1 Consent to Subcontract Breakout Session # D12 Name: Rita Wells Daniel Johnson Anthony Simmons Date:July 12, 2011 Time:11:15 – 12:30

2 Consent to Subcontract Topics References Definitions Consent Requirements –With Approved Purchasing System –Without Approved Purchasing System Advance Notification Requirements Contracting Officer Evaluation & Considerations Consent Limitations Designation of Specific Subcontractors Impact on Purchasing System Approval Contractor Considerations

3 Consent References Policies and Procedures FAR 44.2Consent to Subcontracts Prime Contract Clause FAR Subcontracts DefinitionsFAR Subpart 2.1Definitions Agency Supplements DFARS 244, DEARS, TAR, etc. Specific Requirements The Prime Contract “When in doubt, read the contract”

4 Definitions “Subcontract” means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders.” - FAR (a)

5 FAR 2.1 Definition of Contract “Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications.”

Subcontracts Clause (FAR ) Requirement 6 FAR Contract clauses. (a)(1) The contracting officer shall insert the clause at , Subcontracts, in solicitations and contracts when contemplating — (i) A cost-reimbursement contract; (ii) A letter contract that exceeds the simplified acquisition threshold; (iii) A fixed-price contract that exceeds the simplified acquisition threshold under which unpriced contract actions (including unpriced modifications or unpriced delivery orders) are anticipated; (iv) A time-and-materials contract that exceeds the simplified acquisition threshold; or (v) A labor-hour contract that exceeds the simplified acquisition threshold.

Alternate I of the Subcontracts Clause (FAR ) - Requirement 7 FAR (a)(2) - (2) If a cost-reimbursement contract is contemplated, for civilian agencies other than the Coast Guard and the National Aeronautics and Space Administration, the contracting officer shall use the clause with its Alternate.

Consent Requirements 8

Consent Requirement 9 If Contractor has an APPROVED Purchasing System: Consent is required for: Subcontracts specifically identified by the Contracting Officer in the Subcontracts clause in the prime contract. May also be required for individual subcontracts to protect the interest of the contract

Excerpt From FAR (d) 10 If the Contractor has an approved purchasing system, the Contractor nevertheless shall obtain the Contracting Officers written consent before placing the following subcontracts: ____________________________________

Specific Clause in Contract A 11 The Consent clause in Contract A states: "If the Contractor has an approved purchasing system, the Contractor nevertheless shall obtain the Contracting Officers written consent before placing the following subcontracts: Any subcontracts over $550, (Does not exclude commercial or fixed price contracts as defined by the FAR)"

Specific Clause in Contract B 12 The Consent clause in Contract B states: "If the Contractor has an approved purchasing system, the Contractor nevertheless shall obtain the Contracting Officers written consent before placing the following subcontracts: Any subcontracts over $100,000.”

13 Consent Requirement If Contractor Does NOT Have An Approved Purchasing System FAR Consent is required for any subcontract that is Cost-Reimbursement Time & Material Labor Hour Letter Contracts Unpriced actions (including unpriced modifications and unpriced delivery orders) under Fixed price contracts that exceed the Simplified Acquisition Threshhold (SAT) - Continued

Consent Requirement If Contractor Does NOT Have An Approved Purchasing System - Continued 14 (FAR ) Consent is required for (1) Cost-reimbursement, time and materials, labor hour subcontracts, and (2) Fixed price subcontracts that exceed: For DOD, Coast Guard & NASA Greater of the Simplified Acquisition Threshold or 5% of the total estimated cost of the contract Civilian Agencies Other than NASA Either Simplified Acquisition Threshold or 5% of the total estimated cost of the contract

Consent Threshold? 15 A DOD contractor does not have an approved purchasing system. What is the consent threshold for a contract with an estimated cost of: (1) $10,000,000 (2) $ 1,000,000

Consent Threshold 16 (1) Estimated Cost = $10,000,000. 5% of Estimated Cost = $500,000. Simplified Acquisition Threshold = $150,000. Consent Threshold = $500,000. (2) Estimated Cost = $1,000,000. 5% of Estimated Cost = $50,000. Simplified Acquisition = $150,000. Consent Threshold = $150,000. (1) Estimated Cost = $10,000,000. 5% of Estimated Cost = $500,000. Simplified Acquisition Threshold = $ 1 5 0, Consent Threshold = $500,000. (2) Estimated Cost = $1,000,000. 5% of Estimated Cost = $50,000. Simplified Acquisition Threshold = $ 1 5 0, Consent Threshold = $150,000. (1)Estimated Cost = $10,000,000. Simplified Acquisition Threshold = $150,000. 5% of Estimated Cost = $500,000. Consent Threshold = $500,000. (2) Estimated Cost = $1,000,000. Simplified Acquisition Threshold = $150,000. 5% of Estimated Cost = $50,000. Consent Threshold = $150,000.

(FAR ) Consent Requirements - More 17 Consent may be required for Subcontracts under Architect / Engineer Prime Contracts The Contracting Officer’s authorization to purchase from Government Sources (FAR Part 51) constitutes consent. Examples: FSS

Advance Notification Requirements 18

Advance Notification Requirements: DOD, Coast Guard and NASA 19 Under Cost-Reimbursement Contracts, the contractor is required by Statute (10 USC 2306) to notify the Contracting Officer as follows: For DOD, Coast Guard & NASA Unless the contractor has an approved purchasing system, advance notification is required for: any cost-plus fixed fee or any fixed price subcontract that exceeds the greater of the SAT or 5% of the total estimated cost of the contract

Advance Notification Requirements – Civilian Agencies Other Than NASA 20 Under Cost-Reimbursement Contracts, the contractor is required by Statute (10 USC 2306) to notify the Contracting Officer as follows: Civilian Agencies Other Than NASA Even if the contractor has an approved purchasing system, advance notification is required for: any cost-plus-fixed fee or any fixed price subcontract that exceeds either the Simplified Acquisition Threshold or 5% of the total estimated cost of the contract

Contracting Officer Evaluation and Considerations 21 The Administrative Contracting Officer (ACO) is responsible for consent to subcontracts ACO reviews the contractor’s notification and data to ensure that the proposed subcontract is: - Appropriate for the risks involved, and - Consistent with current policy and sound business judgment

Contracting Officer Evaluation and Considerations – continued Consistent with approved make-or-buy program, if any? 2. Is special test equipment or real property available from the government? 3. Is selection of the particular supplies, equipment, or services technically justified? 4. Compliant with prime contract requirements for Small Business subcontracting 5. Adequate price competition? Justification if not? 6. Were Subcontractors’ alternate proposals adequately assessed, if offered? 7. Is there a sound basis for determining responsibility of subcontractor? 8.Adequate cost or price analysis or price comparisons? Obtained cost or pricing data? Data other than certified cost or pricing data? -continued

Contracting Officer Evaluation and Considerations - continued Is proposed subcontract type appropriate for risks? Consistent with current policy? 10. Has adequate consideration been obtained for proposed use of government property? 11. Were prime contract technical requirements adequately translated into subcontract requirements? 12. Compliance with Cost Accounting Standards? 13. Is the proposed subcontractor in Excluded Parties List System (EPLS)?

Contracting Office Evaluation and Considerations - continued 24 Particular attention is paid if: -The prime contractor’s purchasing system or performance is inadequate. -Close relationships or owner affiliations between the prime and subcontractor that may preclude competition or result in higher prices. -Non-competitive awards, unreasonable prices, higher prices than comparables. -Cost-reimbursement, time-and-materials, labor-hour contracts.

Consent Limitations Consent limitations. (a) The contracting officer’s consent to a subcontract or approval of the contractor’s purchasing system does not constitute a determination of the acceptability of the subcontract terms or price, or of the allowability of costs, unless the consent or approval specifies otherwise.

Designation of Specific Subcontractors 26 FAR (c) Designation of specific subcontractors during contract negotiations does not in itself satisfy the requirements for advance notification or consent pursuant to the clause at However, if, in the opinion of the contracting officer, the advance notification or consent requirements were satisfied for certain subcontracts evaluated during negotiations, the contracting officer shall identify those subcontracts in paragraph (j) of the clause at

FAR Subcontracts 27 (j) Paragraphs (c) and (e) of this clause do not apply to the following subcontracts, which were evaluated during negotiations: _________________________________________ _________________________________________ _________________________________________

Impact on Contractor Purchasing System Approval Withholding or withdrawing approval. The ACO may withdraw approval at any time on the basis of a determination that there has been a deterioration of the contractor’s purchasing system or to protect the Government’s interest. Approval shall be withheld or withdrawn when there is a recurring noncompliance with requirements, including but not limited to— (1) Certified cost or pricing data (see ); (2) Implementation of cost accounting standards (see 48 CFR Chapter 99 (FAR Appendix, loose-leaf edition)); (3) Advance notification as required by the clauses prescribed in ; or (4) Small business subcontracting (see Subpart 19.7).

Summary 29 Understand the consent and advance notification requirements for the subcontracts you manage. -Requirements may vary, so check the Subcontracts clause in the Prime Contract. -If requirements are unclear, seek guidance from Contracting Officer. Process consent requests and advance notifications in a timely and complete manner. -Keep documentation in the file.