During a proposal, the CO is not allowing the Subcontractor to submit its full cost build-up (showing salaries, indirect costs, and fee) directly to the Government, as is standard practice. The CO is basically forcing the Subcontractor to share its proprietary pricing data with the Prime if they want to bid on this work as a team, even though the Subcontractor would prefer to hide its detailed cost build-up from the Prime and only share its fully loaded rates.

Other than F5.404-3(c) (1) and (2), which only deal with certified cost or pricing data, I haven't found a regulation which addresses this. The FAR clause I mentioned specifically allows Subs to submit their pricing to the Government directly. Any insights?

8 hours ago, Otterman said:

The FAR clause I mentioned specifically allows Subs to submit their pricing to the Government directly.

Forgive me if I'm missing it, but I don't see a reference to a clause in your original post.  (I see the disjunctive "or cause to be submitted" and "or cause submission of" language in FAR 15.404-3(c)(1) and (c)(2) respectively, but I couldn't find that language in a provision or clause.)  Some additional factual context would be helpful as well, especially the applicability of TINA to your anticipated subcontract, and the procuring agency.  For instance, for the DoD contracts, DFARS PGI 215.404-3(a) is relevant to your issue.

Not sure if this is a DoD procurement, but see DFARS PGI 215.404-3

10 hours ago, Otterman said:

F5.404-3(c) (1) and (2),

What is “F5”? 

On 1/8/2023 at 9:57 PM, Otterman said:

The CO is basically forcing the Subcontractor to share its proprietary pricing data with the Prime if they want to bid on this work as a team, even though the Subcontractor would prefer to hide its detailed cost build-up from the Prime and only share its fully loaded rates.

In my experience with two major prime contractors, It was not unusual that a subcontractor insisted on "sanitizing" its proposal details in bidding to us. It was acceptable provided there was a justifiable concern about competition even though it was more challenging for us to substantiate the proposed cost/price.

On 1/8/2023 at 9:57 PM, Otterman said:

During a proposal, the CO is not allowing the Subcontractor to submit its full cost build-up (showing salaries, indirect costs, and fee) directly to the Government, as is standard practice. The CO is basically forcing the Subcontractor to share its proprietary pricing data with the Prime if they want to bid on this work as a team, even though the Subcontractor would prefer to hide its detailed cost build-up from the Prime and only share its fully loaded rates.

Other than F5.404-3(c) (1) and (2), which only deal with certified cost or pricing data, I haven't found a regulation which addresses this. The FAR clause I mentioned specifically allows Subs to submit their pricing to the Government directly. Any insights?

I note that you are asking about the subs' "cost build-up."

If by "FAR clause" you mean FAR 15.404-3(c)(1) and (2), those paragraphs address the submission of subcontractor certified cost or pricing data. A cost "build-up" (i.e., cost breakdown) is not certified cost or pricing data. Certified cost or pricing data are the factual data upon which the cost build-up/breakdown is based.

I do not know of any rule that requires a CO to accept a subcontractor's cost build-up/breakdown directly from the subcontractor, bypassing the prime.

See FAR 15.404-3(a). How can a prime know that its proposed price is fair and reasonable without performing a cost analysis of its subcontractors' proposed prices, which FAR says it must do when a sub must submit certified cost or pricing data? See FAR 15.404-1(a)(3) and 15.404-3(b). And how can a prime perform a cost analysis if it cannot see the cost build-up/breakdown of its subs' proposed prices?

The sub must submit its cost proposal, including its cost build-up/breakdown𑁋amounts for materials, labor, other direct costs, indirect costs, and profit𑁋to the prime, but may submit its certified cost or pricing data to the contracting officer.

On 1/9/2023 at 11:14 AM, joel hoffman said:

What is “F5”? 

I meant FAR 15.404-3, sorry for the typo.

On 1/9/2023 at 10:03 AM, here_2_help said:

Not sure if this is a DoD procurement, but see DFARS PGI 215.404-3

It's a USAID procurement.

On 1/11/2023 at 2:42 AM, Vern Edwards said:

I do not know of any rule that requires a CO to accept a subcontractor's cost build-up/breakdown directly from the subcontractor, bypassing the prime.

See FAR 15.404-3(a). How can a prime know that its proposed price is fair and reasonable without performing a cost analysis of its subcontractors' proposed prices, which FAR says it must do when a sub must submit certified cost or pricing data? See FAR 15.404-1(a)(3) and 15.404-3(b). And how can a prime perform a cost analysis if it cannot see the cost build-up/breakdown of its subs' proposed prices?

Regarding the first statement quoted above, from my experience it is industry practice for the Government to allow subs to submit their detailed pricing directly, bypassing the prime. I have never seen a CO not to allow this.

As for the second comment, I respectfully disagree as well. Cost analysis is not required when certified cost or price data is not required. According to FAR 15.404-1, only a price analysis is required in that scenario. A prime can do a thorough price analysis of its subs' prices without needing to see how the subs marked up their actual costs to get to their final prices.

14 hours ago, Otterman said:

Regarding the first statement quoted above, from my experience it is industry practice for the Government to allow subs to submit their detailed pricing directly, bypassing the prime. I have never seen a CO not to allow this.

As for the second comment, I respectfully disagree as well. Cost analysis is not required when certified cost or price data is not required. According to FAR 15.404-1, only a price analysis is required in that scenario. A prime can do a thorough price analysis of its subs' prices without needing to see how the subs marked up their actual costs to get to their final prices.

First, I said that I knew of no rule. Do you know of a rule that says a CO must accept a "cost-build up" (which you now call "detailed pricing," a vague phrase if ever there was one) from a sub, by-passing a prime? If so, cite it.

Second, I said a cost analysis is required when certified cost or pricing data are required. So just what are you respectfully disagreeing with?

Third, the information that primes need for a price analysis is not the same as what they need for a cost analysis. They need more for a cost analysis.

Fourth, your assertion about "industry practice" is bull. Tell us what documentation you have of "industry practice." Why should we accept your unsupported testimony? What do you𑁋an anonymous person who came here to ask a question about the matter𑁋know about "industry practice"? What "industry"? How many companies in that "industry" have you worked for or with? On what basis do you know of their practices? Disclose your CV. If you know so much about "industry practice," why aren't you presenting that info to the prime to present to the CO?

If I were the CO, I'd boot you out of my office and tell you to give your "cost build-up" to the prime, because I'm not going to do the prime's work of making its own determination of the fairness and reasonableness of your proposed price to them before they present it to me as part of their price to the government.

The prime is your customer. Do your deal with them. They'll do their deal with the CO. If I were the CO I wouldn't talk to you. I'd communicate with the prospective prime.

 

 

19 hours ago, Otterman said:

from my experience it is industry practice for the Government to allow subs to submit their detailed pricing directly, bypassing the prime. I have never seen a CO not to allow this.

Although not directly on point, but still relevant, have you looked at FAR 44.202-2 particularly (b)(8) and 44.303?

18 hours ago, Vern Edwards said:

First, I said that I knew of no rule. Do you know of a rule that says a CO must accept a "cost-build up" (which you now call "detailed pricing," a vague phrase if ever there was one) from a sub, by-passing a prime? If so, cite it.

I don't know of such a rule allowing subs to submit their detailed pricing (showing full cost build-up inclusive of indirect cost breakout) directly to the Government, in order to avoid sharing their rates with potential competitors. That is why I asked the community here - I was hoping there was such a rule.

18 hours ago, Vern Edwards said:

Fourth, your assertion about "industry practice" is bull. Tell us what documentation you have of "industry practice." Why should we accept your unsupported testimony? What do you𑁋an anonymous person who came here to ask a question about the matter𑁋know about "industry practice"? What "industry"? How many companies in that "industry" have you worked for or with? On what basis do you know of their practices? Disclose your CV. If you know so much about "industry practice," why aren't you presenting that info to the prime to present to the CO?

My assertion about "industry practice" comes from having seen this approach of the subs submitting their detailed budgets (which show indirect cost breakout) directly to the Government dozens of times, in the context of cost proposals in response to solicitations from DOD and, to a far lesser degree, USAID and civilian agencies. If I had to pick a number, I would say that I have seen this practice specifically allowed by the Government on 80-100 actual proposals I worked on, allowed with clarification after Q&A on about 4-6 proposals (e.g., with the Government providing an alternate email address if the subs didn't have access to the submission portal), and specifically disallowed on only 1 proposal. That is why this scenario is so unusual to me, and why I had my assumptions about "industry practice". The "industry" I am referring to is federal US Government contracting (not specific to one agency or line of work).

18 hours ago, Vern Edwards said:

If I were the CO, I'd boot you out of my office and tell you to give your "cost build-up" to the prime, because I'm not going to do the prime's work of making its own determination of the fairness and reasonableness of your proposed price to them before they present it to me as part of their price to the government.

 

 

A lawyer once told me the opposite, that if you actually follow the law, it is not the Prime's responsibility to determine the fairness and reasonableness of its own price (which includes analyzing the cost and/or price of its sub). It is the Government's and only the Government's responsibility to determine reasonableness and realism - even though a lot of COs improperly dish this responsibility to prime contractors.

Of course it helps with price volume evaluation to have a reasonable price and to be able to justify why it's reasonable, but ultimately the Prime can propose to sell a pen to the government for $0.01 or $1,000, and it is fully the Government's responsibility to evaluate the price, they cannot force the Offeror to evaluate its own price (and by extension that of its subs) - it's even an obvious conflict of interest.

The Contractor has the incentive to justify it, but no responsibility to do so. It may be a pedantic point since in practice the CO generally requests the Prime to do the analysis on its subs' costs (or prices) anyway, and everyone complies if they want to have a shot at winning the work.

I am not sure if the lawyer was right or not, but that is what he told me, and I found his point interesting - especially in light of FAR 15.404-1 Proposal analysis techniques, where the language is unequivocal about it being the CO's responsibility to evaluate the reasonableness and it doesn't say anything about flowing it down to prime offerors.

1 hour ago, Otterman said:

A lawyer once told me the opposite, that if you actually follow the law, it is not the Prime's responsibility to determine the fairness and reasonableness of its own price (which includes analyzing the cost and/or price of its sub)

See my reference to FAR 44.202-2 and 44.303 above.

2 hours ago, Otterman said:

I don't know of such a rule allowing subs to submit their detailed pricing (showing full cost build-up inclusive of indirect cost breakout) directly to the Government, in order to avoid sharing their rates with potential competitors. That is why I asked the community here - I was hoping there was such a rule.

Hope springs eternal. Do you have a cite?

In the course of your inquiry you have now used the phrases "full cost build-up," "detailed pricing," and "detailed budgets." To my way of thinking, none of those things are certified cost or pricing data. They are simply breakdowns of total price or total estimated cost into component elements. I make a distinction between certified cost or pricing data and a cost breakdown such as described in FAR Table 15-2, Part II, Cost Elements. A mere cost breakdown is not certified cost or pricing data. Certified cost or pricing data must be submitted, when required, in support of a cost breakdown.

What information are you talking about submitting directly to the Government? Please be specific, and use FAR terminology so that we understand each other.

 

2 hours ago, Otterman said:

A lawyer once told me the opposite, that if you actually follow the law, it is not the Prime's responsibility to determine the fairness and reasonableness of its own price (which includes analyzing the cost and/or price of its sub). It is the Government's and only the Government's responsibility to determine reasonableness and realism - even though a lot of COs improperly dish this responsibility to prime contractors.

Except in the case of a hard core, true, doesn't give a damn sole source, if a CO asks a contractor who wants to the Government's business if it thinks its proposed price is fair and reasonable, what contractor is going to say, "That's up to you to decide"?

The CO has to decide on behalf of the government, but the prospective contractor had better try to help the CO decide in their favor.

Also, see David Bodenheimer, Defective Pricing Handbook, §10:6, Duty to evaluate subcontractor data:

Quote

In addition to the obligation to submit cost or pricing data if no exception applies, the regulations also impose a responsibility upon both the prime and higher-tier subcontractors to perform and disclose "appropriate analyses of the subcontractor cost or pricing data." Regarding such analyses, the regulations require the prime contractor and higher-tier subcontractors  to [citing FAR 15.404-3(b)]: (1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices; (2) Include the results of these analyses in the price proposal; and (3) When required by paragraph (c) of this subsection, submit subcontractor certified cost or pricing data to the Government as part of its own certified cost or pricing data.

BTW, David successfully defended United Technologies in the biggest defective pricing/false claim case in American history.

 

This issue arises frequently because most larger contractors are both competitors and teammates on different contracts, often concurrently. For example, Raytheon may provide avionics to Lockheed Martin while competing against Boeing on a new missile procurement. Typically, the problem is solved by having DCAA audit the major subcontractor proposals rather than having the prime's people do it. This strategy is generally accepted by all the parties (including USG) at the larger contractor levels. Remember, these larger contractors already have cadres of DCAA auditors in their facilities on a daily basis. What's one more audit?

Any small contractor that wants to use this strategy is likely to be laughed at.

In my experience, the solution for smaller contractors is to execute a Non-Disclosure Agreement, allowing certain prime contractor personnel to review the full detailed proposal support in order to perform cost analysis, while providing assurance that the information will not be used to the future competitive disadvantage of the entity that submitted it.

On 1/13/2023 at 5:53 PM, Vern Edwards said:

Hope springs eternal. Do you have a cite?

In the course of your inquiry you have now used the phrases "full cost build-up," "detailed pricing," and "detailed budgets." To my way of thinking, none of those things are certified cost or pricing data. They are simply breakdowns of total price or total estimated cost into component elements. I make a distinction between certified cost or pricing data and a cost breakdown such as described in FAR Table 15-2, Part II, Cost Elements. A mere cost breakdown is not certified cost or pricing data. Certified cost or pricing data must be submitted, when required, in support of a cost breakdown.

What information are you talking about submitting directly to the Government? Please be specific, and use FAR terminology so that we understand each other.

 

Sorry if I was unclear. Certified cost or pricing data is NOT required. The Government requires to see the detailed cost buildup of the Offerors and their Subs. They are not citing a FAR clause, but instead requesting a far more detailed budget breakdown than that in FAR Table 15-2, Part II, Cost Elements (which is not applicable here, by the way, because Certified cost or pricing data is not required for this competitive bid).

On 1/14/2023 at 10:27 AM, here_2_help said:

Any small contractor that wants to use this strategy is likely to be laughed at.

Your understanding is right, that is why exactly why I have seen the practice of subs submitting their cost proposals directly to the Government - today's partners may be tomorrow's competitors. Having said that, I have seen this practice in the industry at all levels, not just large contractors. Many small businesses in highly cost competitive markets (like Defense "butts in seats" awards, where it's often a race to the bottom price-wise) also have the same approach, and I've seen it allowed by virtually every CO. It's often expected that the Subs' default approach is to submit their budgets directly to the Government, that the solicitation has express submission instructions for the Subs, along the lines of "you don't need to use the portal for submission, you can email your budgets directly to these contacts, here are their email addresses".