Monday, December 20, 2010

Government's Consent to Subcontract

There is a procedure found in FAR Part 44 that applies to Government contractors who wish to subcontract some of its contracted effort. The procedure kicks in when a contractor does not have an approved Purchasing System although contractors with approved purchasing systems are not entirely off the hook if a contracting officer decides to specifically invoke the requirements because of he/she feels it is necessary to protect the Government's interest because of contract type, complexity, value, or because the subcontract needs special surveillance. DCMA (Defense Contract Management Agency) is the organization responsible for reviewing and approving a contractor's purchasing system. Without an approved purchasing system, contractors are required to submit substantial amounts of paperwork for contracting officer review, consideration, and approval.

If the contractor does not have an approved purchasing system, consent to subcontract is required for cost-reimbursement, time-and-materials, labor-hour, or letter contracts, and also for unpriced actions under fixed price contract greater than $100 thousand or five percent of the total estimated cost of the contract. That's a pretty low threshold. The data required to be submitted to support the "consent" request includes:
  • A description of the supplies or services to be subcontracted
  • Identification of the type of subcontract to be used
  • Identification of the proposed subcontractor
  • The proposed subcontract price
  • The subcontractor’s current, complete, and accurate cost or pricing data and Certificate of Current Cost or Pricing Data if required by contract provisions.
  • The subcontractor’s Disclosure Statement or Certificate relating to Cost Accounting Standards when such data are required by other provisions of this contract.
  • A negotiation memorandum reflecting -
    • The principal elements of the subcontract price negotiations;
    • The most significant considerations controlling establishment of initial or revised prices;
    • The reason certified cost or pricing data were or were not required;
    • The extent, if any, to which the Contractor did not rely on the subcontractor’s certified cost or pricing data in determining the price objective and in negotiating the final price;
    • The extent to which it was recognized in the negotiation that the subcontractor’s certified cost or pricing data were not accurate, complete, or current; the action taken by the Contractor and the subcontractor; and the effect of any such defective data on the total price negotiated;
    • The reasons for any significant difference between the Contractor’s price objective and the price negotiated; and
    • A complete explanation of the incentive fee or profit plan when incentives are used. The explanation shall identify each critical performance element, management decisions used to quantify each incentive element, reasons for the incentives, and a summary of all trade-off possibilities considered.
Tomorrow we will continue our discussion on "Consent to Subcontract" by explaining what the contracting officer does with this information, once received.

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