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Contract Cost Increase due to Subcontractor Final Indirect Rates


erock

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Hello,

I received a request from a prime contractor to add funding to a task order because of a cost increase due to their subcontractor's final indirect rates, which I'm assuming are higher than the interim billing rates.  The task order has already ended, this cost increase is due the subcontractor's final 2020 rates. 

My understanding is that the subcontractor had a cost type contract with the prime, and now that the subcontractor has received their final indirect rates for 2020, the subcontractor is requesting additional funding to make up the difference between their billing rates and their actual final indirect rates.  My concern is that I do not know what the the subcontractor was actually billing the prime.  Would it be appropriate to ask the prime what rates the sub was using when billing?  Is a subcontractor required to invoice the prime using their approved provisional billing rates like they would invoice the Government if they were the prime?  Is this even my concern as the Government since it's the contract between the prime and sub?

I apologize for the rambling questions, just looking for some help.  Thanks.

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Was the prime contractor's request presented as a notice of overrun under para. (b) of the contract clause at FAR 52.232-20, Limitation of Cost, or para. (c) of the contract clause at FAR 52.232-22, Limitation of Funds?  If not, I'm thinking this isn't your concern but is a matter between the prime and the sub.

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5 hours ago, erock said:

Is this even my concern as the Government since it's the contract between the prime and sub?

This should be of no concern to the government if the contract between the government and the prime contractor was fixed price type. It might be of concern to the government if the contract between the government and the prime contractor was cost reimbursement type contract. In that case, potential concern would need to have more facts about the contract terms and conditions, such as those asked above and others. Under normal circumstances, if the subcontract amount claimed by the subcontractor are justified as reasonable and allocable to the contract between the subcontractor and the prime contractor, the amount would be paid by the prime contractor and included in its invoices to the government.

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7 minutes ago, Neil Roberts said:

This should be of no concern to the government if the contract between the government and the prime contractor was fixed price type. It might be of concern to the government if the contract between the government and the prime contractor was cost reimbursement type contract. In that case, potential concern would need to have more facts about the contract terms and conditions, such as those asked above and others. Under normal circumstances, if the subcontract amount claimed by the subcontractor are justified as reasonable and allocable to the contract between the subcontractor and the prime contractor, the amount would be paid by the prime contractor and included in its invoices to the government.

Assuming that the prime contract is a cost reimbursement type. What is the prime contract type erock?

Iff this is a cost reimbursement contract, there should be no reason why you don’t know what type subcontract this is or what the sub has billed the prime!!

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Thanks for replies.

ji20874- The primes request wasn't presented as either.  The CLIN that the prime requested additional funds be added wasn't fully funded, so the prime is requesting funds be added, but not an increase in the cost of the CLIN.  To me, it still seems like an overrun even though the cost wouldn't be increased just the funded amount.

Don - Yes, via DCAA/DCMA.  Is a subcontractor required to invoice the prime using the provisional billing rates approved by DCMA?  

Neil/Joel - Both the prime contract and subcontract contract were CPFF.

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18 minutes ago, erock said:

Don - Yes, via DCAA/DCMA.  Is a subcontractor required to invoice the prime using the provisional billing rates approved by DCMA?

If that is what they agreed to do in their subcontracts.

Ask the contractor what the subcontractor billed for its indirect costs. I'm surprised they didn't provide that information with their request.

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34 minutes ago, erock said:

To me, it still seems like an overrun even though the cost wouldn't be increased just the funded amount.

It doesn’t appear to be an overrun if the CLIN didn’t overrun.

What was the basis of the funding level for the CLIN?

Dont you have any visibility of the contractor’s earned value and budgeted costs? 

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Well, if the prime contractor's request is not a notice under para. (c) of the contract clause at FAR 52.232-22, Limitation of Funds, then you may ignore it.  It seems that there are adequate funds already on the contract to cover the unexpected increase in subcontractor costs.

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10 hours ago, erock said:

Is a subcontractor required to invoice the prime using their approved provisional billing rates...

See one DCAA view about your question. https://www.dcaa.mil/Portals/88/Documents/Guidance/Audit Overview/d_Provisional_Billing_Rates_2018-10-01 (Releasable).pdf?ver=2019-10-10-153830-477. I would be surprised if this DCAA view changes whether the approved rates were for a subcontractor or prime contractor effort. 

If FAR 52.232-22 was included in the government contract, it contemplates that full funding will be allotted by the government incrementally up to the total estimated cost. Also, it requires Contractor to notify the government when additional funds are required. The notice was provided. Why do your consider this additional funding request notice "an overrun" when it was contractually contemplated?       

Edited by Neil Roberts
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It sounds to me that the contractor may have exceeded, or expects to exceed, the total amount allotted under an incrementally-funded CPFF contract because of a subcontract cost of some kind. The contractor wants the government to allot additional funds to cover the overrun. This sounds very simple. It happens all the time under incrementally-funded CPFF contracts. The contractor has probably told the subcontractor to stand by for a response from the government.

On 7/21/2021 at 5:52 AM, erock said:

Is this even my concern as the Government since it's the contract between the prime and sub?

@erock: Yes, potentially, because you have a contract under which you must reimburse the contractor for its allowable incurred costs, and you should want to know if the subcontractor's cost overrun is an allowable cost.

Get off Wifcon, call the contractor, and ask what's going on.

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