Monday, December 30, 2013

Subcontract Administration - Part 2 - Consent to Subcontract

The level of Government oversight on contractors' subcontracting practices is highly dependent upon the adequacy of contractors' purchasing systems. Most Government contracts include FAR Clause 52.244-2, Subcontracts. The requirements under this clause depends upon (i) whether the contractor has an approved purchasing system and (ii) the type of contract involved. An approved purchasing system is one that has been reviewed and approved in accordance with FAR Part 44 (FAR Part 44 is a subject for another day but to see what is required to have an approved purchasing system, go here). Consent to subcontract means the Contracting Officer's written consent for the Contractor to enter into a particular subcontract.

If a contractor does not have an approved purchasing system, the contractor must obtain a consent to subcontract from the contracting officer prior to awarding a subcontract under a contract that is cost-reimbursable, time-and-materials, or labor-hour. Additionally, consent to subcontract is required for fixed-price contracts that are greater than the simplified acquisition threshold (currently $150 thousand) or five percent of the estimated contract cost.

If a contractor has an approved purchasing system, the Government reserves the right to require a "consent to subcontract". These are usually and specifically spelled out in the contract, and, in our experience, a somewhat rare occurrence.

Contractors must provide a minimum level of information when applying for a consent to subcontract. Among the data required are the following:
  • 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 (when required).
  • The subcontractor's Disclosure Statement or Certificate relating to Cost Accounting Standards (when required)
  • 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 cost or pricing data were or were not required
    • The extent, if any, to which the contractor did not rely on the subcontractor's 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 cost or pricing data were not accurate, complete, or current, the action taken by the contractor
    • 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.

It is important to note that consent does not mean constitute a determination that subcontract costs are allowable, that all the subcontract terms and conditions are acceptable nor that the contractor is relieved from any responsibilities under the contract.

Finally, contractors should build into their processes, sufficient time for the Government to review the "consent" file. The time required by the Government varies considerably and is somewhat dependent upon the complexity and value of the subcontract. At a minimum, allow 30 days but to be safe, allow 60 days.

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