Wednesday, July 15, 2015

Government Consent to Subcontract - Does the Requirement Serve a Useful Purpose?

It’s been some time since we last wrote about the requirement for contractors to notify contracting officers before the award of certain subcontracts and obtain their consent to subcontract. In fact, it was back in 2010 that we discussed these requirements in some detail. To read those timeless postings, see Part 1 and Part 2.

Federal Acquisition Regulation (FAR) 52.244-2, Subcontracts, requires prime contractors to provide contracting officers notification before the award of any cost-plus-fixed-fee subcontract, or certain fixed-price subcontracts. This requirement for advance notification is driven by statutory requirements in 10 U.S.C. 2306 and 41 U.S.C. 3905. FAR clause 52.244-2 also requires prime contractors to get consent to subcontract for cost reimbursement, time-and-materials, labor-hour, or letter contracts, and also for unpriced actions under fixed-price contracts that exceed the simplified acquisition threshold. 

The objective of requiring consent to subcontract, as discussed in FAR Part 44, is to evaluate the efficiency and effectiveness with which the contractor spends Government funds, and complies with Government policy when subcontracting. The Government requires a contractor to provide certain information (e.g., subcontractor’s name, type of subcontract, price, description of supply or services, etc.) reasonably in advance of placing a subcontract to ensure that the proposed subcontract is appropriate for the risks involved and consistent with current policy and sound business judgment. The information provides the Government time and a basis for granting, or withholding consent to subcontract. 

These requirements should be addressed in every contractors' purchasing system description, policies, and procedures. In fact, if they're not covered and DCMA decides to perform a CPSR (Contractor Purchasing System Review), the lack of coverage would probably be written up as a deficiency.

The consent to subcontract exercise comes at a cost however and this is another one of those areas where unique Government contracting requirements adds cost to the process. The Government estimates that each Government contractor will submit an average of three advisories/consent to subcontract per year and each of those submissions will take about two hours to prepare. We think that two hours per submission significantly understates the actual time required. Multiply that out by your hourly rate and you'll get an estimate of the cost to comply. 

The FAR Councils are now asking for public input on the efficacy of these procedures to produce the results intended when Congress passed the law. If you care to comment or wish to read more, click here.

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