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Subcontracts: requirements for Nontraditional Defense Contractors (NTDC) exception from certified cost or pricing data.

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Hi,

the environment of this request is a DOD production project, a subcontractor submitting a proposal following a FFP RFP, requested by a US prime contractor on Part 15, on an alternative source subcontractor, for parts produced on Prime's design.

The request is on the applicability of the DFARs 252.215-7010(b)(1)(ii)(E)exemption from submitting certified cost or pricing data for Nontraditional Defence Contractors (NTDC). (rule modified in Jan 2018)

1. the prime contractor is stating that the supplier (subcontractor) cannot request this exemption from submitting certified cost or pricing data, because:                  a. this exemption is allowed only at prime contract level.

                b. the contract is not for commercial items.

2. the prime is also stating that if the subcontractor is running a subcontract where a prime contract is full CAS covered, the subcontractor (that qualifies for modified coverage, e.g small business or foreign concern) cannot claim to be a Nontraditional Defence Contractor, because it has at least one prime contract which is full CAS covered.

I do not have enough experience to state if it is an overkill to request certified cost or pricing data or it is a just right application of the rules.

I would appreciate some references that can eliminate the doubt and allow to take a supported position.

Thank you.

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3 hours ago, B2B.Consultancy said:

 the prime is also stating that if the subcontractor is running a subcontract where a prime contract is full CAS covered, the subcontractor (that qualifies for modified coverage, e.g small business or foreign concern) cannot claim to be a Nontraditional Defence Contractor, because it has at least one prime contract which is full CAS covered.

The prime contractor seems to be correct in regard to 1.  However, the above statement does not make any sense.  Can you try to restate more clearly what the facts are?  In any event, small business concerns are exempt from all CAS requirements regardless of whether they are performing as a prime contractor or subcontractor and regardless of whether the prime contract is subject to full CAS coverage.

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I appreciate your reply,

13 hours ago, Retreadfed said:

However, the above statement does not make any sense.  Can you try to restate more clearly what the facts are?

It is connected with the definition of NTDC, as far as I understand prime's position is that if you performed as subcontractor of a prime on a contract that for the prime is full CAS covered, you cannot claim the exemption because you do not fall anymore in the definition below.

"Nontraditional defense contractor means an entity that is not currently performing and has not performed any contract or subcontract for DoD that is subject to full coverage under the cost accounting standards prescribed pursuant to 41 U.S.C. 1502 and the regulations implementing such section, for at least the 1-year period preceding the solicitation of sources by DoD for the procurement"

 

13 hours ago, Retreadfed said:

The prime contractor seems to be correct in regard to 1

Could you please help me understanding where is written that this esemption is not applicable to subcontractors? The flowdown seems to me to be mandatory.

Thank you 

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As I understand things, the DFARS permits a government contracting officer to use commercial item procedures to acquire goods and services from a NTDC, without making a commercial item determination. If one looks at the public law authorizing the treatment (Section 857 of the FY 2016 NDAA) it is clearly aimed at DOD and not prime contractors. It does not seem to grant that authority to contractors.

Quote

Ҥ 2380A. Treatment of goods and services provided by nontraditional defense contractors as commercial items

“Notwithstanding section
2376(1) of this title, items and services provided by nontraditional defense contractors (as that term is defined in section 2302(9) of this title) may be treated by the head of an agency as commercial items for purposes of this chapter.”.

Further, I don't read the authority as granting an exemption from submitting (certified) cost or pricing data. Instead, I read it as authorizing use of Part 12 acquisition procedures. Looking at 12.209, FAR 15.4 may be used to determine price reasonableness when Part 12 procedures are used. If 15.4 is used, then there is an exemption for a commercial item -- but not for goods/services for which a CID has not been made (i.e., for goods/services sourced from a NTDC).

Thus, I'm not on board with the subcontractor's line of reasoning.

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22 hours ago, B2B.Consultancy said:

1. the prime contractor is stating that the supplier (subcontractor) cannot request this exemption from submitting certified cost or pricing data, because:                  a. this exemption is allowed only at prime contract level.

                b. the contract is not for commercial items.

B2B, when the Contractor included this DoD provision in the RFP, did the RFP include language that substituted parties in general throughout the RFP, or specifically with respect to this DoD provision, such as "Offeror means subcontractor" and "Contracting Officer means Contractor?" If so, some confusion may have been sowed by the prime contractor because the required flowdown direction does not indicate such a substitution and such a substitution does not seem warranted by the legislative history of the provision or the provision language itself.

If there was no such substitution, (b)(1)(ii) clearly means the Offeror to DoD when such provision is included in a DoD solicitation. It does not change meanings when it is flowed down to subcontractors. Therefore, it has nothing to do with subcontractors. (b)(1)(ii)(E) is a subsection of (b)(1)(ii). To me,  it means a DoD Offeror that is a non traditional defense contractor at this time and shall not, for 1-year prior,  have been subject to full coverage CAS as a prior DoD Offeror or subcontractor to a DoD Offeror.

   

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1 hour ago, here_2_help said:

As I understand things, the DFARS permits a government contracting officer to use commercial item procedures to acquire goods and services from a NTDC, without making a commercial item determination

I agree on this, it is the rule in DFARs 252.215-7013. This applies the Part 12 to the procurement which is a far more relaxed requirement than "just" the exemption from certified cost and pricing data, which is what the 7010(b)(1)(ii)(E) seems to allow. It contains the requirement to what is necessary to ask for the exemption, that for the NTDCs is just the written statement... This change was planned because many (all?) NTDC do not have in place systems to certify the data, even if quality and price of products/services may satisfy the Customer, this gap in system/processes was exposing them to potential following problems... which has been a fear preventing many to offer in this arena. The original intent was to enlarge the supplier base as far as I understood.

Thank you for the time you have spent on this.

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4 hours ago, Neil Roberts said:

did the RFP include language that substituted parties in general throughout the RFP, or specifically with respect to this DoD provision, such as "Offeror means subcontractor" and "Contracting Officer means Contractor?"

Yes it does, specifically after 252.215-7010 "Contracting Officer means the Buyer", where the Buyer is defined as the Prime. 

4 hours ago, Neil Roberts said:

Offeror to DoD

is there a definition of sub-offeror? why the clause itself require the flowdown, if it cannot be used from a sub-contractor while sub-Offering?

4 hours ago, Neil Roberts said:

(b)(1)(ii) clearly means the Offeror to DoD when such provision is included in a DoD solicitation. It does not change meanings when it is flowed down to subcontractors. Therefore, it has nothing to do with subcontractors. (b)(1)(ii)(E) is a subsection of (b)(1)(ii).

If this statement would be true, I think that we would have a bigger problem, because also the exceptions (b)(1)(ii)(A), (B), (C) and (D) would not apply to a sub-contractor... while it results to me are commonly used to require the exception for those categories of products.

I do appreciate your point of view. Thank you.

 

 

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7 hours ago, B2B.Consultancy said:

Could you please help me understanding where is written that this esemption is not applicable to subcontractors?

If you go back to the promulgation comments regarding this clause in the Federal Register, one of the public comments related to applying the policy in the clause to subcontractors.  DoD responded by stating that the statutory authority for the clause only gave DoD discretion to apply the policy.  Further, this discretion only applied to the award of prime contracts.  Consequently, DoD specifically refused to make the discretion given to DoD available to the prime in regard to subcontracts.

I still do not see any connection between the definition of a NTDC and what you wrote in your original post.  The fact that a prime contract is subject to full CAS coverage does not mean that all subcontracts under that prime contract are also subject to full CAS coverage.  Instead, if the subcontract falls within one or more of the exceptions in the CAS rules, such as the subcontract being awarded to a small business concern or for commercial items, the subcontract is exempt from CAS coverage.

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2 hours ago, B2B.Consultancy said:

If this statement would be true, I think that we would have a bigger problem, because also the exceptions (b)(1)(ii)(A), (B), (C) and (D) would not apply to a sub-contractor... while it results to me are commonly used to require the exception for those categories of products.

You may be thinking about common exceptions to certified cost or pricing data per FAR 52.215-12 and FAR 15.403. Your posted question was solely about a DFARS provision. This DFARS provision did not delete FAR provisions or clauses. BTW, you seem to use "exemption" and "exception" interchangeably. They are not.  

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54 minutes ago, Neil Roberts said:

BTW, you seem to use "exemption" and "exception" interchangeably. They are not.

You are right, "exception" is the right one in this case, it would be an exception from submitting certified cost and pricing data. Thank you for the clarification.

3 hours ago, B2B.Consultancy said:

If this statement would be true, I think that we would have a bigger problem, because also the exceptions (b)(1)(ii)(A), (B), (C) and (D) would not apply to a sub-contractor...

You are right, my question was on DFARs 252.215-7010. With the statement above I was referring the other 4 exceptions that are listed in DFARs 252.215-7010(b)(1)(ii), before the (E), I thought that all of them (or none of them if I got your position) should be applicable to the sub-contractor. 

Hopefully I clarified my understanding.

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B2B, you are welcome. I believe you are correctly understanding that my position is that neither the commercial item exception in (b)(1) (ii) nor its sub paragraphs (A), (B), (C),(D) or (E) are applicable to a subcontractor under that DFARS provision as written by DoD. I also have trouble understanding the flowdown of this provision. In paragraph (e), DoD wrote it such that the DoD contractor shall incorporate the substance of this provision in subcontracts, which to me means the entire DoD provision. On the other hand, it goes on to say that the subcontractor shall comply with paragraphs (c) and (d), but no mention of subcontractor compliance with paragraph (b), the commercial item exception. This is an awkward indication that (b) is not applicable to subcontractors.

I believe the prime contractor was in error in substituting Buyer for Contracting Officer in (b). That substitution seems to invite making the commercial item exception applicable subcontractors. Thereafter, apparently the prime contractor took another look at (b) and responded to the subcontractor's request for a commercial item exception in the negative. Hence, the confusion and concern about whether to request cost or pricing data. If this provision and its Contracting Officer alteration was included in a contract between the prime contractor and the subcontractor, the contractor could be seen as in breach of contract by the subcontractor relative to (b). If the contractor went ahead and honored its contract language, it could be viewed in my opinion as an incorrect commercial item determination, which may have consequences with its DoD customer and/or approved purchasing system.  

The flowdown direction in (e) to Incorporate the substance of this provision in subcontracts is not as clear as it should be relative to paragraph (b).         

Edited by Neil Roberts
add ;language to clarify

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Neil,

Thank you for your position, that I find very clear and helps me in further understanding the situation.

16 hours ago, Neil Roberts said:

In paragraph (e), DoD wrote it such that the DoD contractor shall incorporate the substance of this provision in subcontracts, which to me means the entire DoD provision. On the other hand, it goes on to say that the subcontractor shall comply with paragraphs (c) and (d), but no mention of subcontractor compliance with paragraph (b), the commercial item exception

I was confident that paragraph (b) was part of the flow down due to the first sentence of paragraph (c), which states that the requirements apply only IF none of the exceptions apply (the exceptions in paragraph (b)):

252.215-7010(c)Requirements for certified cost or pricing data. If the Offeror is not granted an exception from the requirement to submit certified cost or pricing data,

Further, following the suggestion of here_2_help, I went through the comments and responses of the Proposed rule and I found these clarifications:

Response: The standards for what information is necessary to make commercial item determinations and determinations of price reasonableness should not be relaxed for subcontractors. Prime contractors are responsible for exercising the same due diligence as DoD contracting officers in making subcontractor commercial item determinations and evaluating their subcontractors’ price reasonableness.

Response: This rule does not alter prime contractors’ responsibility for making subcontractor commercial item determinations and evaluating their subcontractors’ price reasonableness, regardless of whether the end item has or has not been determined to be a commercial item.

 

I'm reading more information supporting that the subcontractor may be right in the request for exception , than evidences to reject it.

Please help me with this feeling "killing" or "feeding" it to a supported decision.

Thank you and all again for your opinions.

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36 minutes ago, B2B.Consultancy said:

I'm reading more information supporting that the subcontractor may be right in the request for exception ,

An exception under what clause/provision?

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On 7/15/2019 at 10:12 AM, B2B.Consultancy said:

The request is on the applicability of the DFARs 252.215-7010(b)(1)(ii)(E)exemption from submitting certified cost or pricing data for Nontraditional Defence Contractors (NTDC). (rule modified in Jan 2018)

1. the prime contractor is stating that the supplier (subcontractor) cannot request this exemption from submitting certified cost or pricing data, because:                  a. this exemption is allowed only at prime contract level.

                b. the contract is not for commercial items. 

B2B, your posting was specifically about the above DFARS provision. The responses here have focused on your specific request about the DFARS provision. Are you now questioning whether there are other circumstances under which this subcontractor may present information to a prime contractor for a an exception to providing certified current cost or pricing data? As I tried to indicate in an earlier posting response, the answer is yes, if FAR 52.215-12 is included in the RFP.      

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I'm sorry for the delay in the reply, I was on a long travel.

Retreadfed,

On 7/17/2019 at 6:58 PM, Retreadfed said:

An exception under what clause/provision?

Always the same DFARS, I did not change focus.

I followed what you posted and, considering it a good idea, I went to read the public comments and responses to the Proposed Rule on Federal Register and I found  the two responses that I posted above.

On 7/17/2019 at 6:21 PM, B2B.Consultancy said:

Response: The standards for what information is necessary to make commercial item determinations and determinations of price reasonableness should not be relaxed for subcontractors. Prime contractors are responsible for exercising the same due diligence as DoD contracting officers in making subcontractor commercial item determinations and evaluating their subcontractors’ price reasonableness.

Response: This rule does not alter prime contractors’ responsibility for making subcontractor commercial item determinations and evaluating their subcontractors’ price reasonableness, regardless of whether the end item has or has not been determined to be a commercial item.

From that reading I was gaining the perception that there were more comments in favor of the applicability to subcontracts than contrary to that. I also understand that responses to public comments can just give an help reading the rule, but the text of the rule is what it is.

 

Neil Roberts:

I confirm that my interest is still on the applicability of the exception conteined in DFARs 252.215-7010(b)(1)(ii)(E). In any case, to your question: yes, I verified that also FAR 25.215-12 is included in their flowdown, which should not be applicable if the above exception would be applicable (as no certified cost and pricing data will be required).

 

Thank you and sorry again for the delayed reply

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I think that point 2 of my original post has been discussed having all on the same opinion, for this specific point 2 I think my take-away is that the definition of NTDC do applies to a supplier that is exempt from CAS or subject to modified CAS, even if it had in the last 12 months a subcontract from a Prime, where the Prime Contract was Full CAS covered, because his subcontract cannot be considered full CAS covered, and so the definition of NTDC still applies.

 

I don't see yet a final position (maybe I did not catch it) to support or discuss prime's rejection reasons on points 1a and 1b.

I'll appreciate any further help on this.

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2 minutes ago, B2B.Consultancy said:

I don't see yet a final position (maybe I did not catch it) to support or discuss prime's rejection reasons on points 1a and 1b.

I think the validity of 1a has been established.  Based on the language of the statute and the DoD promulgation comments rejecting suggestions to apply the exception at the subcontract level, the exception only applies to prime contractors.  As for 1b., we don't know what the subcontract is for, thus, no one can say.

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On 7/18/2019 at 10:51 PM, Retreadfed said:

I think the validity of 1a has been established.  Based on the language of the statute and the DoD promulgation comments rejecting suggestions to apply the exception at the subcontract level, the exception only applies to prime contractors.  As for 1b., we don't know what the subcontract is for, thus, no one can say.

1a: I appreciate your point of view. But we also had here at least one point of view on the rule that may intend the exception to be applied at subcontractors level.

paragraph (e) of the DFARs 252.215-7010 contains the flowdown requirement which requires to flowdown the exceptions to further levels of subcontracts, this is difficult to discard:

"(e) Subcontracts. The Offeror shall insert the substance of this provision, including this paragraph (e), in subcontracts exceeding the simplified acquisition threshold defined in FAR part 2."

In the promulgation comments (following your suggestion), that I found at the following link, i tried to find the comment/response you were using as reference

"https://www.federalregister.gov/documents/2018/01/31/2018-01781/defense-federal-acquisition-regulation-supplement-procurement-of-commercial-items-dfars-case

I have found only the following:

"Additionally, two respondents recommended clarifying that “subcontractors” be added to the definition of nontraditional defense contractors so that items provided by a subcontractor that meet the definition of a “nontraditional defense contractor” may be treated as commercial items.
Response: Section 857 amended 10 U.S.C 2380a to provide DoD with the permissive authority to treat items and services provided by nontraditional defense contractors as commercial items. This authority was neither mandatory nor was it extended to prime contractor commercial item determinations for subcontracted items and services.
"

As I read it, it is just saying that the Prime Contractor cannot substitute the DOD CO in commercial item determinations for subcontracted items and services. I think, but I may be wrong, that it refers to 252.215-7013. I think this because the respondents end the recommendation with "may be treated as commercial items" which is the text of the DFARS 252.215-7013, while the 252.215-7010(b)(1)(ii)(E) "only" adds an exception from submitting certified cost and pricing data, which is different.

then if you read comment in section 35 of the same page, titled "35. Subcontract cost or pricing data flowdown requirements."(https://www.federalregister.gov/d/2018-01781/p-169)

the respondant was suggesting many possible problems (from his point of view) in flowing down to all tiers of subcontractors. 

Here the comment, instead of saying that it is not applying to any subcontractor, states the opposite:

"Response: Section 831 of the NDAA for FY 2013 does not relieve prime contractors from their responsibility for exercising the same due diligence as DoD contracting officers in making subcontractor commercial item determinations and evaluating their subcontractors' price reasonableness."

 

In case I overlooked the comment that you have read, please help me locating it.

I thank you all because with your comments I have found a lot of supporting information.

I hope that this awesome community continue to discuss this adding pro and cons or actual business cases in which this aspect has been discussed (and with enough LUCK maybe we can find a final determination on the matter)

Thank you

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