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We are a subcontractor for a multi-year FFP DoD contract. Our Prime was awarded an Order under Basic Ordering Agreement (BOA).  The award to the Prime was non-competitive, as the Order supports a pre-existing Contract for which the Prime, ourselves and our subcontractors are the only sources with the requisite knowledge, experience, and technical expertise to provide the required supplies and services under the Order.  The Prime has asked for the T&M proposal for our participation. We have historically avoided T&M efforts but the proposal scope is too broad for us and our suppliers to provide a traditional FFP for the effort. Our participation alone and the participation of several subcontractors will exceed $150,000. I have many questions but I’ll limit it two; I suspect the response may help answer the others. 


1) Based 16.601(c)(2)(ii), do I understand correctly that we need to provide the hourly rates for ourselves and the hourly labor rates for each of our subcontractors separately? My understanding is the lack of competition restricts us from submitting blended labor category rates.


2) If I’ve understood the first, how do I capture the overhead costs related to subcontractor management? We don’t have a standalone role/position of subcontract manager, that task is shared between PM and CM.  Can I add a fixed fee (e.g. 10%) to all subcontractor hourly rates? We’re still waiting on rates from our subs, in the interim can we bookmark the proposal by stating “xxxx will invoice at the subcontractor rates plus 10%.”?  I’m hesitant with this approach and uncertain whether it would create a prohibited CPPC.


A few notes: (1) we and the majority of our subcontractors are not supply COTS or Commercial Items; (2) no Materials will be provided – a technical labor effort; 52.216-30 was not included in the flowdowns.  As always, appreciate the feedback and support from this forum.


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If the order to the prime contractor is already awarded, isn't it too late to worry about FAR 16.601(c)(2)(ii)?  One supposes that should have been handled already as part of the negotiations to form the order with the prime contractor.

Be careful about applying FAR principles to subcontracts.  Generally, the FAR governs prime contracts.  Subcontracts are governed by state law, not the FAR.

Maybe you have no costs for subcontractor management?  If the PM and CM are already bought and paid for, so to speak, then you are not incurring any costs for subcontract management and you don't need any mark-up.

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Thank you ji20874 for the response, it helped answer an underlying question. As the subcontractor, I was concerned I had started down a rabbit hole in applying FAR principles to this relationship - I had. I moved beyond the RFP flowdowns and into generic T&M FAR research. 

The RFP however includes 52.232-7. As the subcontractor, am I required to separate our rates and the rates of our subcontractors (52.232-7(a)(1)) or may we provide a blended labor rate? If the rates are separate, would it be permissible to add a fixed fee onto our subcontractors' rates? I've made note that if we have a labor rate for PM and CM efforts and if those positions manage the subcontractors it is unnecessary to mark-up subcontractor rates - we'd capture that with PM/CM hours.  Our team has limited experience with T&M proposals so this has been a bit of a challenge for us to quote.   Thanks again for the feedback and redirection.


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So, the RFP from the prime contractor to you, a first-tier subcontractor, includes the clause at FAR 52.232-7--

  • Was it incorporated carefully, where text referring to the Government is understood to mean the prime contractor, and text referring to the contractor is understood to mean you, and text referring to subcontractors means your lower-tier subcontractors?
  • Or, was it incorporated sloppily so no one knows what is intended?

For a single labor category, the clause does not differentiate between contractor or subcontractor performance -- the expectation is that there will be a single rate for a single labor category, and that rate is payable to the contractor whether the work is done by the contractor or a subcontractor.  Note that the clause governs what the Government pays to the contractor -- it does not govern what the contractor pays to the subcontractor.

You may include indirect charges on subcontracts if you can justify them, except that indirect costs are not allowed on subcontracts that are paid at the hourly rates.

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Megan G.

I believe 52.232-7 is permissive regarding whether the contractor has separate rates for itself and its subcontractors, or blends them. However, any labor for which there is no specified hourly rate on the Schedule is, by definition, material--and must be billed at actual costs incurred plus allocated indirect costs, without profit.

In your situation, I would recommend proposing separate hourly rates for you and your subcontractor(s). For your hourly rates I would include direct labor dollars, indirect costs, and a profit factor. For your suppliers I would include their fully burdened costs (plus their profit) and any allocated indirect costs you would apply. (Adding your profit to their costs is optional. If you don't, you can add more profit to your own hourly rates to cover it.)

With respect to subcontract administration performed by your PM/CM functions, that speaks to the quantity of hours not the rate per hour. (I assume you already have hourly rates for PM and CM.) In your proposal, add more hours to those labor categories to cover the time spent managing subcontractors.

Hope this helps.

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ji20874: FAR 52.232-7 was carefully constructed where references to "Contractor" mean "Seller" and the terms "Government Contracting Officer", "Government" or "Contracting Officer" mean "Buyer".  The structure recommended by here_2_help seems to best align with the requirements of the clause, unless in conjunction with your most recent company we cannot have different billable rates for identical labor categories. 

Each subcontractor will be providing the same technical labor (engineering support and analysis) but specific to their components.  The rates we've received from subcontractors for labor hours vary with the smaller subcontractors having a significant delta in the hourly rate (- $60/hr) and the larger subs providing rates in excess of our standard (+$20/hr). The rate spread is generating mild audit concerns.

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1 hour ago, ji20874 said:


Can Megan's company propose different billable rates (contractor and subcontractor) for the same identical labor category?  

I don't see why not. Do you see something that would prevent it?

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