Are subcontracts to affiliates reportable on FSRS?

[NenaLenz]

Is there any reason that subcontracts to affiliates would not be reportable under FAR 52.204-10? (Assuming all other reporting thresholds are met). 

I ask because subcontracts to affiliates are not reportable on eSRS per FAR 52.219-9(l) 

"(l) The Contractor shall submit ISRs and SSRs using the web-based eSRS at http://www.esrs.gov. Purchases from a corporation, company, or subdivision that is an affiliate of the Contractor or subcontractor are not included in these reports. Subcontract awards by affiliates shall be treated as subcontract awards by the Contractor. Subcontract award data reported by the Contractor and subcontractors shall be limited to awards made to their immediate next-tier subcontractors." 

I do not see any similar caveat to the FSRS requirement. Do you?

FYI - Under 52.304-10, “First-tier subcontract” "means a subcontract awarded directly by the Contractor for the purpose of acquiring supplies or services (including construction) for performance of a prime contract."

Thanks for your insight.

[here_2_help]

I would not report the executive compensation of affiliated entities, myself, because I think FAR 15 is pretty clear that such awards are "make" and not "buy" transactions. That said, I agree that doing so is not prohibited by the clause language of 52.204-10. I just don't think it's required.

[NenaLenz]

4 minutes ago, here_2_help said:

I would not report the executive compensation of affiliated entities,

Would you report the subcontracts themselves, though?

[here_2_help]

No I wouldn't. But I admit I don't have support for my position other than what I posted above about "make" versus "buy"

[Don Mansfield]

Did you check the FR notice for the final rule?

[NenaLenz]

23 minutes ago, Don Mansfield said:

Did you check the FR notice for the final rule?

Good suggestion. Did not find clarity there.

[NenaLenz]

27 minutes ago, here_2_help said:

No I wouldn't. But I admit I don't have support for my position other than what I posted above about "make" versus "buy"

I like this conclusion. But I am new to the "make" versus "buy" concepts. Does the concept of a "make program" impact the entire enterprise? Does this pull the whole network of affiliated entities under contractual compliance requirements? For example - How do we decide which affiliates must have affirmative action plans?

I would greatly appreciate any general guidance on make/buy you can offer.  

 

[here_2_help]

Don, that is a good link for this discussion. Thanks!  The rule-making comments are a bit ambiguous (aren't they always?). My interpretation is that subsidiaries are not excluded from the rule; but it's not clear to me whether they are reportable as "first-tier subcontracts" (which they may not be in many circumstances) or reportable simply because they are part of the prime contractor. Would you like to answer Nena's question and educate me at the same time?

[Don Mansfield]

22 minutes ago, here_2_help said:

Don, that is a good link for this discussion. Thanks!  The rule-making comments are a bit ambiguous (aren't they always?). My interpretation is that subsidiaries are not excluded from the rule; but it's not clear to me whether they are reportable as "first-tier subcontracts" (which they may not be in many circumstances) or reportable simply because they are part of the prime contractor. Would you like to answer Nena's question and educate me at the same time?

I don't know for sure. I didn't read the whole FR notice. It was long and I think Nena's a lawyer, so if there was something pertinent I thought she'd find it. Sorry.

[Neil Roberts]

There are a variety of definition of "subcontract" throughout FAR. Since none was provided for executive compensation, you may be free to apply whatever makes sense to you with respect to affiliate work if you can support with rationale. I would first consult the FSRS User Guide and Help Desk, and the Executive Compensation reporting community for more information.  I would not borrow FAR 15.407-2 make-or-buy programs clause as applicable to reporting of executive compensation. Just because the Government defines work performed by an affiliate, subsidiary or division  as work made by the prime, does seem to be meant to control reporting of executive compensation of subcontracts. Different interests may be involved. Also, the make-or-buy clause itself, including its definition is not generally applicable below $13.5M

I think your company kind of "shot itself in the foot" by a process that issued a "subcontract" to an affiliate. This suggests that there should be an arms length transaction. Some companies have processes that establish issuing internal work orders or something similar to affiliates that it controls, divisions and wholly owned subsidiaries, not "subcontracts." As a result, since your company actually issued a subcontract document, it is subject to executive reporting in my view because that is what your company called it.

[here_2_help]

13 hours ago, Neil Roberts said:

I think your company kind of "shot itself in the foot" by a process that issued a "subcontract" to an affiliate. This suggests that there should be an arms length transaction. Some companies have processes that establish issuing internal work orders or something similar to affiliates that it controls, divisions and wholly owned subsidiaries, not "subcontracts." As a result, since your company actually issued a subcontract document, it is subject to executive reporting in my view because that is what your company called it.

Bingo!

[NenaLenz]

7 minutes ago, here_2_help said:

I think your company kind of "shot itself in the foot" by a process that issued a "subcontract" to an affiliate. This suggests that there should be an arms length transaction. Some companies have processes that establish issuing internal work orders or something similar to affiliates that it controls, divisions and wholly owned subsidiaries, not "subcontracts."

Fortunately, my choice of the word "subcontract" in the original post was inaccurate - the company is currently using work orders to facilitate this work. There are no formal subcontracts at this time. I am trying to help them figure out the compliance obligations on the contract holder and affiliates performing the work.  Originally, I was thinking subcontracts were a good idea, but it sounds like executing formal subcontracts may be ill advised.

My concern with not using subcontracts is that the compliance obligations that apply to the contract holder would then also apply to all performing affiliates without the "flow down" filter/buffer that insulates subcontractors from many prime contractor obligations. Does that make sense?

For example, not all affiliates need affirmative action plans at this point. Would the use of a "make program" somehow trigger AAP obligations for all affiliates under the parent? Or just the ones accepting/performing work orders that trigger the requirements?  

(Again, the concept of a "make program" is new to me, so these may be rather simple questions. I appreciate any wisdom this group can offer.) 

[Retreadfed]

Nena, you are getting into some issues that can be complicated when you talk about overall compliance obligations.  These obligations can arise from several different sources such as statute, regulation, contract, including a CBA, or company policy.  Further, they apply simply as a result of a company being an employer and not necessarily as a result of its status as a government contractor.

However, looking at your original question, note that FAR 52.204-10 implements two statutes, reading the statutes, it is clear that congress intended that they have broad applicability.  Although congress did not define "subcontract" in the statutes, it seems clear to me that work orders between affiliates would be considered subcontracts that are reportable.  However, in regard to exec comp provided by the affiliates, that would not be reportable if the affiliate did not meet the threshold test for reporting such comp., i.e., 80% of its income from Federal awards and over $25M in Federal awards.

[NenaLenz]

1 hour ago, Retreadfed said:

. . . issues that can be complicated when you talk about overall compliance obligations.  These obligations can arise from several different sources such as statute, regulation, contract, including a CBA, or company policy.  Further, they apply simply as a result of a company being an employer and not necessarily as a result of its status as a government contractor.

@Retreadfed, you're right -- that is a complicated analysis that requires broad expertise and inappropriate for this forum.

For the purpose of this discussion, my question is limited to how accepting/performing federal work orders would impact an affiliate.

If we forgo formal subcontracts, wouldn't the affiliates then be viewed as part of the "prime contractor"  and be subject to the prime contractor's obligations? 

 

[NenaLenz]

Thank you for your help on this. I have what I need. This thread ended up heading in the same direction of a prior thread on the topic. 

[Retreadfed]

2 hours ago, NenaLenz said:

If we forgo formal subcontracts, wouldn't the affiliates then be viewed as part of the "prime contractor"  and be subject to the prime contractor's obligations? 

Not necessarily or generally.  The prime contractor is the party to a contract.  That is the entity identified as the contractor in the contract.  Being a prime contractor does not impose obligations on affiliates of the prime contractor unless the affiliate is considered a subcontractor.  As Neil was indicating, what is a subcontract is a fact specific question, not necessarily what label you put on a transaction.  For some purposes, intercorporate transfers, which would include transfers between affiliates, are specifically considered subcontracts.  See, FAR 31.205-26.  In other cases, the form of the transaction could be considered a subcontract regardless of how the parties labeled it.  In any event, subcontractors only assume the obligations they have agreed to assume in the subcontract.  In this regard, there are some clauses, such as 52.215-2, that must be included in subcontracts.  Other clauses may be necessary in order for the prime contractor to carry out its contractual obligations.  These clauses may be FAR clauses or clauses the prime contractor has developed.