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I delved into an issue that I have not been able to come to any resolution. There seems to be two distinct camps when I talk to others about it. The issue revolves around the use of subcontractors on a T&M (or LH) task order issued against a multiple award, indefinite delivery indefinite quantity (MA/IDIQ) contract such as a MAC or GWAC. The underlying contract has established labor categories and fully loaded ceiling rates to be used on T&M and LH task orders.

First, let?s start with the FAR:

16.601 Time-and-materials contracts.

(a) Definitions for the purposes of Time-and-Materials Contracts.

?Direct materials? means those materials that enter directly into the end product, or that are used or consumed directly in connection with the furnishing of the end product or service.

?Hourly rate? means the rate(s) prescribed in the contract for payment for labor that meets the labor category qualifications of a labor category specified in the contract that are?

(1) Performed by the contractor;

(2) Performed by the subcontractors; or

(3) Transferred between divisions, subsidiaries, or affiliates of the contractor under a common control.

?Materials? means?

(1) Direct materials, including supplies transferred between divisions, subsidiaries, or affiliates of the contractor under a common control;

(2) Subcontracts for supplies and incidental services for which there is not a labor category specified in the contract;

(3) Other direct costs (e.g., incidental services for which there is not a labor category specified in the contract, travel, computer usage charges, etc.); and

(4) Applicable indirect costs.

(Underline added)

To make a long story short, do the ceiling rates in the underlying contract (MAC/GWAC) apply only to the prime contractor, i.e., can the subcontractor propose rates different than the prime?s rates. Said another way, when the FAR references ?the rates prescribed in the contract? and ?labor category specified in the contract? are they the rates/labor categories established at the task order level where there?s a real requirement or the underlying MAC/GWAC. I don?t think the FAR was written with task orders issued against MACs/GWACs in mind. My kneejerk personal opinion is that subcontracts are what they are and their rates can be different that the prime?s and would be considered rates prescribed in the task order (contract). I don?t consider subcontractor labor rates and categories established in the task order as incidental services.

P.S. I understand that the T&M payments provisions provide for either coming up with blended rates or the subcontract labor can be broken out at the COs discretion (except for DoD which has to have them separated).

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I've seen it done where the subcontractor costs are bid as an ODC as well as where the subcontractor labor is billed under the Prime's T&M rates. Former method allows Govt to see prime mark-up on subs where latter method does not. For our FSS Schedule orders, we routinely put in the Instructions to Offerors that if subcontracting is proposed, all labor and materials proposed must be contained within the prime contractor's FSS Schedule Contract. I think the key to deciding which way to go is in the definition of Materials as you quoted in your post

“Materials” means—

(1) Direct materials, including supplies transferred between divisions, subsidiaries, or affiliates of the contractor under a common control;

(2) Subcontracts for supplies and incidental services for which there is not a labor category specified in the contract;

If it's an incidental service for which no labor category is established in the contract, then it gets billed as an ODC.

Would be interested in hearing from the more senior 1102s on if and when they would want subcontractor costs to be billed as ODC even if the labor category existed (maybe if review of sub's sealed envelope showed prime's mark-up if using prime contractor rate is unreasonable?)

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  • 2 weeks later...
Guest Vern Edwards

Are you asking about an existing contract or are you asking what is the current rule? If you are asking about an existing contract, then the only way to answer your question would be to read the contract.

Under the current rule in FAR, subcontract direct labor hours other than incidental are not treated as ODC.

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