ktr1999

Forgive me for jumping in here, but what if the sub hasn’t tracked their hours, or declines to report them? After all, they were hired to produce a data set, not to provide X hours of labor, so from their perspective tracking hours is an unnecessary hassle. If they did track their hours, and were efficient enough to get the work done with less than the estimated LOE, then as a fixed-price subcontractor aren’t they within their rights to keep that information to themselves? As the OP said, “the OUTPUT is a survey and not days of LOE.” I’ve often seen fixed-price subcontracts used for simple services under USAID CPFF prime contracts. Translation is a common example. Translators are normally paid by the word, so their price for the end product is the same regardless of how many hours they spend on it. Since neither the prime nor the Government is paying the translators for their labor hours, what purpose would it serve to track their LOE? In effect the translation is being purchased as a finished product, just as you would purchase a book or a software application or (in the OP’s case) a survey. Why track input when what you’re paying for is output?

FAR out, Does the RFP include the clause at FAR 52.219-9 Small Business Subcontracting Plan? If so, and if the question is about how the anticipated use of this software company will affect your subcontracting goals, then see the definition in that clause: " 'Subcontract' means any agreement (other than one involving an employer-employee relationship) entered into by a Federal Government prime Contractor or subcontractor calling for supplies or services required for performance of the contract or subcontract." Based on that definition, the software company should count as a subcontractor for purposes of the Small Business Subcontracting Plan, even if your accounting system classifies it as a vendor and treats the cost as an ODC.

I agree with Schooner and Gordon.

rose2010, Glad I could help. ktr1999

rose2010, Here’s some info that may be helpful in establishing reasonableness and allowability. You’ve mentioned that the subcontract incorporates the AIDAR clause at 752.7002 Travel and Transportation. This clause says determination of cost reasonableness for travel expenses will be made “based on the applicable cost principles, the Contractor’s established policies and procedures, USAID’s established policies and procedures for USAID direct-hire employees, and the particular needs of the project being implemented by this contract.” You’ve stated that the consultant spent the morning of his day of departure supporting the project. If there was no earlier flight available after the work was complete, I doubt that anything in the applicable cost principles would prohibit payment for a day room, and the timing of the departure sounds like it was based on project needs. That covers the first and fourth criteria above. You’ve stated that payment for the day room is consistent with the subcontractor’s established policies and procedures, so that covers the second criterion. On the third criterion, 14 FAM 574 (http://www.state.gov/documents/organization/88661.pdf) discusses when per diem is payable for USAID direct-hire employees: 14 FAM 574.4 Awaiting Transportation (CT:LOG-72; 06-08-2010) (Uniform State/BBG/USAID/Commerce/Agriculture) Per diem is allowed only for such periods awaiting onward transportation as are reasonably necessary under the circumstances. The travel voucher should contain an explanation of the circumstances necessitating any waiting period in excess of 12 hours at transfer points in the United States and 24 hours at transfer points abroad. Not more than 5 days per diem will be paid while awaiting ship transportation. In this case, if there was no earlier flight available, then it would seem “reasonably necessary” to incur the per diem costs, so they should be allowable. The only caveat is that under 14 FAM 573 all per diem calculations are based on calendar days, and the daily maximum lodging amount applies; 14 FAM 563.1 specifies that the cost of a day room is considered part of the lodging portion of per diem and cannot be reimbursed outside it. So if a traveler who used a day room before his departure (say, on a Friday afternoon) happened to need additional lodging during a stopover on his way home (Friday night), the reimbursements for the day room plus the night room on the same calendar day could not exceed the maximum lodging amount. In this case, since the consultant’s flight left at 9 PM, I assume he spent the night on the plane and didn’t need another hotel that night. If that’s true, then the above shouldn’t be an issue. Hope that helps. ktr1999

Dear Vern and Joel, Thanks for your advice. I will recommend to the decision-makers here that we do as you suggest.

Vern, On my first question, based on August's posts and on FAR 16.303, it sounds like there's no "blanket" prohibition on contractors retaining program income after all. But I'd still like to know what prohibitions are out there (if any), so I can better understand where they apply and where they don't. On the other two questions, I've pretty much concluded that my company's best course of action is to recommend that the subcontractor consult with its own legal counsel and leave us out of it. But since the decision's not up to me, I'll probably end up having to deal with this, and I'd certainly welcome further advice if anyone's got any.

August, It just occurred to me that perhaps the examples you gave fall under FAR 16.303: 16.303 Cost-sharing contracts. ( a ) Description. A cost-sharing contract is a cost-reimbursement contract in which the contractor receives no fee and is reimbursed only for an agreed-upon portion of its allowable costs. ( b ) Application. A cost-sharing contract may be used when the contractor agrees to absorb a portion of the costs, in the expectation of substantial compensating benefits. ( c ) Limitations. See 16.301-3. If this is the case, then I guess the key factor would be whether the cost-absorption-in-exchange-for-benefits swap was negotiated into the contract from the beginning. (In our case, it wasn't.) Interesting angle, though -- will keep it in mind for future reference. Thanks for your feedback! ktr1999

Interesting! I guess the types of arrangements you describe could be a creative way of reducing the cost to the Government, if the contract price is negotiated downward in exchange for the chance to generate outside revenue. I wonder if the policy on this subject varies by agency?

ji20874: Thanks for pointing this out. There are no relevant limitations in the subcontract, though.

That's interesting, August, that the contractor was allowed to keep the revenue. In the past I've been told that this was prohibited. In the case I posted about, I can say definitively that the Government contract did not anticipate this scenario.

Sorry about those sunglass smileys, they should be b's. Autocorrect took a few liberties with my text there.

Thanks to all for your responses. In response to Joel's comment above, the prime and sub contracts both include FAR 52.227-14 RIGHTS IN DATA – GENERAL (JUN 1987), and paragraph ((1) of that clause would give the Government essentially unlimited rights in any "data first produced in the performance of this contract," including the website. If the rights are unlimited, it seems logical to assume they would survive the contract -- though as the website evolves to include more privately-produced content, the Government's "continuing rights" become more ambiguous. I think it's interesting that paragraph ((2) of the same clause gives the Contractor the right to "use, release to others, reproduce, distribute, or publish" data first produced under the contract, but never mentions the word "sell." Since selling things is what contractors normally do, this word seems conspicuous by its absence. I wonder whether it was omitted on purpose? In this case, while the subcontractor is not trying to "sell" the website, they are proposing to use it to generate financial contributions (which in theory would be used only to support the website, but if required to bear their fair share of indirect costs, would still generate some net benefit for the company). It seems odd to me that a contractor would be allowed to keep what amounts to a windfall from an item produced at Government expense, without any benefit accruing to the Government. But stranger things have happened.

Dear Vern and Joel, Thanks very much to both of you for responding, I appreciate the feedback. Although I still have to puzzle out the answers to these questions, the knowledge that they've stumped two esteemed members of this forum makes me not feel so bad about being stumped myself.

Vern, The website would be privately owned and operated, but as long as it included content developed under the Government contract it would be required to credit the funding agency, and arguably to use that agency's brandmark as well (agency branding of all communications products is a contract requirement). So in that sense you could say the website would continue to be associated with the Government. The question is not only whether the sub can continue to use the website to post information -- I don't believe the Government would object to that -- but also whether they can use it to solicit donations from third parties, and then keep the donations. Hope that clarifies it somewhat. ktr1999

Over the years I've heard from a couple of experienced CO's and a Government legal advisor that contractors are prohibited from keeping "program income" generated under a Government contract – even for the purposes of reinvesting it in that contract – because the law requires that such income go back to the Treasury Department. For example, if the Government hires a contractor to provide a service for which users are charged a fee, then the user fees need to be returned to Treasury; they cannot be retained or reinvested in the service. While I have no reason to doubt this, I've never actually seen it in writing. Situation: I work for a prime contractor which hired a subcontractor to produce a website under a Government contract. Recently the sub (a small business) informed us that they would like to maintain the website beyond the life of the subcontract, and solicit donations from private sources to cover maintenance costs in the absence of Government support. The website would include some new content, but also some content originally produced under the contract. Since the subcontract included 52.227-14 RIGHTS IN DATA – GENERAL (JUN 1987), the sub would presumably have the right to "use, release to others, reproduce, distribute, or publish any data first produced or specifically used by [them] in the performance of this contract…," but the Rights in Data clause is silent on the right to charge for such data, or the right to use it for the purpose of soliciting donations. Nor can I find anything about this elsewhere in the FAR. So my questions are: 1. Given that nonprofit grantees are frequently permitted to retain program income generated by Federally funded projects, what is the legal or regulatory basis for prohibiting contractors from doing the same? 2. If a for-profit subcontractor (under the circumstances described above) is able to raise contributions to maintain a website first produced under a Government contract, is it entitled to keep those contributions and invest them in the website, rather than returning them to the Treasury Department? 3. Does it make any difference whether the funds are solicited before or after the subcontract end date? How about the prime contract end date, which is significantly later? Any thoughts on this subject would be appreciated.

Hi Jacques, Thanks for your response. You're right, this is a multiple award ID/IQ contract where some orders were set aside for small business. It looks like the clause at 52.219-14 was included in the prime contract because of the prescription at 19.508(e): 19.508 Solicitation provisions and contract clauses. (e) The contracting officer shall insert the clause at 52.219-14, Limitations on Subcontracting, in solicitations and contracts for supplies, services, and construction, if any portion of the requirement is to be set aside or reserved for small business and the contract amount is expected to exceed $150,000. This includes multiple-award contracts when orders may be set aside for small business concerns, as described in 8.405-5 and 16.505( (2)(i)(F). So perhaps the clause at 52.219-14 is meant only to apply to the small-business awardees, and paragraph (a) of that clause (which states "This clause does not apply to the unrestricted portion of a partial set-aside") means it doesn't apply to large-business awardees even if it's included in their contracts. Would you say that's a valid interpretation? ktr1999

This seems like it should be a frequently asked question, but in searching the contract clauses below, along with FAR Part 19 and esrs.gov, I haven't been able to find a clear answer. Suppose you're a large-business prime with a cost-plus contract which includes the following clauses: 52.219-8 UTILIZATION OF SMALL BUSINESS CONCERNS 52.219-9 SMALL BUSINESS SUBCONTRACTING PLAN 52.219-14 LIMITATIONS ON SUBCONTRACTING The contract is for services (non-construction). You would like to sub out a portion of the work (say, $1-$2 million over five years) to a small business, but in order to complete this work, they will need to hire one or more 2nd-tier subs, which will likely be large businesses. More than 50% of the cost of contract performance incurred for personnel will go to the 2nd-tier subs. The role of the small business will be to conduct procurement actions, select these 2nd-tier subs and oversee their work on your behalf. Here's the question: If most of the subcontract cost incurred for personnel goes to large-business 2nd tier subs, can you (as prime contractor) still count the full value of the small-business 1st-tier subcontract toward your small business subcontracting goals? If so, what is the relevance of FAR 52.219-14 Limitations on Subcontracting, and why is it included in the prime contract? Thanks in advance for any thoughts on this topic. ktr1999

Thanks to all who responded. ktr1999

Hi Joel, Thanks for your response. One of the other bidders asked this question but the CO's response was that what he is requiring is not "certified cost or pricing data" (which would be prohibited under 15.402(a)(1)); rather it is "information other than cost or pricing data," which is allowed under FAR 15.403-3(a). I take it he understands the objection and chooses to ignore it, but to me it seems he is taking advantage of the ambiguity of the definition. In terms of price evaluation, all the RFP says is: "Price/Cost will be evaluated on the basis of cost realism, which means that the costs in an offeror?s proposal: (1) Are realistic for the work to be performed; (2) Reflect a clear understanding of the requirements; and (3) Are consistent with the various elements of the offeror?s technical proposal."

I work for a contractor bidding on an RFP for a fixed-price contract. This is a competitive bid. The RFP requires a detailed budget providing itemized costs for direct labor, indirect costs, other direct costs, fringe benefits, etc. It also includes the following FAR clause: FAR 52.215-20 Alternate IV Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data - Alternate IV (Oct 1997) As prescribed in 15.408(l), replace the text of the basic provision with the following: (a) Submission of cost or pricing data is not required. ( Provide information described below: For each cost element, provide adequate documentation that supports each proposed cost as being fair and reasonable (payroll records, vendor quotes, catalog pages, indirect rate agreements, etc.). I've reviewed the definition of cost or pricing data at FAR 2.101 and the first item it includes is "vendor quotations" (also on the list above) ? most of the others are irrelevant for this procurement. My question is, if vendor quotations are considered "cost or pricing data" (and therefore not required), how can they also be "information other than cost or pricing data" (and therefore required)? Also, how do you reconcile paragraph ( above with FAR 15.403-3( which states, "When adequate price competition exists... generally no additional information is necessary to determine the reasonableness of price [emphasis added]."? This is not the first time I have seen this type of requirement, but it seems contradictory that the FAR would specifically prohibit Contracting Officers from requiring cost or pricing data where there is a reasonable expectation of adequate competition (15.403-1), and still allow them to require detailed budgets with vendor quotes and other supporting documentation and label these "information other than cost or pricing data." Does anyone have any suggestions on how to respond to this requirement? It's a small but complicated budget and really not worth the hours of research it would take to track down vendor quotes, payroll records, catalog pages, etc. Thanks!