In its Q&A during a proposal, it appears the CO is imposing that Prime Contractors issue a CPFF subcontract to their proposed Subcontractors.

The question: "Could XXX kindly confirm that the detailed budgets from major subcontractors may be either CPFF or T&M?"

The Government's answer: "Cost-plus-fixed-fee, (term and/or completion)"

If you read the language word for word, one could interpret the response to only address the budget format, but there is a very high probability that the CO will expect a CPFF subcontract (especially since it is asking for a consent to subcontract request). To add more context, the CO is not allowing the Subcontractor to submit its proprietary pricing data (indirect costs and fee buildup) directly to the Government, as is standard practice. The CO is basically force Subcontractors to share their proprietary pricing data with the Primes if they want to bid on this work.

I don't believe the Government can impose a specific subcontract type, nor tie evaluation to the mechanism a Prime is using to engage a Sub (unless there is some risk analysis) - but I haven't found any FAR clauses or past litigation and precedent dealing with this. Can anyone refute my understanding, or lead me to any relevant regulations? 

 

I don't know a regulation or clause that gives a CO authority to direct the contract type between a Prime and SubK. However, the SubK may have to be submitted for consent in advance of award, right? So ... it seems to me that the Prime should be prepared to justify the contract type used.

Also, I wonder if the Prime understands WHY it wants to award a T&M SubK instead of a CPFF one. What is the big benefit?

On 1/9/2023 at 9:58 AM, here_2_help said:

I don't know a regulation or clause that gives a CO authority to direct the contract type between a Prime and SubK. However, the SubK may have to be submitted for consent in advance of award, right? So ... it seems to me that the Prime should be prepared to justify the contract type used.

Also, I wonder if the Prime understands WHY it wants to award a T&M SubK instead of a CPFF one. What is the big benefit?

There are two benefits to issuing a T&M subcontract instead of a CPFF one.

The first is the bureaucratic burden on both sides. I've found T&M much easier to handle. Plus, there is no reconciliation when the final indirect cost rates are calculated, it doesn't matter how staggered salary raises are, since the T&M rate is good for an entire year, there is less calculation risk involved, etc.

The second benefit is that T&M allows the subcontractor to avoid disclosing its indirect cost structure to the prime. 

As a prime, I would never ever issue a CPFF subcontract. In fact, if I were a contract officer, I would never to it either, it is the most abused contract type (which is only supposed to be used in a few very particular scenarios). 

But I don't want to derail the topic. Thank you for your reply. This was my first time posting on here (I flooded the forum with 3 or so questions) and I appreciate the help. I would be glad to answer any questions as well, to the best of my abilities, to help the community.