1. Subcontracting Issues Under GSA Schedules
Breakout Session #1203
Barbara S. Kinosky, Esq., Centre Consulting, Inc.
James S. Phillips, Esq., Centre Consulting, Inc.
April 7, 2009
10:30am–12:00 p.m.

2. Challenging Issues
Contractor teaming arrangements (CTAs) vs. Prime/Sub: the differences and their impacts
How to bill and be Billed as a GSA Schedule subcontractor
New DOD Authorization Act subcontracting requirements
Mandatory vs. non-mandatory flow downs & audit rights
Small business subcontracting plan compliance & reporting

3. CTAs 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!

4. CTAs 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.

5. Issue #1: Who Pays/Reports IFF?
CTAs vs. Prime/Sub
Issue #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!

6. CTAs 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.

7. Issue #3: Is a Commercial Discount Involved?
CTAs vs. Prime/Sub
Issue #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

8. Is A Commercial Discount Involved?
CTAs vs. Prime/Sub
Is 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.

9. Issue #4: Small Biz Set Asides
CTAs vs. Prime/Sub
Issue #4: Small Biz Set Asides
Prime/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.

10. FY 2009 DOD Authorization Act Provisions Applicable to Subcontractors

11. FY 2009 Defense Authorization Act “Clean Contracting Provisions”: Subcontracting
Mandates FAR changes limiting use of multiple tiers of subcontractors
Applies 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 value
Section 866

12. Significant Changes in the FAR Regarding Subcontracting

13. New 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 days
Exception for commercial item contractors and small businesses
Applicable to both domestic contracts and contracts performed entirely overseas

14. New Mandatory Contractor Compliance Program and Integrity Reporting
Mandatory written codes of business ethics
Codes must be provided to employees
Mandatory internal control systems within 90 days after contract award
Rules became effective 12/12/08

15. GSA Mentor-Protégé Program

16. GSA 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.

17. GSA 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; and
Able to provide developmental assistance that will assist protégé.

18. T&M Rules & Subcontracting Under FAR 16 IDIQ Contracts
FAR 16 provides for Multiple & Confusing Solutions
Rule #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.

19. The 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.

20. GSA Prime/Sub Flowdown & Audit Issues
Mandatory Flowdowns Per FAR Part 12
Utilization 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 )

21. GSA Prime/Sub Flowdown & Audit Issues
Other “Desirable” Flowdowns
Termination rights
Changes rights
Gov’t audit rights
Buy America/Trade Agreement Act obligations
Any requirements imposed on the Prime by the Government

22. GSA Prime/Sub Flowdown & Audit Issues
Special Subcontractor Audit Issues
Products: Buy America & Trade Agreements Act compliance
Services: Time keeping and labor qualification compliance

23. Small Biz Subcontracting Plans
ISSUE #1 - Compliance
Applies to large businesses only
Plans set forth goals that contractor is to strive to achieve in performing GSA task order awards
GSA is relatively inflexible in negotiating the “goals”. Views requirement as an SBA mandate
Plans become a contract requirement whereby large business must exercise & demonstrate “good faith” in pursuing socio-economic goals

24. Small Biz Subcontracting Plans
Compliance Response
Annual 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.

25. Small Biz Subcontracting Plans
Issue #2 – Reporting
Historical 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.

26. Small Biz Subcontracting Plans
Other Issues – FFATA Reporting
FAR reporting subcontract awards
Implements the Federal Funding and Accountability Transparency Act
Contractors required to report subcontracts over $1 million to

27. Subcontracting Issues Under GSA Schedules
Questions?

28. Subcontracting Issues Under GSA Schedules
Thank You!