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What to do when a Subsidiary "subs" to a Parent Company for GSA MAS TOs?


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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.

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@CuriousContractor_22, My argument in response is as follows:

Task Order named awardee should request an arms length proposal from the subcontracted party and negotiate the fair and reasonable rate to be paid for its work by Task Order awardee. Any applicable GSA MAS existing rate for the subcontracted party should be considered in coming to such agreement with the understanding subject GSA MAS rate probably has profit in it and the subcontracted entity proposal and the agreed to rate is to be at cost unless otherwise permitted per FAR 31.205-26. 

A teaming agreement is irrelevant unless it was the task order awarded party. 

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Thanks, @Neil Roberts. This is superb. I appreciate it. 

Is it reasonable to assume the subsidiary should give their rates at-cost to their parent company  and any fee/profit the parent company earns on the subsidiary is then shared with the subsidiary? 

Re: a teaming agreement or CTA where both have their own GSA schedules with terms and conditions, it sounds like that is a battle for the parent/subsidiary to hash out, right?

 

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@CuriousContractor_22,

1. I am not entirely sure whether or what factors/forces are in play (i.e.,taxes, cost accounting standards, etc) with respect to earned profit that may drive a specific result relating to the subsidiary status as an independent company. Someone else would have to answer that.

2. I would expect the parent or subsidiary that holds the task order would issue a purchase contract to the other party. A teaming agreement in my world of government contracts is something that is executed at the proposal stage and specifically states it is in contemplation of a contract between the parties when one of the parties is awarded a contract. This purchase contract should specify all the particulars about the work that the "subcontractor" is required to perform, pricing, terms and conditions, schedule, quality requirements and any other relevant requirements.

Edited by Neil Roberts
added to last sentence after "perform"
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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.

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8 hours ago, here_2_help said:

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.

Not sure that either Schedule holder can use higher than the schedule rates, assuming that the average rates are higher than one or the other’s individual rates.

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8 hours ago, here_2_help said:

I am not particularly knowledgeable about GSA Schedule contracting.

I am to a degree but the question posed by the OP did raise my eyebrows for the very reasons you have pointed out.   I followed as expecting a response by someone who is currently handling GSA FSS orders.  With your response let me add my thoughts.  

1.   I do not think there would be any mapping of rates.   I would offer instead that either the prime for the effort rates would apply if no CTA or if they did a Contracting Teaming Arrangement (CTA) then either might apply but not a mapped rate.  The CTA would be in the GSA sense not that of FAR part 9.  

2. The prime rates apply and that is what would be billed to the government if no CTA.  How a prime and sub work it out below the prime level that is their business.

3.  Yes (see number 1).

My responses are based on this document.  See the section regarding CTA's.  https://www.gsa.gov/system/files/MAS Desk Reference Guide - Winter 19.pdf

Here is a excerpt from the section regarding CTA's regarding CTAs and a subcontract.   It does not come out in matrix form as in the Guide but I think it will peak interest to read the reference.    

"Contractor Team Arrangement (CTA) Prime/Sub Arrangement Each team member must have a Schedule contract. Only the prime contractor must have a Schedule contract. Each team member is responsible for duties addressed in the CTA document. These duties fall within the scope of their individual Schedule contracts. The prime contractor cannot delegate responsibility for performance to subcontractors. The prime contractor can provide only what is on its Schedule contract; it cannot subcontract to offer items/services for which it does not hold a Schedule contract. Each team member has privity of contract with the government and can interact directly with the government. Only the prime contractor has privity of contract with the government and can interact with the government. The prime contractor is responsible for its subcontracting activities. (Ordering activities are permitted to specify in the RFQ that the use of subcontractors requires prior approval by the ordering activities.) The ordering activity is invoiced at each team member’s unit prices or hourly rates as agreed in the task or delivery order or Schedule BPA. The ordering activity is invoiced in accordance with the prime contractor’s Schedule contract"

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Assuming the parent company has a valid GSA Schedule contract, they must propose their own fixed price hourly rates matching their contractual LCATs.  If they want to include their subsidiary in performance, the subsidary must perform under the parents rates and qualify as fully meeting the appropriate LCAT standards. In other words, the parent is free to subcontract to the subsidiary using the parents rates.  If for whatever reason, the subsidiary labor doesn’t work, the parent is free to propose the subdiary as “open market”, which is covered under FAR 402(f)

Quote

For administrative convenience, an ordering activity contracting officer may add items not on the Federal Supply Schedule (also referred to as open market items) to a Federal Supply Schedule blanket purchase agreement (BPA) or an individual task or delivery order only if-

(1) All applicable acquisition regulations pertaining to the purchase of the items not on the Federal Supply Schedule have been followed (e.g.,publicizing ( part  5), competition requirements ( part  6), acquisition of commercial products or commercial services ( part  12), contracting methods ( parts  13, 14, and  15), and small business programs ( part  19));

(2) The ordering activity contracting officer has determined the price for the items not on the Federal Supply Schedule is fair and reasonable;

(3) The items are clearly labeled on the order as items not on the Federal Supply Schedule and they conform to the rules for numbering line items at subpart  4.10; and

(4) All clauses applicable to items not on the Federal Supply Schedule are included in the order.

 

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9 minutes ago, formerfed said:

Assuming the parent company has a valid GSA Schedule contract, they must propose their own fixed price hourly rates matching their contractual LCATs.

With a possible discount, correct?

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On 4/1/2024 at 12:21 AM, here_2_help said:

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.

GSA FSS contracts are contracts for commercial products and services, and thus may meet the FAR 52.215-20(a)(1)(ii) commercial exception to submitting certified cost or pricing data.  So long as data other than certified cost or pricing data is not requested by the contracting officer (i.e., the FAR 52.215-20 Alt IV provision is not filled in at the task order level), the FAR Part 31 cost principles do not apply to the prime task order.  The decision hinges on whether the CO conducts cost analysis.

Here are the references that lead to this statement, in logical order:

Quote

FAR 8.402 General.

(a) The Federal Supply Schedule program is also known as the GSA Schedules Program or the Multiple Award Schedule Program. The Federal Supply Schedule program is directed and managed by GSA and provides Federal agencies (see 8.004) with a simplified process for obtaining commercial supplies and commercial services at prices associated with volume buying...

Quote

FAR 15.404-1(a)

* * * *

(4) Cost analysis may also be used to evaluate data other than certified cost or pricing data to determine cost reasonableness or cost realism when a fair and reasonable price cannot be determined through price analysis alone.

Quote

FAR 31.102 Fixed-price contracts.

The applicable subparts of part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever (a) cost analysis is performed, or (b) a fixed-price contract clause requires the determination or negotiation of costs. However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered.

 

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Follow-up question for my own edification.

If neither entity had an existing Schedule contract and wanted to propose one, could the parent entity create LCAT rates that were based on an expected division of work between the parent and subsidiary entity, or must the parent entity propose LCAT rates that are based solely on its own fully burdened labor rates?

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3 minutes ago, here_2_help said:

Follow-up question for my own edification.

If neither entity had an existing Schedule contract and wanted to propose one, could the parent entity create LCAT rates that were based on an expected division of work between the parent and subsidiary entity, or must the parent entity propose LCAT rates that are based solely on its own fully burdened labor rates?

Now I could be wrong but that sounds like a joint venture?   And if not then can not the entity that would hold the contract as a prime figure out how their rates are created inclusive of any subcontract agreement they have and that I will call is exclusive for the GSA FSS MAS work?   Bottomline it would seem that creating rates for the parent GSA FSS MAS is no different that creating rates for any contract.

I did find this ...................https://www.gsa.gov/system/files/Final JV Industry FAQs 071923.pdf

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@CuriousContractor_22,

it would have been better if your post included the total value of the task order, information about relevant contract terms and conditions of the parent company contract/task order (including if there was a small business subcontract plan) , whether or not the parent or the subsidiary have government approved accounting systems and whether there are policies at the parent or subsidiary regarding transfer pricing of commercial items under government contracts. 

  Assuming the subsidiary is the subcontractor, it appears to me that the subcontractor may be guided by the parent as to aspects you posted about.

 

 

Edited by Neil Roberts
eliminate spacing problems. no other change
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On 4/1/2024 at 7:15 AM, Voyager said:

GSA FSS contracts are contracts for commercial products and services, and thus may meet the FAR 52.215-20(a)(1)(ii) commercial exception to submitting certified cost or pricing data.  So long as data other than certified cost or pricing data is not requested by the contracting officer (i.e., the FAR 52.215-20 Alt IV provision is not filled in at the task order level), the FAR Part 31 cost principles do not apply to the prime task order.

You may certainly argue that. I argue that GSA MAS contracts (not the task order) may be negotiated contracts regardless of whether or not cost or pricing data is called for or submitted. I wonder if government files in the vast majority of GSA MAS contracts mentions "negotiation." My reading of articles about how GSA works is that it negotiates the prices. 

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In keeping with my above quoted logical progression through the FAR, I certainly hope any GSA COs conducting cost analyses are applying the cost principles to the GSA MAS contracts (not the task order), because take a look at their standard provision’s fill-in for FAR 52.215-20 Alt IV: it requests data other than certified cost or pricing data.

Now, are these data about costs or about prices?

Quote

52.215-20 REQUIREMENTS FOR CERTIFIED COST OR PRICING DATA AND DATA OTHER THAN CERTIFIED COST OR PRICING DATA (NOV 2021) (ALTERNATE IV — OCT 2010)

(a) Submission of certified cost or pricing data is not required.

(b) Provide data described below: ...

(1) An offer prepared and submitted in accordance with the clause at 552.212-71, Contract Terms and Conditions Applicable to GSA Acquisitions of Commercial Products and Commercial Services and all Multiple Award Schedule offer submission requirements.

(2) Commercial sales practices. When the solicitation contains the basic clause 552.238-80 Industrial Funding Fee and Sales Reporting, the Offeror must submit information in the format provided in this solicitation in accordance with the instructions at Figure 515.4-2 of the GSA Acquisition Regulation (48 CFR 515.4-2), or submit information in the Offeror's own format.

(3) Any additional supporting information requested by the Contracting Officer. The Contracting Officer may require additional supporting information, but only to the extent necessary to determine whether the price(s) offered is fair and reasonable.

(4) By submission of an offer in response to this solicitation, the Offeror grants the Contracting Officer or an authorized representative the right to examine, at any time before initial award, books, records, documents, papers, and other directly pertinent records to verify the pricing, sales and other data related to the supplies or services proposed in order to determine the reasonableness of price(s). Access does not extend to Offeror's cost or profit information or other data relevant solely to the Offeror's determination of the prices to be offered in the catalog or marketplace.

Contracts Online View Clauses (gsa.gov)
https://www.gsaelibrary.gsa.gov/ElibMain/contractClauses.do?scheduleNumber=MAS&contractNumber=GS-10F-057BA&contractorName=AMENTUM+SERVICES%2C+INC.&duns=QEMLRQA7PLG4&listFor=A&view=clauses

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