T&M Rates and Subcontractor Pricing

[_KB_]

I am hoping to get some guidance on subcontractor pricing under a T&M RFP both during the proposal phase and in post-award execution. My firm is used to only supporting cost-plus prime contracts and have only supported T&M contract types as a sub up until this point, so I wanted to ensure my team and I understand the mechanics behind building a compliant cost proposal, and remaining compliant in post-award execution including invoicing.

Consider this scenario: Say in Section I of the solicitation, the Govt incorporates 52.216-29. The CO did not make mandatory any of the three approaches discussing in paragraph (c) of the clause, but later in the PWS requests that we note in the mandatory pricing template if the rate is a Prime Rate or a Sub Rate. In our proposal, we as the prime propose a single rate for all sub and prime Senior Engineers at $150/hr, and delineate some as Prime positions and others as Sub positions, but again with no differentiation in the rate. If our subcontractor proposed a rate of $100/hr to us the Prime during a preliminary data call for target rates, are we still able to use the $150/hr rate in our prime proposal for the sub positions, invoice the Govt for that $150/hr for sub work performed, and then only pay the sub their proposed $100/hr? Or, are we required to bid a rate for the subcontractors comprised of the rate the sub provided us the Prime + any applicable Material and Handling (Sub’s rate + Material Handling = Proposed rate for subcontractor Senior Engineers on rate card to Govt). Does the Govt care in this instance what we pay the sub or are they just concerned about paying us the contractor the hourly rate on the Schedule? Would the answer be the same if we have non-priced subcontractors in our proposal, and post-award want to allow them to staff an FTE?

If that is an acceptable practice, how, if at all, would that differ if the solicitation incorporated 52.216-30?

Furthermore, would doing this be possible if we were required by the RFP to conduct a detailed subcontractor price/rate analysis, or if the subcontractor were required to submit an unsanitized build up or certified cost or pricing data?

As for post-award execution, 52.232-7 states that the Govt will pay the contractor an hourly rate prescribed in the contract for labor that meets the LCAT quals, whether it is performed by the contractor or subcontractor. Does the Govt care what we pay the subcontractors, including if the rate we pay them is higher or lower than the rate establish on the schedule for subcontractors, as long as we only invoice at the rate established in the Schedule? Or, does what we pay the subcontractor have to match what rate we invoice the Govt for?

[Vern Edwards]

In short, what you want to know is if you can propose/negotiate a rate of $150/hr for subcontractor senior engineers, then negotiate a lower rate from the subs, such as $100/hr, then bill the government at $150 and keep the extra $50 for yourself.

Is that what you want to know?

[_KB_]

Hi Vern,

Yes, that is the short of it. 

We ran into a situation where we were going to price all the work as a Prime (because we did not have the intent to subcontract off the bat, but had Subs listed as team members to potentially bring on in future option years in other volumes), but had to note which LCATs would be staffed by Subs. We wanted to just list all rates as Prime rates and state in our cost narrative that subs would be priced & reimbursed in accordance with our Prime rate card. The practice seems a little off to me, but I have heard from a few others that is standard practice, so I just wanted to confirm. 

[Vern Edwards]

See the time-and-materials payment clause, FAR 52.232-7.

Neither 52.216-29 nor 52.232-7 indicate that the hourly rate(s) proposed/negotiated for subcontractor work must be the amount that the prime will pay to the sub for its work.

Offhand, I can't think of why what you describe would be illegal or necessarily improper, but I would strongly advise that you disclose to the government what you plan on doing. I also suggest that you have a good explanation for why you plan on doing it.

17 minutes ago, _KB_ said:

We wanted to just list all rates as Prime rates and state in our cost narrative that subs would be priced & reimbursed in accordance with our Prime rate card.

I'm not sure what that means, but I think you have to identify each subcontractor and the rate(s) you will charge for its work.

 

[_KB_]

Understood. Thank you for your guidance!

[Neil Roberts]

22 hours ago, _KB_ said:

I am hoping to get some guidance on subcontractor pricing under a T&M RFP both during the proposal phase and in post-award execution. My firm is used to only supporting cost-plus prime contracts and have only supported T&M contract types as a sub up until this point, so I wanted to ensure my team and I understand the mechanics behind building a compliant cost proposal, and remaining compliant in post-award execution including invoicing.

 

I would want to make sure my proposal was compliant with current cost or pricing data requirements, if they were applicable, and any requirements relating to applicable cost accounting standards.

[_KB_]

Good point. The RFP I used to form my scenario did not require Certified Cost or Pricing Data since it was based on adequate price competition, but I agree that paying close attention to those requirements is imperative, and would potentially impact the strategy we use to develop subcontractor pricing.