Subcontracting Issues Under GSA Schedules. Breakout Session #1203 Barbara S. Kinosky, Esq., Centre Consulting, Inc. James S. Phillips, Esq., Centre Consulting, Inc. April 7, 2009 10:30am–12:00 p.m. Challenging Issues.
Breakout Session #1203
Barbara S. Kinosky, Esq., Centre Consulting, Inc.
James S. Phillips, Esq., Centre Consulting, Inc.
April 7, 2009
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
What’s the Difference?
CTA: All teammates are selling off their own Schedule.
Prime/Sub: All teammates are selling off the Prime’s Schedule!
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.
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!
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.
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
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.
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.
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
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
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
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.
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.
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.
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.
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)
Other “Desirable” Flowdowns
Gov’t audit rights
Buy America/Trade Agreement Act obligations
Any requirements imposed on the Prime by the Government
Special Subcontractor Audit Issues
Products: Buy America & Trade Agreements Act compliance
Services: Time keeping and labor qualification compliance
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
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.
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.
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