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VipinOwl

Subcontract cost/price analysis as part of CO consent decision?

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During performance of an R&D contract (roughly 2 years after award), does the CO need to perform price/cost analysis for a proposed subcontract award when providing consent?

Scenario:

  • CPFF prime contract for R&D Services (non-commercial, competitive acquisition)
  • Subcontract award also CPFF from a competitive RFP (above the SAT).  3 proposals were received and prime made its selection
  • Prime provides advance notification to CO for the anticipated subcontract award, including prospective subcontractor cost/price information such as budget and the non-winning proposal cost information
  • Prime provides a negotiation memo and states the technical reasons for the selection, the fact that the prices have been determined to be fair and reasonable and the offeror's past performance.

Does the CO need to independently review the cost/price information and perform a price analysis and cost realism analysis?  Intuitively, this seems imperative to ensure that services are acquired at a fair and reasonable price.  However, FAR part 44.202, does not state that at a minimum the CO shall determine that prices are fair and reasonable, under its considerations.  Instead item 8. states, "(8) Has the contractor performed adequate cost or price analysis or price comparisons and obtained certified cost or pricing data and data other than certified cost or pricing data?"  To make matters more convoluted (at least to me) FAR 44.203 states, "(a) The contracting officer’s consent to a subcontract or approval of the contractor’s purchasing system does not constitute a determination of the acceptability of the subcontract terms or price..."

Is the subcontractor's determination sufficient for this analysis?  FAR part 15 states that "The contracting officer is responsible for the determination of a fair and reasonable price for the prime contract, including subcontracting costs."  Then again a paragraph further down it states, that "The prime contractor or subcontractor shall -- (1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices".  

Is the onus on the prime contractor to determine fair and reasonable prices for its intended subcontract, if at a minimum the CO's determination is not required, under considerations, and further that a CO's consent is not an indication of acceptable subcontract prices?  Can a CO's evaluation of the prices submitted in response to a competitive requirement be sufficient, for a CPFF subcontract? 

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Owl,

Have you read the clause at FAR 52.244-2, Subcontracts?

Is consent to subcontract (under the clause at FAR 52.244-2) required for the subcontract you are asking about?

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44.203 consent does not support a contractor relying on it as the government seal of approval or agreement to any other matter, such as allowable costs, approval of special test equipment, whether the transaction was now considered audited, etc. It is merely permission to enter into a contract.

Yes, when consent is required, the contractor is required to furnish information about the transaction per FAR 52.244-2.

Not sure what you mean by your last sentence, VipinOwl. Is it about consent?

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You’ve mentioned cost analysis here - if you’ve documented adequate competition, per FAR 15.403-1, you alleviate the certification requirements. The contracting officer wouldn’t be required to do a cost analysis unless the competition is somehow determined inadequate. 

Your cost reimbursable contract type will subject you and your sub to accounting system adequacy questions. That’s potentially a much bigger issue than price reasonableness, although the two go hand in hand. 

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15 hours ago, ji20874 said:

Owl,

Have you read the clause at FAR 52.244-2, Subcontracts?

Is consent to subcontract (under the clause at FAR 52.244-2) required for the subcontract you are asking about?

Yes, the subcontract is subject to consent requirements.

 

15 hours ago, Neil Roberts said:

44.203 consent does not support a contractor relying on it as the government seal of approval or agreement to any other matter, such as allowable costs, approval of special test equipment, whether the transaction was now considered audited, etc. It is merely permission to enter into a contract.

Yes, when consent is required, the contractor is required to furnish information about the transaction per FAR 52.244-2.

Not sure what you mean by your last sentence, VipinOwl. Is it about consent?

Yes, its about consent.  Does the CO's consent involve a CO's independent determination of a fair and reasonable price for the subcontract or can he/she rely on the prime's certification?  

 

14 hours ago, Patrick Mathern said:

The contracting officer wouldn’t be required to do a cost analysis unless the competition is somehow determined inadequate. 

I was wondering if a cost realism analysis, in line with FAR part 15 was required of a CPFF subcontract, even if there is adequate competition and price analysis indicates that prices are fair and reasonable.

 

14 hours ago, Don Mansfield said:

@VipinOwl,

Are you pricing a contract modification?

Don, this is not part of a contract modification.  It is for a subcontract consent decision, within the ceiling of the contract.  From my reading of FAR part 15, subcontract pricing, the review and analysis of subcontracts is specifically required when pricing a prime contract award or modification.  I'm trying to ascertain if a subcontract needs to be subjected to price/cost analysis after contract award and not for a contract modification.  It appears from both FAR part 15 and FAR part 44 that the onus is on the prime contractor to make a determination of fair and reasonable prices for a subcontractor.

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1 hour ago, VipinOwl said:

Yes, its about consent.  Does the CO's consent involve a CO's independent determination of a fair and reasonable price for the subcontract or can he/she rely on the prime's certification?

No, consent does not require the CO's independent determination of a fair and reasonable subcontract price. FAR 44.203(a):

Quote

The contracting officer’s consent to a subcontract or approval of the contractor’s purchasing system does not constitute a determination of the acceptability of the subcontract terms or price, or of the allowability of costs, unless the consent or approval specifies otherwise.

 

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If the question is "does the CO need to perform price/cost analysis"  ...the CO is to determine the contract price is fair and reasonable, not necessarily the subcontracted prices. By design, the onus is on the contractor to determine fair and reasonable prices from their subcontractors in their proposals to the government, if that is adequately done to the satisfaction of the CO, he/she may need not go any further. 

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5 hours ago, Don Mansfield said:

No, consent does not require the CO's independent determination of a fair and reasonable subcontract price. FAR 44.203(a):

 

Thank you kindly for your help Don.  Just so I'm clear, does the CO ever need to independently analyze a subcontractor's proposal (cost/cost realism/price analysis)?  FAR part 15.404-3 states, "The contracting officer is responsible for the determination of a fair and reasonable price for the prime contract, including subcontracting costs."  Should this be read as the CO shall determine if only the prime contract's price (to include subcontract costs) is fair and reasonable or that the CO shall determine that both the prime contract's and subcontract's prices are fair and reasonable?  FAR 15.404-3(b)1 goes on to say that the "prime or subcontractor shall conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices", seeming to put the burden of the subcontract price reasonableness determination on prime contractors.  

If that is the case, pre-award cost realism and or cost analysis of prime contract offerors need not include a CO's cost/price analysis of contemplated subcontract awards, is that correct?  Instead a CO may rely on the prime contractor's certification that it has performed cost/price analysis of subcontracts or has negotiated subcontract prices per FAR 15.404-3.

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Not only does consent to subcontract not require the contracting officer to determine the subcontract price to be reasonable, but also the fact of consent does not mean that the subcontract price is reasonable (even though the prime contractor shared the proposed subcontract price and its PNM with the consent package).

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20 hours ago, VipinOwl said:

Just so I'm clear, does the CO ever need to independently analyze a subcontractor's proposal (cost/cost realism/price analysis)?

Yes. For example, if the CO is pricing a contract or contract modification and the subcontractor does not share cost information with the prime. In that case, the CO would have to perform any required cost analysis.

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11 minutes ago, general_correspondence said:

Would an assist audit be requested or required, if the prime Contractors subcontractor did not share cost information with the prime?

That depends on the value of the prime contract and subcontract, how each is priced and what agency is awarding the contract.

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it is an IDIQ already awarded to a prime.  The IDIQ was competitively awarded to multiple Primes. Now, this task order pursuit, the Primes' proposal is valued over 2M, and so is the subcontracors proposal to the prime.  The Prime solicited several suppliers in RFP, however only one priced proposal came back.  The Subcontractors proposal is a CPFF, same as Prime, however the Subcontractor did not share rates, and indirect costs.  Therefore, adequate competition was attempted, only one source responded. We, as the prime, want to know what is the policy/guidance on when an assist audit is required for subcontractors under a competitive process?

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2 hours ago, general_correspondence said:

We, as the prime, want to know what is the policy/guidance on when an assist audit is required for subcontractors under a competitive process?

Generally, no audit of the prime or subcontractors would be required if the prime contract (task order) is being awarded competitively.  To the best of my knowledge, the only pre-award audit rights that the government has is in regard to non-competitive awards when certified cost or pricing data are required.  See, table 15-2 in FAR 15.408.

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I have never believed there is adequate price competition or even attempted adequate price competition when all the bidders (or one bidder) are proposing CPFF contracts because there is no price. Certified cost or pricing data is required from the one bidder if the threshold is exceeded. The prime should verify the data (factfind and prepare a negotiation plan) /and or request an audit assist from DCAA or information from it or the subcontractor regarding any approved rates.  

Edited by Neil Roberts
add ;language to clarify

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2 hours ago, Retreadfed said:

Neil, look at the definition of "price" in FAR 15.401.

My view/interpretation is from a prime contractor standpoint. I do not know how the government sees this. Prime contractors would be taking unreasonable risks for itself and the government to simply compare proposed estimated cost and fee by 2 or more subcontractors and awarding it as proposed to the one that has the lowest mathematical total. Regardless of the estimated cost proposed, the government is bound to pay the contractor its actual and allowable costs. FAR §§ 15.305(a)(1); 15.404-1(d); Palmetto GBA, LLC, B-298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 25 at 7. Those costs are unknown and can not be compared to one another. The government and the prime contractor should perform cost realism per 15.404-1. When performed, I think it would be reasonable to say that it would be rare that the analyzing party would not seek some adjustment in the proposed. Hence, as a practical matter, CPFF contracts are negotiated and outside the bounds of adequate price competition defined in 15.403-1.      

I looked at the definition of price in 15.401, Retreadfed. I have not done any research. Offhand I would argue that when the cost applicable to the contract type is unknown, there is no price for purposes of 15.403-1 (1)(c)(1) Adequate price competition. 

 

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19 hours ago, Neil Roberts said:

I looked at the definition of price in 15.401, Retreadfed. I have not done any research. Offhand I would argue that when the cost applicable to the contract type is unknown, there is no price for purposes of 15.403-1 (1)(c)(1) Adequate price competition. 

FAR 15.401 reads

As used in this subpart-“Price” means cost plus any fee or profit applicable to the contract type.

Since 15.403-1 is a part of subpart 15.4, why would the definition of "price" in 15.401 not be the definition of "price" in 15.403-1?

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42 minutes ago, Retreadfed said:

FAR 15.401 reads

As used in this subpart-“Price” means cost plus any fee or profit applicable to the contract type.

Since 15.403-1 is a part of subpart 15.4, why would the definition of "price" in 15.401 not be the definition of "price" in 15.403-1? 

The definition is unchanged. I am saying that the cost "applicable to the contract type" is unknown and therefore "not applicable to the contract type." If it is "not applicable," the concept of price is essentially voided in 15.403-1 adequate price competition.

I am not saying that competition is absent when two or more propose a CPFF contract type. To me, competition is not the same as adequate price competition.

I would like to read other views especially those that have reference to cases. I am willing to reconsider whether my view is sustainable by cases or FAR rationale. However, I am less willing to change my view if it turns out to be only my business practice.   

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2 hours ago, Neil Roberts said:

However, I am less willing to change my view if it turns out to be only my business practice. 

Neil, do you view FAR 15.403-1 or -2 as imposing any restrictions on your ability to obtain certified cost or pricing data from potential subcontractors?  Put another way, do you believe you have the discretion to require subcontractors to submit certified cost or pricing data when it is not required by these FAR subsections?

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Retreadfed: I believe there is no discretion but to comply with United States Code requirements as may be construed and interpreted by the federal common law of government contracts. In keeping with the posted facts to start with, perhaps there is authority that a  CPFF subcontract can be based on adequate price competition when there is one or more bidders? 

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23 hours ago, Neil Roberts said:

I believe there is no discretion but to comply with United States Code requirements

Neil, the reason I asked my earlier question was your reference to business practices.  In regard to complying with the US Code, the relevant statutes (10 U.S.C. 2306a for DoD), do not impose any requirements on contractors or subcontractors.  They only impose requirements on the government.  One of those requirements is to require potential contractors and subcontractors to submit certified cost or pricing data in specified circumstances.  The statutes also impose restrictions on when the government can require the submission of certified cost or pricing data.  Some of these statutory restrictions are implemented in FAR 15.403.   Note that the statutes and FAR only impose restrictions on the government obtaining certified cost or pricing data.  Neither contains a restriction on contractors obtaining cost or pricing data when it is not required by the FAR or statutes.  As has been discussed in this forum before, contractors sometimes have policies that require them to obtain certified cost or pricing data from subcontractors when it is not required by the terms of their contract that implement the statutes and FAR.  Therefore, you as a prime can attempt to require subcontractors to submit certified cost or pricing data when it is not required by the terms of your contract.  Thus, if you have a business practice of requiring a single source subcontractor to submit certified cost or pricing data in regard to a CPFF subcontract when multiple sources were solicited, I see no contractual, statutory or regulatory impediment to doing so, although you may get push back from the subcontractor.

On the other hand, as a prime contractor, I would be surprised if you would try to convince the government that you should submit certified cost or pricing data in regard to a CPFF contract when you are the only offeror although others were solicited.

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14 hours ago, Retreadfed said:

Neil, the reason I asked my earlier question was your reference to business practices.  In regard to complying with the US Code, the relevant statutes (10 U.S.C. 2306a for DoD), do not impose any requirements on contractors or subcontractors.  They only impose requirements on the government.

You might want to review the 10 USC 2306(a) again. The statute states that the Contracting Officer shall require that the  contractor or Offeror to submit cost or pricing data and for subs to submit   C&P data as applicable.

 It also requires that the contractor submit it and to obtain C&P from subs or prospective subs as applicable.

It requires a sub or prospective sub to submit it, where applicable. 

I reread my old Briefing papers on TINA and they clearly state that the prospective contractor or contracting shall submit..., shall review..., etc. 

 

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