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We have an FFP A/E IDIQ contract that includes a list of "maximum fully loaded labor rates for the Prime and Subcontractors". We've been selected to provide a price proposal for a Task Order and we're in the process of setting up a subcontract with "Sub A".  My question pertains to what is acceptable (allowable?) when it comes to the labor rates we use to price the TO proposal. If, for example, we're using "Sub A" for a particular labor category in which our maximum contract rate is $150/hr, but Sub A has proposed a rate of $125/hr, are we able to still use our $150 max contract rate to build up our price, or would we need to use Sub A's actual rate of $125? Alternatively, is Sub A allowed to build their price using our $150/hr contract rate even though their actual cost is $125/hr? Also, provided Sub A's person meets the qualifications for this particular labor category, do we even need to disclose to the Gov't that we're subcontracting out that particular labor category?

Note that this is a FFP/lump sum TO estimated at $150K where labor is only a portion of the price. Also worth noting is that Sub A provided its $125/rate during the RFP phase for the base award, but because this was an overlapping labor category (in that it is one in which both us as the Prime and Sub A may use), we proposed our higher rate of $150/hr because the Gov't said they only wanted one rate for each labor category.

It seems that there are three ways to handle this:

1. Propose the sub's actual rate of $125/hr.

2. Propose the max contract rate of $150/hr but issue a subcontract to Sub A with their originally-proposed rate of $125/hr, in which case we as the Prime would keep the difference as profit.

3. Propose the max contract rate of $150/hr and issue a subcontract to Sub A with the max contract rate of $150/hr, in which case Sub A would keep the difference as profit.

Thanks in advance.

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Please define what “fully loaded labor rates” include . Is it the price to the government?  Is the subcontractor fully loaded labor rate the price to the prime? Thanks. 

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Read the definition of "hourly rate" in (1) FAR 52.212-4 with its Alt. I, or (2) FAR 52.232-7, whichever is in your contract, and you will have the key to your answer.  

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20 minutes ago, ji20874 said:

Read the definition of "hourly rate" in (1) FAR 52.212-4 with its Alt. I, or (2) FAR 52.232-7, whichever is in your contract, and you will have the key to your answer.  

This isn’t a T&M or LH contract. It’s a FFP IDIQ with maximum labor rates to be used when pricing FFP task orders.

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35 minutes ago, joel hoffman said:

Please define what “fully loaded labor rates” include . Is it the price to the government?  Is the subcontractor fully loaded labor rate the price to the prime? Thanks. 

The Gov’t has defined “fully loaded labor rates” as direct rates plus applicable indirects. So the price to the Gov’t prior to adding profit. Same applies with the Sub rates.

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12 hours ago, elgueromeromero said:

do we even need to disclose to the Gov't that we're subcontracting out that particular labor category?

The contract clause at FAR 52.244-2 is generally used to specify consent to subcontract requirements.  If consent is not required, then usually disclosure is not required.  But sometimes, a restriction on subcontracting is placed elsewhere in the contract.  You will want to read the contract to see if you have any disclosure mandates.

Okay, FFP.  

If the prime contract specifies "maximum fully loaded labor rates for the Prime and Subcontractors," it seems you can propose $150 + profit for the category.  If the Government does not negotiate that figure downward, then that is what it is.  You will pay your subcontractor whatever you promised to pay it, and all the difference is yours.  And if you propose 100 hours, for example, and the Government doesn't negotiate it downward, and the subcontractor later only bills you for 90 hours, well, all that money is yours, too.  Of course, if you propose 100 hours and end up expending 110, you eat those hours.  That's the nature of FFP.

Since this will be a sole source negotiation, you might have to provide some data to the Government (including proposed subcontractors), if they ask -- they might not ask.  

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10 hours ago, elgueromeromero said:

We have an FFP A/E IDIQ contract that includes a list of "maximum fully loaded labor rates for the Prime and Subcontractors". We've been selected to provide a price proposal for a Task Order and we're in the process of setting up a subcontract with "Sub A".  My question pertains to what is acceptable (allowable?) when it comes to the labor rates we use to price the TO proposal. If, for example, we're using "Sub A" for a particular labor category in which our maximum contract rate is $150/hr, but Sub A has proposed a rate of $125/hr, are we able to still use our $150 max contract rate to build up our price, or would we need to use Sub A's actual rate of $125? Alternatively, is Sub A allowed to build their price using our $150/hr contract rate even though their actual cost is $125/hr? Also, provided Sub A's person meets the qualifications for this particular labor category, do we even need to disclose to the Gov't that we're subcontracting out that particular labor category?

Note that this is a FFP/lump sum TO estimated at $150K where labor is only a portion of the price. Also worth noting is that Sub A provided its $125/rate during the RFP phase for the base award, but because this was an overlapping labor category (in that it is one in which both us as the Prime and Sub A may use), we proposed our higher rate of $150/hr because the Gov't said they only wanted one rate for each labor category.

It seems that there are three ways to handle this:

1. Propose the sub's actual rate of $125/hr.

2. Propose the max contract rate of $150/hr but issue a subcontract to Sub A with their originally-proposed rate of $125/hr, in which case we as the Prime would keep the difference as profit.

3. Propose the max contract rate of $150/hr and issue a subcontract to Sub A with the max contract rate of $150/hr, in which case Sub A would keep the difference as profit.

Thanks in advance.

Is this an agency Indefinite delivery contract or one on a GSA or other Schedule? 

If it is an A/E contract with the Army Corps of Engineers, there should have been some instructions for submission of your task order proposal, especially if it is the first task order. 

Depending upon the complexity of the task, the task order request for proposal  might include something like this:

“8. Provide detailed price breakdown with tasks, position classifications, labor-hours, costs and profit for all phases and sub-phases of work. Indicate which work will be performed by the prime firm and each subcontractor.[ Identify factual and judgmental items. ]  Discuss any assumptions made in developing the proposal. Include price quotes for any commercial supplies and services.“

If not with the UASCE, I would not know what if any, experience or skill the government agency has in negotiated A/E services. It is a negotiated action.

The agency should be using some level of price negotiations procedures as described in FAR subpart 15.4, or something comparable. EP715-1-7 is the A-E contracting procedures for USACE. 

It might well be something simplified for a small task but the basic price negotiation principles are described in FAR 15.4 and, for USACE A/E Contracting, the EP 715-1-7.

 https://www.publications.usace.army.mil/Portals/76/Publications/EngineerPamphlets/EP_715-1-7.pdf

At any rate, personally, I would expect that you would be an honest professional, truthfully negotiating.

This is a small task that shouldn’t take very long for you to decide how you will plan to execute it.My advice is to be truthful.

Otherwise, this looks like a poor (seemingly deceptive) way to kick off a contractual relationship for an IDC. 

 

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3 hours ago, joel hoffman said:

Is this an agency Indefinite delivery contract or one on a GSA or other Schedule? 

If it is an A/E contract with the Army Corps of Engineers, there should have been some instructions for submission of your task order proposal, especially if it is the first task order. 

Depending upon the complexity of the task, the task order request for proposal  might include something like this:

“8. Provide detailed price breakdown with tasks, position classifications, labor-hours, costs and profit for all phases and sub-phases of work. Indicate which work will be performed by the prime firm and each subcontractor.[ Identify factual and judgmental items. ]  Discuss any assumptions made in developing the proposal. Include price quotes for any commercial supplies and services.“

If not with the UASCE, I would not know what if any, experience or skill the government agency has in negotiated A/E services. It is a negotiated action.

The agency should be using some level of price negotiations procedures as described in FAR subpart 15.4, or something comparable. EP715-1-7 is the A-E contracting procedures for USACE. 

It might well be something simplified for a small task but the basic price negotiation principles are described in FAR 15.4 and, for USACE A/E Contracting, the EP 715-1-7.

 https://www.publications.usace.army.mil/Portals/76/Publications/EngineerPamphlets/EP_715-1-7.pdf

At any rate, personally, I would expect that you would be an honest professional, truthfully negotiating.

This is a small task that shouldn’t take very long for you to decide how you will plan to execute it.My advice is to be truthful.

Otherwise, this looks like a poor (seemingly deceptive) way to kick off a contractual relationship for an IDC. 

 

This is an IDIQ with USACE. It seems that you're suggesting Option #1, correct? 

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27 minutes ago, elgueromeromero said:

This is an IDIQ with USACE. It seems that you're suggesting Option #1, correct? 

If you intend to use the sub then, yep. I think that it will be in your own best, longer term interests. I’m surprised if they didn’t provide some proposal prep instructions, especially if this is one of the first tasks. 

If you propose to use direct employee(s), then sub out the effort and they find out, you will have blown a lot of trust, at the very least.

In The long run, I think that honesty (on both parties’ part) and mutual good relations pay off for a good A/E firm.  

Good luck on this and future task orders! 

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15 hours ago, elgueromeromero said:

 "maximum fully loaded labor rates for the Prime and Subcontractors".

On the list as I understand the $150 is the stipulated as the fully loaded rate for the labor category.  If correct consider this.....

If you propose   $125 to "build your proposal" you are shorting yourself of your part of the "fully loaded" rate you proposed on the parent IDIQ are you not? 

"Allowable" is dictated by contract language as it relates to the $150 rate agreed to in the parent contract.   If the contract is absent any language about how the max rate is to be used I would opt for using the $150, submit my proposal and make any further adjustments in negotiation/discussion of you proposal as necessary.   I say this noting especially that you are in a sole source award situation.

Heck I would even tell the USACE my pricing approach just as you have outlined here and in doing so I suspect that if the USACE thinks it is contrary to the contract terms and conditions they will let you know, and if not you go along your way.   In either case you will have a better understanding of expectations for pricing future TOs.

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Sole source?  Go with 2.  That is fair and honorable. 

Maybe the Government will try to negotiate a lower rate, maybe it will try to negotiate fewer hours.  If so, you can negotiate as needed to come to an agreement.

But remember, it is FFP, and you will have the responsibility to deliver or perform for the FFP -- the difference between $125 and $150 is your protection in case your subcontractor fails or some other risk materializes.

I think 1 and 3 would be error.  But, of course, it is your call.

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I misread the initial post and thought that the contract includes separate rates for you and the sub.  I withdraw my first recommendation but don’t know what if any contract requirements apply to using the labor rates for pricing or what the government asked for in the request for proposal 

 

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