Prime contractor markup on subcontractors

Help! I am a prime contractor working on a (competitively bid, edwosb set-aside) FFP Air Force construction project in NW Florida. I am processing a change order and the government contracting officer is indicating that I will not be able to add overhead and profit markups on my subcontractor’s markups. I AM permitted to account for my additional labor, materials, and supervision hours (with markups), and normal OH and profit markup to the subcontractor’s direct cost, but NO OH or profit markup on the portion of my total subcontractor’s price that result from his OH and profit markup. These costs are a part of my subcontractor’s price and are my “direct cost” (as I read FAR 43.203( b )(2)). Further, there is no place on the AF Form 3052 to segregate these costs as subcontractor costs would be added as a direct cost in column 9.

The subcontractor effort will probably be less than 70% of the change, but this isn’t relevant since FAR clauses 52.215-22 or 52.215-23 “Limitations on Pass-Through Charges” are NOT included in the contract and, as I understand them, are intended for cost reimbursable type contracts anyway. The contract does include standard limitations on subcontracting that apply to the total value of the contract (labor, as this is a construction project), not to a specific change order.

Can anyone give me a definitive source that I can reference for this Contracting Officer confirming that a prime contractor’s overhead (and profit) markup on subcontracted efforts (based on total subcontract price) is allowable? Of course, I am willing to negotiate in good faith if they return the same.

If it helps, like most small business, CAS is not applicable and we do not have separate G&A and Overhead pools, only one comprehensive overhead rate. Thanks