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If a government prime contractor issues a Time & Material subcontract, can the G&A applied to materials be a fixed/lump sum value, so long as that lump sum value is established and set at the time of award?  I understand the four criteria established in Urban Data System v. US, but I am trying to determine if the only way to surely avoid violation is to reconcile the G&A rate applied to materials to actuals at the close of an accounting period. 

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That is exactly what I mean: fixed dollar amount that does not vary based on actual costs incurred.  From the FAR clause you cited, I see that for commercial T&M subcontracts, G&A applied to materials can be a reimbursed on a pro-rata basis based on a fixed amount.  However, for non-commercial T&M subcontracts, governed by FAR 52.232-7, indirect rates must be retroactively adjusted after final rates are established, correct?  Here's the thing: neither of the T&M FAR clauses referenced are included in our prime contract.  Therefore, is there an issue with applying the practices established in FAR 52.212-4 Alt 1 to both commercial and non-commercial subcontracts since neither appear to be a CPPC situation?

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1 hour ago, Zag2009 said:

That is exactly what I mean: fixed dollar amount that does not vary based on actual costs incurred.  From the FAR clause you cited, I see that for commercial T&M subcontracts, G&A applied to materials can be a reimbursed on a pro-rata basis based on a fixed amount.  However, for non-commercial T&M subcontracts, governed by FAR 52.232-7, indirect rates must be retroactively adjusted after final rates are established, correct?  Here's the thing: neither of the T&M FAR clauses referenced are included in our prime contract.  Therefore, is there an issue with applying the practices established in FAR 52.212-4 Alt 1 to both commercial and non-commercial subcontracts since neither appear to be a CPPC situation?

Yes there is an issue. Several, in fact.

1. 52.212-4 Alt 1 applies to acquisitions of commercial items using Part 12 procedures. You are not acquiring a commercial item using Part 12 procedures.

2. You are subcontracting. You have to create your subcontract using the appropriate set of clauses, regardless of whether they are in your prime contract. In other words, your subcontract is not 100% made up only of prime contract flow-downs. Further, of course the 52.232-7 clause wouldn't be in your prime contract, because that's not the proper payment clause for the type of contract you have been awarded.

3. If you want to avoid all the hassle of rate true-ups, just award a FFP or FFP-LOE subcontract. If you insist on awarding a T&M subcontract then you have to take the baggage that comes with it.

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On ‎11‎/‎16‎/‎2016 at 2:24 PM, here_2_help said:

Yes there is an issue. Several, in fact.

1. 52.212-4 Alt 1 applies to acquisitions of commercial items using Part 12 procedures. You are not acquiring a commercial item using Part 12 procedures.

2. You are subcontracting. You have to create your subcontract using the appropriate set of clauses, regardless of whether they are in your prime contract. In other words, your subcontract is not 100% made up only of prime contract flow-downs. Further, of course the 52.232-7 clause wouldn't be in your prime contract, because that's not the proper payment clause for the type of contract you have been awarded.

3. If you want to avoid all the hassle of rate true-ups, just award a FFP or FFP-LOE subcontract. If you insist on awarding a T&M subcontract then you have to take the baggage that comes with it.

Ok I think I have my CPPC question answered.  FAR 52.212-4 allows for a fixed dollar amount of G&A to be reimbursed on a pro rata basis under commercial subcontracts.  Therefore, this type of arrangement would not violate the statutory prohibition against CPPC arrangements.  However, this brings up a second question/clarification.  Since our prime contract is Cost Plus Award Fee, neither FAR 52.232-7 nor 52.212-4 are required to be included in our prime since our prime is not T&M or LH.  However, you are saying that regardless of what is in our prime contract, we have to follow all FAR clauses?  My understanding is that the FAR applies to government personnel, not contractors, and generally contractors are bound by the terms that are in their contracts.  As a prime contractor, I don't believe we are required to create a subcontract using the appropriate set of clauses unless our prime contract requires us to do so as mandatory flow-downs.  That being said, if a CO leaves out a required clause, a board or court might impose the requirements under the Christian Doctrine. 

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Zag2009,

You are still confused. Let me see if I can break it down for you.

1. A T&M subcontract is not a CPPC contract because, normally, fee is not permitted on the variable "M" portion and, instead, is only calculated within the fixed hourly labor rate portion.

2. You are correct that the FAR doesn't apply to you unless you have clauses in a government contract but, in this specific instance, you are proposing to award a subcontract under a government prime contract. Among other things, you are very likely to have to prepare a Consent Package and have that Package reviewed by your contracting officer, who is going to go by the FAR requirements. You want the CO to approve your subcontract award, right? Then you better consider what they will be reviewing for. If you want to use a FAR-based commercial item format, I would suggest that, at a minimum, you will want to have the proper FAR clauses in the subcontract.

3. When you draft a subcontract agreement, you do not just flow down all mandatory prime contract flow-down clauses. You do that, of course. But you also add in "local" clauses and whatever clauses you need to add to make an effective subcontract agreement. This is not a situation where the government CO "forgot" or omitted a clause (since the clauses we are discussing were never required to be included). Instead, this is a situation where you, as the contractor, need to draft an effective agreement. It requires judgment.

I don't know what else to say about this. Perhaps somebody else should step in because I fear I'm not being as clear as I ought to be.

H2H

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On ‎11‎/‎16‎/‎2016 at 0:30 PM, Zag2009 said:

Here's the thing: neither of the T&M FAR clauses referenced are included in our prime contract.

That's quite possible if the prime contract was not a T&M contract.  Is clause 52.244-2 "Subcontracts" in the prime contract?

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1 hour ago, Matthew Fleharty said:

That's quite possible if the prime contract was not a T&M contract.  Is clause 52.244-2 "Subcontracts" in the prime contract?

Yes, 52.244-2 is in my prime contract.

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H2H, I think you are confused concerning the nature of a CPPC contract.  Such a contract arises not only when the fee or profit is expressed as a percent of cost, but also when indirect costs are expressed as a fixed percent of costs.  Therefore, in order to avoid a CPPC contract, as a general rule, indirect costs cannot be stated as a fixed percent of base costs, but must be adjusted to actual costs.  The exception to this rule concerning adjustment is the situation described in 52.212-4 alt I where indirect costs are permitted as a lump sum.  This was done to avoid having to contractors who provide commercial items establish final rates and to avoid a CPPC situation. 

If Zag wants to issue a T&M subcontract for non-commercial items, I see no reason why (s)he could not write the subcontract so that indirect costs are stated as a lump sum.  What (s)he would have to do if consent to subcontract is required is convince the contracting officer that the amount agreed to was reasonable so that the amount paid the sub would be considered reasonable and allowable.  FAR 52.232-7 is not required to be incorporated in T&M subcontracts.  Therefore, prime contractors have great latitude in how they devise payment provisions for such subcontracts.

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9 minutes ago, Retreadfed said:

H2H, I think you are confused concerning the nature of a CPPC contract.  Such a contract arises not only when the fee or profit is expressed as a percent of cost, but also when indirect costs are expressed as a fixed percent of costs.  Therefore, in order to avoid a CPPC contract, as a general rule, indirect costs cannot be stated as a fixed percent of base costs, but must be adjusted to actual costs.  The exception to this rule concerning adjustment is the situation described in 52.212-4 alt I where indirect costs are permitted as a lump sum.  This was done to avoid having to contractors who provide commercial items establish final rates and to avoid a CPPC situation. 

If Zag wants to issue a T&M subcontract for non-commercial items, I see no reason why (s)he could not write the subcontract so that indirect costs are stated as a lump sum.  What (s)he would have to do if consent to subcontract is required is convince the contracting officer that the amount agreed to was reasonable so that the amount paid the sub would be considered reasonable and allowable.  FAR 52.232-7 is not required to be incorporated in T&M subcontracts.  Therefore, prime contractors have great latitude in how they devise payment provisions for such subcontracts.

Retreadfed, your explanation of CPPC contracts matches my understanding. 

In response to H2H's comment on applicability of FAR clauses to a prime contractor, I've always taken the position that prime contractor's are required to follow what is in their prime contract.  Therefore, if my proposed method of allowing for G&A to be reimbursed based on a fixed dollar amount for noncommercial subcontracts doesn't violate our prime contract or any statutory prohibition, what would grant the CO authority to demand that we follow the FAR sections related to T&M contracting?  Taken a step further, what would be the purpose of prescribing solicitation provisions and contract clauses if contractors had to follow it in its entirety?

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7 minutes ago, Zag2009 said:

Retreadfed, your explanation of CPPC contracts matches my understanding. 

In response to H2H's comment on applicability of FAR clauses to a prime contractor, I've always taken the position that prime contractor's are required to follow what is in their prime contract.  Therefore, if my proposed method of allowing for G&A to be reimbursed based on a fixed dollar amount for noncommercial subcontracts doesn't violate our prime contract or any statutory prohibition, what would grant the CO authority to demand that we follow the FAR sections related to T&M contracting?  Taken a step further, what would be the purpose of prescribing solicitation provisions and contract clauses if contractors had to follow it in its entirety?

Did you read the clause I referred you to?  You may have consent to subcontract requirements in which case the CO would certainly have such authority.

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4 minutes ago, Matthew Fleharty said:

Did you read the clause I referred you to?  You may have consent to subcontract requirements in which case the CO would certainly have such authority.

Yes, I did.  We have an approved purchasing system and only require consent at certain thresholds. In the majority of subcontracts issued, we aren't required to go for consent.  My main concern is therefore not related to CO approval, but audits.

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1 hour ago, Retreadfed said:

H2H, I think you are confused concerning the nature of a CPPC contract. 

Yes, I was. Thanks for clarifying. Still doesn't change any of my responses to Zag2009.

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