contract to design and construct a large cargo apron and Taxiway for the Navy at the Doha, Quatar International Airport.

The Government of Japan offered the Coalition a large amount of money for non-direct combat support. The Navy needed the project for permanent cargo and logistics purposes. While we were establishing a prime contract with Bechtel for that and several other projects up and down the Arabian Peninsula, I was assigned as the Engineer to develop the preliminary designs and as the USACE PM for these projects. We had the mission responsibility for the Middle East area. The Navy's PM travelled with me to Doha and the other sites. We interviewed local engineering firms and selected a Brit firm who had designed the Quatari AF airfield that the US and Canadian Air Forces were using at the time. We also interviewed two paving contractors and selected the firm that built the aforementioned pavements. I developed a Govt estimate and we negotiated unit prices based upon my preliminary design. We then met with Bechtel's newly assigned PM and told them to hire the designer and contractor and passed on the prelim design and negotiation memorandum of agreement that we and the contractor had signed. All this was at the direction of Schwarzkopf' (sp?) General Staff in Riyadh and by my KO in Dhahran. It worked well - but we were in the middle of Desert Storm.

As an aside, my daughter, a C-130 pilot during the second War after 9/11, landed at "my" airfield several times. She sent me aerial pics of the apron, taxiway and all the relocatable flight line and ops buildings that we also bought. Looked just like my design!

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Great information! Really, thank you. I can use this going forward and feel like I have some resources backing me up. I think we will do a directed sub contractor, ensure they are able to perform as necessary, and I will ensure there is a justification in the Neg Memo, even if it doesn't go through our formal justification approval process.

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