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What is the best way to structure "pass-through" expenses like reimb. for utility costs?

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What is the best way to structure "pass-through" expenses like reimbursement for utility charges?


Let's say the agency has a mission to take care of foreclosed properties. The agency has a requirement for property management services. The agency has a bunch of foreclosed properties. The agency is trying to do a solicitation to get a contractor to take care of these properties. The KTR will have to do maintenance, mow the lawn, paint the house, etc. Spruce up the property and get it ready for sale. In doing this, the agency anticipates that the KTR will encounter "pass-through" expenses such as the following:

- Lead Based Paint stabilization

- Repair caused by Vandalism (agency will require the KTR to do this repair)

- Wood destroying organism (termites) and other damage that agency will require the KTR to repair

- Utility Charges for Occupied Properties

- Homeowner Association Dues

A colleague of mine, who is a federal contracting professional, believes that these "pass-through expenses" are the same as the "pass-through charges" referred to in FAR 15.408(n), FAR 52.215-22, Limitation on Pass-Through Charges-ID of Subcontract Effort, and FAR 52.215-23, Limitations on Pass-Through Charges. I disagree.

My colleague contends that, the agency's solicitation should be categorized as a cost-reimbursement contract type, and that these FAR clauses on "pass-through charges" must be included. I disagree.

When I read theses FAR clauses on pass-through charges, I don't see how the fact pattern I just described fits the definition of "pass-through charges" in FAR 52.215-23(a). It sounds to me that "pass-through charges" refers to a subcontractor's costs.

The situation described in the fact pattern does NOT concern costs by a subcontractor. These seem to me like DIRECT COSTS that the agency must reimburse the contractor for, just like TRAVEL COSTS. Travel Costs are often viewed as Other Direct Costs (ODCs).


Is my colleague right that these expenses are "pass-through charges" per FAR 15.408, and that this must be done as a cost-reimbursement contract type?

Can anyone suggest the best way to structure the pricing of these "pass-through expenses"?

Should the solicitation just present them as ODCs like Travel Costs?

Since they are unknowns and cannot be predicted with any accuracy, then, for fairness, would it be best for the solicitation to simply set a NTE CEILING, just like with travel costs? What do you think about the agency just figuring out an estimate for these ODCs, like X amount of dollars, and applying it equally to each proposal that is received?

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Not a government employee here; my POV is going to be biased. Here goes:

1. Your colleague is not correct. Pass-through charges are defined in the clause 52.215-22, and what you describe is not covered by the definition.

2. That being said, your notion that the contractor should pass those costs on to the government customer without normal indirect cost burdens and profit is ... naive. I mean to say, of course you can ask for offerors to propose any way you wish, but basically you're asking the contractor to propose a loss on those tasks. Is that your intention?

3. The way you describe those hypothetical tasks, you don't know WHAT they will be. They might be contractor labor, they might be subcontractor labor, they might be ODC. You just don't know. So I suggest you let the offeror propose them in the manner it intends to account for, and bill, them. Maybe draft a sample task order and see how the contractor proposes?

4.Why are you obsessed with controlling such contractor tasks? Do you think the contractor is going to obtain a windfall profit from repairing broken windows and white-washing graffiti? I suppose you can issue separate CLINS with individual funding limits, but again, why?

Hope this helps.

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