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Posts posted by Lukevan

  1. Thanks for your reply Don.  I understand your point and I agree completely that (e)(1)'s closing sentence means you just have to flow down the clauses listed in (e)(1) if required by the specific clause (e.g., you don't flow down a clause in a $10K subcontract if the clause only applies to acquisitions above $150K).  I think your overall interpretation of (e)(1) makes sense and is logical ... e.g., if a clause is specifically included in (a) - (d), you only have to flow it down if its listed in (e)(1) and if it applies to your subcontractor.  Reading it that way makes it simple to apply -- but I can also read it as saying that that regardless of what's listed in (a) - (d), the only clauses you must flow down are the clause in (e)(1) that are applicable to the subcontractor.  I can read it this way because (e)(1) starts with "Notwithstanding the requirements" in (a) - (d).  I always read "notwithstanding" to mean "regardless of ..." or "ignoring the requirements in..."  

    My concern is that it seems like KOs often neglect to check a clause in (b) or (c) such as the SCLS (52.222-41) that I think should apply.  I'm uncomfortable deciding not to flow it down if it's missing a check mark, because it seems like (e)(1) could be simply telling me to flow those down if I'm supposed to (I'm wondering if the FAR drafting committee didn't trust KO's to select the correct clauses and wanted to make sure the list in (e)(1) always got flowed down if they applied?).  If it were a non-commercial prime contract and 52.222-41 was not listed in the prime contract, I might be able to ignore it because the contract would not contain a clause like 52.212-5(e)(1) that appears to say "regardless of what we said above, you must flow down this list of clauses if applicable."   I'm probably over-analyzing this but I find myself with extra time on my hands lately ... :)

  2. In commercial prime contracts, paragraphs (b) and (c) of FAR 52.212-5 each have a series of clauses listed that will apply to the contract if checked by the Contracting Officer (KO).  Paragraph (e)(1) contains a list of clauses that must be flowed down to subcontractors regardless of any of the requirements listed in the paragraphs above.  On several occasions I’ve seen instances where the KO does not check off a clause in either paragraph (b) or (c) that is listed in e(1) and that seems like the clause should be in the prime contract. 

    For example, I’ve seen service contracts where the KO checks off a number of clauses in (c) but does not check (c)(2) for the Service Contract Labor Standards clause.   Because it’s a service contract over $2,500 it appears the SCLS should apply, and as I read (e)(1), I should flow it down to a subcontractor, but the KO doesn’t appear to have included it in the prime contract by checking off (c)(2).

    Another example is 52.203-13 Contractor Code of Business Ethics, which is in the check-off list of (b) but is also listed as a mandatory flow-down in (e)(1).  I’ve seen contracts in excess of $5.5M that appear to meet all requirements for the inclusion of 52.203-13, but the KO does not check this clause under (b)(2).  Paragraph (e)(1), however, makes it a required flow-down to subcontractors assuming the subcontract meets the prescriptive requirements (i.e., is over $5.5M, etc.).

    In both my examples, if the KO didn’t check off those two clauses, they don’t appear to apply to the prime contract (without regard to the Christian Doctrine), but (e)(1) says I have to flow them down.  I’m trying to understand the logic behind paragraph (e)(1) in instances where the KO doesn’t put a check mark next to a clause in either paragraphs (b) or (c), but the clause is listed in (e)(1) and it appears the clause would apply to the prime contract and thus should be flowed down as appropriate?  It could be that the KO simply made a mistake in failing to check a clause that should apply to the prime contract (I’ve certainly seen RFPs/contracts where the clause is included full-text but none of the clauses in (b) or (c) are checked, but here they’ve gone through the process of checking a number of the (b) and (c) clauses but missed two that certainly seem applicable at the prime level).

    So for those clauses listed in (e)(1), this methodology of requiring a check off above but mandating the clauses in (e)(1) be flowed down leaves a confusing situation if apparently applicable clauses aren’t checked.  For folks experienced at building commercial subcontracts, do you just flow down all the clauses in (e)(1) as applicable even if the KO didn’t check off one that seems like it should apply? Thank you for any insight you can offer.

  3. This is a very traditional services contract that is overwhelmingly about hiring FTEs to work at a Government site.  At this point ODCs appear primarily for travel and a very modest amount of other ODCs (they provide a plug value in the RFP).  It makes me think this is just language that is in an RFP template and they haven't given much thought to whether purchasing is a significant function under this contract. 

  4. We had that done 2-3 years ago and received a positive response that our system appears compliant.  So we will include that in our proposal.  I guess my bigger concern is how do we go about documenting that a 3rd party audit is able to be accepted as proof of an approved purchasing system by the Government ...  I may be parsing the words too much, but a 3rd party can't "approve" a purchasing system.  Only the Government can do that.  A 3rd party audit can provide evidence that a formal review by the Government would likely result in approval, but it feels like a circular trap.  It still they don't understand that there is no requirement for an approved system in the DFARS.  There is just a definition of what a purchasing system must include in order to be approved and the concept in 44.3 that the Government should perform a review of companies meeting a certain threshold.  But FAR 44.2 clearly contemplates companies conducting subcontracting who do not have approved purchasing systems and we know DCMA has not performed CPSRs on many companies who exceed the $25M threshold, so that leaves us in limbo if the acquiring activity takes this position. 

  5. We received the following response to our questions related to the purchasing system requirement in the thread above:

    "Question: Regarding the requirement to show evidence of an approved purchasing system in Section L.9.6.4, what should an offeror submit if the offeror meets the threshold for a purchasing system review but for who a review has not been conducted yet? We have discussed this issue with our DCMA ACO previously and have completed a CPSR questionnaire at his request.  As of yet, DCMA has not selected us for a purchasing system review. We do have an opinion letter from an outside accounting firm indicating that our purchasing system, including our policy and procedure manual, is in compliance with DFARS 252.244-7001. This DFARS clause is used when the FAR clause 52.244-2 SUBCONTRACTS is also included in the solicitation. FAR 52.244-2 is included in the solicitation and it sets out a two-tiered system for the approval of subcontracts depending on whether the prime contractor does or does not have an approved purchasing system, but it does not exclude prime contractors that don’t have an approved system.

    a. We assume the Government does not intend to exclude offerors from receiving an award if they do not yet have an approved purchasing system, particularly since the instructions in Section L.9.6.4 allow for the inclusion of offerors who do not currently meet the threshold for a purchasing system review as stated in FAR 44.3? 

    b. Will offerors who do not have an approved purchasing system, including those who do not meet the threshold for a review, be evaluated using the same criteria as offerors who do have an approved system?  If not, how will the evaluations differ?

    Answer: Purchasing system approvals by a Federal Government agency will be accepted. If a non-Federal Government entity purchasing system review is submitted, it is the responsibility of the offeror to provide sufficient information for the Government to document that 1. the non-Federal Government entity documentation provided is able to be accepted as proof of an approved purchasing system by the Government in lieu of a Federal Government agency purchasing system approval and 2.the offeror’s purchasing system meets the requirements utilized by the Federal Government to approve a purchasing system. (emphasis added with italics)

    If the delay in receiving a Federal Government agency review of the offerors purchasing system is for the most current review, but the offeror’s purchasing system has been approved in the past, the offeror shall provide documentation of past approvals.  The Governments sole purpose is to be in accordance with the FAR and DFAR regulations. FAR 44.3 provides the threshold at which a purchasing review is required. The instructions at Section L.9.6.4 allow for the inclusion of offerors who do not meet the threshold for a purchasing system review because if they do not meet the threshold, then the requirement does not apply.  All offerors will be evaluated consistently as to if they possess an approved purchasing system (if they meet the threshold in FAR 44.3)." [END OF ANSWER]

    Based on this response it appears the Government believes an approved purchasing system is a requirement for companies that meet the $25 Million threshold of sales to the Government as described in FAR 44.3.   By the answer they gave in the italicized part above it seems they want us provide proof that a 3rd party audit is acceptable by the Government (which seems like it would be up to them to decide) and they are essentially asking us to demonstrate what was already reviewed in our 3rd party audit.  Fortunately the cost volume doesn't have a page limit.  If anyone has any thoughts on an efficient way to address this or other thoughts they are greatly appreciated.

  6. The only thing in Section M related to this is a statement that the items in the Cost Volume that correspond to the cost instructions will be evaluated for completeness.  They never single out the purchasing system issue but I'm sure they are looking for a dispositive statement regarding whether offerors have an approved system or are under the 44.3 threshold.

    Questions are not due for about a week, so we have not asked anything yet.

  7. Thanks to all who've responded.  The case posted is interesting (and I'm still learning how to search on this site), but I agree with JI20874 that it presents different facts, particularly because the Government in that case amended the RFP so it didn't require an approved purchasing system and allowed offerors to submit their systems to NASA for review.  Here is the language in our RFP:

    "Purchasing System – Provide evidence of an approved purchasing system. See FAR Subpart 44.3. If an offeror does not meet the threshold for a purchasing system review, they shall state so in their proposal, state their annual sales to the Government (minus those contracts/subcontracts that were competitively awarded firm-fixed-price, competitively awarded fixed-price with economic price adjustment contracts, or sales of commercial items pursuant to FAR part 12) or affirm that the contractor's sales to the Government do not exceed the threshold that would require a purchasing system review."

    This language appears in the Section L instructions and is the only time a purchasing system is mentioned in the RFP except for the DFARS clause I cited above.  It is a contract that is overwhelmingly for the procurement of FTE labor services.  There is a modest plug value for ODCs (mostly travel), so it does not appear the government anticipates significant purchasing of supplies, materials, etc.   I appreciate the comments about filing a pre-proposal protest if we don't get an answer that is satisfactory.  I'm certainly curious about opinions you may have regarding how procurement offices view such protests and whether it may work against you down the road, even if you win the protest.  I do realize there are risks in just proceeding to provide a 3rd party opinion letter without asking the question and potentially waiving the right to protest this issue. 

  8. The language doesn't literally say we aren't eligible for award without the approved system, but it reads very much that way.  We're hesitant to engage in a protest at this stage just given the possibility it could make the customer hostile to us before they've even received proposals.  We did get an outside opinion of an independent accounting firm a few years ago that our purchasing system is compliant with DFAR 252.244-7001, although that is short of having a purchasing system that's been approved by DCMA.  We're leaning toward submitting the outside opinion letter (with our proposal) and the information that we've never been reviewed by the Government (which should be their burden), and arguing in the proposal that 52.244-2 doesn't require an approved system it just sets out the process depending on whether a company does or does not have the approved system (if we do it this way, do you think we've lost our ability to protest later on this basis?).  We could ask them during the Question/Answer phase to eliminate this requirement (or clarify that having an approved system is not a requirement for award), but that approach runs the risk that they'll respond with the answer that it is a requirement and then we'll have no chance unless we protest prior to the solicitation due date.  Thank you. 

  9. In a recently released full & open RFP the Government requires each offeror to provide evidence of an approved purchasing system unless they can prove they do not meet the threshold for a purchasing system review in FAR Subpart 44.3 ($25M).  We sell more than $25M annually to the Government so appear to be above the FAR 44.3 threshold, but the Government has never initiated a purchasing system review of our company.  We inquired about this with our DCMA ACO a couple of years ago and he indicated we were unlikely to be reviewed and even if he wanted to schedule one it would take at least a year before anyone would be available to audit us.  We are primarily a labor services contractor and beyond hiring employees to work under contracts we don't do significant amounts of subcontracting or supply/material purchasing, so I suspect we're considered low-risk from a purchasing perspective (but that's just my guess).  The RFP does contain DFAR 252.244-7001 CONTRACTOR PURCHASING SYSTEM ADMINISTRATION-BASIC as well as FAR 52.244-2 SUBCONTRACTS.  I understand that DFAR 252.244-7001 defines the requirements for an acceptable purchasing system and outlines the steps that must be taken if the government identifies deficiencies in the system.  I also understand that the enabling clause (244.305-71) indicates the Contractor Purchasing System Administration clause should be used in the RFP if the RFP also contains 52.244-2.  What's confusing me is that FAR 52.244-2 clearly contemplates a subcontracting process for companies based on whether they do or do not have approved purchasing systems.  I can't see anything in the either of these clauses that says something to the effect that only companies with an approved purchasing system can participate in the contract, but that seems to be what the RFP is saying by requiring we must prove our purchasing system is approved.  I'm trying to figure out whether I misunderstand the way these clauses work or whether the Government is going a step beyond and requiring an approved purchasing system even though it doesn't have to?  This is an RFP primarily for full-time labor services of on-site personnel, so it won't have much supply or material purchasing.  I will monitor any responses and reply back with any additional information needed.  Thanks for any insight you can provide.   

  10. Here_2_Help: Thanks much for your responses.  Those are helpful. 

    1. You are almost correct. The part where you need work is your statement that you won't need certified cost or pricing data. See FAR 15.401 definition of "subcontract".

    Follow-up: I read the referenced clause and understand our parent costs would be considered subcontract costs.  That's helpful.  Does that fact undercut my understanding that if they provide services to us based on Price, we still would not have to provide certified cost and pricing data for them if we can establish if we can establish there was adequate price competition or that we are acquiring a commercial service from them (per 15.403-1(b))?  I feel like maybe I'm missing something. 

    2. You need to establish price reasonableness, so the normal method is to compete against third parties. How often? Depends on the volatility of the item's price in the marketplace.

    Follow-up: I understand in general that we nearly always have to show how our proposal prices are reasonable and that competition is the primary way.  Presumably we could also do it by showing they have a commercial practice of charging the proposed prices (or higher prices) to commercial customers, so that the Government is assured it is receiving commercial items at or below normal commercial prices charged by our parent? 

    3. Most accounting systems have a G/L account for intercompany transfers (IOTs) and a procedure for how they are costed. Also the Disclosure Statement wants to you disclose your IOT practices (if you are subject to full CAS). You can add profit (if you are bold) but expect your customer to balk. You can apply G&A if that is your practice. If you are on a TCI allocation base then DCAA expects the cost to be in the G&A base (See DCAA CAM Chapter 8 regarding CAS 410.)

    Follow-up: We are not yet subject to full CAS, but the day is coming.  By TCI I think you mean Total Cost Input?  Because we haven't prepared a CAS yet, is it appropriate to establish a practice by developing a cost policy on this issue?  The very few times we've bid with their costs, we have not applied G&A in our proposal as we didn't understand we could.

    Again, thanks very much for your responses.

  11. Question: My company was recently acquired by a much larger entity with many affiliates and divisions.  We are bidding primarily on CPFF contracts and want to offer the services of our parent/affiliates as part of our proposals.  My company has an accounting system that has been approved as adequate for cost reimbursement contracts by DCAA, but our parent and affiliates are not government contracting entities and everything they sell appears to be based on commercial, market prices (not catalog prices).  They have a practice of providing a % discount in pricing to affiliates and the services charged to affiliates are based on price, not cost (meaning we are getting a proposed fully loaded price with profit from our parent, as well as the % discount for being an affiliate). 


    I have three initial questions to see if others in this community could help confirm my thoughts or poke holes in them.  I greatly appreciate an thoughts:


    1. I’ve read the DCAA Guidance on Inter-Organizational Transfers (PSP 730.5.1/2010-009), FAR 31.205-26(e), FAR 15-403-1, and FAR 52-216-7.  As I read 31.205-26(e), if our parent has a practice of transferring services to affiliates based on “price” rather than “cost”, then it should be okay to include their fully loaded price within our proposal.  At the time of invoicing, I believe we should be able to treat their price as our direct cost (akin to a direct subcontract cost), and would not need to include certified cost or pricing data for them provided the service being transferred fits the exceptions in 15.403-1(b) (e.g., there was adequate price competition or we’re acquiring a commercial item) and the price has not been determined by the KO to be unreasonable. 

    2. We’d certainly like to avoid having to compete our parent’s pricing against other non-related parties every time we want to submit a proposal and assuming we can appropriately establish their services represent a commercial item, is there any reason we’d need to seek two or more competitive quotes each time?  As I understand the DCAA guidance related to Inter-Organizational Transfers, their pricing would be included within our own (as opposed to a subcontractor’s pricing).  Also, under 15.407-2 Make or Buy Programs, the definition of “Make item” means an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions. These references lead me to believe that when we include their services within our offerings in a proposal, we would not be forced to effectively compete against ourselves (by seeking competitor quotes for those services our parents would perform) because we aren’t actually “subcontracting” to them.  I think there may be disagreement about this point, but if they are not technically a subcontractor then it seems that multiple quotes wouldn’t be needed. 

    3. Assuming we are using our parent’s “price” as part of our proposed costs under 31.205-26, I cannot find anything definitive on the issue of how we pass the costs through to the Government in this situation.  Under normal circumstances, if these were subcontract costs from an un-related 3rd party, we would apply our G&A rate when invoicing for subcontract costs (this is our standard practice on all subcontractor costs), and could apply Fixed Fee to subcontract costs in our proposal (we might choose not to apply FF to subcontractor costs for strategic reasons, but normally nothing prevents us from making profit on subcontractor costs).  Is there any rule or guidance that stops us from applying (a) our G&A and (2) some level of profit to our Parent’s price to us?  Our accounting system is completely segregated from our parent/affiliates and there are no parent/affiliate costs contained in our cost pools?  I've talked with several resources that indicate there should not be profit on profit with relation to affiliate invoicing, but I haven’t seen anything definitive in the rules.  One consultant I spoke with indicated we could not apply G&A but we could apply profit.


    Thank you very much.

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