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We all know that CPFF contracts are prohibited for commercial product/services contracts with the government. What about subcontracts? Not looking for wisdom, recommendations, advice, etc. Just need to know whether there is a prohibition like there is for prime contracts. For background or context, all work will meet the definition of commercial services, but the effort required is too uncertain to price as FP. Both prime and sub agree to use a CPFF contract.

The impact is this: if the prime can treat the subcontract as a commercial services subcontract even though it is CPFF, then it will only need to include the clauses applicable to commercial subcontracts. Flowdown requirements are generally stated as "when acquiring commercial products or commercial services ...", which says nothing about the contract type being used. I know some of you are already asking - why not just use a T&M contract, which is specifically allowed? I don't know why the businesses decided this; I was pulled in on the clause question. 

My thinking is that FP and CPFF are contract types, and have nothing to do with whether the things being acquired meet the definitions of commercial products/services. Using a CPFF contract does not change the services to non-commercial. The prohibition is against the contract type that can be used even if what is being acquired is commercial. Does that prohibition extend to subcontracts?

I have checked the CPSR Guide and it says nothing about this. Same for the Commercial Item Guide. Nothing in the PGIs either.

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58 minutes ago, Fara Fasat said:

We all know that CPFF contracts are prohibited for commercial product/services contracts with the government. What about subcontracts? Not looking for wisdom, recommendations, advice, etc. Just need to know whether there is a prohibition like there is for prime contracts. For background or context, all work will meet the definition of commercial services, but the effort required is too uncertain to price as FP. Both prime and sub agree to use a CPFF contract.

The impact is this: if the prime can treat the subcontract as a commercial services subcontract even though it is CPFF, then it will only need to include the clauses applicable to commercial subcontracts. Flowdown requirements are generally stated as "when acquiring commercial products or commercial services ...", which says nothing about the contract type being used. I know some of you are already asking - why not just use a T&M contract, which is specifically allowed? I don't know why the businesses decided this; I was pulled in on the clause question. 

My thinking is that FP and CPFF are contract types, and have nothing to do with whether the things being acquired meet the definitions of commercial products/services. Using a CPFF contract does not change the services to non-commercial. The prohibition is against the contract type that can be used even if what is being acquired is commercial. Does that prohibition extend to subcontracts?

I have checked the CPSR Guide and it says nothing about this. Same for the Commercial Item Guide. Nothing in the PGIs either.

How convenient for the prime and sub…

If all the work being done by the sub and all all the sub’s costs are billed as cost reimbursement to the government through the prime looks like a combination of of FP and CR prime contract type to me.

EDIT: Or - is the prime going to bill the work by the sub at a fixed price under its prime contract to the government? 

 

Edited by joel hoffman
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1 hour ago, Don Mansfield said:

Not that I know of.

If a subcontract is billed to the government as cost reimbursement, that makes the prime contract partially cost reimbursement. Thus, I don’t think that it would be allowable for a contract for commercial services.

However, if the cost reimbursement arrangement is strictly between the prime and sub and the price to the government is fixed, then it would seem to be acceptable.——————————————-

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9 hours ago, joel hoffman said:

If a subcontract is billed to the government as cost reimbursement,

Joel, maybe I am slow, but what do you mean by this?  Are you saying that the subcontractor may submit invoices directly to the government?

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9 hours ago, joel hoffman said:

If a subcontract is billed to the government as cost reimbursement, that makes the prime contract partially cost reimbursement. Thus, I don’t think that it would be allowable for a contract for commercial services.

However, if the cost reimbursement arrangement is strictly between the prime and sub and the price to the government is fixed, then it would seem to be acceptable.——————————————-

What rule or contract clause prohibits it?

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7 minutes ago, Retreadfed said:

Joel, maybe I am slow, but what do you mean by this?  Are you saying that the subcontractor may submit invoices directly to the government?

No. It’s not clear to me if the prime contract amount or payment can vary based upon the actual reimbursed subcontract costs.

if the cost reimbursement pricing arrangement is strictly between the prime and its sub, independent of a FFP prime contract amount, it might be acceptable 

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6 hours ago, Don Mansfield said:

What rule or contract clause prohibits it?

Prohibits what? 
Please see my above response to Retreadfed.

If the prime contract is truly FFP - that is the amount billed to and paid by the government is independent of the amount reimbursed to the sub - the prime isn’t necessarily prohibited from issuing a cost reimbursement subcontract.

I wasn’t sure but probably should have read the original post in that context.

The OP discussed T&M and Labor Hour subcontract pricing arrangements, which I assume would be reflected in the prime contract price, since it is allowable.

But then the OP discussed cost reimbursement as an alternative subcontract pricing arrangement to T&M or Labor Hour. 

Here is the prohibition concerning prime contract types.

“12.207 Contract Types

a) Except as provided in paragraph (b) of this section, agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial products or commercial services.

…(e) Use of any [prime] contract type other than those authorized by this subpart to acquire commercial products or commercial services is prohibited.”

 

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The prime contract is FP. I didn't mention it because it didn't seem relevant to the question and I didn't want the discussion veering off into other issues (as it inevitably did). Sure it's probably a bad arrangement for the prime, but I'm presenting it as it came to me.

So far, I've heard that there doesn't appear to be any prohibition against a subcontract for commercial services using a CPFF contract type, and following the commercial item rules for all other flowdowns and clauses.

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4 minutes ago, Fara Fasat said:

The prime contract is FP. I didn't mention it because it didn't seem relevant to the question and I didn't want the discussion veering off into other issues (as it inevitably did). Sure it's probably a bad arrangement for the prime, but I'm presenting it as it came to me.

So far, I've heard that there doesn't appear to be any prohibition against a subcontract for commercial services using a CPFF contract type, and following the commercial item rules for all other flowdowns and clauses.

Correct. Sorry that I read too much into your OP.

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I've seen it done before.

There is little argument that the prime contractor is responsible for its subcontracting, including choosing the appropriate subcontract type and flowing down all applicable prime contract clauses. FAR 44.303 identifies 11 things the government looks for when it assesses a contractor's purchasing system. In addition FAR 44.202-2(a) lists 13 things the contracting officer should evaluate with considering whether or not to give consent to a subcontract. Unless award of a commercial item subcontract violates one of those 24 items, there is no prohibition on awarding it, regardless of prime contract type.

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On 5/25/2023 at 9:54 AM, Fara Fasat said:

So far, I've heard that there doesn't appear to be any prohibition against a subcontract for commercial services using a CPFF contract type, and following the commercial item rules for all other flowdowns and clauses.

...If you want to call it a commercial service when it does not appear to meet the pricing requirement for commercial services per 2.101. I think the request made of you to search for a specific "prohibition" generally regarding commercial services and contract type, is too narrow.

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The services meet the definition, including the pricing requirements. I don't know where you got the "does not appear to meet..." from. The problem here is that the amount of effort required cannot be reasonably estimated, and the parties have agreed to use CPFF. I can provide no information on why the prime contract is FP. Wise or not, this is the situation as it stands.

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I said "does not appear to meet" because of the definition of commercial services as follows:

"(2) Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions." I did not see anything in the definition that lead me to think that non competitive commercial services that have no established market or catalog price, and can not even be estimated, are commercial services.

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I was trying to keep it simple and avoid debates that were not relevant to the question. The services being performed are performed for commercial customers, and are priced at standard rates. My statement of the facts did not imply that these services were noncompetitive or had no established price. The only uncertainty was how much of the services would be required. Think of it as 'we don't know if we need to perform 3 tests or 15 tests.' I was hoping readers would just accept the statement that the services met the definition of commercial, and focus on the actual question. 

Are you saying that being unable to estimate the amount or extent required disqualifies the services from being commercial? If that is what you are saying, I would be interested in hearing how uncertainty as to the amount takes those services out of the definition of commercial. I don't see that the definition requires certainty of the amount as being a necessary element of the definition.

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51 minutes ago, Neil Roberts said:

I did not see anything in the definition that lead me to think that non competitive commercial services that have no established market or catalog price, and can not even be estimated, are commercial services.

The services don't have to meet those criteria. They just have to be "of a type" of services that do.

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I do not agree with either of you (Don/Fara). I think the words of the definition speak for themselves, whatever that means to you and whatever case law or intellectual discussion reveals. Yes, Fara, I did understand that you wanted to know only whether a commercial service can be a cost type contract. I couldn't  divorce myself from examining what a commercial service is in trying to answer the question. I understand it came to you that way but I don't know your role and whether your silence would be understood by others as agreement as to whether it is a commercial service and the extent to which it matters to you, so I veered from your specific request.      

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9 hours ago, Fara Fasat said:

Are you saying that being unable to estimate the amount or extent required disqualifies the services from being commercial? If that is what you are saying, I would be interested in hearing how uncertainty as to the amount takes those services out of the definition of commercial. I don't see that the definition requires certainty of the amount as being a necessary element of the definition.

Amount of services can vary but that’s why unit prices of various types of services are available for that reason, instead of simply reverting to cost plus pricing .

If the prime contract is fixed price, then the price to the owner per unit of an indeterminate quantity should be fixed, right?

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From the definition of "commercial service":

Quote

Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions

It's entirely possible for a service to meet that definition and be priced on a cost-reimbursement basis. 

The cost or pricing arrangement for a given subcontract is dependent on the circumstances. The same service that is priced on a FFP basis under normal circumstances, may, under different circumstances, be more appropriately priced on a T&M or cost-reimbursement basis. This has nothing to do with whether the service is commercial or not.

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On 5/25/2023 at 11:27 AM, joel hoffman said:

Here is the prohibition concerning prime contract types.

“12.207 Contract Types

a) Except as provided in paragraph (b) of this section, agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial products or commercial services.

…(e) Use of any [prime] contract type other than those authorized by this subpart to acquire commercial products or commercial services is prohibited.”

 

2 hours ago, Don Mansfield said:

It's entirely possible for a service to meet that definition and be priced on a cost-reimbursement basis. 

 

Not for a prime contract for a commercial product or a commercial service under FAR Part 12 or Subpart 13.5.

For DoD, see also DFARS 212.207 (b).

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Thanks Don. This has been frustrating. I tried to keep us in a narrow lane -- subcontract, the same services that are performed commercially, at established rates. The only unknown was the amount required -- as I said before, would it take 3 tests or 15 tests? That's why it is being done on a CR basis. I suppose it could be T&M too, but this is what the parties agreed to do.

Neil - I've said a couple times now that the services that will be performed are the same services that are sold commercially, at the same rates. I don't know why you think that doesn't meet the definition. 

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@Don Mansfield @Fara Fasat

I took a different approach to the question.  Did some research and came to this conclusion.   Nothing that I could find in the FAR requires the general application of the definitions of the FAR be applied to a subcontract unless specifically stated in a clause or provision.  Or from a different view the FAR does not apply to subcontracts unless specifically stated.  

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Perhaps it is useful to make explicit what has been implicit in this thread.  It may be entirely obvious to all involved, but might not be obvious to a "newbie."  First, generally, the Federal Acquisition Regulation doesn't govern the conduct of the contractor, the contract does.  See, e.g., Nash & Cibinic, Legal Status of Government Manuals and Instructions:  Putting the Fox in Charge of the Chickens, 1 Nash & Cibinic Report ¶ 77 (Oct. 1987); Nash & Cibinic, Formation of Government Contracts (4th Ed. 2011), at 59 (contrasting housekeeping rules from substantive ones).  Thus, when portions of the FAR like FAR 16.201(a) make statements like, "The contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial products and commercial services, except as provided in 12.207(b)," hopefully it is obvious that this has no impact on how a prime contracts with its subcontractor.

That said, the contract between the Government and the prime does say a lot.  For instance, it tells the prime what clauses must be flowed down to a subcontractor.  Those contractual requirements for flow down may differ depending on whether the subcontract is for commercial products or services or not.  Therefore, the "Definitions" clause at FAR 52.202-1 matters.  If, embedded in the definition of a commercial item was how it was priced, then that would have an impact on the analysis.

I hope that provides some context for some "newbies" that might happen upon this thread.

Break..Break

For what it is worth, I don't think the definition of a commercial product or service includes anything about how it is priced that would prevent the arrangement described in the OP.  I also think Congress knew that the FAR was a housekeeping rule when it wrote Pub. L. 103-355, FASA, § 8002(d).  I also think the Councils' implementation of the statute in the FAR (phrased as it is in terms of what the Government can and cannot do) is reasonable.

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