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LeighHar

Can the fee structure be changed during implementation?

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Hello professionals,

We have a CPFF subcontract, which is a 3-year base and one option year.  The base ended in December 2018 and we are in the midst of implementation of the option year.  The prime has informed us that the client is imposing a performance-based fee payment structure on Yr 3 (which is complete at this point) as well as the option period.   The original fee in our contract is set at 5% and we have been billing it at 5% of incurred and invoiced costs per month (which is the norm). I've been searching through FAR but haven't successfully found any regs we can put behind our pushback and further negotiation with the prime.  Any ideas? I think we are fine for the base period to be tied to performance, but I don't understand how this can be imposed on a period that is completed before we were informed of this change.

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Your prime wants to convert from CPFF to CPAF ("performance-based fee payment structure")? More accurately, your prime's contract is being changed and the prime wants you to accept similar changes to your existing subcontract.

Thoughts:

1. What is the consideration? Will the prime increase your fee pool from 5% to 10%, for example? I don't see why you would agree to a change without consideration.

2. How will your subcontract performance fee be determined? I get that the prime's fee will be based on a customer fee determination process, but how will your subcontract fee be determined? It needs to be documented and followed by the prime. I would not simply accept "whatever fee % the prime earns, the subK gets to bill" because the prime's fee may not be related to your company's performance.

3. The subcontract type does NOT have to match the prime contract type. If the prime contract is CPAF, there is nothing wrong with having CPFF, T&M, or even FFP subcontracts under the prime. Why does your prime feel the types have to match?

4. Of course, your prime cannot retroactively change contract type, though I suppose it may do so prospectively. With consideration.

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LeighHar, I would be guided by what your subcontract says about the prime's ability to unilaterally change the fee structure.  If the subcontract does not permit the prime to do so, whether you agree to such a change and on what terms is generally  up to you. 

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1 hour ago, LeighHar said:

I've been searching through FAR but haven't successfully found any regs we can put behind our pushback and further negotiation with the prime.

You have a subcontract, a contract between your company and another company. Contract A.

The other company has a prime contract with the government. Contract B.

Don't look in the FAR for help with Contract A. The FAR does not apply to Contract A. 

You need to look at the contents of Contract A, no matter what Contract B or anything other contract says. 

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1 hour ago, LeighHar said:

Hello professionals,

We have a CPFF subcontract, which is a 3-year base and one option year.  The base ended in December 2018 and we are in the midst of implementation of the option year.  The prime has informed us that the client is imposing a performance-based fee payment structure on Yr 3 (which is complete at this point) as well as the option period.   The original fee in our contract is set at 5% and we have been billing it at 5% of incurred and invoiced costs per month (which is the norm). I've been searching through FAR but haven't successfully found any regs we can put behind our pushback and further negotiation with the prime.  Any ideas? I think we are fine for the base period to be tied to performance, but I don't understand how this can be imposed on a period that is completed before we were informed of this change.

Emphasis added - Vern's blog is no longer available...if it was, there was a nice post about how the FAR applies to contractors/subcontractors only when incorporated via provisions/clauses (with some exceptions).  Absent that, here is an NCMA article about the issue: http://www.wifcon.com/analy/Christoph LLC_Does the FAR Apply to Fed Contractors_NCMA Oct2017.pdf

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