BrandonB Posted August 7, 2024 Report Share Posted August 7, 2024 As defined in 52.215-23 Limitations on Pass-Through Charges, Excessive pass-through charges: with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs). Further, Blk 14F of the DD1547 WGL is for subcontracts... my takeaway is that there are those of us out there that do justify fee on subcontractors as not excessive. ASK- Looking for scenarios where a sub adds value to justify the Prime charging Gov't fee for a subs work. Quote Link to comment Share on other sites More sharing options...
Neil Roberts Posted August 8, 2024 Report Share Posted August 8, 2024 @BrandonB, does this help you? https://info.redstonegci.com/blog/limitation-on-pass-through-charges-in-government-contracts Quote Link to comment Share on other sites More sharing options...
BrandonB Posted August 8, 2024 Author Report Share Posted August 8, 2024 Thanks Neil for response... this article focuses on the 70% limit of work to be subbed out. I'm looking for examples of when the Gov can accept a Prime to charge fee for the SubK's work. Sample scenario- $10M subcontract is set up on a fully burdened T&M basis, hence the subcontractor profit is built in. The prime wants to go ahead and charge fee on the fully burdened $10M. What are example(s) of when a sub adds value to justify the Prime tacking on their own fee? Thanks! Quote Link to comment Share on other sites More sharing options...
Neil Roberts Posted August 8, 2024 Report Share Posted August 8, 2024 Per the reference above, the government "can accept a Prime to charge fee for the subK's work" whenever the total subcontracting costs under the prime contract do not exceed 70% of the total cost of the prime contract. Your sample scenario did not indicate the total prime contract costs. Example: A sub adds value when it performs work required by the prime contractor and charges such work directly to to the contract between it and the prime contractor. Quote Link to comment Share on other sites More sharing options...
BrandonB Posted August 8, 2024 Author Report Share Posted August 8, 2024 Thanks Neil... you got me to look at this from a different perspective. I always presumed subcontracted efforts were always to fulfill the Govt's requirement because the Prime doesn't have a capability. From what you post, if the sub performs any work in support of the PWS deliverables, it's considered value added. Anyone else have an opinion on the topic? Quote Link to comment Share on other sites More sharing options...
Don Mansfield Posted August 8, 2024 Report Share Posted August 8, 2024 5 hours ago, BrandonB said: Sample scenario- $10M subcontract is set up on a fully burdened T&M basis, hence the subcontractor profit is built in. The prime wants to go ahead and charge fee on the fully burdened $10M. Let's work on your scenario. Before charging fee, the prime has to negotiate fee with the Government--correct? This would start with the prime proposing an amount of fee. Is the contractor's proposed fee expressed as a percentage of its costs? Or just an amount that is independent of proposed costs? Quote Link to comment Share on other sites More sharing options...
BrandonB Posted August 9, 2024 Author Report Share Posted August 9, 2024 Proposed as a percentage derived from Weighted Guidelines. Quote Link to comment Share on other sites More sharing options...
Don Mansfield Posted August 9, 2024 Report Share Posted August 9, 2024 17 hours ago, BrandonB said: Proposed as a percentage derived from Weighted Guidelines. The contractor used weighted guidelines to come up with their proposed fee? Quote Link to comment Share on other sites More sharing options...
BrandonB Posted August 9, 2024 Author Report Share Posted August 9, 2024 Yes, a DD1547 is typically requested from a contractor. Quote Link to comment Share on other sites More sharing options...
Don Mansfield Posted August 9, 2024 Report Share Posted August 9, 2024 On 8/7/2024 at 9:53 AM, BrandonB said: Further, Blk 14F of the DD1547 WGL is for subcontracts... my takeaway is that there are those of us out there that do justify fee on subcontractors as not excessive. Do you think that, by definition, a charge of profit/fee on a subcontract is an excessive pass-through charge? That would be wrong. Including the cost of subcontracts in Block 14 of the DD Form 1547 when developing your prenegotiation fee objective would be correct. I would only exclude it if the prime contractor's efforts provided no or negligible value. Alternatively, leave it as is and assign a lower-than-normal value for Management/Cost Control on the form. Quote Link to comment Share on other sites More sharing options...
here_2_help Posted August 12, 2024 Report Share Posted August 12, 2024 On 8/7/2024 at 9:53 AM, BrandonB said: As defined in 52.215-23 Limitations on Pass-Through Charges, Excessive pass-through charges: with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs). Further, Blk 14F of the DD1547 WGL is for subcontracts... my takeaway is that there are those of us out there that do justify fee on subcontractors as not excessive. ASK- Looking for scenarios where a sub adds value to justify the Prime charging Gov't fee for a subs work. I believe you are misinterpreting the requirements of the clause. Quote Excessive pass-through charge, with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs). No or negligible value means the Contractor or subcontractor cannot demonstrate to the Contracting Officer that its effort added value to the contract or subcontract in accomplishing the work performed under the contract (including task or delivery orders). Subcontract means any contract, as defined in Federal Acquisition Regulation (FAR) 2.101, entered into by a subcontractor to furnish supplies or services for performance of the contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders. (Emphasis added.) Essentially, the clause states that when a prime contractor, or a contractor at a lower tier, awards a subcontract (or multiple subcontracts) that exceed 70% of the total cost of work to be performed, then it must justify why the awarding entity adds value -- NOT the awardee(s). In other words, the awarding entity must justify why it received its contract instead of the contract going directly to the awardee. Typically this is not a huge challenge. Quote Added value means that the Contractor performs subcontract management functions that the Contracting Officer determines are a benefit to the Government (e.g., processing orders of parts or services, maintaining inventory, reducing delivery lead times, managing multiple sources for contract requirements, coordinating deliveries, performing quality assurance functions). However, if the awarding entity cannot convince the KO that it is adding value (as defined above), then "indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs)" are unallowable. (Note I'm cutting and pasting directly from acquisition.gov. The italicized words are in the original.) Quote Link to comment Share on other sites More sharing options...
BrandonB Posted August 13, 2024 Author Report Share Posted August 13, 2024 On 8/9/2024 at 6:58 PM, Don Mansfield said: Do you think that, by definition, a charge of profit/fee on a subcontract is an excessive pass-through charge? That would be wrong. Including the cost of subcontracts in Block 14 of the DD Form 1547 when developing your prenegotiation fee objective would be correct. I would only exclude it if the prime contractor's efforts provided no or negligible value. Alternatively, leave it as is and assign a lower-than-normal value for Management/Cost Control on the form. Thanks. I went down a rabbit hole after reading that the Prime has to add value to a subcontractors work. Obviously, that's not the case. Quote Link to comment Share on other sites More sharing options...
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