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GtarJohn

Another 52.215-23 Discussion

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Hi Folks...I've been a member and lurker here for a long time and have learned a great deal reading through the posts.  I finally need to break the ice as I have a situation regarding excessive pass through charges that I can't seem to get my head around.  I will be using hypothetical $$$s and such as I certainly don't want anyone to identify the contract/TO I'm currently working.  Relevant info:

Large DOD IDIQ - It's not a MAC and mostly non-commercial TOs are issued of this vehicle...90% cost-reimbursement TOs.  We use FAR 15 procedures for every TO order we award.  We basically task the KTR to provide us a cost estimate for a requirement; receive their estimate, customer's tech eval, negotiate as necessary (using WG for fee and profit), reach price agreement, KTR TINA Certs when above the threshold and we finally issue (award) the TO.  We have an ACO here...but when generally administer all of the TOs up to final cost audit...and they handle all IDIQ-level indirect rates and decisions on KTR damage to GP, etc.  FAR Clause 52.215-23 is in the IDIQ and flows to our TOs unless explicitly excluded.

The tasking I'm having a hard time with right now is CPFF for let's say $30M (ballpark) non-severable services order.  90% of the $$$ of this estimate is for subcontracted support from the OEM on some of the components - sub's proposal is for an FFP commercial service.  Of course the prime has given us an estimate with all their burdens and fee across all cost elements.  They have bid a small amount project mgt, data mgt, engineering planning, subcontract mgt, etc. hours into the estimate with regard to the scope they are subcontracting.  DCMA will be doing the majority of the quality functions on site and handle inspections and acceptances directly from the sub (less work for the prime).  We're just now developing our negotiation strategy and are having a hard time with regard to whether or not this situation should be considered an excessive pass through. The contractor does add value in managing the program, as there are other areas of scope the prime will be performing ...but the Prime doesn't really have much hands on with the work the sub is doing...other than receiving monthly schedule status reports from the SUB, some minor quality hrs and being at an arm's length in case any issues pop up. My initial gut reaction is to negotiate giving them their fee on the prime's hours, materials, etc. and either disallowing the fee on the subcontracted effort, or reducing it significantly (perhaps, for example 7% for the prime and 2% for the sub). I don't go into any negotiation without having solid rationale to support my position.  I feel uneasy about settling on such a large amount of fee.  I have no way of knowing what kind of profit the sub is quoting as it would be like pulling teeth to get their cost/pricing data for their FFP/Commercial quote (we have a copy of the quote).  I mean, they meet more than one of the definitions in 52.215-23 (a)...they add value in some areas and negligible value in other areas (which just so happens to be the most expensive area).   Has anyone ever been in this situation?  If so, what did you do?  I feel like I'm splitting hairs here.   

Thanks!!! 

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49 minutes ago, GtarJohn said:

We use FAR 15 procedures for every TO order we award.

Why?

The IDIQ was established, presumably, using FAR Part 15 procedures, thus satisfying the full and open competition requirements of the Competition in Contracting Act.

Why would you go through that process, again, and again, and again, each time you evaluate and award a task order (TO) pursuant to the IDIQ?

Why wouldn't you use the procedures for evaluating and awarding task orders found in FAR 16.505? Those FAR 16.505 procedures have a much lower standard of competition - fair opportunity.

Why would you subject yourself to FAR Part 15 instead of the fair opportunity requirements of FAR 16.505?

Does any of this make sense?

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John, I don't know enough facts to give you any recommendation, but maybe I can share a few thoughts that might be helpful.

There are two wholly separate matters that you need to keep wholly separate -- one is negotiating a fair and reasonable estimated cost and fixed fee for future work (a pre-award matter for contracts or orders not awarded yet), and the other is enforcing the clause at FAR 52.215-23 and recovering excessive pass-through charges (a post-award matter for contracts or orders that have already been awarded).

It sounds to me like you are pre-award, so let's forget FAR 52.215-23.  Forget it (unless you want to audit the proposal).  You can deal with 52.215-23 when you are doing post-award contract administration.

If you are pre-award, let's talk FAR 52.215-22 (instead of -23).  You used that provision in your solicitation, right?  Good.  The question is whether the contractor complied with 52.215-22 . 

  • Look at 52.215-22(c)(1) -- did the contractor comply with (c)(1)?  That is a YES or NO question.
  • Now, look at (c)(2) -- if the condition in (c)(2) exists, did the contractor comply with (c)(2)(i) and (ii)?  This is a YES or NO question.
  • Now, look at (c)(3) -- if the condition in (c)(3) exists, did the contractor comply with (c)(3)(i) and (ii)?  This is a YES or NO question.

If any answer is NO, then your contractor failed to deliver an acceptable proposal -- you should remember this for CPARS purposes.  But for now, you should require the contractor to revise its proposal to comply with FAR 52.215-22.

Once you have a good proposal (one that complies with FAR 52.215-22), you will be in a better position to develop a negotiation objective.  Since you are pre-award, you should erase "disallow" from your vocabulary.  You will try to negotiate a lower estimated cost and/or a lower fixed fee, but you don't disallow anything in the pre-award stage -- you simply refuse to agree to it during your negotiations.  During your negotiations, it is not necessary to come to agreement on every element of cost -- it is only necessary to agree on an reasonable overall estimated cost and a fixed fee.  You will use weighted guidelines to help you with your fee objective.

Pepe, I think John has a single-award IDIQ contract, and every order has to use the FAR subpart 15.4 process to determine reasonableness.

 

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53 minutes ago, ji20874 said:

John, I don't know enough facts to give you any recommendation, but maybe I can share a few thoughts that might be helpful.

There are two wholly separate matters that you need to keep wholly separate -- one is negotiating a fair and reasonable estimated cost and fixed fee for future work (a pre-award matter for contracts or orders not awarded yet), and the other is enforcing the clause at FAR 52.215-23 and recovering excessive pass-through charges (a post-award matter for contracts or orders that have already been awarded).

It sounds to me like you are pre-award, so let's forget FAR 52.215-23.  Forget it (unless you want to audit the proposal).  You can deal with 52.215-23 when you are doing post-award contract administration.

If you are pre-award, let's talk FAR 52.215-22 (instead of -23).  You used that provision in your solicitation, right?  Good.  The question is whether the contractor complied with 52.215-22 . 

  • Look at 52.215-22(c)(1) -- did the contractor comply with (c)(1)?  That is a YES or NO question.
  • Now, look at (c)(2) -- if the condition in (c)(2) exists, did the contractor comply with (c)(2)(i) and (ii)?  This is a YES or NO question.
  • Now, look at (c)(3) -- if the condition in (c)(3) exists, did the contractor comply with (c)(3)(i) and (ii)?  This is a YES or NO question.

If any answer is NO, then your contractor failed to deliver an acceptable proposal -- you should remember this for CPARS purposes.  But for now, you should require the contractor to revise its proposal to comply with FAR 52.215-22.

Once you have a good proposal (one that complies with FAR 52.215-22), you will be in a better position to develop a negotiation objective.  Since you are pre-award, you should erase "disallow" from your vocabulary.  You will try to negotiate a lower estimated cost and/or a lower fixed fee, but you don't disallow anything in the pre-award stage -- you simply refuse to agree to it during your negotiations.  During your negotiations, it is not necessary to come to agreement on every element of cost -- it is only necessary to agree on an reasonable overall estimated cost and a fixed fee.  You will use weighted guidelines to help you with your fee objective.

Pepe, I think John has a single-award IDIQ contract, and every order has to use the FAR subpart 15.4 process to determine reasonableness.

 

I really appreciate your feedback...I will dig into how the KTR complied with 52.215-22 when I get back to the office and report back.  Thank you for correcting me concerning disallowing...I really meant negotiate it to 0%.  We administer so many TOs here...we sometimes have to disallow costs incurred, thus I got my signals crossed.  Also, I certainly understand about not having to agree on every element of cost...we rarely do, but we do reach price agreement with regard to cost and fee.  I've gotten rather good at explaining these things in our post negotiation memorandums...helps when we have to go  through our contract review boards (when over $$ threshold as required by policy).

You are correct regarding your response to Pepe...this IDIQ isa single award (The IDIQ was competed and the awarded KTR gets all the TOs). 

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2 hours ago, GtarJohn said:

DCMA will be doing the majority of the quality functions on site and handle inspections and acceptances directly from the sub (less work for the prime).

...but the Prime doesn't really have much hands on with the work the sub is doing...other than receiving monthly schedule status reports from the SUB, some minor quality hrs and being at an arm's length in case any issues pop up.

I presume the government elected not to rely on inspection by the contractor and include higher-level contract quality requirements under FAR 46.202(b) and 46.202-4.

What inspection clauses is including? Is it the standard 52.246-5, Inspection of Services -- Cost Reimbursement?

Perhaps you can clarify what the 'less work for the prime' consistent of (e.g., performing - 52.215-22(c)(2), inspecting - inspection clause).

 

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10 minutes ago, Jamaal Valentine said:

I presume the government elected not to rely on inspection by the contractor and include higher-level contract quality requirements under FAR 46.202(b) and 46.202-4.

What inspection clauses is including? Is it the standard 52.246-5, Inspection of Services -- Cost Reimbursement?

Perhaps you can clarify what the 'less work for the prime' consistent of (e.g., shipping, inspecting).

I'll have to dig when I get back, but pretty sure it's standard 52.246-5.  The sub's scope of work is being performed offsite at subject KTR's plant - hundreds of miles away from where our current Prime KTR works (this is a GOCO IDIQ).  DCMA is closer (in the same town as sub), thus the customer wanted to reduce costs by using them vs paying travel costs for having the Prime lodge near the sub's plant (not sure the sub would let the Prime's folks in their plant).  Plan is to have our cognizant DCMA ACO delegate the quality functions to the DCMA adjacent to the sub's plant.  

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@GtarJohn

ji's process is more direct than mine. I would start there and validate any assumptions regarding 'less work'--within the context of 'added value, excessive pass-through charges'--as necessary. 

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37 minutes ago, Jamaal Valentine said:

@GtarJohn

"I would start there and validate any assumptions regarding 'less work'--within the context of 'added value, excessive pass-through charges'--as necessary. "

That's likely where I'm heading.  We often go there when the KTR is just ordering COTS items on GSA to put in storage for the customer.  We have done so many of those that  the KTR pretty much proposes where we settled on the previous one.  

The proposal that I'm referring to in this discussion is the big issue I'm grappling over.   Of course I have like 10 other large  estimates I'm working through at the same time...lot's of, "where's my tech eval, explain the divergence between your crappy IGCE and the KTR's  estimate, yada, yada, yada..like herding cats.  SERENITY NOW!!!

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From gtarjohn’s description, assuming that this is a cost reimbursement task order, it would appear that the subcontracted effort is primarily  a pass-through contracting arrangement.  

I disagree that -23 Clause is non-applicable to the negotiation of the order. Per the -22 provision,  It defines what the government won’t pay for - the markups on the subcontracted portion of the order, where the primes involvement is minimal. Of course, the -22 provision says  to exclude pass- through charges in the proposal. Thus the charges will be unallowable.  NegotiAte the task order that way.

Boom. The challenge is to determine if the subbed work is a pass-through and to enforce the contract.

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Thank you Joel...your assumptions are correct.  Here we go again...provide our position with solid rationale...then the KTR sends back their position (usually with questionable rationale)....of course their negotiators have no authority to settle.  So we get to a stalemate and one of their business directors will try to go over the KO's head, who pushes them back to the KO (sometimes all the way up to the HCA). Then the customer gets fed up and says they're going to pull the funding by XYZ date if not on award.  Finally, at the 11th hour, the KTR negotiator gets the authority to settle and we move out toward TO award.

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Looks like they just posture, and bluff, hoping that you will cave.

You can use the “customer will  pull the funding” card on them, too.  Stay the course and good luck. 😃

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Sounds like your contractor is playing your organization like a fiddle.  You really should look closely to see if your contractor is complying with the -22 provision.  If they aren't, you should say so in your CPARS reporting.

Remember, you have two separate issues at two separate times.  I think you will be better off if you keep them separate.  

Pre-award, all you are doing is agreeing on a reasonable estimated cost and fixed fee.  You do not have to determine post-award cost allowability during the pre-award period.  

Your agreeing to an overall estimated cost in the pre-award period does not mean you and the contractor have to agree on every (or any) element of cost.  Your agreeing to an overall estimated cost (or any element of cost) does not estop you from disallowing costs in the post-award period under the -23 clause.  Even if you do agree on an element of cost in the pre-award period, you can still disallow all or part of the cost during post-award administration if the facts don't support allowabilty.  I hope you are not giving your contractor a copy of your PNM.  

During the pre-award period, insist on absolute compliance with the -22 provision.

Afterwards, during the post-award period, insist on absolute compliance with the -23 clause.

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They are not playing us by any fiddles and I totally understand everything you are stating...lastly, we don't give the KTRs copies of our PNMs.  I don't post on here much, but Im not a newby to this contracting stuff...did it for 20 years in the military and now 6 additional as a civilian.  This is just an issue I've not had much experience working through working in a SPO...other than when it's just outright obvious...i.e. (KTR is just ordering stuff).

Thanks,

John

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Sailing to Grenada this morning. Praying for safe transit from P.R. .

Gtar, you know what to do.  

Happy Sails!  Joel 

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On 2/22/2019 at 2:42 PM, GtarJohn said:

My initial gut reaction is to negotiate giving them their fee on the prime's hours, materials, etc. and either disallowing the fee on the subcontracted effort, or reducing it significantly (perhaps, for example 7% for the prime and 2% for the sub)

Framing the fee justification in terms of risk always helped me during my Part 15 days.  Justify the negotiation fee objective on perceived risks and how they can or cannot be mitigated.  You made several good points regarding risk and risk mitigation in your post.

On 2/23/2019 at 12:05 PM, ji20874 said:

Your agreeing to an overall estimated cost in the pre-award period does not mean you and the contractor have to agree on every (or any) element of cost.

And this!  It took me years to realize that developing a detailed negotiation position didn't mean negotiating the details, and agreeing on a total number didn't mean the parties agreed on how they each arrived at that number.   Craft your PNM to support the total number, not each cost element.  Hence the Art & Science of Procurement.

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On a related note, FAR 52.215-22/23 are two nominees for "Dumbest clauses in the FAR".

Q: Can a contractor charge pass-throughs?   A: Yes, but with caveats

Q: What kind of caveats apply to pass-throughs?   A: Caveats that prohibit  excessive fees, of course.  

Q: What constitutes excessive?  A: You know; when added-value doesn't justify the pass-through.

Q: OK. Since 52.215-22 applies only to subcontracts comprising >70% of TCV, can I pay excessive pass-throughs on sub contracts comprising <70% of TCV, regardless of added value?  And why 70%?  A:  I dunno; 70% just felt so right.  

Q: Considering that every key term and provision of 52.215-22 is subjective and/or arbitrary (e.g., "excessive", "value-added", "70% of TCV"), what is the point?  Every negotiator already has the right to every piece of information mentioned in the clause (or at the very least, to develop an independent position which outlines what "excessive" means in the context of that negotiation).  A:  But we wrote a clause...

Well thank God you wrote that clause, because 1102s everywhere were just wandering around like idiots paying excessive pass-throughs up the wazoo!

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