Here's something of interest for businesses with GSA Schedule contracts. Many GSA Schedule contractors have subcontractors performing some of the work required under the contract. In some cases, these may be true contractors and in others, they take the form of Contractor Teaming Agreements (CTAs).
The GSA website states that under a CTA, each team member bills the Government based on its own GSA Schedule rates. Of course, that only works when both team members have GSA Schedule rates. If that is not the case, then the relationship must revert to a contractor/subcontractor relationship.
GSA advises that if a prime contractor/subcontractor relationship exists (rather than a CTA), the prime contractor should bill for services (i.e. labor) performed by subcontractors at the prime contractor's GSA Schedule rates, rather than at the subcontractor's rates. However, FAR 52.232-7(b)(4)(ii) (which most GSA Schedule contracts include) specifically limits the reimbursement of costs in connection with subcontracts to the amounts paid by the prime contractor. This contradiction causes uncertainty among contractors as to what rates should be used to reimburse the prime contractor for the effort of the subcontractor.
GSA Schedule contracts constitute acquisition of commercial items and are not subject to audit of contract performance. However, the inclusion of FAR 52.232-7, Payments under Time-and-Material and Labor-Hour contracts, does confer certain audit rights. Contractors with GSA Schedule contracts having a subcontract component, just might find themselves in a situation where the auditors come knocking. One of the first things the auditors will look at is the rates at which subcontractor services are being billed.
If you find yourself in this situation, we recommend that you obtain written authorization from your GSA contracting officer as to how subcontract services should be billed. An advance agreement would be even better. This will preclude later disagreements when the auditors come looking.