Sign In
  • Question

    Would this be considered Excessive Pass Through Charges? The Prime is not purchasing this material, the sub who will be performing the actual work is purchasing and bringing to the job.


    Answer

    This question can be entirely answered by interpreting the two contract clauses which should be a part of your contract. This first clause 52.215-22 - Limitations on Pass-Through Charges-Identification of Subcontract Effort, and, 52.215-23 – Limitations on Pass-Through Charges.
    52.215-22 - Limitations on Pass-Through Charges-Identification of Subcontract Effort is the first place to start as it reads below the contractor was required by the clause to exclude excessive pass-through charges from their proposal. Then it reads that the offeror is required to identify the efforts made and the costs for those efforts made by the subcontractor. You were to be informed by the contractor in their proposal of this charge. 

    Now, if the subcontractor is performing more than 70% of the total cost of work to be performed on this contract... then the indirect costs and profit/fee applicable to the work to be performed by the subcontractor(s); and, a description of the added value is also to be provided by the offeror.
    52.215-23 – Limitations on Pass-Through Charges

    Alternate I reads, "substitute the following paragraph (b) for paragraph (b) of the basic clause:
    "(b) General. The Government will not pay excessive pass-through charges. The Contracting Officer has determined that there will be no excessive pass-through charges, provided the

    Contractor performs the disclosed value-added functions."
    Essentially, as long as these clauses and the alternate I are a part of your contract the contractor is required to explain what they are doing and it will then be up to the Contracting Officer to either accept the charges and consider them to be Excessive Pass-Though and dissallow them pursuant to the Clauses provided in full text below.


    Incorporated for your review:
    52.215-22 – Limitations on Pass-Through Charges—Identification of Subcontract Effort.
    As prescribed in 15.408(n)(1), use the following provision:
    Limitations on Pass-Through Charges—Identification of Subcontract Effort (Oct 2009)
    (a) Definitions. “Added value, excessive pass-through charge, subcontract, and subcontractor,” as used in this provision, are defined in the clause of this solicitation entitled “Limitations on Pass-Through Charges” (FAR 52.215-23).
    (b) General. The offeror’s proposal shall exclude excessive pass-through charges.
    (c) Performance of work by the Contractor of a subcontractor.
    (1) The offeror shall identify in its proposal the total cost of the work to be performed by the offeror, and the total cost of the work to be performed by each subcontractor, under the contract, task order, or delivery order.
    (2) If the offeror intends to subcontract more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order, the offeror shall identify in its proposal—
    (i) The amount of the offeror’s indirect costs and profit/fee applicable to the work to be performed by the subcontractor(s); and
    (ii) A description of the added value provided by the offeror as related to the work to be performed by the subcontractor(s).
    (3) If any subcontractor proposed under the contract, task order, or delivery order intends to subcontract to a lower-tier subcontractor more than 70 percent of the total cost of work to be performed under its subcontract, the offeror shall identify in its proposal—
    (i) The amount of the subcontractor’s indirect costs and profit/fee applicable to the work to be performed by the lower-tier subcontractor(s); and
    (ii) A description of the added value provided by the subcontractor as related to the work to be performed by the lower-tier subcontractor(s).
    (End of Provision)
     

    52.215-23 – Limitations on Pass-Through Charges.
    As prescribed in 15.408(n)(2), use the following clause:
    Limitations on Pass-Through Charges (Oct 2009)
    (a) Definitions. As used in this clause--
    “Added value” means that the Contractor performs subcontract management functions that the Contracting Officer determines are a benefit to the Government (e.g., processing orders of parts or services, maintaining inventory, reducing delivery lead times, managing multiple sources for contract requirements, coordinating deliveries, performing quality assurance functions).
    “Excessive pass-through  charge,” with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs).
    “No or negligible value” means the Contractor or subcontractor cannot demonstrate to the Contracting Officer that its effort added value to the contract or subcontract in accomplishing the work performed under the contract (including task or delivery orders).
    “Subcontract” means any contract, as defined in FAR 2.101, entered into by a subcontractor to furnish supplies or services for performance of the contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders.
    “Subcontractor,” as defined in FAR 44.101, means any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime Contractor or another subcontractor.
    (b) General. The Government will not pay excessive pass-through  charges. The Contracting Officer shall determine if excessive pass-through  charges exist.
    (c) Reporting. Required reporting of performance of work by the Contractor or a subcontractor. The Contractor shall notify the Contracting Officer in writing if—
    (1) The Contractor changes the amount of subcontract effort after award such that it exceeds 70 percent of the total cost of work to be performed under the contract, task order, or delivery order. The notification shall identify the revised cost of the subcontract effort and shall include verification that the Contractor will provide added value; or
    (2) Any subcontractor changes the amount of lower-tier subcontractor effort after award such that it exceeds 70 percent of the total cost of the work to be performed under its subcontract. The notification shall identify the revised cost of the subcontract effort and shall include verification that the subcontractor will provide added value as related to the work to be performed by the lower-tier subcontractor(s).
    (d) Recovery of excessive pass-through charges. If the Contracting Officer determines that excessive pass-through charges exist;
    (1) For other than fixed-price contracts, the excessive pass-through charges are unallowable in accordance with the provisions in FAR subpart 31.2; and
    (2) For applicable DoD fixed-price contracts, as identified in 15.408(n)(2)(i)(B), the Government shall be entitled to a price reduction for the amount of  excessive pass-through  charges included in the contract price.
    (e) Access to records.
    (1) The Contracting Officer, or authorized representative, shall have the right to examine and audit all the Contractor's records (as defined at FAR 52.215-2(a)) necessary to determine whether the Contractor proposed, billed, or claimed excessive pass-through  charges.
    (2) For those subcontracts to which paragraph (f) of this clause applies, the Contracting Officer, or authorized representative, shall have the right to examine and audit all the subcontractor's records (as defined at FAR 52.215-2(a)) necessary to determine whether the subcontractor proposed, billed, or claimed  excessive pass-through  charges.
    (f) Flowdown. The Contractor shall insert the substance of this clause, including this paragraph (f), in all cost-reimbursement subcontracts under this contract that exceed the simplified acquisition threshold, except if the contract is with DoD, then insert in all cost-reimbursement subcontracts and fixed-price subcontracts, except those identified in 15.408(n)(2)(i)(B)(2), that exceed the threshold for obtaining cost or pricing data in accordance with FAR 15.403-4.
    (End of clause)
     

    Alternate I (OCT 2009). As prescribed in 15.408(n)(2)(iii), substitute the following paragraph (b) for paragraph (b) of the basic clause:
    (b) General. The Government will not pay excessive pass-through charges. The Contracting Officer has determined that there will be no excessive pass-through charges, provided the Contractor performs the disclosed value-added functions.

     

    Open full Question Details