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CPFF prime with T&M sub - does set fee apply to subcontracts?


Fair and Reasonable

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Hello and thanks in advance.

We are the prime on a CPFF contract. We are looking to add a subcontractor and intend to administer a T&M subcontract. Does our set fee also apply to the subcontractor when they submit their T&M rates to us? I can't find anything in our FAR clauses that would suggest this, so this is perhaps a really silly question.

Somewhat relevant - the subcontract will be well below the certified cost and pricing threshold. If the government really wants to see their price buildup they could ask for a sealed package, but we weren't intending on asking the sub for an unsanitized cost volume - just their rates. 

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26 minutes ago, Fair and Reasonable said:

Does our set fee also apply to the subcontractor when they submit their T&M rates to us?

Generally not.  Subcontractor fee/profit is a cost to the prime contractor.  However, I have seen some contracts, particularly those awarded by Navy activities, where subcontractor fee is to come out of prime contractor fee.  The clauses that require this are local clauses and are not from the FAR or DFARS.  Therefore, read your contract to see if it says anything about subcontractor fee/profit.

As an aside, fee is not a consideration in regard to T&M labor rates. Those rates contain a profit element that is a part of the overall hourly labor rate.

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I will add that, in a CPFF contract, the fixed fee is, literally, fixed. It does not change when you add a new subcontractor, unless there is something else going on, such as a change in the required work. The profit rate you negotiate with your subcontractor is strictly between you and the subK. Whatever the subK bills you becomes "cost" to your prime contract.

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3 hours ago, Fair and Reasonable said:

If the government really wants to see their price buildup they could ask for a sealed package, but we weren't intending on asking the sub for an unsanitized cost volume - just their rates. 

Your prime contract should include 52.244-2 under which a T&M subcontract requires customer consent/advance notice. The information the customer "wants to see" is stated therein. I have never heard of a "sealed package" but hope it meets all information requirements of this clause.

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