Jump to content

Recommended Posts

I work for a Government Contractor. We issued an RFP to a subcontractor for a requirement. Halfway through the solicitation, this requirement from the Government (our client) was changed, forcing us to amend our solicitation to change the scope a little. We had stated in our initial RFP letter that we were not obligated to pay for proposal costs. However, for each proposal in the past, we have been compensating them for their efforts. If they submitted a proposal, we would most likely be happy to compensate them for those proposal prep costs. After the solicitation was amended, the subcontractor declined to submit a proposal for the amended scope. HOWEVER, they still issued a proposal for just the proposal prep costs, stating they incurred costs during their own efforts for the original RFP. They are asserting they are owed proposal costs...even though they didn't submit a proposal.

From a FAR standpoint, do they have a leg to stand on? Are subcontractors owed proposal prep compensation for a changed RFP or a canceled RFP for that matter?

Background: It's a FFP contract. We have been issuing sole-source RFPs to add work onto this contract for years. 

Link to comment
Share on other sites

Patterns: Have you told them in the past that you would pay them for a proposal ? Did you tell them you would or were paying because they submitted a proposal? Or did you just decide to pay them for (what??) reason in the past?

Why would you owe them anything for declining to submit a proposal? What value did they provide to you? 

Link to comment
Share on other sites

On 4/20/2021 at 8:33 AM, NathanMaddox said:

From a FAR standpoint, do they have a leg to stand on? Are subcontractors owed proposal prep compensation for a changed RFP or a canceled RFP for that matter?

Background: It's a FFP contract. We have been issuing sole-source RFPs to add work onto this contract for years. 

I am not aware of any FAR regulation that requires a contractor to pay a potential supplier for proposal preparation costs associated with an RFP when the RFP explicitly says otherwise.

Link to comment
Share on other sites

This is less of a FAR question and more of a contract question. 
 

What does your RFP say? Most contractors state in the RFP to subs that providing a proposal does not entitle them to a contract. Without a contract, there’s no basis for payment. 
 

 

Link to comment
Share on other sites

2 hours ago, joel hoffman said:

Patterns: Have you told them in the past that you would pay them for a proposal ? Did you tell them you would or were paying because they submitted a proposal? Or did you just decide to pay them for (what??) reason in the past?

Why would you owe them anything for declining to submit a proposal? What value did they provide to you? 

Just asking to determine what, if any,  patterns of behavior (expectations)  you have developed with your sub. But if you never paid if they didn’t provide a proposal, they shouldn’t expect payment now.

It’s not something covered by the FAR. 

Link to comment
Share on other sites

On 4/20/2021 at 8:33 AM, NathanMaddox said:

From a FAR standpoint, do they have a leg to stand on? Are subcontractors owed proposal prep compensation for a changed RFP or a canceled RFP for that matter?

The FAR does not address that issue. It doesn't even come close to addressing that issue. Not a whisper of a hint.

Link to comment
Share on other sites

On 4/20/2021 at 8:33 AM, NathanMaddox said:

We had stated in our initial RFP letter that we were not obligated to pay for proposal costs. However, for each proposal in the past, we have been compensating them for their efforts. If they submitted a proposal, we would most likely be happy to compensate them for those proposal prep costs. ... Background: It's a FFP contract. We have been issuing sole-source RFPs to add work onto this contract for years. 

This is a CAS question, not a FAR question. I.e., it is a question of cost allocability, not cost allowability.

If you change your subcontract, and you use the subcontract Changes clause as authority to do so, then you (obviously) expect to pay for the resulting Request for Equitable Adjustment (REA) including the cost of evaluating the cost impact and preparation of the REA. CAS 402, Interpretation No. 1 discusses the difference between a direct-charge proposal preparation cost and an indirect charge proposal preparation cost (also known as a B&P cost).

Quote

9904.402-61 Interpretation.

(a) 9904.402, Cost Accounting Standard - Consistency in Allocating Costs Incurred for the Same Purpose, provides, in 9904.402-40, that “ * * * no final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included in any indirect cost pool to be allocated to that or any other final cost objective.”

(b) This interpretation deals with the way 9904.402 applies to the treatment of costs incurred in preparing, submitting, and supporting proposals. In essence, it is addressed to whether or not, under the Standard, all such costs are incurred for the same purpose, in like circumstances.

(c) Under 9904.402, costs incurred in preparing, submitting, and supporting proposals pursuant to a specific requirement of an existing contract are considered to have been incurred in different circumstances from the circumstances under which costs are incurred in preparing proposals which do not result from such specific requirement. The circumstances are different because the costs of preparing proposals specifically required by the provisions of an existing contract relate only to that contract while other proposal costs relate to all work of the contractor.

(d) This interpretation does not preclude the allocation, as indirect costs, of costs incurred in preparing all proposals. The cost accounting practices used by the contractor, however, must be followed consistently and the method used to reallocate such costs, of course, must provide an equitable distribution to all final cost objectives. 

Every time you effectively make a subcontractor proposal a deliverable under the existing subcontract, the subcontractor may (if that is its practice, consistently applied) charge the proposal preparation costs as direct costs of the requiring contract rather than as general B&P costs. 

Here, by your own words, the two entities have agreed to this practice and created a course of dealing (whether or not they understood the accounting rationale for it). In accordance with the agreed-upon course of dealing, your subcontractor wishes to have the subcontract modified to add funds that are needed to cover the required proposal preparation costs.

Now your company is choosing to object to that request, for reasons that seem rather insufficient to me.

In my view, you should process the REA.

Link to comment
Share on other sites

Here 2 help, I may be misunderstanding you. It does not look like an RFP proposal response was made a deliverable under the existing subcontract. This does not seem to be a case where a change notice was issued under the existing subcontract directing that work be performed that is subject to an equitable adjustment  proposal. The stated facts do not seem to suggest that the subcontract specifies that this subcontractor shall be compensated for RFP proposals. 

Link to comment
Share on other sites

I do think an expectation of payment is well ingrained in the relationship. But payment under these circumstances is not the same to me as payment for a proposal that does not result in contract work award where the RFP states no such cost shall be paid. May some see such payment as an unallowable cost to contractor?

Link to comment
Share on other sites

13 hours ago, Neil Roberts said:

Here 2 help, I may be misunderstanding you. It does not look like an RFP proposal response was made a deliverable under the existing subcontract. This does not seem to be a case where a change notice was issued under the existing subcontract directing that work be performed that is subject to an equitable adjustment  proposal. The stated facts do not seem to suggest that the subcontract specifies that this subcontractor shall be compensated for RFP proposals. 

Neil, if you have seen the RFP and the subcontract then I bow to your superior knowledge. I was responding based on the OP.

Link to comment
Share on other sites

13 hours ago, Neil Roberts said:

I do think an expectation of payment is well ingrained in the relationship. But payment under these circumstances is not the same to me as payment for a proposal that does not result in contract work award where the RFP states no such cost shall be paid. May some see such payment as an unallowable cost to contractor?

Interesting. I would argue that the Prime induced the subcontractor to prepare a proposal, based on the original RFP. Subsequently, the Prime modified the terms of the RFP so significantly that the subcontractor, who has been working with the prime "for years" felt it was now appropriate to no-bid. What does the Restatement (Second) of Contracts saw about such circumstances?

I'm also accepting at face value your implied assertion that the prime's RFP constitutes a contract, the terms of which the subcontractor accepted when it decided to prepare a proposal. Do you have any caselaw that supports that (implied) assertion?

Link to comment
Share on other sites

1 hour ago, here_2_help said:

I am also accepting at face value your implied assertion that the prime's RFP constitutes a contract...

h2h, I do not believe I said that. If you show me where you think I did, I can provide a response. 

As practical matter, the contractor is in a difficult business situation. This is a sole source and the contractor has or will have additional work from its customer that requires procurement of the sole source product or services. The sole source supplier is apparently ticked off and has now declined to bid. There are no facts indicating how the contractor plans on obtaining this work. To me, based on the situation, the contractor should consider offering to pay for the initial proposal cost and changed proposal cost delta or qualify another source in time to support its customer contract.

Link to comment
Share on other sites

1 hour ago, Neil Roberts said:

h2h, I do not believe I said that. If you show me where you think I did, I can provide a response.

Neil, I said "implied" assertion which, of course, is not an express assertion. I took that to be the foundation of your response.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
 Share

×
×
  • Create New...