Posted January 13, 20232 yr comment_75324 Somebody is adamant that a prime cannot charge a fee on top of a sub's fee on any cost proposal funded by the US Government, or at least not in the DOD sphere. For example, if the sub is proposing $100 in cost plus $5 fee, for a total of $105, and the prime contractor has costs of $195, the prime's budget without fee would be $300 ($195 being its costs plus $105 for the sub's total budget). This person is saying that the prime's fee cannot be 5% of $300 (or $15) because that would mean that the prime's fee was calculated on top of the sub's fee. At most it can be 5% of $295 (prime costs plus sub costs but excluding the $5 sub fee), or even better 5% of prime costs only ($195). This would be applicable to budgets leading to any contract type (CPFF, T&M, FFP). I disagree, based on my experience and various hints from the Government that the sub's total amount, inclusive of fee, is a direct cost to the prime. The sub's fee is also impossible to ascertain on T&M or FFP subcontracts, unless it is disclosed voluntarily by the subcontractor. In my experience, a few solicitations have specifically forbidden this type of calculation, but I am not aware of a blanket governmental prohibition of it. Does anyone have any insights, and any regulatory reference as to whether I am wrong or right to disagree with the assertion described above?
January 13, 20232 yr comment_75325 What evidence did the somebody provide to support their assertion?
January 14, 20232 yr comment_75330 17 hours ago, Otterman said: Somebody is adamant that a prime cannot charge a fee on top of a sub's fee on any cost proposal funded by the US Government, or at least not in the DOD sphere. Might they be thinking of limitations on excessive pass-through charges? See FAR 15.408(n), 52.215-22, and 52.215-23.
January 14, 20232 yr comment_75331 I have seen a couple of civilian agency contracts (for A/E Services) that prohibit a "consultant" from billing fee/profit for its "subconsultants." However, the prohibition is express--i.e., it's right there from the time of contract formation. Nobody is relying on FAR or an Agency Supplement as the basis for the treatment; it's simply a contract term. Unless the contract specifies otherwise, subcontractor profit is simply a cost to the prime (or higher-tier subcontractor). That said, of course Vern is right that "excessive pass-through" costs, which are defined in FAR clauses he references, are unallowable. (NB: It has always bothered me that the excessive pass-through clauses are found in Part 15 vice Part 31.) Hope this helps.
January 14, 20232 yr comment_75333 Just now, here_2_help said: (NB: It has always bothered me that the excessive pass-through clauses are found in Part 15 vice Part 31.) It might be because excessive pass-through charges include profit and fee, not just costs. See the definition in 52.215-23(a): Quote Excessive pass-through charge, with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs).
January 17, 20232 yr Author comment_75359 On 1/14/2023 at 9:29 AM, Vern Edwards said: Might they be thinking of limitations on excessive pass-through charges? See FAR 15.408(n), 52.215-22, and 52.215-23. Yes, that would make sense - and I read the regulation to mean the following: The Prime can charge fee on Sub's costs and Sub's fee IF the Prime adds value to whatever the Sub does; otherwise, the Prime cannot add fee to the Sub's costs, let alone to the Sub's fee. In this latter scenario, the Prime could charge indirect costs (like Sub handling) and its fee only on the Sub handling. Does this understanding make sense? However, I am not sure if this limitation applies when that FAR clause is not included in the solicitation or contract.
