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Otterman

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  1. Your understanding is right, that is why exactly why I have seen the practice of subs submitting their cost proposals directly to the Government - today's partners may be tomorrow's competitors. Having said that, I have seen this practice in the industry at all levels, not just large contractors. Many small businesses in highly cost competitive markets (like Defense "butts in seats" awards, where it's often a race to the bottom price-wise) also have the same approach, and I've seen it allowed by virtually every CO. It's often expected that the Subs' default approach is to submit their budgets directly to the Government, that the solicitation has express submission instructions for the Subs, along the lines of "you don't need to use the portal for submission, you can email your budgets directly to these contacts, here are their email addresses".
  2. Sorry if I was unclear. Certified cost or pricing data is NOT required. The Government requires to see the detailed cost buildup of the Offerors and their Subs. They are not citing a FAR clause, but instead requesting a far more detailed budget breakdown than that in FAR Table 15-2, Part II, Cost Elements (which is not applicable here, by the way, because Certified cost or pricing data is not required for this competitive bid).
  3. Yes, that would make sense - and I read the regulation to mean the following: The Prime can charge fee on Sub's costs and Sub's fee IF the Prime adds value to whatever the Sub does; otherwise, the Prime cannot add fee to the Sub's costs, let alone to the Sub's fee. In this latter scenario, the Prime could charge indirect costs (like Sub handling) and its fee only on the Sub handling. Does this understanding make sense? However, I am not sure if this limitation applies when that FAR clause is not included in the solicitation or contract.
  4. Somebody is adamant that a prime cannot charge a fee on top of a sub's fee on any cost proposal funded by the US Government, or at least not in the DOD sphere. For example, if the sub is proposing $100 in cost plus $5 fee, for a total of $105, and the prime contractor has costs of $195, the prime's budget without fee would be $300 ($195 being its costs plus $105 for the sub's total budget). This person is saying that the prime's fee cannot be 5% of $300 (or $15) because that would mean that the prime's fee was calculated on top of the sub's fee. At most it can be 5% of $295 (prime costs plus sub costs but excluding the $5 sub fee), or even better 5% of prime costs only ($195). This would be applicable to budgets leading to any contract type (CPFF, T&M, FFP). I disagree, based on my experience and various hints from the Government that the sub's total amount, inclusive of fee, is a direct cost to the prime. The sub's fee is also impossible to ascertain on T&M or FFP subcontracts, unless it is disclosed voluntarily by the subcontractor. In my experience, a few solicitations have specifically forbidden this type of calculation, but I am not aware of a blanket governmental prohibition of it. Does anyone have any insights, and any regulatory reference as to whether I am wrong or right to disagree with the assertion described above?
  5. A lawyer once told me the opposite, that if you actually follow the law, it is not the Prime's responsibility to determine the fairness and reasonableness of its own price (which includes analyzing the cost and/or price of its sub). It is the Government's and only the Government's responsibility to determine reasonableness and realism - even though a lot of COs improperly dish this responsibility to prime contractors. Of course it helps with price volume evaluation to have a reasonable price and to be able to justify why it's reasonable, but ultimately the Prime can propose to sell a pen to the government for $0.01 or $1,000, and it is fully the Government's responsibility to evaluate the price, they cannot force the Offeror to evaluate its own price (and by extension that of its subs) - it's even an obvious conflict of interest. The Contractor has the incentive to justify it, but no responsibility to do so. It may be a pedantic point since in practice the CO generally requests the Prime to do the analysis on its subs' costs (or prices) anyway, and everyone complies if they want to have a shot at winning the work. I am not sure if the lawyer was right or not, but that is what he told me, and I found his point interesting - especially in light of FAR 15.404-1 Proposal analysis techniques, where the language is unequivocal about it being the CO's responsibility to evaluate the reasonableness and it doesn't say anything about flowing it down to prime offerors.
  6. My assertion about "industry practice" comes from having seen this approach of the subs submitting their detailed budgets (which show indirect cost breakout) directly to the Government dozens of times, in the context of cost proposals in response to solicitations from DOD and, to a far lesser degree, USAID and civilian agencies. If I had to pick a number, I would say that I have seen this practice specifically allowed by the Government on 80-100 actual proposals I worked on, allowed with clarification after Q&A on about 4-6 proposals (e.g., with the Government providing an alternate email address if the subs didn't have access to the submission portal), and specifically disallowed on only 1 proposal. That is why this scenario is so unusual to me, and why I had my assumptions about "industry practice". The "industry" I am referring to is federal US Government contracting (not specific to one agency or line of work).
  7. I don't know of such a rule allowing subs to submit their detailed pricing (showing full cost build-up inclusive of indirect cost breakout) directly to the Government, in order to avoid sharing their rates with potential competitors. That is why I asked the community here - I was hoping there was such a rule.
  8. Regarding the first statement quoted above, from my experience it is industry practice for the Government to allow subs to submit their detailed pricing directly, bypassing the prime. I have never seen a CO not to allow this. As for the second comment, I respectfully disagree as well. Cost analysis is not required when certified cost or price data is not required. According to FAR 15.404-1, only a price analysis is required in that scenario. A prime can do a thorough price analysis of its subs' prices without needing to see how the subs marked up their actual costs to get to their final prices.
  9. There are two benefits to issuing a T&M subcontract instead of a CPFF one. The first is the bureaucratic burden on both sides. I've found T&M much easier to handle. Plus, there is no reconciliation when the final indirect cost rates are calculated, it doesn't matter how staggered salary raises are, since the T&M rate is good for an entire year, there is less calculation risk involved, etc. The second benefit is that T&M allows the subcontractor to avoid disclosing its indirect cost structure to the prime. As a prime, I would never ever issue a CPFF subcontract. In fact, if I were a contract officer, I would never to it either, it is the most abused contract type (which is only supposed to be used in a few very particular scenarios). But I don't want to derail the topic. Thank you for your reply. This was my first time posting on here (I flooded the forum with 3 or so questions) and I appreciate the help. I would be glad to answer any questions as well, to the best of my abilities, to help the community.
  10. I have seen both terms fully burdened rates and fully loaded rates used by the Government and in government contracting, but I am not sure if they are used interchangeably or if they mean different things. Someone believed that one of the terms referred to rates inclusive of direct costs and indirect costs, whereas the other term referred to rates inclusive of direct costs, indirect costs, and fee. It was just hearsay - are there definitive definitions for the terms?
  11. EDIT: I uploaded this topic to the Subcontracts forum, I apologize. I have seen both terms fully burdened rates and fully loaded rates used by the Government and in government contracting, but I am not sure if they are used interchangeably or if they mean different things. Someone believed that one of the terms referred to rates inclusive of direct costs and indirect costs, whereas the other term referred to rates inclusive of direct costs, indirect costs, and fee. It was just hearsay - are there definitive definitions for the terms?
  12. During a proposal, the CO is not allowing the Subcontractor to submit its full cost build-up (showing salaries, indirect costs, and fee) directly to the Government, as is standard practice. The CO is basically forcing the Subcontractor to share its proprietary pricing data with the Prime if they want to bid on this work as a team, even though the Subcontractor would prefer to hide its detailed cost build-up from the Prime and only share its fully loaded rates. Other than F5.404-3(c) (1) and (2), which only deal with certified cost or pricing data, I haven't found a regulation which addresses this. The FAR clause I mentioned specifically allows Subs to submit their pricing to the Government directly. Any insights?
  13. In its Q&A during a proposal, it appears the CO is imposing that Prime Contractors issue a CPFF subcontract to their proposed Subcontractors. The question: "Could XXX kindly confirm that the detailed budgets from major subcontractors may be either CPFF or T&M?" The Government's answer: "Cost-plus-fixed-fee, (term and/or completion)" If you read the language word for word, one could interpret the response to only address the budget format, but there is a very high probability that the CO will expect a CPFF subcontract (especially since it is asking for a consent to subcontract request). To add more context, the CO is not allowing the Subcontractor to submit its proprietary pricing data (indirect costs and fee buildup) directly to the Government, as is standard practice. The CO is basically force Subcontractors to share their proprietary pricing data with the Primes if they want to bid on this work. I don't believe the Government can impose a specific subcontract type, nor tie evaluation to the mechanism a Prime is using to engage a Sub (unless there is some risk analysis) - but I haven't found any FAR clauses or past litigation and precedent dealing with this. Can anyone refute my understanding, or lead me to any relevant regulations?
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