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Posts posted by here_2_help

  1. On 3/26/2024 at 5:41 PM, CuriousContractor_22 said:

    Hey everyone, new situation for me: a parent company and one of its various commercial subsidiaries are working together on a GSA MAS task order. The parent company is leading the task order but wants complement their bid with their commercial subsidiary's personnel. 

    I was wondering:

    1. Would the parent company map their subsidiary into their GSA LCATs/rates?
    2. If the parent company is mapping subsidiary personnel into their rates, would the subsidiary be able to include fee/profit in its rates to the parent company? Or would the subsidiary have to provide rates to the parent company without fee/profit?
    3. If both the parent company and the commercial subsidiary have GSA MAS contract, could they enter into a CTA so that both can earn their own fee/profit? 

    I feel like I'm overthinking this, so appreciate the help and guidance. Thanks all.

    I am not particularly knowledgeable about GSA Schedule contracting. There are others on this site with more experience/knowledge than I have. I've been waiting for somebody else to weigh in....

    I have read FAR 8.4 and visited the GSA website and reviewed the GSA Acquisition Supplement.

    It is not clear to me that GSA Schedule orders are subject to FAR Part 31 cost principles, or to CAS. Maybe they are, but I couldn't find it. Instead, everything I read pointed to GSA orders being for commercial products or services, to be ordered on a fixed-price or T&M basis.

    If I'm correct -- and I'm sure SOMEBODY will jump in if I'm wrong -- then 31.205-26 is not applicable and the affiliated parties are free to "subcontract" with each other on any reasonable basis.

    My answers:

    1.  The parent company and the subsidiary could map their rates together into an average that combines both. Or they could have separate LCATs, especially if the subsidiary has a particular expertise.

    2.  If 31.205-26 is not applicable, then yes, the subsidiary could map its fully burdened, with fee added, labor rates. Even if 31.205-26 did apply, the subsidiary could do so if it met the conditions of 31.205-26(e) and (f). If desired, the two entities could "split" a single earned profit in accordance with an internal budgetary agreement.

    3.  That's an interesting question to which I do not know the answer.

    Hope this helps.

  2. I treat subcontracts to government prime contractors as being government contracts, not commercial contracts. Yes, such contracts are generally subject to the UCC if there is a dispute between the parties; however, the government generally has audit rights as conferred by subcontract terms and conditions (particularly if the subcontract is other than FFP). Chances are your prime contractor has listed your subcontract in its own Schedule J so that the auditors can initiate assist audits if they elect to do so.

    Because the government generally has audit rights that it may exercise, I treat the subcontract as being governmental.

  3. 1 hour ago, Miranda Clad said:

    Thank you! That is what my PM wants me to do, modify the current agreement that is tied to the award and make it "indirect" where the staff will perform work under 2 (possibly more) FFP TOs that are under different prime contracts. His argument is that those TOs are FFP and we do not need to submit invoices for the subcontractor to the government and the sub is not directly billed to the government. I do not agree

    No, you cannot perform work -- or have subcontractors perform work -- in support of a FFP TO and charge that work to overhead. That is cost shifting and is frowned upon. If the work benefits a single TO then it needs to be charged to the TO.

  4. If I have a subcontractor who is able to charge multiple cost objectives -- i.e., different projects with different Ts&Cs -- I would want to have a separate agreement for each project. That is to make sure the various prime contract clauses flow down correctly. This is also to make sure costs get to the correct project.

    However, if the subcontractor can charge multiple projects, then maybe the agreement needs to be 100% indirect. (See the FAR discussion of "indirect costs"). If the agreement is charged solely to indirect cost objectives -- i.e., overhead or G&A -- then I agree that no prime contract terms will flow down. I disagree that "no FAR provisions will apply" because some of those FAR Ts & Cs apply to indirect costs not just direct costs. 

    Hope this helps.

  5. 20 hours ago, SFLO said:

    Suppose a subcontractor has an approved accounting system IAW FAR and submits an Incurred Cost Submission with subsequent cost audits to finalize a Negotiated Indirect Rate Agreement annually. ... What assurances (reps/certs) would the prime contractor need from the subcontractor to allow the use of the subcontractor's timekeeping system for T&M work performed by the subcontractor? 

    The only thing the prime should need is assurance that the subK's accounting system is approved. Typically a copy of the determination of adequacy is all that is necessary. If the prime wants more then the prime either knows something about the subK's timekeeping system that the government does not know ... or the prime is clueless.

  6. 26 minutes ago, Fara Fasat said:

    Not rhetorical at all. Most primes have their own standard subcontract terms that cover all the essentials -- delivery, invoicing, payment, etc. They all have purchasing departments, and they all a standard PO with their terms. Why include a FAR/DFARS clause for something that is already covered, and that may well be inconsistent? Of course, it takes some thought and effort to tailor the subcontract, so they don't bother. Or they resort to the "self-deleting" dodge.

    Most primes with USG prime contracts develop their "own" clauses by using FAR/DFARS clauses and replacing "contracting officer" with "buyer" and "Government" with "buyer" or "company". Most primes are not motivated to tailor clauses or to develop their own set of local clauses. Most primes do not train their buyers in the nuances of clause application.

    Note the considered use of the word "most" in the above generalization.

  7. I would review the proposed subcontract language de novo, without regard to whether the clause is in the prime or if it is a mandatory flowdown. Identify the clauses that drive risk or other concerns. Then look those clauses up in the FAR Smart Matrix to see when they would be required to be in a prime contract. Review the clause language to see if a flowdown is required.

    Then negotiate.

  8. Quote

    For Track 1, the Solicitation stated: “CBP has a requirement for consulting and providing technical support to advise and assist the Government as the Subject Matter Expert (SME) for strategic planning, risk assessment and mitigation, cost analysis, data management and analysis strategies, and senior program management.” The Solicitation also noted “CBP requires vendor support to recommend enhancing and supporting CBP’s emerging technology, data management, reporting and analytical capabilities.” For Track 2, the Solicitation stated: “CBP requires a wide range of services and business disciplines supporting innovation and digital transformation. CBP’s overarching objective is to sustainably improve the total experience and to achieve business agility by integrating people, processes, data, and technology.” When asked at oral argument to provide more concrete detail regarding the Solicitation, the government responded the broad purpose of the contract is to support CBP’s data-related endeavors, including processing customs information, scanning license plates, patrolling the border, and developing language interpretation tools. (“[GOVERNMENT]: So CBP has a whole broad host of responsibilities that generate[] a ton of data, and they are trying to leverage AI and machine learning to better perform their duties.”), (“[GOVERNMENT]: They do license plate scanning. They patrol the borders, . . . [and] when they stop somebody from crossing the border, . . . [they] collect information. . . . [They also collect] information about Customs duties [such as from] cargo ships coming in with lots of both legal goods and illegal goods, and then the legal goods may or may not be properly admitted into the United States because of patent disputes and things like that, or they have to be subject to certain tariffs. . . . [They also frequently have to work] with a person who doesn’t speak the language that the officer speaks at the border.”). CBP intends to incorporate novel applications of AI into these tasks. (“[GOVERNMENT:] [T]his is the type of work that the agency is looking to procure in the future as emerging technology, so novel applications of AI.”). CBP’s team of technical experts reviewed all quotes with this broad purpose in mind, given the highly technical nature of the contract.

    (Emphasis added; internal citations omitted.)

    Based on the above, I'm hard-pressed to imagine how one might evaluate offerors. I guess based on general AI expertise? It seems to me that CBP is looking to hire a guide or two to lead it down the path of implementing AI. Track 1 will augment existing agency resources to manage the contractor(s) who execute Track 2, I guess.

    But the nature of the awards means that work will be handled on an individual order basis. The Track 1 contractors will have difficulty establishing long-term partnerships with the CBP staff because of the nature of how the work is managed. The Track 2 contractors will have difficulty seeing the bigger picture because of the nature of how the work is awarded.

    Conclusion: The agency would have been better off awarding one long term Track 1 contract on a CPFF basis and one or more Track 2 contracts to selected AI experts with a proven track record of deploying AI. The Track 2 contracts should have specific requirements in mind. You could even go CPIF with the incentive fee tied to quantitative or qualitative performance enhancement in Track 2. BPAs with pools of contractors and individual orders was not the way to go, in my view.

  9. It is not mandatory to have a Forward Pricing Rate Agreement (FPRA). Oftentimes they are more trouble than they are worth.

    The contractor should propose its best estimate of future indirect rates to be incurred during contract performance and be prepared to support its estimate during a proposal fact-finding or audit just like any other estimate. That said, normally DCAA likes to see detailed budgets for the upcoming year with outyear adjustments based on known events/trends, such as award of large contracts.

    If you read 52.217-6, it is clear that the provisional billing rates should be the contractor's expected actual rates, and that the billing rates should be adjusted as necessary (either prospectively or retroactively) to prevent any significant under or over billings.

    In my experience, a NICRA covers audited, negotiated rates. It is the document that establishes final billing rates, not provisional or interim billing rates. To be clear, I'm not saying that a NICRA cannot be used to establish provisional billing rates; I just haven't experienced that scenario.

    There is another set of rates, which is what the contractor uses to establish contract costs during performance, prior to receiving audited/negotiated final rates. Those rates may be linked to an FPRA or a NICRA, or they can be the contractor's best estimate of actual indirect cost rates to be incurred during the current year. Note that these rates are not subject to government approval, but they are critical because they help establish contract Estimates at Completion and thus drive tracking of costs incurred against funds provided.

    So ... there can be overlap between actual rates, billing rates, and forward pricing rates--especially for the current or upcoming year. A contractor with cost-type contracts should understand where the sets of rates overlap and where they differ. That contractor should be monitoring variances and proposing adjustments to provisional billing rates as required by 52.216-7. That contractor should be updating its (internal) forward pricing rates based on what it sees in the future, especially if those same rates are also used to estimate fixed-priced contracts.

    Frankly--and without meaning to condescend--understanding the interaction of indirect rates between actual, provisional, final, and forward pricing is fundamental to managing cost-type work, regardless of whether you are on the contractor or government side. I'm frequently surprised how many people--especially those in contracts--don't understand the interplay. I strongly recommend a thorough read of 52.216-7 for any individual who wants to better understand billing rates. For forward pricing rates, see Table 15-2.

  10. I also own an S-Corp. I don't need any Form 1099's. They are not required for an S-Corp.

    If you do your bookkeeping, it is not hard to figure out your corporate income. For me, it is basically all funds I deposit into my business checking account. I have a spreadsheet that I update about every 60 days that helps me to track income and expenses. I don't even use accounting software.

    In summary, your clients aren't required to provide you with a 1099, nor should you need one to accurately report income and file tax returns.

  11. My first question is: have the parties reached price agreement? If so, how was the R&R cost treated in the agreed-upon price? 

    If no agreement then I would then ask what the contractor's normal practices are for the cost. I assume the contractor will follow its policies consistently.

    If this is the first time occurrence and precedent is being established, then my opinion is that leave costs are leave costs and should be treated as the contractor's other leave costs are treated, which I assume would be indirect. (But not always.)

    You could argue that the R&R costs are distinguishable from other "normal" leave costs because of the circumstances. In normal TDY travel, the employee returns home, but not in this case.

    So, it depends. There is no bright line answer here that I can think of.

  12. 3 hours ago, joel hoffman said:

    So, is it reasonable for the taxpayers to pay extra costs for contractor employee “perks”?

    Joel, with respect, I think you miss the thrust of the conversation. When the government enters the commercial marketplace to acquire commercial goods and services, it should be prepared to accept costs that are customary in relation to what is being acquired. That is why I worded my response the way I did. If the contractor's policies permit business class travel and business class travel is provided to all employees in similar circumstances--regardless of customer and/or contract type--then it is, almost by definition, reasonable. 


    31.201-3 Determining reasonableness.

    (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. 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.

    (b) 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.


  13. I have unfortunate experience with these types of contracts. From what I've seen, they are proposed, priced, budgeted, managed, billed, and paid as if they are T&M contracts. But then the auditors come in and it turns out they are cost-type contracts. Painful.

    In this case, the parties seemed to have reached early agreement that the original labor rates would be used to price future Task Orders, and to establish the basis for the fixed fee in each new TO. Now the contractor is pointing out that the original labor rates are too low. The contractor wants to update the labor rates for more accurate pricing.

    The contractor's position makes some sense to me, notwithstanding the prior agreement. Use of labor rates--rates that both parties know are too low--to price future work seems incorrect. The program is obligating insufficient funds and it knows that. Not good, in my view. At a minimum, additional contract mods will be required to bring the funding up to where it needs to be once performance starts.

    With respect to the fixed fee, is there some reason that value can't be negotiated? From the government's point of view, the pre-negotiation objective would be based on the original labor rates. From the contractor's perspective, the fixed fee would be based on more current rates. This distance between the positions, it seems, could be negotiated.


  14. I'll add a word or two in support of Don's position. You have a project ETC and EAC now with the part(s) being purchased. The customer wants to provide the part(s) as CFM. Great. Now redo the ETC and EAC (excluding profit), assuming no purchase of the part(s). What's the difference? Don't forget to look at ripple effects that may offset the cost decrease. One I can think of is the labor cost associated with handling the CFP and preventing it from being commingled with other parts.

  15. My read of the OP is that the contract has not yet been awarded and the parties are negotiating price. If I'm correct, then I believe the contractor has a valid reason for trying to obtain a higher profit that the government initially established in the pre-negotiation objective. The tax costs are unallowable and the contract is going to pay them on behalf of its employees (similar to a relocation tax gross-up). The unallowable costs will come out of expected profit. Seems reasonable to me.

    Alternate approach: the contractor rotates staff to avoid paying taxes, which will require a larger staff from which to draw on. Further, the transitions between employees may cause inefficiencies. Suboptimal. So: pay the higher profit rate.

  16. 1 hour ago, CFO said:

    I've read the rfp.  it is not a FFP LOE, it is not a FFP economic price adjustment.  It states it is a FFP period.  It has a clause for an adjustment annually for SCA wages and benefits.  It has a clawback exercised on an annual basis for labor hours less than planned by x% by LCAT type.  The contract from this administration does not reference any FARs in the contract.  


    The FAR only applies if there is a contract term in your contract (or RFP) that invokes it. Are you asking whether the government is permitted by the FAR to reduce the contract price based on a contractor's failure to deliver (for whatever reason) the contractually required labor hours? 

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