Subcontractor Data

[causs]

We are a small 8a disadvantaged business. We were 1 of 8 subcontractors on a team under a major prime contractor. For the original proposal we provided fully burdened costs to the prime. We did not provide cost or pricing data. Our team won the competition for a 5 year contract with a 5 year option. We provide labor on a T&M basis, and some products on a fixed unit basis. The prime stated that our rates (T&M and fixed unit) would be valid for the 1st year and we would revisit for each subsequent year. We went thru year 1 without any problems. We then negotiated revised T&M rates for year 2. The prime provided modifications to the contract to reflect the revised rates. For year 2 (and all remaining years), the prime is telling us we need to provide cost or pricing data to them with a certification. They want us to provide to them all our costs and indirect rates. This information was not provided to them during the initial award phase. In addition, we compete with our prime on other teams and do not want them to have our proprietary data. We have offered to provide data directly to the Government but the prime states we must provide to them. We have been audited by DCAA on both our accounting system (adequate) and our 1st year rates (adequate - we would not allow release of specific rate data) and the prime has both of these reports. The prime has stated our subcontract is in jeopardy (of terminating?) if we do not provide the data. They also claim all the other subcontrators have given data to them. My questions are:

Do we have to provide our data to the prime? If so, how can we compete with them if they have our rates and costs? If not, are there regulations we can cite to get them to stop threatening the terminiation?

Thanks in advance for any insight.

[Guest Vern Edwards]

I presume that your subcontract is for a five year period with one five-year extension option. I presume that the subcontract contains a provision that requires annual renegotiation of your labor rates. I presume further that the renegotiation is not associated with the exercise of a subcontract extension option, but is merely an annual event during the five-year life of the subcontract. The key question is whether the prime contractor is obligated by the terms of its contract with the government to obtain cost or pricing data from you or wants it only for its own purposes and is demanding it as a condition of continuing to do business.

If the prime contract includes either the clause at FAR 52.215-12 or the one at 52.215-13, then the prime is obligated to obtain cost or pricing data from certain subcontractors under certain circumstances. However, those obligations are based on either (1) the award of a subcontract or (2) the modification of a subcontract that is necessitated by a modification of the prime contract. Renegotiation of labor rates is not the award of a subcontract. That leaves modification of a subcontract, which raises the question of whether the prime's renegotiation with you is tied to some renegotiation between the prime and the government related to some modification of the prime contract. If it is, then the prime must obtain cost or pricing data from you, but it could agree to let you submit the data directly to the government, which it does not have to do and which you say it will not do. That leaves the possibility that the prime is not renegotiating with the government, but only with its subcontractors and strictly on its own behalf. If that is the case, then the prime is probably not required by the terms of the prime contract to obtain cost or pricing data from you, which means that it wants the data strictly for its own purposes and on its own behalf.

If the prime wants the data for its own purposes, not for the government, then there is nothing in the government's regulations to help you. The prime might be able to terminate your subcontract for breach or for its own convenience if you won't accede to its demands, depending on the terms of the subcontract. Assuming that you are not contractually obligated to provide the data to the prime--the prime is simply demanding it--then there would be no breach of contract. That leaves termination for the prime's convenience. If your subcontract includes a clause which permits the prime to terminate the subcontract for the prime's own convenience, then it seems unlikely that you can do anything to prevent the prime from demanding your compliance and terminating the subcontract if you won't go along. As for how you can compete--I have no idea.

Sticky wicket. Good luck with it.