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JW84

Prime Requiring Consent to SubK on FFP Order, FAR 52.244-2 "AND" a Two-Part Test?

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Task order RFP released under existing Army IDIQ. Prime contractor insisting that we (the sub, without an approved purch sys) prepare consent to subcontract packages even in a purely FFP scenario claiming the word "and" in paragraph b below is intended to be an "either/or" test. I disagree, and see it as a two-part test -- meaning, if the first part is not satisfied (i.e. you're not dealing with an unpriced contract action), then FFP actions are otherwise exempt regardless of value and c and d are irrelevant. Am I wrong? I find interpretations on both sides and prescriptions in FAR 44 that are less than illuminating.

52.244-2 Subcontracts.

As prescribed in 44.204(a)(1), insert the following clause:

Subcontracts (OCT 2010)

(a) Definitions. As used in this clause—

Approved purchasing system means a Contractor's purchasing system that has been reviewed and approved in accordance with Part 44 of the Federal Acquisition Regulation (FAR).

Consent to subcontract means the Contracting Officer's written consent for the Contractor to enter into a particular subcontract.

Subcontract means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders.

(B ) When this clause is included in a fixed-price type contract, consent to subcontract is required only on unpriced contract actions (including unpriced modifications or unpriced delivery orders), and only if required in accordance with paragraph (c ) or (d) of this clause.

(c ) If the Contractor does not have an approved purchasing system, consent to subcontract is required for any subcontract that—

(1) Is of the cost-reimbursement, time-and-materials, or labor-hour type; or

(2) Is fixed-price and exceeds—

(i) For a contract awarded by the Department of Defense, the Coast Guard, or the National Aeronautics and Space Administration, the greater of the simplified acquisition threshold or 5 percent of the total estimated cost of the contract; or

(ii) For a contract awarded by a civilian agency other than the Coast Guard and the National Aeronautics and Space Administration, either the simplified acquisition threshold or 5 percent of the total estimated cost of the contract.

(d) If the Contractor has an approved purchasing system, the Contractor nevertheless shall obtain the Contracting Officer's written consent before placing the following subcontracts:

(e)

(1) The Contractor shall notify the Contracting Officer reasonably in advance of placing any subcontract or modification thereof for which consent is required under paragraph (B ), ©, or (d) of this clause, including the following information:

(i) A description of the supplies or services to be subcontracted.

(ii) Identification of the type of subcontract to be used.

(iii) Identification of the proposed subcontractor.

(iv) The proposed subcontract price.

(v) The subcontractor's current, complete, and accurate certified cost or pricing data and Certificate of Current Cost or Pricing Data, if required by other contract provisions.

(vi) The subcontractor's Disclosure Statement or Certificate relating to Cost Accounting Standards when such data are required by other provisions of this contract.

(vii) A negotiation memorandum reflecting—

(A) The principal elements of the subcontract price negotiations;

(B ) The most significant considerations controlling establishment of initial or revised prices;

© The reason certified cost or pricing data were or were not required;

(D) The extent, if any, to which the Contractor did not rely on the subcontractor's certified cost or pricing data in determining the price objective and in negotiating the final price;

(E) The extent to which it was recognized in the negotiation that the subcontractor's certified cost or pricing data were not accurate, complete, or current; the action taken by the Contractor and the subcontractor; and the effect of any such defective data on the total price negotiated;

(F) The reasons for any significant difference between the Contractor's price objective and the price negotiated; and

(G) A complete explanation of the incentive fee or profit plan when incentives are used. The explanation shall identify each critical performance element, management decisions used to quantify each incentive element, reasons for the incentives, and a summary of all trade-off possibilities considered.

(2) The Contractor is not required to notify the Contracting Officer in advance of entering into any subcontract for which consent is not required under paragraph (B ), (c ), or (d) of this clause.

(f) Unless the consent or approval specifically provides otherwise, neither consent by the Contracting Officer to any subcontract nor approval of the Contractor's purchasing system shall constitute a determination—

(1) Of the acceptability of any subcontract terms or conditions;

(2) Of the allowability of any cost under this contract; or

(3) To relieve the Contractor of any responsibility for performing this contract.

(g) No subcontract or modification thereof placed under this contract shall provide for payment on a cost-plus-a-percentage-of-cost basis, and any fee payable under cost-reimbursement type subcontracts shall not exceed the fee limitations in FAR 15.404-4(c )(4)(i).

(h) The Contractor shall give the Contracting Officer immediate written notice of any action or suit filed and prompt notice of any claim made against the Contractor by any subcontractor or vendor that, in the opinion of the Contractor, may result in litigation related in any way to this contract, with respect to which the Contractor may be entitled to reimbursement from the Government.

(i) The Government reserves the right to review the Contractor's purchasing system as set forth in FAR Subpart 44.3.

(j) Paragraphs © and (e) of this clause do not apply to the following subcontracts, which were evaluated during negotiations:

(End of clause)

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The conjunction "and" is preceded by a comma indicating it is a independent clause (i.e. standalone requirement).

No reference but you can fact check it in a Google search.

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I'm changing my answer. It is not indicating an independent clause so it's a list. I read it as follows:

When this clause is included in a fixed-price type contract, consent to subcontract is required only on unpriced contract actions only if required in accordance with paragraph (c ) or (d) of this clause.

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Vern, I am most troubled by this DCMA manual which I found during my research and seems to disagree with me and describe an either/or application (http://contractingacademy.gatech.edu/wp-content/uploads/2012/09/Consent-to-Subcontract-Instructions-DCMA-INST-143-03.19.2013.pdf). My instinct was, as you said, that the proper interpretation was quite straightforward, and indicated a two-part test -- admittedly, somewhat based on the placement of that comma, but also rooted in FAR 44-201-1, which phrases it similarly, but more in line with my thinking:

"b) If the contractor does not have an approved purchasing system, consent to subcontract is required for [...] unpriced actions (including unpriced modifications and unpriced delivery orders) under fixed-price contracts that exceed the simplified acquisition threshold, for-

(1) Cost-reimbursement, time-and-materials, or labor-hour subcontracts; and

(2) Fixed-price subcontracts that exceed-
(i) For the Department of Defense, the Coast Guard, and the National Aeronautics and Space Administration, the greater of the simplified acquisition threshold or 5 percent of the total estimated cost of the contract; or

(ii) For civilian agencies other than the Coast Guard and the National Aeronautics and Space Administration, either the simplified acquisition threshold or 5 percent of the total estimated cost of the contract.

I resist the general notion that the Government expects to give consent to subcontract in FFP scenarios, simply because the prime contract may include the clause, or the task order includes separate cost reimbursable ODC CLINs. But then I see FAR 44.201-2 which does not seem to include the caveat for unpriced actions, leading me to believe that apparently notification is necessary, but perhaps not consent?

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To me, the comma in the subject clause isn't the lynchpin, but the words "and only if" -- if it were an either/or test, why would the phrase "or if" not simply be used?

(B ) When this clause is included in a fixed-price type contract, consent to subcontract is required only on unpriced contract actions (including unpriced modifications or unpriced delivery orders), and only if required in accordance with paragraph (c ) or (d) of this clause.

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If I were the subcontractor in this scenario, I would prepare the consent packages and submit them. I would segregate the costs of preparing those packages. Then I would submit an REA to the prime for the cost of preparing them plus any schedule impacts associated with the process.

But then, I don't have a lot of patience for nonsense foisted on FFP subs by their primes. That probably colors my thinking a bit.

H2H

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Would love to -- my view is similar, that we are in a "because I said so" scenario here, and may need to be responsive for that reason solely. But what about the DCMA manual I posted, I trust your judgment in addition to Vern's? It is my primary concern, as its table 1 on page 9 seems to follow either/or thinking on the key excerpt I noted.

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JW84:

I wouldn't worry about the DCAA publication, which is an instruction, not a manual. (Not that it makes much difference, since neither DCAA instructions nor the DCAA manual have the force and effect of law.)

I think your customer, the prime, is either clueless or they simply want more from you than the FAR and the FAR clause require.

It's clear from the FAR and the FAR clause that:

IF the contractor (1) does not have an approved purchasing system, AND IF (2) the contract is fixed-price, AND IF (3) the contract exceeds the simplified acquisition threshold, THEN consent is required for unpriced fixed-price subcontracts that (1) exceed the simplified acquisition threshold AND (2) meet one of the tests in clause paragraph [c] or the test in clause paragraph (d).

I find the chart in the DCAA instruction to be somewhat murky, but it cannot impose a different requirement than imposed by the clause.

Keep in mind, however, that this is a disagreement between private parties, not between the government and a government contractor. I would probably tell the prime to get lost instead of preparing the consent packages and then asking for more money. But if I decided to go ahead and comply I would tell them first, and in writing, that I was going to bill them for it.

But here_2_help knows his stuff, so listen to him.

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Vern and I are not in any disagreement whatsoever. This is not a question of regulatory interpretation, because Vern has very clearly shown the correct interpretation. Rather, it is a question of customer relationship management. "Keep the customer happy" has a long, time-honored tradition that cannot be overlooked, even if the customer is flat-out wrong.

H2H

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...It's clear from the FAR and the FAR clause that:

IF the contractor (1) does not have an approved purchasing system, AND IF (2) the contract is fixed-price, AND IF (3) the contract exceeds the simplified acquisition threshold, THEN consent is required for unpriced fixed-price subcontracts that (1) exceed the simplified acquisition threshold AND (2) meet one of the tests in clause paragraph [c] or the test in clause paragraph (d).

I find the chart in the DCAA instruction to be somewhat murky, but it cannot impose a different requirement than imposed by the clause.

What is an "unpriced fixed price subcontract"?

FAR 44.201-1 uses the following language: "...( b ) If the contractor does not have an approved purchasing system, consent to subcontract is required for cost-reimbursement, time-and-materials, labor-hour, or letter contracts, and also for unpriced actions (including unpriced modifications and unpriced delivery orders) under fixed-price contracts that exceed the simplified acquisition threshold, for--

(1) Cost-reimbursement, time-and-materials, or labor-hour subcontracts; and

(2) Fixed-price subcontracts that exceed..."

It would seem that an "unpriced action" means a contract action that requires definitization of the contract price, including proposed subcontracts or subcontract mods under that action. If the contract price is already mutually established as firm fixed price, there should be no reason to have to consent to the contractor issuing subcontracts until there is a contract modification or new delivery order to price.

Is an "unpriced action" something other than an "undefinitized contract action" (referring here to the price not being established before the contract or contract mod or delivery order has been issued)? My copy of the Second Edition of the Government Contracts Reference Book doesn't define "unpriced action" but does include a definition for an "unpriced purchase order" as an order for supplies or services whose price is not established at the time the order is issued. If a purchase order is a "contract action", then I suppose one could infer that an unpriced action would also include unpriced contracts, unpriced mods and unpriced delivery orders that have been issued. EDIT: It would also seem reasonable to include proposed modifications and delivery orders that require pricing before issuance.

I don't see any direct reference to or description of an unpriced subcontract under an already priced contract as constituting an "unpriced action".

And I DONT agree that the FAR or FAR clause are "clear" when they use a term that apparently isn't defined in the FAR. At least I couldn't find it and did not see it defined as an "unpriced subcontract".

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What is an "unpriced fixed price subcontract"?

An unpriced fixed-price contract or subcontract is one for which the price has not yet been agreed upon. It's a "letter" contract or subcontract that is firm-fixed-price in type (it includes fixed-price clauses), but for which the price has not yet been negotiated. See FAR 16.603. Such contracts and subcontracts have a price ceiling. The contract must be "definitized" to establish the price.

Actually, in post #10 I misstated the rule. The correct statement is:

IF (1) a contractor has a fixed-price contract, AND IF (2) the contractor does not have an approved purchasing system, AND IF (3) the contractor is conducting an unpriced contract action under that fixed-price contract that exceeds the simplified acquisition threshold, AND IF (4) a subcontract to be awarded under that unpriced action meets the test in either paragraph [c] or (d), THEN the contractor needs the CO's consent to the subcontract.

In order to require consent a subcontract must both (1) be awarded under an unpriced action that will exceed the simplified acquisition threshold and (2) meet the test in either paragraph [c] or (d). Consent is required only if both conditions are met.

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Thanks, Vern.

I deleted this sentence from my previous post: :" It would also seem reasonable to include proposed modifications and delivery orders that require pricing before issuance."

The Government normally will otherwise have the opportunity to agree or disagree with a proposed subcontract source and proposed subcontract price during pre-award negotiations.

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