joel hoffman

Kristine, if you are with the Corps, you should be familiar with EP 715-1-7, Architect-Engineer Contracting. Appendix X provides the methodology for preparing the government estimate , including the profit objective. "e. Profit. Profit rates will be determined in accordance with EFARS 15.404-73-101. The profit rate will be applied to all costs (direct labor, overhead on direct labor, general and administrative overhead, travel, reproduction and other direct costs) to estimate the dollar amount of profit. An IGE will not be structured with redundant levels of profit (no profit on profit)40. Hence, if an IGE is structured with subcontractors, the estimated costs (without profit) for the prime contractor and the subcontractors will be added to give the total cost base for applying the profit rate. However, it is not necessary to deduct reasonable profit embedded in the prices of commercial supplies and services, such as travel, lab tests, printing and express mail." (NOTE 40 "The EFARS alternate structured approach to the weighted guidelines method (WGM) for A-E contracts yields profits that are substantially greater than the WGM in DFARS 215.404-71. Hence, estimating additional profit for layering of subcontractors is not warranted.") You tickled my memory. I was the "Professor" at the time and wrote that response to the AAP question.

"Is there a DFARs or FAR clause that prohibits the Government from allowing a prime contractor to earn a profit on its subcontractor's cost?" No, not in general, assuming that we aren't talking about affiliated entities, as Here discussed or acting as a front for other firms actually performing the design. Should an A-E not be entitled to profit on a subcontract for specialty design efforts, assuming that the A-E is actually performing design work and not merely acting as a pass-through for other firms performing the design? I'm assuming that you are asking here about an A-E performing a significant portion of the design effort with subcontractors performing some specialized portion of the design.

withdrawn.

Gee, are you a contractor, "to"?

I agree with Here and Vern. And what the KO is intending to evaluate is familiar. But the means and methods don't make sense to me. We used to ask for a breakdown with construction and design-build contact proposals but the information we got was mostly gobblygook until I spoke with one of the proposers once. We weren't asking for subs quotes but we asked them to show basic subcontract amounts or direct cost estimates for material equipment and labor, plus total markup for the major WBS items for evaluation purposes similar to what was mentioned above. My proposer indicated that he had no problem showing us the basis of the proposal but he asked for three working days after the proposal due date in order to be able to break down his actual proposal. He said that most construction contractors were receiving final price input from subs, the estimators and senior management up until a few minutes before our closing time for proposals. Therefore the breakdown was meaningless to anyone a( that point in time because the proposer didnt have time to breakdown the information. After that, I changed the proposal submission requirements to allow three working days to submit the breakdown info. So, then we usually ended up with really meaningful information. However, we didn't always have to use it to evaluate prices or to use for price discussions. So we were often wasting the industry's money and our time and cost to evaluate. The next iteration was to move away from automatically asking for price breakdown details.. Instead, we reserved the right to ask for it in the event that we really needed it for evaluation and/or to prepare for price discussions. This made contractors happier plus we got the info only when we really needed it. Otherwise, we usually had enough detail in the CLIN structure, had multiple proposals plus the Government Estimate to make initial comparisons with.

Have you asked these questions of the contracting office? They apparently want a price breakdown to evaluate for some purpose or purposes. It also looks like they have gone overboard in the level of detail required if the purpose is to evaluate your understanding of the requirements, to evaluate the reasonableness and/or to help conduct price discussions if such will be necessary. Does the RFP describe anything about the price evaluation process?

FAR 31.201-3 also continues: "...Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer’s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. ( What is reasonable depends upon a variety of considerations and circumstances, including -- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance; (2) Generally accepted sound business practices, arm’s-length bargaining, and Federal and State laws and regulations; (3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor’s established practices." In other words, the cost is not automatically presumed to be reasonable. The Contractor and its sub should justify why it is both necessary and reasonable to change from a proposed escalation rate of 3% now to 18%. Congress added this language back in the late 1980's (1987, I think) to make it clear that just because the Contractor incurs a cost, it isnt automatically "reasonable". If you dont think it is reasonable, make sure that you clearly communicate it to the Contractor in writing. I'd require justification from the Contractor before I'd approve or recommend approval of such an increase. No justification - no approval.

Unless I'm missing something, the type of contract you propose has no controls over the catalog list pricing. Is this an existing catalog and is the contract fixed to the existing catalog? The Army's Job Order Contracting (JOC) program used multipliers to price various catalogs that the Government supplied, which were really estimating books These are ID/IQ contracts.

That is a very general question. Usually, the clause will describe its applicability with respect to modifications.

I recently discovered that NASA, as the current organization for maintaining the Unified Facilities Guide Specification (UFGS for Section 01 33 00 Submittals, has edited paragraph 1.1.1 Submittal Descriptions (SD) for SD01 "Preconstruction Submittals, to state that the NTP won't be issued until certain submittals were in and approved. NASA says that they don't issue NTP until all these submittals are in, which might add several months to the time needed to complete the project. After fighting with the Spec writers on this (representing HQUSACE), I thought they had fixed it. However, I checked the website this morning and the pdf version essentially says that ALL submittals have to be in and approved before NTP or on-site construction may begin! I don't currently have SPECSINTACT, so I cant see how the editable version reads. AARGH. It is possible that the original questioner's contract had the jacked-up guide spec in it, if they are with DoD or NASA.

At the risk of dragging this thread on, (hopefully not), I'll say that I wasn't discussing a COTS life safety system. Like I said earlier, I don't have a pat answer for evaluating such a system and would have to look at each situation as it arose.

Ron, I think the primary difference between a an "life safety system" and individual items is that the system is accepted or rejected on a system basis vs. accepting or rejecting individual items used for other construction purposes. But, if certain items cause a life safety system to be rejected as non-domestic, the contractor might be able to substitute a domestic product to achieve the necessary conditions for acceptability.

"quote 'ron vogt' Jul 2 2010, 05:31 PM post='5627' "...A system, on the other hand, is composed mostly of products that are finished, stand-alone products on their own. They are smoke detectors, alarms, control boxes, panels, etc. They come from many different factories as finished products, and they do not come together until they reach a construction site. Furthermore, they don't come together in the sense of a product in a factory. They are connected by wires across all the rooms and locations in a building. The FAR treats this system as a single item, a product. Logically, it is no more a single item than an electric grid is a single item, even though every part is connected to the rest by wires" "...Furthermore, the components of that single item, the system, are the individual products that go into it. If at least 50% of those products, by cost, were made in the US, then the system has met the rest of the BAA test." Yes - if 50% of the manufactured products that go into the system were made in the US, then the ststem has met the rest of the BAA test. These products are not substantailly transformed into anything different than what they were when they arrived at the construction site. A horn blows, a controller controls, a wire carries amperage, a smoke detector detects smoke, a heat detector detects heat, a hangar hangs things, a pipe carries foam, water or gas, screws and bolts screw into stuff and bolt things together. The difference is that the individual manufactured parts now are considered a system, no matter what configuration they are in when they arrive at the site. "If at least 50% of those (already manufactured) products, by cost, were made in the US, then the system has met the rest of the BAA test." Why make it so dadgummed difficult? It isn't extensively difficult to calculate for compliance using the above concept.

The only thing that I could add is that the government itself can't bully you into anything. Your contract is with the prime. It seems that the prime is who you originally proposed to, who objected to the cost, who asked you to revise your proposal to exclude delivery of design data, and who agreed with your methodology and price. As Vern said above, your contract apparently doesn't require you to deliver the design data, either.

Nevermind. Vern addressed the question quite well.

Then I will disagree with Ron. I think that if a system is rarely a COTS item, then one can determine how much of its previously manufactured components are "domestic" for a determination that the overall system is domestic. That determination can be made from the quantities of materials and equipment estimated to be needed for the construction installation. If you have a fire alarm control panel, X horns, Y speakers, Z feet of wire, CC sensors and detectors, FF feet of pipe. NN fittings, UU hangars, RR sprinkler heads, etc. I don't think it involves rocket science to determine whether the "system" composed of the various manufactured components is domestic or not. As for a COTS system composed of various components gathered from various sources, I dont know. i suppose it depends upon the circumstances and whether or not one can tell where the COTS system was assembled, manufactured, or whatever, for delivery to the site for installation.

Gents, I know what a commercial item is. Most all emergency life safety systems such as fire protection systems are composed of standard components that are individually considered commercial items. While The fire alarm control panels are usually custom built for the project, they are made up from standard components. So, if all such systems would be considered to be COTS, and if there is no requirement to quantify the portion of domestic and non-domestic "items" or "components" for a system that is COTS, how would anyone be able to determine if the system is domestic or not? Yes, I know that items manufactured in "qualified countries" count as domestic items, when Trade Acts are applicable.

Can anyone provide an example of an emergency life safety system that is COTS? I understand that such a system could be comprised of COTS components, but what would a COTS system be in and of itself as it pertains to a construction contract? I am unable to download FAR part 12 or find the definition for a COTS system. Thanks.

Quoting Outside legalguy "If that's what the FAR means by evaluating such systems as a "single and distinct construction material," what happens if the assembled product is viewed as a COTS product? In that case, you don't care about the cost of the components test. What test do you apply then? OLG" Ok, I pulled up FAR 25.2. It lists laws not applicable to commercial item acquisitions. A construction contract is not a commercial item acquisition. The 41 USC 431 exemption is not applicable to a construction contract.

Quoting Outside legalguy "Does this mean that every separate piece of the system must be manufactured in the US and, thus, those Chinese parts can't be used?" No, I don't think so. "What does the statement regarding evaluating such systems as "a single and distinct construction material regardless of when or how the individual parts or components of those systems are delivered to the construction site" really mean? Does that mean it's okay to bring individual pieces to the site that aren't made in the US as long as, when the system is put together, they represent less than 50% of the cost of all the components, assuming that the 50% test has to be satisfied?" Yes and no. I believe that they can be used if they represent less than 50% of the cost of all the components, assuming that the 50% test has to be satisfied. But it is not dependant upon "being put together" if you are referring to "installation". "If that's what the FAR means by evaluating such systems as a "single and distinct construction material," what happens if the assembled product is viewed as a COTS product? In that case, you don't care about the cost of the components test. What test do you apply then? OLG" I am in a car this week. Don't have access to all of Part 25. However, in my experience, we often evaluate commercial items and it is up to the contractor to provide the necessary information to justify meeting the BAA requirements. If you are tying COTS to the exemption for providing "cost or pricing data", what has that to do with evaluating BAA compliance? Ill admit that it often takes a "Philadelphia Lawyer" to interpret Part 25 though. Our Office of Counsel provides help. I remember having to evaluate comercial items that were assembled in both Mexico and the US from American material sources. Of course that was before everything we buy seems to be made in the PRC or Taiwan. I see we just added Formosa to the qualified country list for the larger construcion jobs.

Fara and others, you ask how anyone can evaluate the system before installation until you know how much of each component has been installed. Installers estimate the quantity of materials and equipment required when they prepare bids or proposals and again when they order the components. To me, this is a reasonable basis for a BAA compliance evaluation.

Fara, the items comprising an emergency life safety system are manufactured like other construction materials, through some type of manufacturing process. The point made in the definition is that we don't evaluate individual components of the system for compliance with the BAA requirements. We have to look at all the components comprising the system. Thus, we don't accept or reject the horns, controllers, sensors or whatever, individually for BAA compliance. We must look at the collective content and manufacture of the components. To do this of course, you'd have to examine and the contractor or supplier would have to identify the sources and costs of thevarious components to determine whether the system as a whole meets the BAA requirements. But the materials comprise the system when they arrive on the job for installation, not after installation, just like any other construction material that WILL be installed in construction. Why is this so difficult?

" Here's the definition: "However, emergency life safety systems, such as emergency lighting, fire alarm, and audio evacuation systems, that are discrete systems incorporated into a public building or work and that are produced as complete systems, are evaluated as a single and distinct construction material regardless of when or how the individual parts or components of those systems are delivered to the construction site." Carl says that the determination is made after installation and Ron says that we don't know until after installation. In my expereince, the determination is made at the material submittal stage which is before the materials are installed. A life safety system may arrive on the jobsite as individual components, partly assembled, etc. As per the definition, it is still evaluated as a system, regardless of how it arrives on the jobsite. Installation has nothing to do with determining if it is domestic or not. Nothing in the definition mentions construction installation. The definition of an emergency life safety system refers to the time of arrival on the construction site but nothing after that. Construction is not part of the manufacturing process of construction materials. Rather, construction materials are used in the process of construction.

No, I did not say that.I was speaking in general terms about materials and systems. A Chinese air handler doesn't become domestic after installation, for example. Neither would a sprinkler or fire alarm system.

No, I just tried to say that construction installation is not "manufacturing" and that the determination of domestic or foreign construction material is made on the basis of its condition before being installed during construction. It is either domestic or foreign construction material when it arrives at the construction site.