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JAG51

Subcontracted Labor Category under CPFF Prime - ODC or Labor?

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DoD. ID/IQ Task Order. If a subcontractor has a subcontractor of its own that can fill a labor position for the needs of the prime who's on CPFF, if the subcontractor is also on CPFF, would the cost paid by the subcontractor to its sub be categorized as an ODC or labor? The subcontractor teamed with the prime, but the position attempting to be filled is not one of the positions that the subcontractor proposed upon. The prime can't find anyone to work for the rate it proposed and the Government is not allowing any increase to the rate. The prime is now looking to subs to fill the position. Prime and subs are all small businesses. There are two CLINs in the contract - Labor+Fee and ODC's.

Clauses present:

52.232-20 Limitation of Cost

52.216-7 Allowable Cost and Payment

Under T&M (since Feb 2007), the labor rate would fall under the labor side and could not be billed as a material, provided the subcontractor proposed upon the initial / accepted rate (I believe this is called blended). In the case above, the subcontractor did not propose upon that rate initially. Is the same true for CPFF?

Q1: Is labor hour blending present under CPFF?

Q2: Is the subcontractor subject to those blended labor rates as accepted by the Government? If yes, only those it proposed upon or all?

Q3: Is there any prohibition against the prime billing this labor hour / position as an ODC if being provided by the subcontractors sub?

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DoD. ID/IQ Task Order. If a subcontractor has a subcontractor of its own that can fill a labor position for the needs of the prime who's on CPFF, if the subcontractor is also on CPFF, would the cost paid by the subcontractor to its sub be categorized as an ODC or labor? The subcontractor teamed with the prime, but the position attempting to be filled is not one of the positions that the subcontractor proposed upon. The prime can't find anyone to work for the rate it proposed and the Government is not allowing any increase to the rate. The prime is now looking to subs to fill the position.

Q1: Is labor hour blending present under CPFF?

Q2: Is the subcontractor subject to those blended labor rates as accepted by the Government? If yes, only those it proposed upon or all?

Q3: Is there any prohibition against the prime billing this labor hour / position as an ODC if being provided by the subcontractors sub?

JG51 -- In my view, your problems all stem from this comment: "The Government is not allowing any increase to the rate." That makes me think you want to treat this CPFF contract as a T&M contract type. Let me explain: Fixed rates per labor hour are a feature of T&M contract types, but not really CPFF types. In a CPFF the theory is that the contractor incurs the costs necessary to perform a less-than-fully-defined scope of work, and then seeks reimbursement for its allowable, allocable and reasonable costs spent to perform the work. I guess you CAN manage that way, but I'm wondering why you would want to?

Following are my answers to your questions.

Q1: I don't know what "labor hour blending" means. I can't find that term in the literature. Do you mean treating direct labor dollars as direct labor dollars instead of treating direct labor hours as FFP labor hour rates? If that's what you mean, then yes. That's how CPFF contracts work. If you wanted to manage the contractor's labor costs on a labor hour basis, you should have awarded a T&M contract.

Q2: No. The deal between the prime and the subcontractor is the deal between them and the government does not have privity. However, the Government can apply FAR Part 31 to the costs that the prime attempts to have reimbursed by the Government. In particular, if the Government believes the subcontractor's costs are unreasonable in amount, it can refuse to reimburse the prime contractor. Remember, however, that you already agreed that the contract could not be performed at lower labor rates and so I have to assume the higher rates were necessary to attract the skill levels neeeded to perform the contract ... which I'm thinking makes those costs reasonable. The Government has the right to disagree and to question/disallow costs it believes to be unreasonable.

Q3: Quite the contrary. Labor costs incurred by a subcontractor are NOT labor costs of the prime contractor. They are subcontractor costs which are a separate direct cost element. You can call subcontractor costs ODC if you'd like to -- it's not wrong. But technically subcontractor labor costs are subcontractor costs. Again, such costs are emphatically NOT labor costs of the prime contractor.

Hope this helps.

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Q1: I took the term from FAR Case 2004-015 (http://www.gpo.gov/fdsys/pkg/FR-2006-12-12/html/06-9610.htm), concerning treatment on T&M in an effor to analogize to the CPFF situation at hand. Perhaps this was not prudent. Section 8 Solicitation Provisions stated, in part:

"8. Solicitation provisions...The first provision applies to acquisitions of noncommercial items that are to be based on adequate price competition. This provision requires each offeror to indicate for each labor rate in the proposal whether it is a rate that applies to employees of one company or if it is a blended rate that applies to employees of more than one company. The offerors must show for each labor rate if it applies to employees of the prime contractor, employees a particular subcontractor or affiliate, or if it is a blended rate that applies to employees of more than one subcontractor or employees of the prime contractor or any subcontractor. Agency procedures may authorize contracting officers to select one of three options in the provision as mandatory, and/or to require each offer to identify individual subcontractors in the proposal."

This is where I got the blended rate nomenclature.

Q2: The Government is not budging from the rate as the prime proposed for this position. In other words, the Government is using the fully burdened labor rate (without fee) of the prime as a cap / ceiling. Something struck me that if the Government is using this labor rate as a cap / ceiling, then why would the Government allow that cap / ceiling to be circumvented through other means?

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JAG51:

Yes, as I suspected there seems to be some conflation between T&M management and CPFF management. The reason the Government cares about separate/blended labor rates for T&M types is because the contractor needs to comply with the requirements of 52.232-7. You should not have included that T&M billing clause in your CPFF contract.

Q2: I suppose you have approval authority over the prime's subcontracts, as per the 52.244-2 consent requirements. So withhold consent if you'd like. Just make sure there is a reasonable basis for your refusal to provide consent. Don't let the prime think you are being arbitrary or capricious, or violating the implied duty of good faith and fair dealing. Otherwise, you may find yourself dealing with a claim for delay & disruption.

H2H

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