Retreadfed

Subcontractor labor would be a direct cost of the prime, i.e., a cost allocated only to one contract, as would subcontractor G&A. The unresolved issue is whether prime G&A should be allocated to subcontractor cost of personnel in determining compliance with the "50% rule." I can see arguments either way, and my research has not revealed any decision that addresses this specific question.

Are you including subcontractor profit in the total cost to the prime?

The sentence you quote from the decision does not address the GAO's rationale for sustaining the protest on the merits. Instead, it relates to the question of whether Aldevra was an interested party (one whose direct economic interest would be affected by the outcome of the protest) so that it could properly file a protest. Threrefore, that sentence does not imply that GAO might have reached a resujlt different from the one it did. The issue that I am raising is whether VA could set aside an order for SDVOSB/VOSB concerns under a schedule contract and issue the order to a concern that is not verified by VA and listed on the VA's database. Here is what the statute says on this A small business concern may be awarded a contract under this section only if the small business concern and the veteran owner of the small business concern are listed in the database of veteran-owned businesses maintained by the Secretary. From the way I read the GAO decisions in this area, the VA doesn't follow FAR 19.14, but the Veterans Act of 2006, from which the above extract was taken.

See, Aldevera, B-406205, (March 14, 2012). While not exactly on point, it does shed some light on this question.

Do you have access to the old version of the clause so that you can us point to language in it that contracting officers were interpreting in agreement with DCAA?

I have posed the question you asked to the policy folks at SBA responsible for writing the regulations in question. Their response was, "We do not think it is proper accounting for a contractor to allocate G&A to subcontract costs." H2H, don't faint.

What authority does DCAA have to issue interpretative memos that are binding on anyone other than auditors?

The problem is that DCAA has not issued any guidance in regard to an incurred cost submission when the only contracts a contractor has that require the submission of an incurred cost proposal are T&M contracts. I know that some DCAA offices are requiring such contractors to submit full incurred cost submissions although the only indirect cost subject to adjustment under these contracts is G&A.

One question that did not get addressed is whether the schedule holder would have to be verified as a SDVOSB/VOSB under the VA's VetBiz program before it could receive an award. By statute, VA can only give a contracting preference to such contractors.

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.

Does the contract contain the Feb. 2007 version of 52.232-7?

The professor is not correct. Here is what 13 CFR 125.6 has to say on this question "Cost of contract performance incurred for personnel. Direct labor costs and any overhead which has only direct labor as its base, plus the concern's General and Administrative rate multiplied by the labor cost."

What type of contract do you have, i.e., cost reimbursement, FFP, etc?

Yes, and it is a sad commentary on the state of government contracting.

It may if the contractor and its employees are involved with a dispute concerning wages and working conditions. FAR 22.101-1 says "Agencies shall remain impartial concerning any dispute between labor and contractor management and not undertake the conciliation, mediation, or arbitration of a labor dispute."

H2H, let me give you a real example of where it would be foolhardy for a contracting officer to accept a DCAA opinion that a contractor's timekeeping and billing systems are inadequate resulting in an inadequate accounting system. In this situation, DCAA determined these systems were inadequate because the contractor did not account for its time on commercial (non-government) contracts to the same level as it did on its government contracts. For its government contracts, the contractor was required by contract terms to account for costs and bill at the task order level or CLIN level on various contracts whereas on its commercial contracts, the contractor only accounted for time and billed at the contract level. DCAA could identify any impact this so-called deficiency had on government contracts. What logical connection did this so called deficiency have on the contractor's ability to account for costs on government contracts is beyond me. Any contracting officer receiving this report should not give any deference to it and it certainly should not be considered a valid basis for finding a contractor's timekeeping, billing or accounting system inadequate.

H2H, I have to take issue with several things you wrote above. First, if the contract is for commercial items, 52.212-4 Alt I is the authorized clause. 52.232-7 is not authorized for use in T&M contracts for commercial items. In the absence of a deviation to the FAR, use of 52.232-7 would be an unauthorized act on the part of the contracting officer. Second, the contracting officer does not have to determine that the contractor's timekeeping and billing system are adequate based on a DCAA audit report. While DCAA is the usual source of information on these subjects, the contracting officer can make this determination based upon information from any source. I have seen knowledgeable contracting officers totally ignore DCAA findings of inadequacy on these topics when the audit report is not based upon rational or reasonable application of FAR requirements. Next, the requirement that DCAA approve a contractor's accounting system as a criteria for responsibility has to be given a rational interpretation. Surely, you are not suggesting that the contracting officer must blindly follow what DCAA says, no matter how erroneous DCAA might be. In fact, the GAO has held just the opposite on several occasions. The principle to be followed in tis circumstance was stated in McKissack+Delcan JV II, B-401973.2; B 401973.4 (January 13, 2010): Responsibility is to be determined based on any information received by the agency up to the time award is proposed to be made. FAR sect. 9.105-1((3); American Tech. & Analytical Servs., Inc., B-282277.5, May 31, 2000, 2000 CPD para. 98 at 3. The determination of a prospective contractor's responsibility rests within the broad discretion of the contracting officer, who, in making that decision, must necessarily rely on his or her business judgment. We therefore will not question a negative determination of responsibility unless the determination lacked any reasonable basis. Oertzen & Co. GmbH, B-228537, Feb. 17, 1988, 88-1 CPD para. 158 at 3. In this respect, while a contracting officer has significant discretion in this area, a negative responsibility determination will not be found to be reasonable where it is based primarily on unreasonable or unsupported conclusions.[8] Decker and Co.; Baurenovierungsgesellschaft, m.b.H., B'220807 et al., Jan. 28, 1986, 86-1 CPD para. 100 at 7. Moreover, an agency's reliance upon the advice of DCAA does not insulate the agency from responsibility for error on the part of DCAA. See ASRC Research & Tech. Solutions, LLC, B-400217, B-400217.2, Aug. 21, 2008, 2008 CPD para. 202 at 11 n.12. Note the reference to DCAA. In McKissack, the GAO found the contracting officer's reliance on a DCAA audit report to be unreasonable. While later decisions have upheld contracting officer determinations based on DCAA audit reports, in those situations, the GAO found contracting officer reliance to be reasonable. Thus, the question to be addressed is did DCAA properly apply the criteria for finding a contractor's accounting system inadequate considering the contract type contemplated? If it did not, upon a proper challenge by the contractor, a contracting officer's reliance on DCAA's conclusions would be misplaced and unsupportable. One final note, the OP did not say whether the contractor in question was a small business. If so, I would like to know if the matter was referred to the SBA and if it was, what was the ourtcome.

You did not say whether the employees are subject to the SCA and whether options are being exercised on the contract. If they are, are you getting price adjustments to the hourly rates?

The SBA's regulations on size permit contracting agencies to require recertification of a contractor's size prior to issuance of task orders. If the contractor cannot recertify that it is small, the contractor can be determined ineligible to recieve a set-aside award. This language appears to require such a recertification.

God help us if someone did incorporate the CAM. It is not a procurment regulation, and by its terms was not intended to be anything other than a guide for those conducting contract audits.

Why do you need something that says you can do this? The more appropriate question would be why can't you do this?

Does the TO RFP require you to recertify your size status?

You stated that DCAA identified two issues. Apparently one of the issues relates to the contractor's ability to account for costs on cost reimbursement contracts. Because you are dealing with a T&M contract for commercial items, that issue should not be a stumbling block for the contractor to receive such orders. However, you have not identified what the other issue is or how it relates to the accounting data a contractor is required to generate under 52.212-4, Alt I, which is the appropriate payment claues for T&M contracts for commercial items. Read the clause and compare its requirements to what the DCAA audit report says, then exercise the authority given you as a contracting officer and make a decision. As long as the contractor can account for time expended on the contract, I think you have little risk. As I mentioned before, the cost principles do not apply to this type of contract and the contractor does not have to submit an incurred cost proposal. Finally, remember simply relying upon a DCAA audit report does not insulate you from having a successful protest filed asserting you did not have a rational basis for determining the contractor non-responsible.

The payment clause should be Alt I to 52.212-4.

A contractor needs to have an accounting system that is adequate for the contract type being considered before the contractor can be determined responsible. This means you have to look at what type of accounting data is required for the contract type being considered. A contractor should only be required to generate minimal accounting data under a T&M contract for commercial items. For example, the cost principles do not apply to such a contract and the contractor does not have to submit an incurred cost proposal. Thus, the contractor would really have to have a screwed up accounting system not to be adequate for this contract. However, you said the contractor was awarded a contract, but somehow you stated the contractor would only be eligible to receive firm fixed price orders. That signnifies that you found the contractor's accounting system adequate for this purpose. I am curious as to exactly what standards DCAA used in conducting this audit and what were the deficiencies in the accounting system as alleged by DCAA. Finally, DCAA does not determine responsibility, the contracting officer does. If DCAA did not apply the proper standards and you determine that the contractor's accounting system is adequate for the contract type, I don't see why you could not determine the contractor responsible in regard to T&M orders.