In a CPFF arrangement, my organization has always viewed both cost and fee invoiced by our subcontractors as a cost to us (the prime) therefore we do not segregate a subcontractor's cost and fee in our billings to the customer. The fixed fee stipulated in our prime contract is the fee that is payable to us only.

Does this approach seem correct and consistent with how other firms handle CPFF Subcontracts?

This topic came up in conversation with one of our customers and they objected to this concept, stating a contractor was not allowed to apply fee on fee. I checked our prime contract and I could not find any language that supported our customer's position.

How do I know if I'm on solid footing here?

Thanks!

In a CPFF arrangement, my organization has always viewed both cost and fee invoiced by our subcontractors as a cost to us (the prime) therefore we do not segregate a subcontractor's cost and fee in our billings to the customer. The fixed fee stipulated in our prime contract is the fee that is payable to us only.

Does this approach seem correct and consistent with how other firms handle CPFF Subcontracts?

This topic came up in conversation with one of our customers and they objected to this concept, stating a contractor was not allowed to apply fee on fee. I checked our prime contract and I could not find any language that supported our customer's position.

How do I know if I'm on solid footing here?

Thanks!

The rental cost principle and material cost principle generally prohibit a contractor from charging a fee or profit on rentals or material obtained from a party under common control with the prime contractor. There is no other prohibition on fee on fee in the FAR. Therefore you can do this unless there is a provision in your contract limiting fee on fee in other circumstances.

Retreadfed is correct. It's not fee on fee because, as you posted, the subK's fee is a cost to you. The fee you negotiate is for the risks and duties associated with managing the subK, which has nothing to do with fee that the subK negotiates with you.

Hope this helps.

I appreciate the quick response! Thanks very much!

See FAR 52.215-23, Limitations on Pass-Through Charges.