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Applying Limitations on Subcontracting Only to Prime Contractor's Management Efforts


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1 hour ago, WifWaf said:

Oof, that's a right hook I didn't expect.

I get a feeling you were dealing with men when you were a CO.  I am dealing with lobbyist weasels.

WifWaf, my last post wasn’t specifically directed at you.

However, I noted that you are apparently hesitant to interpret or obtain help interpreting the rules**. If you leave it up to each offeror or contractor to interpret and argue various interpretations, of course it will become more complicated and controversial/confrontational,  too.

That’s why I consulted the Atlanta Regional Office (back in the day) and sent them the forms with our explanations to review and concur/non-concur with before we used it.

Yes, the rules have changed, so obviously my forms arent current.

Maybe you don’t negotiate sole source contract actions.  But if you do, you should have or can get enough information to be able to negotiate and mutually determine whether or not the proposal is compliant.

** Merriam Webster Dictionary “Definition of timid:

1: lacking in courage or self-confidence-a timid person

2: lacking in boldness or determination-a timid policy”

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9 hours ago, joel hoffman said:

...If you leave it up to each offeror or contractor to interpret and argue various interpretations...

YES, leave it up to each offeror or contractor -- YES, we should leave it up to each offeror or contractor to interpret and argue various interpretations.

There is no government-wide interpretation.  A contracting officer should not want to impose a single interpretation. 

Before award, let the contractor make its own representation that it will comply (just a representation, not a demonstration of proof).'

After award, if the contracting officer feels the representation is not being honored, let the contractor demonstrate that it has complied using its own arguments.  If the contracting officer is not persuaded, that is when he or she deals with it.  And YES, one contractor might be more persuasive than another contractor. 

This is not timidity -- this is prudence and professionalism.

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1 hour ago, joel hoffman said:

If you leave it up to each offeror or contractor to interpret and argue various interpretations, of course it will become more complicated and controversial/confrontational,  too.

How do you avoid an issue becoming "more complicated and controversial/confrontational,  too" by giving contractors a dumb government interpretation of what a FAR clause says?  One of the biggest mistakes contractors, particularly small businesses, make is to rely on what a contracting officer/COR tells them about the FAR.

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5 hours ago, ji20874 said:

YES

The following is not an argument against just a reminder with emphasis added.....as I said early on let the contractor figure out what they think with regard making the representation but yet......

1.602-2 Responsibilities.

Contracting officers are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships. In order to perform these responsibilities, contracting officers should be allowed wide latitude to exercise business judgment. Contracting officers shall-

      (a) Ensure that the requirements of 1.602-1(b) have been met, and that sufficient funds are available for obligation;

      (b) Ensure that contractors receive impartial, fair, and equitable treatment;

5 hours ago, Retreadfed said:

One of the biggest mistakes contractors, particularly small businesses, make is to rely on what a contracting officer/COR tells them about the FAR.

No disagreement.

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12 hours ago, ji20874 said:

There is no government-wide interpretation.  A contracting officer should not want to impose a single interpretation…. 

This is not timidity -- this is prudence and professionalism.

Welcome to service contracting 101. 😃

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9 hours ago, Don Mansfield said:

Would someone please point out the requirement for contractors to keep records and report their compliance with the Limitation on Subcontracting clause? Please provide the OMB Control number.

Good question but I might suggest in the context of this thread and comments made that the question should be  -  Please point out where the CO is to report on compliance?   The answer would be FAR 42.15, OMB Control number 9000-0142.  FAR Guiding Principle - 42.1503(b)(2)(vi)   

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1 hour ago, C Culham said:

Good question but I might suggest in the context of this thread and comments made that the question should be  -  Please point out where the CO is to report on compliance?   The answer would be FAR 42.15, OMB Control number 9000-0142.  FAR Guiding Principle - 42.1503(b)(2)(vi)   

Carl,

The Paperwork Reduction Act doesn't apply to reporting requirements imposed on contracting officers. Also, OMB Control number 9000-0142 covers contractor responses in CPARS in FAR 42.1503(d)--it does not create a recordkeeping or reporting requirement for contractors regarding compliance with the Limitation on Subcontracting clause.

The SBA considered imposing a subcontracting reporting requirement on small business primes, but ultimately decided it would place too much of a burden on small business. From 81 FR 34247:

Quote

 

SBA received several comments in response to its request for comments on whether prime contractors should be required to report to the contracting officer on their compliance with the limitations on subcontracting. Eight commenters supported mandatory compliance reporting, and five of those commenters recommended that the reporting be made at the end of the contract term. Three of the supportive commenters recommended compliance reporting on a quarterly or annual basis. Three commenters opposed mandatory compliance reporting because it would be too burdensome on small business concerns. One commenter suggested that SBA use its auditing and investigating authority to determine compliance rather than requiring contractors to report their compliance. Another commenter suggested that the only necessary compliance reporting should be made in the offer.

In addition to the requirement for a written agreement, SBA also proposed to require compliance reporting from small business concerns that rely on similarly situated entities to meet their performance obligations under a set aside contract. Notably, SBA did not propose to require compliance reporting from all small business concerns (i.e., firms that do not rely on similarly situated small business concerns to meet their performance obligations). Upon further review, SBA believes that this proposal would create a disincentive to utilize this new statutory authority. Compliance reporting was not required by the statute, and in fact, reliance on similarly situated entities to help meet their performance requirements actually makes it easier these firms to comply with their obligations. Moreover, requiring a prime contractor to report on compliance with the limitations on subcontracting when it uses one or more similarly situated entities could hamper flexibility for firms during contract performance. For example, a firm may initially intend to comply on its own, but may find during contract performance that it must rely on one or more similarly situated subcontractors to meet its performance obligations. In addition, a firm may intend to use one or more similarly situated entities to help it meet its performance obligations, but then may decide during contract performance that it will perform all of the required work with its own employees. These practical realities have led us to remove the compliance reporting requirement with respect to similarly situated entities. SBA may, in the future, propose a rule that requires compliance reporting from all small business concerns, not just those that rely on similarly situated entities. However, such a change would require notice and a request for public comment that is not part of this rulemaking.

 

So how are contracting officers to comply with FAR 42.1503(b)(2)(vi)?

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51 minutes ago, Don Mansfield said:

The Paperwork Reduction Act doesn't apply to reporting requirements imposed on contracting officers. Also, OMB Control number 9000-0142 covers contractor responses in CPARS in FAR 42.1503(d)--it does not create a recordkeeping or reporting requirement for contractors regarding compliance with the Limitation on Subcontracting clause.

Thank you the nuance is understood and I was aware when I made my post. 

1 hour ago, Don Mansfield said:

So how are contracting officers to comply with FAR 42.1503(b)(2)(vi)?

I guess in the same way the comply with reporting performance on Quality of product/service, Cost Control, where applicable, Schedule/timeliness, Management or business relations, SB subcontracting (as applicable) including reduced or untimely payments, Trafficking violations, Tax delinquency, Failure to report in accordance with contract terms and conditions, Defective cost or pricing data, Terminations, suspension and debarments, some I would suggest do not require a contractor to report on nor is there a OMB Control No. for. 

It would seem to me that if the government expects a contractor to do their due diligence to agree to the limitations clause by submission of a offer and execution (performance?) of a contract, just as they do for say performance of the work overall, then government monitoring is acceptable.  I just do not understand why there is always a firestorm when it is suggested by me that the government should do their job in assuring the four corners of a contract are adhered to?   Forget about the imitations clause but hold a contractors feet to the fire on adhering to a period of performance and if not expect a reduction in price, what truly is the contractual expectation difference?  None, in my view.

 

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Here is the text of FAR 42.1503(b)(2)(vi):

Quote

(vi) Other (as applicable) (e.g., trafficking violations, tax delinquency, failure to report in accordance with contract terms and conditions, defective cost or pricing data, terminations, suspension and debarments, and failure to comply with limitations on subcontracting).

I do not read this as creating an affirmative duty on the contracting officer to investigate or the contractor to report -- I don't think the contracting officer has any affirmative duty to investigate whether the contractor is involved in human trafficking, or whether the contractor paid its taxes completely and on time, and so forth.  However, if the contracting officer learns of anything of the sort listed, he or she may report it in CPARS amenable to FAR 42.1503(b)(2)(vi).

That said, if the contracting officer's normal review of invoices and so forth demonstrates that the contractor is not complying with the LOS requirements of the contract, the contracting officer may raise the matter with the contractor -- but the burden of proof seems to be on the Government rather than the contractor.  As Don shared above, it seems that the powers-that-be have already decided that there is no requirement on the contractor for LOS compliance reporting.

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1 minute ago, C Culham said:

I guess in the same way the comply with reporting performance on Quality of product/service, Cost Control, where applicable, Schedule/timeliness, Management or business relations, SB subcontracting (as applicable) including reduced or untimely payments, Trafficking violations, Tax delinquency, Failure to report in accordance with contract terms and conditions, Defective cost or pricing data, Terminations, suspension and debarments, some I would suggest do not require a contractor to report on nor is there a OMB Control No. for. 

Ok, but there are records of those things. If a contractor is not required to keep records to prove compliance with the Limitation on Subcontracting clause, how does the contracting officer determine compliance?

 

6 minutes ago, C Culham said:

It would seem to me that if the government expects a contractor to do their due diligence to agree to the limitations clause by submission of a offer and execution (performance?) of a contract, just as they do for say performance of the work overall, then government monitoring is acceptable.  I just do not understand why there is always a firestorm when it is suggested by me that the government should do their job in assuring the four corners of a contract are adhered to?   Forget about the imitations clause but hold a contractors feet to the fire on adhering to a period of performance and if not expect a reduction in price, what truly is the contractual expectation difference?  None, in my view.

Would you agree that monitoring compliance with every term of a contract is neither practical nor desirable? Or is it the contracting officer's duty to audit the contractor's compliance with the clause at FAR 52.204-4, Printed or Copied Double-Sided on Postconsumer Fiber Content Paper? 

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3 hours ago, ji20874 said:

That said, if the contracting officer's normal review of invoices and so forth demonstrates that the contractor is not complying with the LOS requirements of the contract, the contracting officer may raise the matter with the contractor...

See 13 CFR § 125.6, which says in part:

Quote

(d) Determining compliance with applicable limitation on subcontracting. The period of time used to determine compliance for a total or partial set-aside contract will be the base term and then each subsequent option period. For an order set aside under a full and open contract or a full and open contract with reserve, the agency will use the period of performance for each order to determine compliance unless the order is competed among small and other-than-small businesses (in which case the subcontracting limitations will not apply).

See also FAR 52.219-14(f).

The limitation is based on the amount the government pays the contractor and the amount the contractor pays to subcontractors. It is not based on the contract price and subcontract prices. The amount paid will not be known until performance has been completed and all payment-related issues are resolved. Compliance may not be predictable or determinable on the basis of periodic reviews of invoices. Too much complaining, interrupting, and threatening by the CO on the basis of interim assessments might become the basis for a claim based on government interference.

And what about line items? What if the line item structure renders the contract severable (divisible) as opposed to entire? Does the clause apply to the entire contract payment, even if the line item structure renders the contract severable? Both the SBA reg and the FAR are silent on that question.

Under some contracts it may be very difficult to determine, during performance, how the contractor stands with reference to compliance. A determination may have to await resolution of contractor requests for equitable adjustment and subcontractor claims. Compliance might depend on things like unanticipated supply chain interruptions, shortages, materials cost increases (such a lumber late last year and earlier this year), and cost allowability. When all is said and done, noncompliance might come as a complete surprise to everyone. It might not be determinable until years after the contract is physically complete.

The policy and its implementation are crummy.

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3 hours ago, ji20874 said:

As Don shared above, it seems that the powers-that-be have already decided that there is no requirement on the contractor for LOS compliance reporting.

This is not settled the way you so state, although I can see how @Don Mansfield's quote from the strangely worded conclusion the SBA's rule-maker wrote in 2016 would lead one to believe it was settled that way.  She was talking about requiring compliance reporting from just the SBs using the new similarly situated entity rule... and she confused us all.  In context, though, the next few paragraphs in Don's 81 FR 34247 citation after his quote are all about looking forward to the future, where a Proposed Rule would settle this requirement for LOS compliance reporting (for all SBs):

Quote

SBA believes that to the extent compliance reporting should be required, it should be required from all small businesses...Thus, SBA intends to issue a proposed rule to request public comment on the issue of whether all small businesses...should be required to report on compliance with the limitations on subcontracting on set-aside contracts. SBA understands the recommendations made by the Government Accountability Office to strengthen the monitoring and oversight of the required performance percentages for all small businesses that receive set-aside awards, including 8(a) contractors, and believes that a separate rulemaking should address that issue more appropriately.

So, I followed the rabbit hole and located their Proposed Rule, at 83 FR 62519 and 62520, dated 12/4/2018:

Quote

SBA is proposing to add new § 125.6(e)(4) to clarify that contracting officers may request information regarding LOS compliance, and to clarify that it is not required for every contract. SBA is requesting comment on whether all small business prime contractors performing set-aside or sole source contracts should be required to demonstrate compliance with LOS to the contracting officer, and if so, how often should this be required, such as annually or quarterly. What salient data would best provide assurance of compliance? Should demonstrating compliance depend on the length of the contract or the type of contract? Whether it is for commercial products and services? Whether the contract is fixed price? Whether the contract is above the SAT or the TINA threshold? What other considerations should there be when applying the requirement for a contractor to document LOS compliance? We are requesting that industry provide comment on what information can be efficiently requested and provided.

From there, after apparently no comments advocating an outright hands-off approach, we got the resulting Final Rule on 11/29/2019 (https://www.federalregister.gov/d/2019-25517/p-36) and it produced the 13 CFR 125.6(e)(4) allowance that COs may request invoices.  Clear as mud?  My point is, the conclusion COs reading this thread must reach is not exactly, "[T]here is no requirement on the contractor for LOS compliance reporting," it is that the CO has the power to impose a demonstration of compliance at his/her discretion, and may do so by reviewing invoices. 13 CFR 125.6(e)(4) now says what is quoted below (emphasis added).  But as has been stated in this thread this is not a good use of a COs time due to inherent loopholes in the calculation.  You can maybe use this allowance to catch the bad actor who subcontracted out 90% of a service because he was not aware of the rule or mistakenly believed it did not apply to commercial services, but, that's about all this is good for.  In the CO's toolbox, 13 CFR 125.6(e)(4) is the obscure Torx screwdriver - fit for one job then rarely used again.

Quote

Contracting officers may, at their discretion, require the contractor to demonstrate its compliance with the limitations on subcontracting at any time during performance and upon completion of a contract if the information regarding such compliance is not already available to the contracting officer. Evidence of compliance includes, but is not limited to, invoices, copies of subcontracts, or a list of the value of tasks performed.

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4 hours ago, Don Mansfield said:

Ok, but there are records of those things. If a contractor is not required to keep records to prove compliance with the Limitation on Subcontracting clause, how does the contracting officer determine compliance?

If the contractor is required to comply with a limitation, how does it know whether or not it is complying?

Of course it has to have some system to know! Y’all are making mountains out of a mole hill.

Service contracting 101…Burying heads in the sand or looking the other way, hoping it will go away…

And if you negotiating a sole source task order or contract, the contractor’s proposal should reveal the plan and the proposed costs for prime and sub work. It’s not rocket science.

And if it’s a FFP construction contract, the contractor must provide the details in each progress payment invoice per the payments clause.

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3 hours ago, Don Mansfield said:

Ok, but there are records of those things.

We could continue to quibble the fine details but I do wonder about records of management and business relations, tax delinquencies readily recorded and given to the CO,  and trafficking, as officially recorded??  

 

3 hours ago, Don Mansfield said:

how does the contracting officer determine compliance

Ask!

3 hours ago, Don Mansfield said:

Would you agree that monitoring compliance with every term of a contract is neither practical nor desirable? Or is it the contracting officer's duty to audit the contractor's compliance with the clause at FAR 52.204-4, Printed or Copied Double-Sided on Postconsumer Fiber Content Paper?

Red Herring!   Would you not agree that the limitation matter does get protests and hearings and extended to False Claim Act matters and as such holds a higher degree of interest than 52.204-4? 

Otherwise I defer to Vern Edwards further posts along with that of Joel Hoffman's previous ones.   Pick and choose as you may in the end there is ability and possibly the need to determine, on the behalf of the government, compliance. 

I would not want my red face on the cover of Rolling Stone stating that I never proactively reviewed the limitation matter when in the end, at the least, shell organizations get the all the work or at the worst my actions promoted fraud forever.  But if you would like, have at it.   

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@WifWaf, thanks for the research. What I find interesting in the section on the Paperwork Reduction Act is that they don't account for obtaining small business representations from subcontractors. On what basis would a small business prime classify a subcontractor as small?

1 hour ago, joel hoffman said:

If the contractor is required to comply with a limitation, how does it know whether or not it is complying?

Of course it has to have some system to know! Y’all are making mountains out of a mole hill.

Service contracting 101…Burying heads in the sand or looking the other way, hoping it will go away…

And if you negotiating a sole source task order or contract, the contractor’s proposal should reveal the plan and the proposed costs for prime and sub work. It’s not rocket science.

And if it’s a FFP construction contract, the contractor must provide the details in each progress payment invoice per the payments clause.

☝🏽️How to say you don't know without saying you don't know.

 

1 hour ago, C Culham said:

Red Herring!   Would you not agree that the limitation matter does get protests and hearings and extended to False Claim Act matters and as such holds a higher degree of interest than 52.204-4? 

Otherwise I defer to Vern Edwards further posts along with that of Joel Hoffman's previous ones.   Pick and choose as you may in the end there is ability and possibly the need to determine, on the behalf of the government, compliance. 

I would not want my red face on the cover of Rolling Stone stating that I never proactively reviewed the limitation matter when in the end, at the least, shell organizations get the all the work or at the worst my actions promoted fraud forever.  But if you would like, have at it.

So your standard for determining which clauses deserve more attention than others is political sensitivity. Got it. 

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2 hours ago, joel hoffman said:

Y’all are making mountains out of a mole hill.

@joel hoffmanAnd you're not being very thoughtful. If you were, you would realize that the clause is potentially very problematical for primes and contracting officers. Your many war stories about what you did when don't impress me. Try some analysis of the clause.

What are the implications of the "amount paid" criterion for small subs relying on very big primes to do difficult work very close to the limitation? Try conjuring up some scenarios and working them through for us, instead of telling us another tale.

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2 hours ago, joel hoffman said:

And if you negotiating a sole source task order or contract, the contractor’s proposal should reveal the plan and the proposed costs for prime and sub work. It’s not rocket science.

And if you had thought about the clause and the turns things can take during performance, you'd know that the plan does not mean diddly squat once the contract has been awarded and performance has begun. Things don't always turn out as planned. The criterion is amount paid.

Anyway, I think you're a civil engineer. If so, what do you know about rocket science?

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12 minutes ago, Vern Edwards said:

And if you had thought about the clause and the turns things can take during performance, you'd know that the plan does not mean diddly squat once the contract has been awarded and performance had begun. Things don't always turn out as planned. The criterion is amount paid.

Anyway, I think you're a civil engineer. If so, what do you know about rocket science?

Actually I took a thermodynamics class including rocket (and jet) propulsion, an aerodynamics class and another one on aerospace trajectories in college under the Air Force’s manhole - oops I mean “whole man” concept. “Fast Neat Average Friendly Good Good”. 

And in construction contracts, it’s quite simple. The contractor must provide that information with each progress payment request. Easy to track.

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8 minutes ago, joel hoffman said:

The contractor must provide that information with each progress payment request. Easy to track.

No it's not. Under 52.219-14 the standard is amount paid at the end of the job. Progress reports don't mean diddly squat if there are outstanding compensation issues to be settled or important work yet to do.

And a few classes do not a rocket scientist make.

I asked you:

Quote

What are the implications of the "amount paid" criterion for small subs relying on very big primes to do difficult work very close to the limitation? Try conjuring up some scenarios and working them through for us, instead of telling us another tale.

I and everyone else will be standing by.

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33 minutes ago, Vern Edwards said:

No it's not. Under 52.219-14 the standard is amount paid at the end of the job. Progress reports don't mean diddly squat if there are outstanding compensation issues to be settled.

From 52.232-5 

“(1) The Contractor's request for progress payments shall include the following substantiation: 

(i) An itemization of the amounts requested, related to the various elements of work required by the contract covered by the payment requested. 

(ii) A listing of the amount included for work performed by each subcontractor under the contract. 

(iii) A listing of the total amount of each subcontract under the contract. 

(iv) A listing of the amounts previously paid to each such subcontractor under the contract. 

(v) Additional supporting data in a form and detail required by the Contracting Officer.”

The prime must also advise whether and how much any retainage is to be withheld  from any sub or supplier from a progress payment. The government then deducts such withholding from the progress payments to the prime until the prime is ready to pay what was retained/withheld.

Sure, something might arise during contract performance that might affect the “plan”, such as government changes that add or subtract from self performed or subcontracted work. That would have to be evaluated and it might be impossible to execute the plan as originally envisioned. I think in that case, a good faith effort would have to be taken into account. It’s not a contractor’s fault or within their control if the government changes the requirements during performance. 

EDIT: I don’t really want to conjure up, nitpick or debate possible anomalies. Under Service Contracting 101, the KO would likely not  bother tracking, let alone determine actual percentages.

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9 minutes ago, Don Mansfield said:

How do you verify the subcontractors are small?

How do You verify that a subcontractor is small or that a prime is small? You likely take their word for it. If the prime wants to claim credit for a similarly situated sub, they need to show it. Otherwise it doesn’t matter whether a sub is small or not. 

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