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Updated Cost or Pricing Data on a Long Term Agreement


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Background: We have a Master Terms Agreement with a customer.  Under that MTA, individual Long Term Agreements will be issued for production of parts.  Accordingly, we have a 10-Year LTA for production of parts. 

Problem: The MTA has a clause that says, "Supplier agrees to furnish cost or pricing data certified as to currency, accuracy and completeness every three (3) years or as frequently as required by Buyer's Customer".  In this case, the "Buyer's Customer" is the USG. 

Question: I have been searching and cannot put my fingers on a FAR or DFARS clause that contains that 3-year requirement.  Does it even exist under USG contracts or is this just a term that was made up by our customer for the purposes of trying to gather COPD data every three years?

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In my opinion, without knowledge of the entire set of contract terms, this is a non-issue. The only time you need to certify cost or pricing data is at the date of price agreement. Since you apparently have an LTA that sets price for 10 years, there will be no requirement for you to show “current accurate and complete and therefore no basis for the customer to require certified cost or pricing data. 

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You may have gotten yourself into a pickle with the federal customer because there is likely no adequate price competition (APC) in the buyer’s proposal section covering your parts.  This is a long-standing, very common issue in DOD procurement.

Your LTA will be proposed against other solicited non-LTA prices for these parts, and the diligent cost analyst will come to an opinion that there is no APC pursuant to the standard at FAR 15.403-1(c)(1).  The buyer will in response propose supporting cost data from the last time you submitted it to them.  The diligent cost analyst will then uncover the fact that this is not current data.  The buyer will then enforce the clause you quote above.

In proposal instances where diligence (or persistence) by the federal customer does not manifest, maybe you are not held to this clause.  But it is well within the rights of the federal customer to require it, a la FAR 52.215-12.  Your three-year requirement is not in the FAR or DFARS - it is likely a term drafted by the buyer to try to pacify a certain customer sector, and to keep you on your toes when another customer does request current data.  Thus it is subject to negotiations under common law.

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3 hours ago, ScottR said:

Background: We have a Master Terms Agreement with a customer.

@ScottRWhat is a "Master Terms Agreement"? Who is the "customer"?

The phrase "Master Terms Agreement" does not appear anywhere in the FAR System. According to FAR 15.403-4:

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Unless an exception applies, certified cost or pricing data are required before accomplishing any of the following actions expected to exceed the current threshold or, in the case of existing contracts, the threshold specified in the contract:

                (i) The award of any negotiated contract (except for undefinitized actions such as letter contracts).

                (ii) The award of a subcontract at any tier, if the contractor and each higher-tier subcontractor were required to furnish certified cost or pricing data (but see waivers at 15.403-1(c)(4)).

 

Is a master terms agreement a contract as defined in FAR 2.101? Is it a subcontract? What are you𑁋and the two people who responded to you𑁋talking about? 

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40 minutes ago, WifWaf said:

I am speaking of subcontracts for aircraft engine parts, from a prime proposal reviewer’s perspective within DOD.

Why did you speak about that when the question was about something called a "master terms agreement" with an unknown "customer"? Why not seek clarification from the OP before responding?

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Thank you for your responses so far. 

To answer your questions about the MTA: My company and another company have a Master Terms Agreement between us.  This MTA sets up an overarching set of terms and conditions.  Under the MTA we and our customer will create Long Term Agreements for production of parts.  Those LTAs will fall under the MTA terms and conditions and any other program-specific terms that pertain only to that LTA.  We are a subcontractor and our customer is a Prime Contractor on a USG contract. 

We are a sole source provider of the parts and the value of the LTA is over $2M.  Prior to award of the LTA, we went through the sweep and certification process.  I understand the requirements of certified cost or pricing data. 

The background is good to know, but the real question that I have is about the language that says "Supplier agrees to furnish cost or pricing data certified as to currency, accuracy and completeness every three (3) years or as frequently as required by Buyer's Customer".  The Buyer's Customer is the USG.  Based on WifWaf's response above, it sounds like that the 3-Year requirement is not a FAR or DFARS requirement and is something that our Customer agreed to with their USG customer for whatever reasons they had at that time.

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3 hours ago, Vern Edwards said:

Why did you speak about that when the question was about something called a "master terms agreement" with an unknown "customer"?

Because of my experience with the Long Term Agreement part of ScottR’s question, and because I was assuming an MTA pre-negotiates terms and conditions of an LTA.  Also, because I could not see what could go wrong with that assumption being off.

On second thought though, the price negotiation of the subcontract - be it an “MTA”, an LTA, or order thereunder - really means everything here, doesn’t it?

FAR 52.215-12 Subcontractor Certified Cost or Pricing Data (JUN 2020) 

(a) Before awarding any subcontract expected to exceed the threshold for submission of certified cost or pricing data in Federal Acquisition Regulation (FAR) 15.403-4(a)(1), on the date of agreement on price or the date of award, whichever is later; or before pricing any subcontract modification involving a pricing adjustment expected to exceed the threshold for submission of certified cost or pricing data in FAR 15.403-4(a)(1), the Contractor shall require the subcontractor to submit certified cost or pricing data (actually or by specific identification in writing), in accordance with FAR 15.408, Table 15-2 (to include any information reasonably required to explain the subcontractor's estimating process such as the judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data, and the nature and amount of any contingencies included in the price), unless an exception under FAR 15.403-1(b) applies.

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In June, 2018, DCAA issued MRD 18-PSP-002 on the audit of contractor "Long-Term Agreements" (LTAs).

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An LTA is an agreement entered into between a prime or higher-tier contractor and a subcontractor to establish pricing for future purchases of specified items. It is common for contractors to enter into an LTA with a subcontractor in advance of a specific Government RFP; therefore, DCAA audit assistance may be necessary to ensure the reasonableness of the subcontract price. Before initiating the audit, the following is required:

1. The subcontract proposal has been approved by the appropriate subcontractor management;

2. The prime contractor has submitted the subcontract proposal to the Government with an assertion from the prime contractor’s management that it intends to award an LTA with the subcontractor and identifies the benefit of the LTA to the Government;

3. The subcontract proposal is adequate for examination based on the requirements set forth in FAR Subpart 15.4, Contract Pricing; and

4. The Contracting Officer has determined that subcontract audit support is required based on DFARS PGI 215.404-3 Subcontract pricing considerations.

 The MRD contained a FAQ Section:

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Question 3: Are LTAs an acceptable pricing method on Government proposals?

Answer: LTAs are an acceptable pricing method since FAR allows a prime contractor to reach a price agreement with a subcontractor in advance of an agreement with the Government. Therefore, it is common for prime contractors to submit independently a request for quote to its subcontractors in anticipation of future Government solicitations. The prime contractor might be establishing a business arrangement that addresses a specific expected prime level requirement (e.g., a specific annual procurement of a given weapon system) or it may be to satisfy multiple different procurements (e.g., multiple DoD and Foreign Military Sales (FMS) procurements for one or more weapon systems).

The prime contractor will use the long-term pricing agreements resulting from these requests as a basis of estimate in its cost estimates. FAR 15.404-3(c) provides that the contractor obtain and analyze certified cost or pricing data before awarding any subcontract expected to exceed the cost or pricing data threshold, unless an exception in FAR 15.403-1(b) applies. This requirement applies to all subcontract awards regardless of how far in advance a price agreement is reached (see FAR 15.404-3(c)(4)). If the subcontract value under the LTA is expected to exceed the cost or pricing threshold and none of the expectations in FAR 15.403-1(b) apply, the contractor must obtain and analyze certified cost or pricing data as of the date of the LTA execution.

(Emphasis added.)

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On 12/22/2022 at 6:28 PM, here_2_help said:

This requirement applies to all subcontract awards regardless of how far in advance a price agreement is reached (see FAR 15.404-3(c)(4)). If the subcontract value under the LTA is expected to exceed the cost or pricing threshold and none of the expectations in FAR 15.403-1(b) apply, the contractor must obtain and analyze certified cost or pricing data as of the date of the LTA execution.

I notice that DCAA does not discuss whether an LTA is a subcontract, but assumes that it is because it is awarded to a "subcontractor."  This is not necessarily a correct assumption.

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On 12/22/2022 at 8:21 AM, ScottR said:

Question: I have been searching and cannot put my fingers on a FAR or DFARS clause that contains that 3-year requirement.  Does it even exist under USG contracts or is this just a term that was made up by our customer for the purposes of trying to gather COPD data every three years?

According to statute and regulation, if the award of an MTA or LTA is not the award of a subcontract to a government prime contract or subcontract, then the government does not require the submission of certified cost or pricing data. Certified cost or pricing data are required only prior to the award of a contract or subcontract.

However, private parties may agree to anything they want to agree to that's not illegal.

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20 hours ago, Retreadfed said:

I notice that DCAA does not discuss whether an LTA is a subcontract, but assumes that it is because it is awarded to a "subcontractor."  This is not necessarily a correct assumption.

So what is a “subcontract” in this context?  It is not defined in FAR Part 2.  FAR Section 15.401 and its cited statute only add to some preexisting definition.

If I want to make ScottR’s job difficult, I would say it has to be price per unit times some ordered quantity logically in support of a prime contract.  I would also advise him that, if the LTA includes quantity discounts negotiated in advance for different ranges of prime-contract-ordered parts, that meets this definition.

But of course I have no privity of contract so that message may not be received in the field.

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6 minutes ago, WifWaf said:

So what is a “subcontract” in this context?

Well, to begin with, it's a contract, which means that it is more than just an agreement. Since the term is not defined in FAR, let's interpret it as a term of art.

According to Black's Law Dictionary, 11th ed., a contract is "An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law." That definition and its variants, including subcontract, goes on from pages 403-412. Black's defines subcontract as "A secondary contract made by a party to the primary contract for carrying out the primary contract or a part of it."

Emphasis added.

According to the Restatement of Contracts, Second, § 1, "A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty."

So...

  1. Is ScottR's master terms agreement a contract? Is it enforceable in court? Or is it just an agreement, like a basic agreement or a basic ordering agreement. See FAR Subpart 16.7.
  2. And if it is a contract, is it a subcontract to a government prime contract or to a subcontract to a government prime contract?

Ask ScottR.

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1 hour ago, WifWaf said:

what is a “subcontract”

Tangling the web.  On one hand the agreement might be defined as subcontract at least with regard to a Federal prime contract (cost or pricing data) and on another hand it may not be, reference FAR 52.204-10.  "First-tier subcontract means a subcontract awarded directly by the Contractor for the purpose of acquiring supplies or services (including construction) for performance of a prime contract. It does not include the Contractor’s supplier agreements with vendors, such as long-term arrangements for materials or supplies that benefit multiple contracts and/or the costs of which are normally applied to a Contractor’s general and administrative expenses or indirect costs."

1 hour ago, WifWaf said:

It is not defined in FAR Part 2.

Is it not by what I will call default?  FAR Part 44 as echoed by FAR 52.244-2, should it be in the prime contract, provides that "Subcontract means any contract, as defined in FAR subpart  2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders."

I believe Vern is on the right track with regard to both advice on figuring out if it is a subcontract (his most recent post) and with regard to the matter of whether the prime and sub have agreed to the 3 year matter.

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2 hours ago, WifWaf said:

So what is a “subcontract” in this context?

What is the prime contract or higher tier subcontract in this context?  Remember, a subcontractor is only required to submit certified cost or pricing data if the prime contractor or higher tiered subcontractor is required to submit such data in regard to a specific contract.  

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Again, thank you all for your replies.  I hope you all had a nice holiday season.  I am gaining a lot of useful information here.  To answer Vern's questions:

  1. Is ScottR's master terms agreement a contract? Is it enforceable in court? Or is it just an agreement, like a basic agreement or a basic ordering agreement. See FAR Subpart 16.7.  Response: Yes, it is a contract and is enforceable in a court of law.
  2. And if it is a contract, is it a subcontract to a government prime contract or to a subcontract to a government prime contract?  Response: In short, I would say that it is a subcontract under a USG Prime Contract.  Indeed, this is where it gets interesting.  Our customer is the prime contractor under several USG prime contracts for the USAF and US Navy for delivery of parts for engines.  Since there are multiple prime contracts, we have agreed to this MTA (in essence, it's a Basic Ordering Agreement), which sets up an overarching set of T&Cs, including FAR & DFARS clauses.  Under the BOA, a sole source Purchase Agreement (call it a delivery order or task order if you wish) was proposed with prices for parts and it is over $2M, which put us into a position where we needed to certify our cost or pricing data upon price agreement.

The question of whether this is a subcontract or not is a good one, but not heading toward the answer that I was looking for.  From my original post:

  1. Problem: The MTA has a clause that says, "Supplier agrees to furnish cost or pricing data certified as to currency, accuracy and completeness every three (3) years or as frequently as required by Buyer's Customer".  In this case, the "Buyer's Customer" is the USG. 
  2. Question: I have been searching and cannot put my fingers on a FAR or DFARS clause that contains that 3-year requirement.  Does it even exist under USG contracts or is this just a term that was made up by our customer for the purposes of trying to gather COPD data every three years?

Based on the responses that I have seen, nobody has pointed to a specific FAR or DFAR clause that has this requirement, so I am led to believe that it is merely an agreement that was made between our two companies at the time the MTA was drawn up.

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4 hours ago, ScottR said:

Question: I have been searching and cannot put my fingers on a FAR or DFARS clause that contains that 3-year requirement.  Does it even exist under USG contracts or is this just a term that was made up by our customer for the purposes of trying to gather COPD data every three years?

There is no such requirement in the FAR/DFARS.  However, as Vern pointed out, prime contractors and subcontractors can agree to procedures that are not required by government regulations.  The fact that you give your "customer" a certificate every three years, does not mean that you may not be required to submit certified cost or pricing data in regard to an individual Purchase Agreement under the LTA.

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22 hours ago, ScottR said:

...To answer Vern's questions:

  1. Is ScottR's master terms agreement a contract? Is it enforceable in court? Or is it just an agreement, like a basic agreement or a basic ordering agreement. See FAR Subpart 16.7.  Response: Yes, it is a contract and is enforceable in a court of law... (in essence, it's a Basic Ordering Agreement)...

What makes it a contract?  Maybe it's best you present general facts about the master terms agreement outside of a FAR analysis, as you have already tried that, and, well... see my emphasis below.  Try Vern's approach instead.  At least tell us this: does it require a minimum guarantee, or could it hypothetically exist without either party paying each other anything, just waiting for the next prime contract to be awarded?

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FAR 16.703 Basic ordering agreements.

(a) Description. A basic ordering agreement is a written instrument of understanding, negotiated between an agency, contracting activity, or contracting office and a contractor, that contains

(1) terms and clauses applying to future contracts (orders) between the parties during its term,

(2) a description, as specific as practicable, of supplies or services to be provided, and

(3) methods for pricing, issuing, and delivering future orders under the basic ordering agreement. A basic ordering agreement is not a contract.

(b) Application. A basic ordering agreement may be used to expedite contracting for uncertain requirements for supplies or services when specific items, quantities, and prices are not known at the time the agreement is executed, but a substantial number of requirements for the type of supplies or services covered by the agreement are anticipated to be purchased from the contractor. Under proper circumstances, the use of these procedures can result in economies in ordering parts for equipment support by reducing administrative lead-time, inventory investment, and inventory obsolescence due to design changes.

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