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Subcontracting Issues Under GSA Schedules
Breakout Session #1203Barbara S. Kinosky, Esq., Centre Consulting, Inc.James S. Phillips, Esq., Centre Consulting, Inc.
April 7, 2009
10:30am–12:00 p.m.
Challenging Issues• Contractor teaming arrangements (CTAs) vs. Prime/Sub:
the differences and their impacts
• How to bill and be Billed as a GSA Schedule subcontractor
• New DOD Authorization Act subcontracting requirements
• Mandatory vs. non-mandatory flow downs & audit rights
• Small business subcontracting plan compliance & reporting
CTAs vs. Prime/Sub
What’s the Difference?
• CTA: All teammates are selling off their own Schedule.
• Prime/Sub: All teammates are selling off the Prime’s Schedule!
CTAs vs. Prime/Sub
What’s the Difference?
• Prime/Sub: Only the “Prime” has privity with the Gov’t customer.
• CTA: All teammates are “Primes” with “privity” to the Gov’t customer.– But one may act as “team leader” for invoicing and
management purposes of the convenience of the Gov’t.
CTAs vs. Prime/Sub
Issue #1: Who Pays/Reports IFF?
• Prime/Sub: Prime reports all sales and pays IFF.
• CTA: Presumption is that each teammate separately reports and pays IFF on their “share” of the sales.– Important to address this in the teaming agreement!
CTAs vs. Prime/Sub
Issue #2: Prime Markups
• Prime/Sub: Prime sets the mark-up on teammate work subject to price limits of Prime’s Schedule.
• CTA: Leader may bill for entire team but can never bill more than applicable teammates Schedule rate/price.– Compensation to leader needs to be addressed in teaming
agreement.
CTAs vs. Prime/Sub
Issue #3: Is a Commercial Discount Involved?
Problem: GSA considers dealings between a Sub & a Prime to be a “commercial” transaction –
If Sub bills prime below its own GSA rate it may trigger a price reduction!
Unless Prime has LOA to buy for Gov’t off Schedule
CTAs vs. Prime/Sub
Is A Commercial Discount Involved?
• Prime/Sub: Clearly a commercial transaction that could trigger a price reduction.
• CTA: Not a commercial transaction! But many Gov’t auditors get it confused.
CTAs vs. Prime/Sub
Issue #4: Small Biz Set Asides
• Prime/Sub: Prime must be small and must do >50% of work on TO or BPA.
• CTA: All teammates must be small and “team” must do >50% of the work on TO or BPA.
FY 2009 Defense Authorization Act “Clean Contracting Provisions”: Subcontracting
• Mandates FAR changes limiting use of multiple tiers of subcontractors
– Applies only to civilian agency contracts (reaction to Hurricane Katrina stories)
– FAR amendment must limit use of subcontractors that add “no or negligible value”
– FAR amendment must ensure that higher level subcontractor cannot receive indirect costs or profit for work performed by lower level subcontractor unless higher level subcontractor adds value
Section 866
New Mandatory Contractor Compliance Program and Integrity Reporting
• FAR changes applicable to contractors and subcontractors receiving awards over more than $5 million and in excess of 120 days
– Exception for commercial item contractors and small businesses
– Applicable to both domestic contracts and contracts performed entirely overseas
New Mandatory Contractor Compliance Program and Integrity Reporting
• Mandatory written codes of business ethics– Codes must be provided to employees
• Mandatory internal control systems within 90 days after contract award
• Rules became effective 12/12/08
GSA Mentor-Protégé Program
• Proposed rule would amend GSAR to establish a GSA mentor-protégé program designed to encourage GSA prime contractors to assist small businesses, small disadvantaged businesses, women-owned small business, veteran-owned small business, and HUBZone small businesses.
GSA Mentor-Protégé Program
• A large prime contractor would be eligible to serve as a mentor if it is:– Currently performing under at least one approved
subcontracting plan within the last 5 years; and– Able to provide developmental assistance that will
assist protégé.
T&M Rules & Subcontracting Under FAR 16 IDIQ Contracts
FAR 16 provides for Multiple & Confusing Solutions
Rule #1: T&M for commercial services (FAR 52.216-31) - Prime & Subs bill at Prime’s rate.
Rule #2: T&M for non-commercial services with competition (FAR 52.216-29) - Prime & Subs bill at blended rate.
Rule #3: T&M for non-commercial services without competition (FAR 52.216-30) - establish separate bill rates for Prime & each Sub.
The New T&M Rule & Subcontracting
What’s the Rule for GSA Schedules?
All Subcontractor labor that meets the qualifications of a Schedule labor category may be billed at the Schedule holders’ Schedule rate.
See FAR 52.212-4, Alt I.
GSA Prime/Sub Flowdown & Audit Issues
Mandatory Flowdowns Per FAR Part 12
• Utilization of small business concerns (FAR 52.219-8)• Equal employment opp (FAR 52.222-26)• Affirm. action for disabled Vets (FAR 52.222-36)• Affirm. action for disabled workers (FAR 52.222-36)• Preference for privately owned US flagged vessels
(FAR 52.222-41)• Service Contract Act (FAR 52.222-41)
GSA Prime/Sub Flowdown & Audit Issues
Other “Desirable” Flowdowns
• Termination rights• Changes rights• Gov’t audit rights• Buy America/Trade Agreement Act obligations
• Any requirements imposed on the Prime by the Government
GSA Prime/Sub Flowdown & Audit Issues
Special Subcontractor Audit Issues
• Products: Buy America & Trade Agreements Act compliance
• Services: Time keeping and labor qualification compliance
Small Biz Subcontracting Plans
ISSUE #1 - Compliance
• Applies to large businesses only• Plans set forth goals that contractor is to strive to
achieve in performing GSA task order awards• GSA is relatively inflexible in negotiating the “goals”.
Views requirement as an SBA mandate• Plans become a contract requirement whereby large
business must exercise & demonstrate “good faith” in pursuing socio-economic goals
Small Biz Subcontracting Plans
Compliance Response
• Annual reports of goal achievement to be submitted to GSA – individual subcontract report (i.e., the former SF 294).
• Failure to achieve goals subjects contractor to potential audit of whether it exercised “good faith” in pursuing goals.
• Be prepared to demonstrate “outreach” efforts if goals aren’t met.
Small Biz Subcontracting Plans
Issue #2 – Reporting
• Historical issue: ordering agencies want credit for subcontracting on GSA task orders.
• GSA’s position is that ordering agencies should not require subcontracting plans on GSA task orders.
• GSA claims including a subcontracting plan on a task order is an illegitimate modification to the terms of the schedule contract - double counting.
Small Biz Subcontracting Plans
Other Issues – FFATA Reporting
• FAR 52.204-10 reporting subcontract awards• Implements the Federal Funding and Accountability
Transparency Act• Contractors required to report subcontracts over $1
million to www.esrs.gov