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

[Vern Edwards]

2 hours ago, joel hoffman said:

For a negotiated, sole source CONSTRUCTION contract, by submission of a proposal, the prospective contractor agrees to limit the amount of subcontracting per the LOS clause.

The government will use cost analysis, including technical analysis to evaluate the proposed contract price.

The pricing should be consistent with and reflect that promise. If not, raise and resolve the issue before and/or during negotiations on the price.

The government’s pre-negotiations objective should consider and be consistent with the LOS.

Negotiate the issue, if necessary - before award.

If there is an obvious disconnect between the limitations on subcontracting and the contractor's cost breakdown and/or cost or pricing data, then a CO should, of course, inquire. But "negotiate"?

Negotiate what? A change to their cost breakdown? Or are you suggesting that COs must negotiate to a contractually binding agreement on a specific element of cost? Or, by "negotiate" do you mean try to understand the proposal?

 

 

[Vern Edwards]

3 minutes ago, joel hoffman said:

The SBA fines contractors not the KO. I don’t know whether the SBA would fine a contractor for noncompliance if it was beyond the control of the contractor and or the result of a Government cause circumstance. But I can guess.

Do you think the fine is the exclusive remedy for noncompliance?

[joel hoffman]

23 minutes ago, Vern Edwards said:

@joel hoffman

I simply do not think that there is any reason to devote any significant amount of time to "monitoring" the contractor's compliance with the limitations on subcontracting. Why not?

1. Because the statute (15 USC 657s), the SBA policy (13 CFR 125.6), and the implementing contract clause (FAR 52.219-14) say that compliance is determined at the end of performance, not during.
2. Because meaningful monitoring would entail more than just looking at amounts subcontracted. It would also entail verification of which subcontractors are "similarly situated entities" and which of the similarly situated subcontractors' subcontractors (second-tier subcontractors) are "similarly situated entities". 
3. Because the statute and the SBA policy provide a specific remedy for noncompliance—a minimum fine of $500,000—that can be assessed and collected only after the end of performance.
4. Because it is not clear that a CO is authorized by law, regulation, or contract to take action against a contractor prior to a determination made at the end of performance.

In short, given the terms of the statute, the SBA policy, and the clause, what is the point of "monitoring", especially when subcontracts might be affected by changes and changed conditions, and compliance dependent on the prime's ultimate settlements with the government?

Instead of devoting any time to "monitoring", I would instruct COs to adopt the measures that I have already described twice in this thread:

1. Include a special clause in the contract requiring the contractor to confirm its compliance or acknowledge  its noncompliance in writing prior to final payment.  I think this is authorized pursuant to 13 CFR 125.6(e)(4).
2. Remind the contractor, in writing, of the limitations—once at the start of performance and once at the midpoint, and ask for acknowledgement of receipt.
3. Require that the contractor confirm its compliance or report its noncompliance and provide supporting data prior to final payment and contract closeout.
4. Document a determination in the closeout file to the effect that there were or were not any indications of noncompliance. 

“Extensive monitoring” isn’t necessary. The government has to review all the information readily available to it to determine progress, progress payment estimates, what subs are involved and on-site, as part of normal CAB, any way.

if a contracting organization doesn’t  have or assure that adequate CAB and QA resources are available to properly negotiate and administer construction contracts, then I suggest that they shouldn’t be doing such type contracting.

Again. That’s my opinion. 

[Vern Edwards]

11 minutes ago, joel hoffman said:

“Extensive monitoring” isn’t necessary. The government has to review all the information readily available to it to determine progress, progress payment estimates, what subs are involved and on-site, as part of normal CAB.

if a contracting organization does have or assure that adequate CAB and QA resources are available to properly negotiate and administer construction contracts, then I suggest that they shouldn’t be doing such type contracting.

Again. That’s my opinion. 

We know that's your opinion. What we don't know is why.

[ji20874]

Joel, the correct principle applies to all procurements, competitive and sole-source, construction or anything else -- it is a basic principle.  I think you err in suggesting that it applies only to competitive negotiated procurements.  No, it applies to all procurements, even sealed bids.  The correct principle:  the contracting officer cannot award a contract in the face of pre-award evidence that the contractor will not or cannot comply, but the contracting officer has no affirmative duty to investigate.

And YES, to your point, a contracting officer in a sole-source construction procurement will likely have more information or insight than another contracting officer on another procurement.  Everyone already knows that and it goes without saying.  But that does not erase, lessen, obviate, or even qualify the correct principle.  

You err in using the word "ignore" again.  No one has suggested that, and it is unkind on your part to use that word to characterize your interlocutors here.

[joel hoffman]

3 minutes ago, Vern Edwards said:

We know that's your opinion. What we don't know why.

A snarky response would be then “we” probably shouldn’t be doing negotiated sole source construction contracting but I won’t say that here.

By the way, it is also relatively easy to check on the compliance trend for competitively awarded construction contract set-asides. Post award info is readily available. 

[Vern Edwards]

@joel hoffmanWhy be snarky? The negotiation of sole source construction contracts is not really all that difficult. Try negotiating an FPI(F) (Firm-Target) contract for the development, test, and installation of a spacecraft downlink subsystem for aircraft carriers with strictly limited port availability.

Don't take too much pride in your experience, Joel. The negotiation and administration of sole source construction contracts that have been set-aside for small businesses is not rocket science.

I won't get snarky. I will say outright that I don't think you have thought through your ideas in this thread.

When I say we don't know why it's your opinion, I mean that I don't know why you think it's necessary to actively monitor the contractor's compliance with the limitations, given the natures of the statute, the SBA policy, and the contract clause. But I can see now that your position is based largely on some notion that COs must monitor and enforce compliance with every clause in a government contract.

Well, that's a fool's errand. A manager must prioritize. They must manage, which includes deciding how to allocate your resources.

I think your positions on pre-award activity and on post-award active monitoring of compliance are unsound. I think the limitations have clearly been designed for post-performance compliance assessment and enforcement.

[joel hoffman]

3 hours ago, ji20874 said:

Joel, the correct principle applies to all procurements, competitive and sole-source, construction or anything else -- it is a basic principle.  I think you err in suggesting that it applies only to competitive negotiated procurements.  No, it applies to all procurements, even sealed bids.  The correct principle:  the contracting officer cannot award a contract in the face of pre-award evidence that the contractor will not or cannot comply, but the contracting officer has no affirmative duty to investigate.

And YES, to your point, a contracting officer in a sole-source construction procurement will likely have more information or insight than another contracting officer on another procurement.  Everyone already knows that and it goes without saying.  But that does not erase, lessen, obviate, or even qualify the correct principle.  

You err in using the word "ignore" again.  No one has suggested that, and it is unkind on your part to use that word to characterize your interlocutors here.

ji, please provide a source that says that when sole source negotiating,  where the proposed contractor agrees by submission of a proposal that it will limit subcontracting,  that the cost proposal doesn’t have to reflect or be consistent with that intent- or if it doesn’t, that the negotiator isnt allowed to address that.

A primary and fundamental principle of construction one on one price negotiating when cost analysis is involved is to understand what and the proposal that they are negotiating the price for.  There should be a mutual understanding of the scope, price, cost detail, technical approach, etc. The sole source contract is priced in accordance with FAR 15.4.

EDIT- ADD:

If a proposal would or should lead the government to conclude that the contractor will not comply with the LOS or does not agree to comply with the LOS, it is either a matter of responsibility or a matter of proposal acceptability. In either case, it must be corrected before award. 

See Matter of: D&G Support Services, LLC B-419245; B-419245.3 January 6, 2021

“…An agency’s judgment as to whether a small business vendor can comply with the limitation on subcontracting provision is generally a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration; neither issue is one that our Office generally reviews. NEIE Med. Waste Servs., LLC, B-412793.2,
Aug. 5, 2016, 2016 CPD ¶ 213 at 3-4; see also 4 C.F.R. § 21.5(a), (c). However, where a quotation, on its face, should lead an agency to the conclusion that a vendor could not and would not comply with the subcontracting limitation, the quotation may not form the basis for an award. See KAES Enters., LLC, B-408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 2.”

See also Matter of: Mare Solutions, Inc. B-413238; B-413238.2 September 14, 2016

“…As a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation clause is a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration. Geiler/Schrudde & Zimmerman, B-412219 et al., Jan. 7, 2016, 2016 CPD ¶ 16 at 7. Neither issue is one that our Office generally reviews. 4 C.F.R. § 21.5(a), (c); Geiler/Schrudde & Zimmerman, supra, at 7-8. As our Office has consistently held,
 

“however, where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal acceptability. See e.g., Geiler/Schrudde & Zimmerman, supra, at 8; Sealift, Inc., B-409001, Jan. 6, 2014, 2014 CPD ¶ 22 at 4. An offeror, however, need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal. Dorado Servs., Inc., B-408075, B-408075.2, June 14, 2013, 2013 CPD ¶ 161 at 12. The plain language of the subcontracting limitation clause provides that the act of proposal submission itself is sufficient to demonstrate agreement to be bound by the limitation. FAR clause 52.219-14(c)(3). Accordingly, where an offeror submits a proposal in response to an RFP that incorporates FAR
clause 52.219-14, the offeror agrees to comply with the limitation, Dorado Servs., Inc., supra, and in the absence of any contradictory language, the agency may presume that the offeror will comply with the subcontracting limitations. Of course, this presumption may be rebutted, but it is the protester that bears the burden to affirmatively demonstrate that the awardee’s proposal takes exception to the limitations on subcontracting. KAES Enters., LLC, B-408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 3.”

Edited October 7, 2021 by joel hoffman
Add references to GAO decisions concerning LOS

[Vern Edwards]

3 hours ago, joel hoffman said:

If a proposal would or should lead the government to conclude that the contractor will not comply with the LOS or does not agree to comply with the LOS, it is either a matter of responsibility or a matter of proposal acceptability. In either case, it must be corrected before award. 

Responsibility is primarily a matter of the offeror's ability to comply.

Legal acceptability, which is what the GAO decisions are about, is a matter of the offeror's promise to comply—its willingness to do so.

In a sole source acquisition a CO can reject a legally acceptable offer from a responsible offeror on the basis that acceptance would not be in the best interests of the government. A CO need not base the rejection of the offer on the offeror's nonresponsibility or on the offer's legal unacceptability.

A CO could reject a legally acceptable offer from a responsible offeror because the he or she thinks, based on cost analysis of the proposal, that the risk of unintentional noncompliance with the limitations on subcontracting are too great.

On the other hand, the CO could decide to take that risk, since compliance will be determined at the end of performance and the contractor promises to comply and might succeed in complying. If it fails to do so it will face penalties.

[ji20874]

3 hours ago, joel hoffman said:

ji, please provide a source that says that when sole source negotiating,  where the proposed contractor agrees by submission of a proposal that it will limit subcontracting,  that the cost proposal doesn’t have to reflect or be consistent with that intent- or if it doesn’t, that the negotiator isnt allowed to address that.

Joel,

Your request is an unfair request.  I never made the assertion for which you are asking me to provide a source.

[joel hoffman]

2 hours ago, ji20874 said:

Joel,

Your request is an unfair request.  I never made the assertion for which you are asking me to provide a source.

That’s okay, I answered it myself. 

[Vern Edwards]

1 hour ago, joel hoffman said:

That’s okay, I answered it myself. 

And what answer did you give yourself?

[joel hoffman]

13 hours ago, Vern Edwards said:

If there is an obvious disconnect between the limitations on subcontracting and the contractor's cost breakdown and/or cost or pricing data, then a CO should, of course, inquire. But "negotiate"?

Negotiate what? A change to their cost breakdown? Or are you suggesting that COs must negotiate to a contractually binding agreement on a specific element of cost? Or, by "negotiate" do you mean try to understand the proposal?

 

 

 

11 hours ago, joel hoffman said:

where a quotation, on its face, should lead an agency to the conclusion that a vendor could not and would not comply with the subcontracting limitation, the quotation may not form the basis for an award.

Alternatively, “where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal acceptability.”

We negotiate sole source price proposals. The pre - negotiation objective memo should address the need to resolve the issue. Yes, inquire, listen to their explanation. If the explanation resolves it, fine. If it doesn’t, then the proposer needs to revise the price proposal and perhaps their technical approach to be in concert with the LOS.

[joel hoffman]

7 hours ago, ji20874 said:

Joel,

Your request is an unfair request.  I never made the assertion for which you are asking me to provide a source.

ji, I’m sorry. I misread your post. Please disregard my request. 

[C Culham]

19 hours ago, Vern Edwards said:

since compliance will be determined at the end of performance and the contractor promises to comply and might succeed in complying. If it fails to do so it will face penalties.

Like most things in Federal contracting there is an exception.   In the world of 8(a) the matter of LOS is a matter of pre-award consideration  where a 8(a) contract is not to be awarded if LOS can not be demonstrated.

13 CFR 124.501(g)

[Vern Edwards]

43 minutes ago, C Culham said:

Like most things in Federal contracting there is an exception.   In the world of 8(a) the matter of LOS is a matter of pre-award consideration  where a 8(a) contract is not to be awarded if LOS can not be demonstrated.

13 CFR 124.501(g)

Note that the SBA must make that determination, not the agency contracting officer. 

Also, see FAR 19.809-2.

Note that FAR 19.809-2(a) appears to describe the limitations applicable to 8(a) contracts differently than 13 CFR 125.6 and FAR 52.219-14. It describes the limitations in terms of costs to be incurred by the contractor for its own employees instead of percentages of amounts paid by the government to the contractor. I'm still trying to figure out if there really is a conflict. Maybe I'm missing something.

Note, too, the waiver provision in 19.809-2(c).

[ji20874]

57 minutes ago, Vern Edwards said:

Note that the SBA must make that determination, not the agency contracting officer. 

This isn't merely a note -- this is a matter of crucial significance in this discussion.

[Vern Edwards]

A long-standing problem in our business is that Congress enacts laws that appear in various titles of the U.S. Code and that are assigned to various agencies for implementation. The laws assign certain responsibilities and tasks to specific agencies. I'll single out Title 29, Labor, and Title 15, Commerce and Trade, and two agencies, the Department of Labor and the Small Business Administration. Those agencies write rules, and implementation of their rules accounts for two of the lengthiest and most complex parts of the FAR, Parts 19 and 22. On top of the laws, presidents write executive orders, bypassing Congress, for which agencies must write rules.

The laws, executive orders, and agency rules are to be implemented via government contracts through contract clauses. But who is primarily responsible for monitoring  and enforcement? Not the primary agencies to which the responsibilities have been assigned and that write the rules. No, they and other government policy apparatchiki commonly take the position that since the laws are to be implemented in part through contracts a large portion of those responsibilities must be fobbed off on contracting officers.

See FAR 1.602-1(b), one of the most absurd regulations ever written.

The FAR contains about 140 solicitation provisions and contract clauses that implement various socio-economic (i.e., political) policies. They cover an extraordinary span of human activity and laws, regulations, and procedures. Not even I—who gets paid to do so and have almost 50 years of professional education and experience and ample tools of the trade— can understand, remember, and keep up with changes.

Many in our country want smaller government and complain about the number of government employees (except uniformed military). The Clinton Administration made a big deal about reducing the size of government, and they decimated the acquisition workforce. And yet some people expect understaffed offices of under-trained people to understand and to find the time to implement exceedingly complex rules and procedures imposed on them by the agencies that are supposedly responsible for implementation, all while trying to buy what their agencies need, when and where they need it, at a fair and reasonable price. 

IGs, the GAO, and interest group associations complain to our idiot-infested, blowhard, and irresponsible Congress that COs don't do enough, while those COs try to cope  with a workload of requirements far beyond anything any of us old-timers ever had to process, under rules far more voluminous. And what do the COs get for their trouble? Ever more rules and procedures.

And members of our own community insist that COs actively monitor and enforce compliance with every contract clause, despite the fact that even a small government contract will contain at least 100 clauses, some of them pages in length and backed by pages of regulation and procedure. Those members see a moral imperative to such monitoring and enforcement, and they chastise those who, like me and ji20874, say, "Be reasonable," and who say that COs have no choice but to engage in policy triage.

I tell you, it's madness, and it's not good for the country. It's all a sign of the deep incompetence that infests the highest levels of our government, a level of incompetence that events of the past two years have cast in stark relief against the background of events, a level of incompetence that has cost lives and diminished our international standing.

We are a small but important part of government. It's time for more working-level contracting folk to speak out:

We are dedicated. We want to do our best for our country. But if you want to impose on us ever more rules and procedures, then give us more people, including administrative support personnel so we can focus on professional concerns, and give us better professional education and training.

[Fara Fasat]

I think the reason everyone seems to be talking past each other is that we are looking at different problems. Vern, ji, and maybe others, are concerned about the wisdom and practicality of doing continuous monitoring of the prime and its subs. It's a valid concern.

Joel says there is a duty to fully vet the proposal and technical approach before making an award. Again, valid. I don't read in his posts a suggestion that continuous monitoring is required or should be done.

I'm concerned about the fraud scenario, and allowing a contract to run to its end if it is clear there is fraud. Also what to do if it becomes obvious that the LOS cannot be reached by the end, even absent fraud. I'm confident that no one here would turn a blind eye to it and take a "no monitoring" approach in the face of clear evidence.

Maybe we just need to stop digging in our heels, step back, and look at the big picture (did I miss any buzzwords?). Despite this topic reaching its 7th page, I think we can agree on a few key principles:

1. monitoring the LOS throughout contract performance is neither required nor prohibited. If you have the time and the inclination, go ahead.
2. due diligence before award should include a review of the offeror's understanding and compliance with the LOS requirements. It can also detect potential set-aside fraud.
3. if evidence comes to light that suggests that all is not as it should be, the CO has a duty to investigate further.

That may be simplistic, but it seems to be the Cliff's Notes version of what everyone is saying.

[ji20874]

I am generally okay with 1. and 3.  

For 2, there is no pre-award due diligence requirement.  I would re-write it to conform to GAO decisions:  

2.  A contracting officer may not make an award when it is apparent (such as from the face of the proposal) that the offeror will not or cannot comply with LOS.  However, the contracting officer has no affirmative duty for pre-award inquiry.

I am okay with a contracting officer deciding to remind an offeror of its LOS obligations, and I am okay with a contracting officer looking at whatever data is available to get some assurance for LOS compliance -- but I don't want to mandate it or even say a contracting officer "should" do this, and I don't want to call it "due diligence" because that suggests anything less is reckless, and that is not true.

[Retreadfed]

5 hours ago, Vern Edwards said:

Note that FAR 19.809-2(a) appears to describe the limitations applicable to 8(a) contracts differently than 13 CFR 125.6 and FAR 52.219-14.

Vern, I think you have discovered another drafting error in the FAR.  On Aug. 11, 2021, a final rule was published in the FR.  This rule dealt primarily with the changes to the LOS made by Congress in 2013.  In explaining the changes made by the rule, the Councils said "The final rule also contains revisions that were not in the proposed rule due to changes made in FAC 2020-05. For example, prior to March 30, 2020, the FAR did not include coverage of the limitations on subcontracting and nonmanufacturer rule in subparts 19.8, 19.13, 19.14, and 19.15; FAC 2020-05 added coverage tailored for each of those subparts. Due to the standardization of the limitations on subcontracting and nonmanufacturer rule, this final rule removes the coverage from those subparts and consolidates the coverage in subpart 19.5."  It looks like the Councils overlooked 19.809-2 when they issued the final rule.

[joel hoffman]

6 hours ago, Vern Edwards said:

Note that the SBA must make that determination, not the agency contracting officer. 

Yes but unless things have changed in the past few years, the SBA didn’t always look too closely. If my office found that a proposer’s price proposal (construction) didnt meet the old criteria , we’d coordinate with the SBA. If the offeror couldn’t legitimately meet the minimum self-performed share of the cost, we’d ask that the SBA nominate another firm and they always agreed.

Yes, it looks like they overlooked updating 19.809-2(a).

[joel hoffman]

3 hours ago, Fara Fasat said:

I think the reason everyone seems to be talking past each other is that we are looking at different problems. Vern, ji, and maybe others, are concerned about the wisdom and practicality of doing continuous monitoring of the prime and its subs. It's a valid concern.

Joel says there is a duty to fully vet the proposal and technical approach before making an award. Again, valid. I don't read in his posts a suggestion that continuous monitoring is required or should be done.

I'm concerned about the fraud scenario, and allowing a contract to run to its end if it is clear there is fraud. Also what to do if it becomes obvious that the LOS cannot be reached by the end, even absent fraud. I'm confident that no one here would turn a blind eye to it and take a "no monitoring" approach in the face of clear evidence.

Maybe we just need to stop digging in our heels, step back, and look at the big picture (did I miss any buzzwords?). Despite this topic reaching its 7th page, I think we can agree on a few key principles:

1. monitoring the LOS throughout contract performance is neither required nor prohibited. If you have the time and the inclination, go ahead.
2. due diligence before award should include a review of the offeror's understanding and compliance with the LOS requirements. It can also detect potential set-aside fraud.
3. if evidence comes to light that suggests that all is not as it should be, the CO has a duty to investigate further.

That may be simplistic, but it seems to be the Cliff's Notes version of what everyone is saying.

My remarks concern construction contracts. There is very little effort required to monitor compliance during performance. With the amount of information available that is used for multiple purposes by the ACO office team, they can fairly easily check. It would only be periodic.

 

[Vern Edwards]

4 hours ago, Fara Fasat said:

Maybe we just need to stop digging in our heels, step back, and look at the big picture (did I miss any buzzwords?). Despite this topic reaching its 7th page, I think we can agree on a few key principles:

1. monitoring the LOS throughout contract performance is neither required nor prohibited. If you have the time and the inclination, go ahead.
2. due diligence before award should include a review of the offeror's understanding and compliance with the LOS requirements. It can also detect potential set-aside fraud.
3. if evidence comes to light that suggests that all is not as it should be, the CO has a duty to investigate further.

That may be simplistic, but it seems to be the Cliff's Notes version of what everyone is saying.

@Fara Fasat

I would agree with #1, but I doubt that SBA, GAO, IGs and Congress would, at least not publicly. I presume  that the CO would be knowledgable and properly trained.

As for #2, what do you mean by "review"? Any "review" that could detect the fraud that worries you would have be more extensive than what I would think necessary for purposes of contract award. I also do not like the term "due diligence." That is a legal term of art. How are you using it?

I have to laugh when I think about some of the conversations that I have had with contracting people who say things about fraud. Most of them didn't know what fraud was, beyond a dictionary definition. They had never read a law review article about fraud, much less a book like Claire Sylvia's The False Claims Act: Fraud Against the Government, now in its 3d edition, or the entry on Fraud and Deceit in American Jurisprudence 2d., or the entries in the Department of Justice Criminal Resource Manual, §§ 1001 - 1099. I'm pretty well-read and knowledgable, but I tread carefully when it comes to talking about fraud. 

I know this much: The idea that the typical CO could detect attempted fraud during a pre-award "review," whatever that is, is absurd. At most they might develop an uneducated suspicion.

So tell me what you mean by "review".

I agree with #3, except that I would use the word information instead of "evidence". 

[Vern Edwards]

1 hour ago, joel hoffman said:

My remarks concern construction contracts. There is very little effort required to monitor compliance during performance.

@joel hoffmanI have managed construction contracts, and I say that your statement is not valid unless you state, in detail, what you mean by "monitor". If you don't, and with specifics, then your statement must be dismissed as an overly broad generalization—so broad as to be meaningless. It is especially meaningless in that it encompasses both something as trivial as constructing an outhouse for the Bureau of Land Management and something as large and subject to change as a new space launch facility at Vandenberg Space Force Base.