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Sap114

Parent/Subsidiary Purchasing Authority

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Ok... I am relatively new to my company and am currently updating and revising the company's process documents. I have encountered something that I might as well ask on here because I am somewhat lost and no one at the company can apparently answer.

The policy in question relates to a subsidiary's purchasing authority in the instance that it serves as a subcontractor to the parent company. The policy specifically states...

"In the situation where subsidiary supports parent company in the execution of a government contract, parent company will be responsible for procurement activities with the exception of the acquisition of raw materials such as sheet metal, rivets and other raw materials used in the manufacturing of sheet metal parts or cable harnesses. With the exception of rivets and other fastening devices, orders for metal or metal products in support of a government contract will include the requirements of DFAR 252.225.7014."

My question specifically relates to the part of the section relating to purchasing authority. I believe the genesis of the provision in question is a FAR requirement relating to a parent company's ability to recover costs and fee of subcontractors who are owned or controlled by that company but I could be way off. The subsidiary is a commercial company and I believe the products and services the parent company procures from subsidiary are commercial in nature. As such, I'm not certain the necessity for this requirement. Does anyone see a cost recovery concern here? Appreciate all help.

 

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45 minutes ago, Sap114 said:

The subsidiary is a commercial company and I believe the products and services the parent company procures from subsidiary are commercial in nature. As such, I'm not certain the necessity for this requirement. Does anyone see a cost recovery concern here? Appreciate all help.

You want us to speculate as to the reason for the policy? Is there no one in your company who can explain the reason?

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30 minutes ago, Vern Edwards said:

You want us to speculate as to the reason for the policy? Is there no one in your company who can explain the reason?

Essentially yes, to both questions. I really just want to know if there is an impetus for this type of policy and I can go from there. Wild speculation is not only welcome but encouraged.

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I notice that the parent lets the subsidiary buy simple, bulk items like sheet metal, fasteners, and raw materials and retains control over the purchase of manufactured items. Could the parent be concerned about quality assurance?

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Vern, remember our last dinner conversation about treating interorg transfers as subcontracts and all the associated problems that came with that decision? Neither you nor I could help that company with its legal problems because of that policy. SAP114 seems to have it worse and I wasn't sure that was possible. 

Good luck Sap114. I think you will need it.  To be clear: companies that insist on treating interorganizational transfers as subcontracts are making a huge policy mistake. Huge.

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