Patrick Mathern

Could you clarify a bit?  What is the real issue here?  At first glance, I don't understand why "having an FFP contract" and "large ODC expense" necessarily have impact on one another.  Are you saying the large ODC expense was in support of the FFP and you have other Cost Reimbursable contracts this will affect?

I agree with Joel - in certain circumstances this makes sense.  Specifically, when the contract includes a direct requirement, then these can be direct charges (think FFP follow-on contracts, for example).  See FAR 31.205-18(a) and CAS 9904.402-61(c) for more info.

However, your post (and response) actually deal with the purchasing function, not proposal prep.

In that case, as Neil notes, you REALLY have to understand the supplier's accounting practices.  If they are organized such that purchasing is a direct charge function, there's nothing wrong with that if it's done properly.  If they have a Disclosure Statement, start there.  If not, run an audit program focused on allocability.  I know that at least one of the top 5 defense contractors is organized this way.

In general, this isn't an "unallowable" method of collecting and charging for Purchasing labor.

I've seen this before.  Let me pose a scenario for you:

You have a requirement to buy 100 boxes of Tide detergent.  On Amazon, there are 5 sellers of the product you need.  They all vary by 1-2% except for Seller 5, who has a price that is 10% lower than everyone else.  Your due diligence leads you to question whether this is the same item and you discover that yes, it is.  Seller 5 explains that they receive favorable pricing from Tide because they buy it by the truckload.

Do you have competition?

Let's modify it slightly and say that all sellers 1-5 price the product essentially the same.  Does this change the answer?  Why?

In my book, the punchline here is that if you have an active distribution marketplace for an item, then price is set by the laws of supply and demand.  If you notified the bidders that this would be awarded competitively, then they will be motivated to put their best foot forward and meet the requirements of adequate competition.

The caveat:  I have seen a case where a manufacturer tried to sell through two "distributors" in order to skirt TINA.  In this case, there was no "active marketplace" responsible for setting price.  Price was dictated by the manufacturer and zero sales had occurred.  Distribution model was a sham...didn't qualify as competition.

I have a client that is hiring a sales agent in a foreign country.  This agent's territory will likely include contracts subject to FMF rules, sales will be direct commercial.  This particular client compensates all of their sales agents with a commission plan.  I've never worked with FMF before - it appears that commissions are allowed, but they have to be disclosed, they cannot be in violation of Anti-Kickback regulations, and it appears that commissions may need to be split out and paid by the Purchaser's national funds.

My questions:

1. I'd like to wrap my head around this better.  What is the purpose of the FMF rules on commissions/contingent fees?

2. What does the last provision (paid by Purchaser's national funds) mean?

3. Where can I find the source document that discusses FMF commission requirements from a contractor's perspective?

Thanks in advance!

Patrick

If you work for a contractor rather than the government, check your procurement policies and procedures. May be there rather than the FAR. 

Hi Jennifer -

You will get a far more complete answer from some of the other folks in this forum, I focus my efforts on cost and price analysis.  From that perspective, you will want to determine whether what you're buying qualifies as a commercial item/service (as defined in FAR 2.101).  If it does prove to be commercial, it will simplify your flowdowns and possibly the cost/price analysis requirements.

If it's not commercial, you'll want to know if your subcontract will be >$750K.  This will have implications for cost vs. price analysis.

Questions to you then:  does this qualify as a commercial item/service and is it >$750K?

Patrick

Hi Vern -

Thanks for setting me straight!  We have used this approach for over ten years but based on the straightforward text in 52.215-12, I'm changing my tune (and process).  Very helpful discussion!

Hi Vern -

I think so, but help me walk through this.  That citation references FAR 15.408 which references Table 15-2.  In Table 15-2, it notes that "The requirement for submission of certified cost or pricing data continues up to the time of agreement on price..." Therefore, if the Prime has already agreed to price with the Customer, Certification does not apply.

Since Certification applies between Customer and Prime (then waterfalls through the applicable subs,) alleviating the Cert at the Prime would then alleviate any benefit at the sub level.

If price negotiations between the Prime and customer are not yet complete, certification is still required.  However, if the prime has already negotiated and received award, then certification by the sub should not be required.

POST-SUBMITTAL EDIT:  Based on what Vern has posted below, I no longer hold this belief.  If 52.215-12 is included in the Prime flowdowns, cert at the sub level is required regardless of timing.

1 hour ago, DGJDKO said:

 Thank you... that's actually usefulto know. But my challenge is this: since we don't have privity of contract with the subcontractor; I.e. relationship is between the prime and the sub;  aren't there factors that the prime may be considering that we have no reason to know? Couldn't there be lots of valid reasons why a prime considers a fee reasonable but inure to no direct benefit to the government?

in my mind the weighted guidelines assume a direct contractual relationship ,  making it a less valuable tool for a subcontract.  And does the primes analysis/rationale for the subcontracter  Play any role in evaluating the fee? It seems to me that would be the primary point of analysis – with the  weighted guidelines as a supplement. 

Have you ever heard this point of view in your  15 years?

Absolutely - here's the deal with profit/fee (as long as you're calculating as a % of cost, we're basically talking about the same thing):  It's the one area of a subcontractor's proposal that doesn't require any support or substantiation.  A sub can propose an exorbitant profit/fee rate and there's no requirement that they explain it to you.  Same goes between the Prime and the government.  Where things get sticky is when the Prime sets forth an opinion of reasonableness in a cost/price analysis.  If that opinion is not supported with a systematic method of evaluation, then it's going to be subject to challenge.

In other words, you can analyze and support profit in any way you see fit.  It requires no additional information from the sub and there's no requirement that you have to use the Weighted Guidelines.  It just so happens that the Weighted Guidelines is a systematic approach that is generally accepted in the industry.

I echo Neil's question above - what is your role?  Is this a TCOPD (formerly "TINA") procurement?

We use the weighted guidelines for all of our subcontract cost analysis reports.  There's no requirement to use it, but CO's, the DCMA, and DCAA generally like seeing it since it's familiar to them.  In fifteen years of providing cost analysis reports on behalf of large primes, this approach has never been challenged.

I've done this before and here's what we advise our clients when this comes up:

If the offerors were notified in the solicitation that it was a competitive procurement, and if bidders acted independently, and if there was nothing that otherwise suggested an invalid competition (i.e. competitive range considerations) then the competition can be accepted as valid.  Based upon the criteria stated, one can be reasonably assured that market forces are present which result in reasonable pricing.  

While admittedly a special case, competing among distributors does not in and of itself invalidate a competition.

Hello - I have connections at a company called IPT (Integrated Procurement Technologies) that specializes in this type of procurement.  Here's their website:  http://www.iptsb.com/.  Take a look and then private message me with your contact information if you'd like an introduction.

Patrick

The issue that you run into when you assess risk using these types of categories is in how to fold that into scoring to come up with a fair award.  Typically, it's possible to quantify risk (cost, schedule, and technical) in terms of dollars one way or another, which results in a more objective award summary, or at least one that can be discussed in objective terms.

Pushing forth with the above approach is great, but that you'll get better results by pairing it with a corresponding quantified adjustment to offered price.

If the only "original" document that's created is the approval signoff page and the rest is just a reproduction of an electronic document, you should only need to keep the signoff page.

To H2H's point, I agree that reviewers typically have a fairly severe reaction when confronted with the possibility of accessing electronic documents.  Additionally, providing access to systems tends to snowball in unintended ways.  Having said that, as noted previously, I think that you've sufficiently addressed this concern by planning to print requested documents rather than provide access electronically.

Hope this helps!

Sylvia:  Please help clarify. What I typically see is documentation that is emailed to buyers and then printed.  In addition, the buyers create electronic documentation that is also then printed.  In both of these cases, the electronic documents (not printed copies) are technically the "originals."  Do your buyers work with truly original non-electronic documentation that would then be subject to the 1 year rule pointed out by H2H, or are they using printed reproductions of electronic documents?  Are the electronic copies modified manually after printing?

H2H & Vern:  Am I off-base here by saying that the original documentation is the electronic copy and that the paper copies therefore aren't subject to retention unless modified manually?

Hi Sylvia -

This is something a lot of companies are looking at right now - there is not a requirement that I know of to maintain original paper copies of this documentation, but if there is one out there, Vern will no doubt be able to point to it!  

From a practicality standpoint, the risks of going this direction typically apply when companies do not intend to provide paper copies at all, but rather intend to just provide system access in the event of a CPSR.  This opens up a plethora of issues, but it sounds like you've already addressed this by planning to print out requested documents.

It will be a slow move, but this is the future of documentation.  We've also embraced it by creating an online price analysis reporting / documentation tool, SpendLogic.

Good luck!

Thanks Vern.  At the end of the day, the CO has the authority to request this information, but in this case specifically, there neither is a business nor risk case to justify that request.  The client has nothing to hide here - just too few hours in the day to fiddle with this type of request when there are other significant issues at hand requiring attention.  Paralysis by analysis...

Not a dumb question at all - we aren't redacting the invoices.  It's the client's subs that are doing the redacting.  In aerospace and defense, one day you're a customer, the next day you're a competitor.  We see this quite a bit.

They haven't told us yet, but that looks like it would fit their assertion!  This PCO is WAY overstepping their bounds here in my opinion.  Subject OIG report is for a prime contract that was determined COTS and worth $1B.  In our case, we're talking about a subcontract that was determined commercial (and well documented, I might add) with value less than $1M.  

My case for pushing back rests on these facts plus application of 15.402(a)(3):  "Obtain the type and quantity of data necessary to establish a fair and reasonable price, but not more data than is necessary."

Exercising the client's subs in this way is unnecessary and wasteful.

This is a first: We have a client that has used redacted invoices for support of price analysis of a commercial item and the government customer sent the following response:

"A recent DoD OIG inspection just slammed an agency for relying on sales data that did not include customer names. We need to see customer names to perform a valid analysis."

I've requested this OIG report, but in the meantime, does anybody else have experience with this or have a copy of the OIG report that discusses this?   

It's a determination that's made on a risk-adjusted basis.  Factors include whether a CPSR was conducted previously and the amount of time since that past review, total value of government contracts, types of contracts being placed between contractor and gov't, growth in value of contracts over time, and results of other audits.  The CPSR team has a very limited scope for conducting reviews each year and they try to revisit prior CPSRs every three years.  New CPSRs occur each year, but not many.

If you have questions regarding the CPSR, check out the CPSR guidebook for a basic overview.  You can find it here:  http://www.dcma.mil/policy/109/CPSR_Guidebook.pdf.  I have partnered with Mark Hijar at Procurelinx on a couple of CPSR's and he does excellent work.  If you have one coming up, touch base and I'll make an introduction.

Great question! I look forward to others weighing in on this, but I'll take a stab based on how we analyze these costs typically.

Based on GSA Federal Travel Regulation guidelines (found here,) SS301-10.121 defines coach class as "the lowest fare offered..." and 10.122 states that "coach-class fare must be used except as provided in 10.123 and 10.124." Those sections basically outline exceptions based on special needs including security or medical related.

However, since you're not traveling on official government business, I assume, I would recommend that you review the Prime's travel policy, which should be included (or referenced) in your subcontract agreement. Travel must be in alignment with the requirements set forth in your contract. If your contract refers to the FTR's, which many do, then you have to make the case that there's a special need, as discussed above. Otherwise, they probably have grounds for disapproval.

I have worked with lots of formats, but PIA's preclude me from sharing. You can find the Uniform Contract format here...this is likely overkill but may serve to get you moving if you're truly starting from scratch. What is useful in the UC format is that it consists of a simple document that outlines requirements that is then supported with additional attached documents as required.

If it's a particularly large procurement, including a proposal adequacy checklist (such as the DFARS version found here) can cut down on the time it takes to analyze the resulting proposal(s).

Agreed. Thank you both.