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I have a subcontractor who believes they are not required to provide an unsanitized copy of their invoice to the government for review/approval in support of their CPFF subcontract. They are describing this as an "unusual" request. This request is not unusual in my experience.

I'm trying to provide a compelling argument to them citing regulation that this is not unusual. Thoughts/recommendations?

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Sub, your situation is not all that clear.  Because the government does not have privity of contract with subcontractors, subcontractor invoices are usually sent to the prime contractor for payment.  The prime then requests payment from the government, including what the prime has paid or owes the sub.  See FAR 52.216-7.  Thus, I am confused as to what you mean by "an unsanitized copy of their invoice to the government ."  Can you explain in greater detail what the situation is?

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Invoices for a Cost-Plus contract need to have the cost build up provided in order to verify that the invoices are correct.

I completely understand that a subcontractor would not want to provide that build up to a prime contractor, since the build up would contain proprietary information. In my experience, subcontractors would submit that directly to the government for review.

If the subcontractor does not submit the build up to the government (since they reasonably wouldn't want to provide that to us as the prime), how else can their invoices be substantiated for accuracy and completeness?

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The prime is responsible for reviewing the invoices of its cost-type subKs.

Period.

There is no alternate approach.

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1 hour ago, subconmgr said:

How can the prime review if the buildup isn't provided? What would the prime use to substantiate the invoices?

The buildup MUST be provided and reviewed by the prime. If the subK won't cooperate then find another subK.

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Hi Subconmgr

It would help if you could clarify what contract terms are included in your company's prime contract or subcontract, and what contract terms your firm flowed to the subcontractor regarding invoices and payment. In my experience, most cost reimbursement payments to subcontractors are supported by periodic verification that the subcontractor has an approved accounting system for cost type contracts. Rarely are such invoices routinely sent from the prime to the Government for review. The total allowable costs are resolved during closeout. During performance, such approved accounting system would require subcontractor to apply any forward pricing rate agreements to future invoices, and submit retroactive adjustment of previous invoices to reflect any final rate agreements for prior years. Perhaps there is a contract clause between your firm and the subcontractor that provides for this? I am not aware of any FAR clause that requires that a "buildup" be provided as part of the invoice, or that such "buildup" is required to be disclosed by a subcontractor to a prime contractor. The subcontractor may choose to do that if they permit prime contractor access to its books and records. However, many subcontractors do not, and are not required by FAR to provide such access to a prime contractor unless they so agreed to in the contract.    

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Sub, what do you mean by cost buildup?  What level of detail are you looking for?  What in the subcontract requires the level of detail that you seem to be wanting?  I can assure you that DCAA does not look for great detail when it approves most interim vouchers on CPPF contracts, but generally only looks to see if the amount requested is within the contract cost limitation, the fee amount does not exceed 85% of the total fee and the voucher covers a time period within the contract performance period.

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1 hour ago, Retreadfed said:

I can assure you that DCAA does not look for great detail when it approves most interim vouchers on CPPF contracts, but generally only looks to see if the amount requested is within the contract cost limitation, the fee amount does not exceed 85% of the total fee and the voucher covers a time period within the contract performance period.

Retreadfed,

That's not the risk that's being mitigated when a prime performs a detailed review of a cost-type subcontractor's invoice. The risk is that unallowable costs are being billed, or perhaps labor is being billed in excess of the amount actually incurred, or perhaps that the subcontractor is using unqualified personnel to perform the work.

There is no question that the FAR establishes that the prime contractor is responsible for managing its subcontractors. (Ignore for the moment how that statement has been blown out of proportion by GAO, DCMA, and DCAA.) On DCAA's website is an official presentation that establishes how DCAA interprets that FAR requirement. It says "The prime contractor is primarily responsible for subcontract award, technical and financial performance, monitoring, and payment to the subcontractor for the work accomplished under subcontract terms."

What do you think is meant by the term "monitoring"? What activities fall under the umbrella of the term "payment"? When you put those two terms together, do you think that the prime is fulfilling its responsibilities by checking the three items you listed and then paying the amount billed? Is that the level of diligence expected of a prime? Was that the level of diligence expected of DynCorp, who found itself accused of violations of the False Claims Act simply for passing on the costs billed by its subcontractor without doing any checking?

Further, DFARS 252.242-7006 establishes criteria for an "acceptable" accounting system. In my first-hand experience, DCAA can and will find that a contractor has a significant deficiency in its accounting system with respect to criteria 1, 8, 12, and/or 17 when a prime contractor performs a perfunctory review of a cost-type subcontractor's invoices and bills its government customer for unallowable or fraudulent costs.

Unlike DCAA, I don't believe it's really an accounting system adequacy issue. However, prime contractors that do not perform diligent reviews of their cost-type subcontractor invoices are not, in my view, earning the right to burden those subcontractor billings with indirect costs or with fee, as they are are not adding the value expected by the Federal government.

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Thanks and may God Bless you, H! 

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H2H, I think you are missing the point here.  Assuming everything you say is correct, what requires the subcontractor to do something that will facilitate the prime contractor doing what you say a prime needs to do?   If the prime wants the sub to do something that will permit the prime to do what the  prime contract theoretically calls for it to do, the prime should put it in the subcontract.  If it is not in the subcontract, the subcontractor would not be contractually required to do it.  That is the issue that Subconmgr has been avoiding.  (S)he has been looking for something that requires the sub to provide a voucher with a cost buildup (whatever that is).  The simple answer is if the requirement is not in the subcontract the subcontractor has no contractual obligation to provide that buildup.

This reminds me of several conversations I have had with DCAA auditors concerning GAGAS.  They argue that because they have to comply with GAGAS when performing an audit, contractors have an obligation to do whatever is necessary to facilitate the auditor's compliance with GAGAS.

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57 minutes ago, Retreadfed said:

If the prime wants the sub to do something that will permit the prime to do what the  prime contract theoretically calls for it to do, the prime should put it in the subcontract.  If it is not in the subcontract, the subcontractor would not be contractually required to do it. ... The simple answer is if the requirement is not in the subcontract the subcontractor has no contractual obligation to provide that buildup.

We agree on the point quoted above. A well-crafted subcontract should lay out the duties and expectations of both parties. That said, subcontracts can be modified to address omissions.

Look, here's the deal. I have personally reviewed millions of dollars of subK invoices on behalf of the prime. The subKs were competitors but they were (in this case) also subKs. They wanted the revenue and they understood certain otherwise proprietary information would have to be revealed "for official use only". They grimaced and provided the information. The alternatives included (1) slow pay, (2) minimization of subcontracted work, or (3) a T4C. They got it. In that case (and I assume in this case) the prime had all the leverage. The prime used that leverage. End of deal.

The fun part of the above invoice review activity was that we direct-charged it, and it absorbed overhead and it was fee-bearing. I project managed that effort and we averaged a 98% award fee. My only real honest-to-god PM credential.

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It would be better if there was a level playing field. If such a requirement is needed, it should be plainly incorporated in a government contracting command media so that all prime contractors and subcontractors are aware of it and it is enforceable. As it stands now, in my opinion, it is not. In the case of a prime contractor that does perform this review for every subcontract invoice, it is at a competitive disadvantage in proposing cost reimbursement work compared to a prime contractor that does not, due to the former's costs in performing reviews for approximately 25 invoices per year for each cost reimbursement subcontractor. Also, there should be some uniform government contracting command media details/checklist that provides guidance on how to comply with such a requirement.  

Edited by Neil Roberts
math error

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On 12/1/2016 at 9:41 AM, subconmgr said:

I have a subcontractor who believes they are not required to provide an unsanitized copy of their invoice to the government for review/approval in support of their CPFF subcontract. They are describing this as an "unusual" request. This request is not unusual in my experience.

I'm trying to provide a compelling argument to them citing regulation that this is not unusual. Thoughts/recommendations?

That was not posted in Beginners Only, so here goes:

subconmgr was not thinking like a contracts person. If she had been, she would not have asked for an "argument." She would not have posted anything about this at all.

According to subconmgr, the prime--presumably a commercial organization--has a cost-reimbursement contract. The prime contract should include the clause at FAR 52.216-7, which says that the Government will reimburse the prime for its allowable costs, as determined in accordance with the applicable cost principles in FAR Subpart 31.2. In order for any cost to be allowable in whole, it must be allowable in all of its parts, and the prime must be able to establish allowability through a record to that effect. FAR 31.201-2(d).

Thus, if a prime is going to award a cost-reimbursement contract, and if it wants to be certain that the Government will reimburse its reimbursements to the subcontractor, then it must include a clause in the subcontract sufficient to enable it to comply with FAR 31.201-2(d) and 52.216-7, so that it can demonstrate its own entitlement to reimbursement of the subcontract costs. Common sense suggests that before reimbursing a subcontractor for its costs, the prime should ensure that those costs are allowable, and so it must obtain cost information from the subcontractor sufficient for that purpose. See FAR 44.202(e)(2) and DCAAM 6.802.2(a).

The sub in this case appears to have bluffed subconmgr with the assertion that her requests for information about the constituent costs of its invoices are unusual. Unusual for the sub or unusual in general? And so subconmgr wants an "argument" grounded in "regulations." Invoicing regulations are irrelevant in this case, because the subcontractor is bound only by those in its subcontract. The only argument worth having is a subcontract clause that tells the subcontractor to submit an invoice or voucher "in such form and reasonable detail as the representative [of the prime contractor] may require... supported by a statement of the claimed allowable cost for performing [the subcontract]." See FAR 52.216-7(a)(1). If the prime didn't do that, then it is incompetent. If it did, then the clause is the only "argument" that subconmgr needs.

What is "reasonable detail"? It depends on the subcontract, on the nature and amount of the costs to be incurred by the subcontractor, and on the desires of the prime and the agreement of the sub.

On 12/2/2016 at 9:27 AM, subconmgr said:

I completely understand that a subcontractor would not want to provide that build up to a prime contractor, since the build up would contain proprietary information. In my experience, subcontractors would submit that directly to the government for review.

subconmgr should not have that understanding. (Too much empathy is a bad thing.) As for subconmgr's "experience," it's not good to confuse what people have done in the past with what they were obligated to do. The burden is on the prime to show that its reimbursements to the sub were allowable. If it cannot meet that burden, then it might not get reimbursed. It must protect its own interests by requiring the submission of "reasonable detai" in invoices and vouchers. If the prime is negotiating with a particular sub, and if that sub won't agree to provide "reasonable detail" in support of its invoices or vouchers, then the prime must negotiate some means of protecting its interests and/or take a risk. If it wants to rely on the Government to do its work, then it had better check with the Government to see that it will do it and, if so, if the Government will absolve the prime of what would otherwise be its own responsibility.

10 hours ago, Neil Roberts said:

It would be better if there was a level playing field. If such a requirement is needed, it should be plainly incorporated in a government contracting command media so that all prime contractors and subcontractors are aware of it and it is enforceable... Also, there should be some uniform government contracting command media details/checklist that provides guidance on how to comply with such a requirement.

Emphasis added. Absolutely not. That kind of thinking is how we get thousands of pages of regulations to wade through. That kind of thinking reinforces the slovenly habits of the unread and unprepared who are on the loose in our world. Primes already have a contract clause that tells them what they must do. They don't need any "command media details/checklist." They must instruct their subs about what they must do.

Read your contracts, people. Think and act contractually.

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Following on to Vern's post, the "reasonable detail" language is in 52.216-7.  However, that is not a mandatory flow down clause that must be inserted in cost reimbursement subcontracts.  Thus, it is up to prime contractors to include a clause that accomplishes the purposes of 52.216-7 in their cost reimbursement subcontracts.

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1 hour ago, Vern Edwards said:

Read your contracts, people. Think and act contractually.

Hi Vern:

What is your take on the following?


FAR 52.216-7, incorporated in government prime cost reimbursement prime contracts, states that payments will be made to the Contractor in amounts determined by the Contracting Officer (not the prime contractor) in accordance with FAR subpart 31.2.          

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The CO determines whether the contractor's costs are allowable. The subcontractor is not requesting reimbursement of its costs from the Government. It is requesting reimbursement from the contractor. The contractor is requesting reimbursement of its reimbursement to the sub. The contractor ought, in good faith, at least believe that the reimbursement was an allowable cost, and that its request is, therefore, allowable. If it had to defend its belief, what would it say?

The contractor requests, in compliance with the terms of its contract. The CO replies, based on his or her determination of the allowability of the contractor's costs.

A contractor that reimburses a subcontractor without at least a cursory determination that the sub's costs are allowable is stupid.

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Neil, are you sure that there isn't a general statement in the subcontract something to the effect that the term "contracting officer" refers to the prime contractor?  I have seen that in some subcontracts although it is sloppy practice. 

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9 hours ago, Retreadfed said:

Following on to Vern's post, the "reasonable detail" language is in 52.216-7.  However, that is not a mandatory flow down clause that must be inserted in cost reimbursement subcontracts.  Thus, it is up to prime contractors to include a clause that accomplishes the purposes of 52.216-7 in their cost reimbursement subcontracts.

52.216-7 or equivalent is just about the ONLY clause that makes a cost-reimbursement subcontract as cost-reimbursement subcontract. Without that clause (or equivalent) there is no ability to "true-up" provisional billing rates to final billing rates. Without that clause (or equivalent) there is nothing to invoke the FAR Part 31 cost principles. Without that clause (or equivalent) there is nothing that makes a subcontractor submit a proposal to establish final billing rates for audit.

Crafting a cost-reimbursement subcontract without that clause (or equivalent) and then defending oneself by saying it's not a mandatory flow-down would not win a subcontract manager any brownie points in my shop. In fact, it would be likely to move that individual on the fast-track to gainful employment elsewhere.

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A prime contractor who intends to subcontract must look at every clause in its contract with the Government and ask itself a question: In order to comply with that clause, must I require my subs to comply with that clause?

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I am in the throes of wrestling with this precise conundrum - complying with our prime's request to provide detailed backup documentation regarding travel expenses billed with our invoices, while protecting our proprietary indirect rate data. In some cases it seems our primes are asking for the detail just so they can do some reverse-math and determine our indirect rates, which may give them a competitive leg-up on future bids.   

I will continue to follow this thread.  Thanks for the insights!

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I will continue to follow this thread.

Why? No one but you (and now me) has posted to this thread in three months. There is nothing more for you to follow.

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