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Hello - We are adding a subcontractor to a project that is under GSA. The subcontractor does not have a GSA schedule, so we are planning to map their hours to our approved LCATS. The biggest question is what rates should be included in the subcontract? Does the sub charge us our rates, or do they charge their rates? If the subs rates are lower than the rates we are mapping them to and we charge the government the higher rates are we opening ourselves up for an audit risk? Thank you for your assistance!

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I have no particular experience with LCATS contracts. I thought that perhaps this previous WIFCON discussion could shed some light for you.

It appears to me that consensus was not reached. If there was more information such as contract terms and conditions, type contract, value of prime contract and subcontract, subcontractor source selection information, example of LCATs rate and subcontractor proposed rate, etc, perhaps other commentators would have something pertinent to say.

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The subcontractor charges you whatever hourly rates you negotiate.  Those rates may be higher or lower than rates in the prime contract.

The rates in the prime contract are what the Government will pay to you for hourly rate work, regardless of whether the work is done by prime contractor employees or subcontractor employees.  See

- FAR52.212-4 with its Alt. I, para. (e)(1)(ii) or

- FAR 52.232-7, para. (a)(1),

whichever is in your contract.

Edited by ji20874
fixed typo -- FAR 52.232-7
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On 7/23/2020 at 4:21 PM, bjohnson said:

If the subs rates are lower than the rates we are mapping them to and we charge the government the higher rates are we opening ourselves up for an audit risk?

I do not know whether "low" subcontractor rates itself are flags to audit groups, and what kind of flag it may be if that rate was visibly known. Certainly, they would tend to provide more profit to the prime contractor. However, with respect to audit risk and False Claims Act potential liability of your company (which bills the Government for the LCAT), I would be concerned about the subcontractor mapping. I would make sure that the "a map" was incorporated into the subcontract that displays the subcontractor labor category and the corresponding prime contract LCAT experience, education and other requirements. I would include language that subcontractor agrees that its corresponding labor category meets the requirements of the prime contract LCAT. I would ensure that the billing from the subcontractor includes a certification as to this as well. My contract to the subcontractor would order the prime contract LCAT from the subcontractor, not the subcontractor's alleged corresponding category. To be even more cautious, I would flow down any prime contract clause that seems to be related and/or include my own clause that subcontractor indemnifies prime contractor for any damages or penalties levied upon prime contractor as a result of subcontractor's labor being deficient in meeting the LCAT.        

Edited by Neil Roberts
words missing
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On 7/25/2020 at 7:33 PM, ji20874 said:

The subcontractor charges you whatever hourly rates you negotiate.  Those rates may be higher or lower than rates in the prime contract.

The rates in the prime contract are what the Government will pay to you for hourly rate work, regardless of whether the work is done by prime contractor employees or subcontractor employees.  See

- FAR52.212-4 with its Alt. I, para. (e)(1)(ii) or

- FAR 52.242-7, para. (a)(1),

whichever is in your contract.

This is the exact answer.  Neil, nothing more is involved.   As long as the delivered work was performed by personnel meeting the contractual labor category requirements, that’s it.

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On 7/25/2020 at 4:33 PM, ji20874 said:

The subcontractor charges you whatever hourly rates you negotiate.  Those rates may be higher or lower than rates in the prime contract.

The rates in the prime contract are what the Government will pay to you for hourly rate work, regardless of whether the work is done by prime contractor employees or subcontractor employees.  See

- FAR52.212-4 with its Alt. I, para. (e)(1)(ii) or

- FAR 52.242-7, para. (a)(1),

whichever is in your contract.

ji, could you re-check 52.242-7?

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14 hours ago, formerfed said:

This is the exact answer.  Neil, nothing more is involved.   As long as the delivered work was performed by personnel meeting the contractual labor category requirements, that’s it.

Formerfed, thanks for educating me that all GSA LCAT contracts are commercial items. As I said, I have not been involved with such contract types before. I agree with you that 52.212-4 is  "the exact answer" to the posted question. I thought it would be appropriate to provide some additional information to think about subcontract risk protections when subcontractors perform prime contract LCAT work.     

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14 hours ago, formerfed said:

This is the exact answer.  Neil, nothing more is involved.   As long as the delivered work was performed by personnel meeting the contractual labor category requirements, that’s it.

My take is that 52.212-4, Alt. 1 applies to the prime contract and not to the subcontract. The OP asked "what rates should be included in the subcontract? Does the sub charge us our rates, or do they charge their rates? If the subs rates are lower than the rates we are mapping them to and we charge the government the higher rates are we opening ourselves up for an audit risk?"

I would say that if a contractor submitted historical pricing information as part of its GSA Schedule proposal and then, after being added to the Schedule, it then decided to add a subcontractor to perform some unknown amount of the work, some auditor might reasonably be concerned about a "bait and switch" situation where the pricing was held steady but the cost of performance had suddenly dropped. I understand that, as a commercial item, we are not focused on the costs of performance. But still ...

My interest is further piqued by the notion that a contractor can offer a commercial item then, after award, decide it needs a subcontractor to perform some of the work. Presumably, the contractor was self-performing 100% of the work when it proposed its goods/services to GSA for inclusion into a Schedule. What is the subcontractor's role here? If the prime no longer performs 100% of the work, does that impact the market research performed or the historical information submitted to GSA? Does inclusion of the subcontractor change the essential nature of the goods/services? Just some random thoughts.

 

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here_to_help,

You’re overly complicating the issue.  GSA Schedule contracts are based upon commercial items sold in the marketplace.  Offerors submit a list of labor categories and rates.  They disclose discounted or lower prices to certain categories of customers from those base rates.  That disclosure forms the basis of the contractual commitment - offerors won’t sell services below those disclosed amounts.  GSA  contracts incorporate a controversial clause entitled “Price Reduction” which is used to enforce pricing.

https://www.law.cornell.edu/cfr/text/48/552.238-81

Largely from negative industry input, they are piloting something else that might replace this in the future.

But companies are free to subcontract freely as long as the standards for the labor categories are met.  GSA also performs a price analysis before award by comparing offered rates against established contract rates of competitors.

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47 minutes ago, formerfed said:

here_to_help,

You’re overly complicating the issue.  

Perhaps I am!

Still doesn't explain why a subcontractor needed to be added post-award, though.

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Actually that happens quite often.  I don’t know details here but contractor will bring subs in when current staff is tied up, they don’t have required expertise, they would rather use employees on something else including proposals, etc.  All the contract requires is staff meeting contract requirements for a position at the contract rates.  I just saw an example where an agency increased the number of Oracle database analysts.  The incumbent didn’t have enough people and did recruiting on LinkedIn.

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29 minutes ago, formerfed said:

Actually that happens quite often.  I don’t know details here but contractor will bring subs in when current staff is tied up, they don’t have required expertise, they would rather use employees on something else including proposals, etc. 

I'm not going to argue with you. But see the part I bolded above? How did the contractor get on a Schedule without having the required expertise?

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Quote

 

9.104-1 General standards.

To be determined responsible, a prospective contractor must-

[...]

(e) Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them

 

 

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2 hours ago, here_2_help said:

I'm not going to argue with you. But see the part I bolded above? How did the contractor get on a Schedule without having the required expertise?

You misinterpreted my comment.  A company has the expertise and staffing to get on contract.  But they not have the specific skills at that time.  Or an agency asks for obscure skills.  An example is database administrators.  That’s a labor category.  Most organizations use SQL or Oracle.  But say an agency wants someone that knows Informix on a large job.  The company finds either a new hire, a 1099, or another company to subcontract with.

The overall job might involve 20 different categories for major system development as an example.  The company has plenty of database administrators on staff but maybe no one that knows Informix.  The decision to use Informix might be made partway through the effort.  As long as the Zinformix person fits all the requirements of the position, that’s all that matters.

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Multiple Award Schedule is a unique IDIQ that does not allow teaming to win the contract itself. Schedule holders necessarily have to add subs postaward, particularly those with subcontracting plans.

GSA only cares about your supply when it's a product, where dealers and resellers need to evidence their relationships and sometimes must rely on pricing information from manufacturers in their own Schedule negotiations.   

22 hours ago, here_2_help said:

Perhaps I am!

Still doesn't explain why a subcontractor needed to be added post-award, though.

To FormerFed's comment, a Schedule offeror need only disclose federal sales when there are no commercial sales. On a services offer, this goes labor category by labor category. Essentially, you do not want "federal" as your basis of award, because your first commercial sales of the lcat will trigger a renegotiation of your commercial sales practices form, and GSA doesn't want it either, because the price reduction clause does not apply.

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35 minutes ago, jlbdca said:

Multiple Award Schedule is a unique IDIQ that does not allow teaming to win the contract itself. Schedule holders necessarily have to add subs postaward, particularly those with subcontracting plans.

Thank you. So the system is set up for contractors to offer services they cannot perform without using subcontractors they are not allowed to propose?

Seems legit.

Seriously, thanks for the knowledge.

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On 7/27/2020 at 7:50 AM, Retreadfed said:

bjohnson, is the order under the GSA contract priced as a T&M order?  If not, how is the order priced?

 

On 7/26/2020 at 8:39 AM, Neil Roberts said:

I do not know whether "low" subcontractor rates itself are flags to audit groups, and what kind of flag it may be if that rate was visibly known. Certainly, they would tend to provide more profit to the prime contractor. However, with respect to audit risk and False Claims Act potential liability of your company (which bills the Government for the LCAT), I would be concerned about the subcontractor mapping. I would make sure that the "a map" was incorporated into the subcontract that displays the subcontractor labor category and the corresponding prime contract LCAT experience, education and other requirements. I would include language that subcontractor agrees that its corresponding labor category meets the requirements of the prime contract LCAT. I would ensure that the billing from the subcontractor includes a certification as to this as well. My contract to the subcontractor would order the prime contract LCAT from the subcontractor, not the subcontractor's alleged corresponding category. To be even more cautious, I would flow down any prime contract clause that seems to be related and/or include my own clause that subcontractor indemnifies prime contractor for any damages or penalties levied upon prime contractor as a result of subcontractor's labor being deficient in meeting the LCAT.        

Thank you for the insight!

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On 7/25/2020 at 4:33 PM, ji20874 said:

The subcontractor charges you whatever hourly rates you negotiate.  Those rates may be higher or lower than rates in the prime contract.

The rates in the prime contract are what the Government will pay to you for hourly rate work, regardless of whether the work is done by prime contractor employees or subcontractor employees.  See

- FAR52.212-4 with its Alt. I, para. (e)(1)(ii) or

- FAR 52.242-7, para. (a)(1),

whichever is in your contract.

Thank you! We have these clauses in our contract. 

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20 hours ago, formerfed said:

Actually that happens quite often.  I don’t know details here but contractor will bring subs in when current staff is tied up, they don’t have required expertise, they would rather use employees on something else including proposals, etc.  All the contract requires is staff meeting contract requirements for a position at the contract rates.  I just saw an example where an agency increased the number of Oracle database analysts.  The incumbent didn’t have enough people and did recruiting on LinkedIn.

Exactly, we are adding a subcontractor because the government has added work that we do not have staff to fulfill. The quickest way to meet the governments needs was to add a subcontractor.  

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“To FormerFed's comment, a Schedule offeror need only disclose federal sales when there are no commercial sales. On a services offer, this goes labor category by labor category. Essentially, you do not want "federal" as your basis of award, because your first commercial sales of the lcat will trigger a renegotiation of your commercial sales practices form, and GSA doesn't want it either, because the price reduction clause does not apply.“

 
All of the above is true.  But I made an error typing in my prior post that caused this comment.  I didn’t mean government sale.  What I intended to say was just to get on schedule offerors must show prior sales, meaning commercial.  
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