Subcontracts and Other Procurements under Prime Cost Type Contracts - what applies?

[Tzarina of Compliance]

Cost Reimbursement Prime Contract.  

FAR 44 defines a "subcontract" and provides rules for pricing, consent and flow down requirements as well as CPSR review.    But what about procurement actions by the Prime Contractor that do not strictly meet the definition of "subcontract" under FAR 44?  Or do they?

Example:  Contract is to provide technical advisory services to a ministry in a foreign country.  The prime subcontracts part of the advisory services - thats definitely a subcontract.   Then prime uses all kinds of other professional services, legal, accounting and IT to help it (the prime) set up an office, comply with the contract's terms etc.  The contract requires that the prime sets up an office in a specific location to provide those technical services (in a foreign country).  So the prime leases office space (lease is a contract), buys furniture etc.  

Hence, Prime conducst all kind of procurement actions, which in my view do not meet the definition of subcontract in FAR 44:  legal help, hotels, leases, buying furniture for the office.  Are these technically providing something for the performnace of the prime contract?  Some of these actions may be done through a PO or a "contract" (as defined in FAR 2.1.   Are there requirements for competing such auxillary services and purchase of goods?  Or just documenting why the price is reasonable enough.  Are there any flow down requirements for such procurement actions?  

Thoughts?

[Neil Roberts]

I wonder if anything has changed since this 2016 WIFCON discussion https://www.wifcon.com/discussion/index.php?/topic/3573-definition-of-subcontractor/.

 

[C Culham]

21 hours ago, Tzarina of Compliance said:

Some of these actions may be done through a PO or a "contract" (as defined in FAR 2.1.

So, while you indicate FAR Part 44 and FAR 2.1, is it not the contract that counts with regard to the definition?  I say this as it seems you are pitting FAR 44 against FAR 2 but consider this.

If FAR 52.244-2 is in the contract it says this "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."  The definition of "subcontract" in FAR part 44 (44.101) says essentially the same thing.   And if FAR 52.244-2 is not in the contract then the definition clause 52.202-1 applies and it says this "When a solicitation provision or contract clause uses a word or term that is defined in the Federal Acquisition Regulation (FAR), the word or term has the same meaning as the definition in FAR 2.101 in effect at the time the solicitation was issued, unless-".   In essence everything leads back to FAR 2.1 so my thought is they are subcontracts as you have noted in your original post.

21 hours ago, Tzarina of Compliance said:

Cost Reimbursement Prime Contract.  

So the question for me is are you wondering?   Do you have to submit subs for consent?  If so why not ask the CO for the contract what they think or just submit them and see what they say?  

[Tzarina of Compliance]

41 minutes ago, C Culham said:

So, while you indicate FAR Part 44 and FAR 2.1, is it not the contract that counts with regard to the definition?  I say this as it seems you are pitting FAR 44 against FAR 2 but consider this.

If FAR 52.244-2 is in the contract it says this "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."  The definition of "subcontract" in FAR part 44 (44.101) says essentially the same thing.   And if FAR 52.244-2 is not in the contract then the definition clause 52.202-1 applies and it says this "When a solicitation provision or contract clause uses a word or term that is defined in the Federal Acquisition Regulation (FAR), the word or term has the same meaning as the definition in FAR 2.101 in effect at the time the solicitation was issued, unless-".   In essence everything leads back to FAR 2.1 so my thought is they are subcontracts as you have noted in your original post.

So the question for me is are you wondering?   Do you have to submit subs for consent?  If so why not ask the CO for the contract what they think or just submit them and see what they say?  

The reason for the question: Does competition in subcontracting apply to such procurements?  Does consent? Also mandatory clauses  flow downs are required for "subcontracts".  FAR 52 does not define subcontract.  FAR 2.1 does not define subcontract.  So do I flow down only to "subcontracts" as defined in FAR 44?

[Tzarina of Compliance]

11 hours ago, Neil Roberts said:

I wonder if anything has changed since this 2016 WIFCON discussion https://www.wifcon.com/discussion/index.php?/topic/3573-definition-of-subcontractor/.

 

I read the discussion before asking the question.  It is one of the classics with Vern's Hamlet reference 🙂   I guess the "furnishing for performance" issue is easier to address when you actually have a scope of work that makes sense and requires deliverables.   Under a cost type scope where we are throwing spaghetti at the wall to see if they will stick and every year we agree on a new work plan for the spaghetti, it is tough to figure who is whispering in the prime's year and who is providing services for performance.  Plus leases, commodities and so on do not whisper.  A Prime who is required by the contract to move its ops to a foreign country, set up shop and then provide advisory services on-demand is contracting all the time with various companies for various things.  It would be good to understand what is an ancillary services or goods in this case for at least competition requirements and flow downs.

[REA'n Maker]

On 6/15/2023 at 10:27 AM, Tzarina of Compliance said:

 But what about procurement actions by the Prime Contractor that do not strictly meet the definition of "subcontract" under FAR 44?

What is the business reasoning behind this question?   To ensure a furniture leasing company doesn't have segregated facilities or what?  

[Retreadfed]

9 hours ago, Tzarina of Compliance said:

Also mandatory clauses  flow downs are required for "subcontracts".  FAR 52 does not define subcontract.  FAR 2.1 does not define subcontract.  So do I flow down only to "subcontracts" as defined in FAR 44?

There is no universal definition of subcontract in the FAR.  There are at least six or seven definitions of subcontract found in different parts of the FAR.  Those definitions, including the definition found in 52.244-2, apply only to the (sub)part in which they are found.  The primary purpose of 52.244-2 is to identify which subcontracts require consent from the government.  That clause dos not address what clauses are to be inserted in subcontracts.  In this regard, there are two types of flow down clauses, those that are required to be included in subcontracts by their own terms, and clauses that are necessary for the prime contractor to comply with its obligations under the prime contract.  In regard to the former, you would first have to look at the FAR (sub)part that prescribes that clause to see if it contains a definition of subcontract.  If so, you would follow that definition in determining whether that clause needs to be included in a particular instrument.  If no definition is provided, you would apply the definition of subcontract from a reputable dictionary.  In regard, to the latter category of flow down clauses, the prime contractor should use its judgment as to whether a clause needs to be included in a particular instrument.  For example, if the prime has a fixed price arrangement with a "subcontractor" but the prime contract is a cost reimbursement contract, there would be no need to flow down the Allowable Cost and Payment clause from the prime contract.  Instead, another payments clause would have to be used and this clause need not be a FAR clause.

[Neil Roberts]

9 hours ago, Tzarina of Compliance said:

A Prime who is required by the cotract to move its ops to a foreign country, set up shop and then provide advisory services on-demand is contracting all the time with various companies for various things.  It would be good to understand what is an ancillary services or goods in this case for at least competition requirements and flow downs.

I have found that companies that "automatically" send all "buy" item requisitions to supplier management because supplier management buys, leases, etc, do not properly address the issue you are writing about. Contracts and financial management functions should be involved with understanding and addressing the issue you are grappling with because it involves the contract and impacts the entire company. Are they? The major prime contractor where I worked eventually came to a company level understanding with respect to consultants, interdivisional work and other situations, and embodied this in company and supplier management procedures. Pushback from supplier management and suppliers helped.  

[C Culham]

On 6/15/2023 at 7:27 AM, Tzarina of Compliance said:

 legal help, hotels, leases, buying furniture for the office.

I will probably depart from others with these additional thoughts but my view if I were the CO.

Relying on FAR 52.244-2 as being in the prime contract then -

Legal help - Yes it is a service and usually purchased by the Federal government pursuant to the FAR guiding principles;

Hotels - Depends.   If for conference, training location etc. then again usually purchased via FAR guiding principles.  If for travel needs (hotel rooms) maybe not but by my own experience I have purchased rooms outside the travel regulation process, like for Incident Support.   If I were the CO I would need more detail as to need and go from there.

Leases - Probably not.   Lease of real property is outside the FAR and are not usually considered "contracts" but might be.

Furniture - Yes.   

The above would then guide me, again as the CO, to advise that competition might be necessary but remember a prime can do sole source with adequate reasoning and policy.   Consent the above explains where I would apply consent or need additional details to decide if I as the CO should or otherwise leave it alone.

So as I noted in the end it will depend on the CO and his/her discretion.   I could not guess what they may or may not think. 

[Neil Roberts]

16 hours ago, C Culham said:

I will probably depart from others with these additional thoughts but my view if I were the CO.

Tzarina, Your company could solicit advice from the CO, but blind following of the advise is not recommended for a prime contractor in my opinion. By way of example, C. Culham indicated that legal help is a subcontract. It may be for the federal government, when it purchases. However, unless the prime contract directs your company to obtain legal services, it is not a subcontract in my opinion, and furthermore, does not belong in supplier management as a procurement. It should be contracted for by another function such as an existing law department of the company, Contracts, the President, or the Board of Directors, etc.    

[C Culham]

1 hour ago, Neil Roberts said:

C. Culham indicated

 

On 6/16/2023 at 5:30 AM, C Culham said:

If so why not ask the CO for the contract what they think or just submit them and see what they say?  

No disagreement Neil Roberts as my initial reply pointed in that same direction.  The questions posed are a specific contract matter and as such a specific response depends on the facts.  Silly me for trying to help with some generalities!