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CAS Exemption for T&M and LH Subcontracts for Commercial Items

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A contractor has recently been awarded a long-term prime contract with responsibility for operating a major Government program. The contractor has a Government-approved purchasing system, and is responsible for issuing as-yet-unidentified subcontracts as required to support the program. Subcontracts of various types and dollar values will be required.

This contractor is faced with implementing the CAS exemption of T&M and Labor Hour SUBCONTRACTS for commercial items.

The exemption in CFR 9903.201-1( :) (6) is shown, in pertinent part, as follows.

"... time-and-materials, and labor-hour ... subcontracts for the acquisition of commercial items."

Note that the CFR exemption doesn't mention competition. Competition; however, is an unstated condition of the exemption, at least as the exemption applies to contracts placed in accordance with FAR. FAR 12.207 ( B) provides that a T&M/LH type contract can be used for commercial items when the contract is awarded using competitive procedures. This was discussed and understood in the CAS Board's deliberations preceding issuance of the exemption.

But what about subcontracts? This contractor's subcontracting program is not subject to the competition requirements of FAR 12.207. It is; however, subject to FAR 52.244-5(a).

So, should this contractor:

1. follow the CFR language literally and exempt all T&M/LH subcontracts for commercial items, or

2. exempt only those T&M/LH subcontracts that were processed using the competitive procedures envisioned by FAR 52.244-5 (a), or

3. do something else, and if so what?

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The plain language of 9903.201-1( b )(6) simply does not condition the exemption on the use of competitive procedures. What FAR 12.207 says and what the CAS Board thought prior to the rule's promulgation is interesting, but does not change the clear language of the regulation.

Further, I do not read FAR 52.244-5(a) as extending a competition requirement to the CAS exemption. The clause only requires that the prime obtain subcontract competition "to the maximum practical extent consistent with the objectives and requirements of the contract." It does not require that all subcontracts be awarded competitively.

If I were the contractor, my position would be to exempt all T&M subcontracts for commercial items from CAS. I would inform the authority responsible for performing a review of my purchasing system of my position and make sure that we were on the same page.

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The plain language of 9903.201-1( b )(6) simply does not condition the exemption on the use of competitive procedures. What FAR 12.207 says and what the CAS Board thought prior to the rule's promulgation is interesting, but does not change the clear language of the regulation.

Further, I do not read FAR 52.244-5(a) as extending a competition requirement to the CAS exemption. The clause only requires that the prime obtain subcontract competition "to the maximum practical extent consistent with the objectives and requirements of the contract." It does not require that all subcontracts be awarded competitively.

If I were the contractor, my position would be to exempt all T&M subcontracts for commercial items from CAS. I would inform the authority responsible for performing a review of my purchasing system of my position and make sure that we were on the same page.

FWIW, I concur with Don's assessment. Contracts (and subcontracts) for acquisition of commercial items (as that term is defined in FAR 2.101) are exempt from CAS. Period.

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Do you mean commercial items that are acquired through commercial acquisition methods (FAR Part 12) or commercial items regardless of how they are acquired (ie FAR Part 15)?

Can you mix and match a FAR Part 15 prime T&M contract and a commercial T&M subcontract for the provision of the labor portion of the prime T&M contract?

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I hit the add reply button too soon.

Does the commercial subcontract have to utilize unique commercial prime contract labor categories to maintain the integrity of their commerciality or can the subcontract use exisiting prime contractor labor categories which would then be a mix of commercial and non-commercial labor?

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Do you mean commercial items that are acquired through commercial acquisition methods (FAR Part 12) or commercial items regardless of how they are acquired (ie FAR Part 15)?

Can you mix and match a FAR Part 15 prime T&M contract and a commercial T&M subcontract for the provision of the labor portion of the prime T&M contract?

I do not believe that the definition of "commercial item" found in 2.101 makes a distinction based on acquisition method. If I'm wrong, I'm sure I'll be corrected forthwith.

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I hit the add reply button too soon.

Does the commercial subcontract have to utilize unique commercial prime contract labor categories to maintain the integrity of their commerciality or can the subcontract use exisiting prime contractor labor categories which would then be a mix of commercial and non-commercial labor?

Your question confuses me. The question of separate rates for the prime and subcontractor seems to be answered by 52.232-7 if the prime contract is a non-commercial item acquisition. If the prime contract is a commercial item acquisition then 52.212-4 would be included and that would seem to permit a non-commercial subcontractor to be reimbursed at the prime's commercial hourly rates (see Alternate 1 language).

What am I missing?

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I am not sure I follow the CAS exemption:

9903.201-1(6) Firm fixed-priced and fixed-price with economic price adjustment (provided that price adjustment is not based on actual costs incurred) contracts and subcontracts for the acquisition of commercial items.

Are we saying that commercial T&M subcontracts would qualify for the above FFP commercial item subcontract exemption?

Don't the quantity of hours in a T&M subcontract arrangement really equate to incurred costs, regardless if the hourly rates are fixed? Aren't hours considered to be a cost element?

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I am not sure I follow the CAS exemption:

9903.201-1(6) Firm fixed-priced and fixed-price with economic price adjustment (provided that price adjustment is not based on actual costs incurred) contracts and subcontracts for the acquisition of commercial items.

Are we saying that commercial T&M subcontracts would qualify for the above FFP commercial item subcontract exemption?

Don't the quantity of hours in a T&M subcontract arrangement really equate to incurred costs, regardless if the hourly rates are fixed? Aren't hours considered to be a cost element?

Clueless. <_<

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Ok I am ready to be clued in.

Where is the CAS exemption for subcontract commercial items that are not either FFP or FP with economic price adjustment? We can all assume that the prime contract is subject to CAS, otherwise we would not be having these discussions; and we can also assume that per H2H the commercial subcontractor labor will be sold under a prime CAS covered labor category - not require their own separate labor category.

Make it quick and painless please.

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Ok I am ready to be clued in.

Where is the CAS exemption for subcontract commercial items that are not either FFP or FP with economic price adjustment?...

Make it quick and painless please.

How old is your copy of the CFR? You want it quick and painless?

48 CFR 9903.201-1 CAS applicability.

(B) The following categories of contracts and subcontracts are exempt from all CAS requirements:

(1) Sealed bid contracts.

(2) Negotiated contracts and subcontracts not in excess of $650,000. For purposes of this paragraph (B)(2) an order issued by one segment to another segment shall be treated as a subcontract.

(3) Contracts and subcontracts with small businesses.

(4) Contracts and subcontracts with foreign governments or their agents or instrumentalities or, insofar as the requirements of CAS other than 9904.401 and 9904.402 are concerned, any contract or subcontract awarded to a foreign concern.

(5) Contracts and subcontracts in which the price is set by law or regulation.

(6) Firm fixed-priced, fixed-priced with economic price adjustment (provided that price adjustment is not based on actual costs incurred), time-and-materials, and labor-hour contracts and subcontracts for the acquisition of commercial items.

(7) Contracts or subcontracts of less than $7.5 million, provided that, at the time of award, the business unit of the contractor or subcontractor is not currently performing any CAS-covered contracts or subcontracts valued at $7.5 million or greater.

(8)–(12) [Reserved]

(13) Subcontractors under the NATO PHM Ship program to be performed outside the United States by a foreign concern.

(14) Contracts and subcontracts to be executed and performed entirely outside the United States, its territories, and possessions.

(15) Firm-fixed-price contracts or subcontracts awarded on the basis of adequate price competition without submission of cost or pricing data.

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