1Subcontracting Issues Under GSA Schedules Breakout Session #1203Barbara S. Kinosky, Esq., Centre Consulting, Inc.James S. Phillips, Esq., Centre Consulting, Inc.April 7, 200910:30am–12:00 p.m.
2Challenging IssuesContractor teaming arrangements (CTAs) vs. Prime/Sub: the differences and their impactsHow to bill and be Billed as a GSA Schedule subcontractorNew DOD Authorization Act subcontracting requirementsMandatory vs. non-mandatory flow downs & audit rightsSmall business subcontracting plan compliance & reporting
3CTAs vs. Prime/Sub What’s the Difference? CTA: All teammates are selling off their own Schedule.Prime/Sub: All teammates are selling off the Prime’s Schedule!
4CTAs vs. Prime/Sub 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.
5Issue #1: Who Pays/Reports IFF? CTAs vs. Prime/SubIssue #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!
6CTAs vs. Prime/Sub 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.
7Issue #3: Is a Commercial Discount Involved? CTAs vs. Prime/SubIssue #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
8Is A Commercial Discount Involved? CTAs vs. Prime/SubIs 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.
9Issue #4: Small Biz Set Asides CTAs vs. Prime/SubIssue #4: Small Biz Set AsidesPrime/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.
10FY 2009 DOD Authorization Act Provisions Applicable to Subcontractors
11FY 2009 Defense Authorization Act “Clean Contracting Provisions”: Subcontracting Mandates FAR changes limiting use of multiple tiers of subcontractorsApplies 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 valueSection 866
12Significant Changes in the FAR Regarding Subcontracting
13New Mandatory Contractor Compliance Program and Integrity Reporting FAR changes applicable to contractors and subcontractors receiving awards over more than $5 million and in excess of 120 daysException for commercial item contractors and small businessesApplicable to both domestic contracts and contracts performed entirely overseas
14New Mandatory Contractor Compliance Program and Integrity Reporting Mandatory written codes of business ethicsCodes must be provided to employeesMandatory internal control systems within 90 days after contract awardRules became effective 12/12/08
16GSA Mentor-Protégé Program 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.
17GSA Mentor-Protégé Program 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; andAble to provide developmental assistance that will assist protégé.
18T&M Rules & Subcontracting Under FAR 16 IDIQ Contracts FAR 16 provides for Multiple & Confusing SolutionsRule #1: T&M for commercial services(FAR ) - Prime & Subs bill at Prime’s rate.Rule #2: T&M for non-commercial services with competition (FAR ) - Prime & Subs bill at blended rate.Rule #3: T&M for non-commercial services without competition (FAR ) - establish separate bill rates for Prime & each Sub.
19The New T&M Rule & Subcontracting 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 , Alt I.
20GSA Prime/Sub Flowdown & Audit Issues Mandatory Flowdowns Per FAR Part 12Utilization of small business concerns (FAR )Equal employment opp (FAR )Affirm. action for disabled Vets (FAR )Affirm. action for disabled workers (FAR )Preference for privately owned US flagged vessels (FAR )Service Contract Act (FAR )
21GSA Prime/Sub Flowdown & Audit Issues Other “Desirable” FlowdownsTermination rightsChanges rightsGov’t audit rightsBuy America/Trade Agreement Act obligationsAny requirements imposed on the Prime by the Government
22GSA Prime/Sub Flowdown & Audit Issues Special Subcontractor Audit IssuesProducts: Buy America & Trade Agreements Act complianceServices: Time keeping and labor qualification compliance
23Small Biz Subcontracting Plans ISSUE #1 - ComplianceApplies to large businesses onlyPlans set forth goals that contractor is to strive to achieve in performing GSA task order awardsGSA is relatively inflexible in negotiating the “goals”. Views requirement as an SBA mandatePlans become a contract requirement whereby large business must exercise & demonstrate “good faith” in pursuing socio-economic goals
24Small Biz Subcontracting Plans Compliance ResponseAnnual 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.
25Small Biz Subcontracting Plans Issue #2 – ReportingHistorical 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.
26Small Biz Subcontracting Plans Other Issues – FFATA ReportingFAR reporting subcontract awardsImplements the Federal Funding and Accountability Transparency ActContractors required to report subcontracts over $1 million to
27Subcontracting Issues Under GSA Schedules Questions?
28Subcontracting Issues Under GSA Schedules Thank You!