As recap of your situation, the Government received a $2.8m proposal in response to an Office of Naval Research Broad Agency Announcement supporting the MARCORSYSCOM SBIR effort. The proposal is predicated on receiving $800k in matching funds from PEO-LS for equipment for a subcontractor.
1) Are the additional funds actually "cost matching"? If so, what FAR, DFARS, DFARS-PGI etc. references will support the award that includes cost matching? If so, how does this aggregate amount remain under the $3m ceiling for this program? And if so, how are the funds incorporated into the CLIN structure?
Response: The FAR System does not address "cost matching". The DoD Grant and Agreement Regulations contains some information on "cost matching" which may apply if you are issuing a grant rather than awarding a contract.
2) If not, what references can be used to support awarding this effort and to not include the additional $800k in the contract and the contract's CLIN structure and still get the contractor the additional $800k?
Response: If the $800k in funding is to be provided by way of your contract, it must be included at a minimum for a vehicle for payment of your contractor. It might be possible to include a special provision that references a separate contract action, perhaps directly with the subcontractor as a condition of performance or as a trigger event for initiation of action by your prime. Without further details it's hard for us to provide more definitive guidance.
3) DCAA recommended not using a cost type contract because the contractor does not have an existing certified CAS. This contractor has completed SBIR CPFF efforts previously with other DoD entities. What references will support the award of a CPFF on this SBIR in spite of DCAA's recommendation?
Response: FAR 16.301-3(a)(2) states that a cost-reimbursement contract may be used only when the contractor's accounting system is adequate for determining costs applicable to the contract or order. Further, FAR 42.302(a)(12) states that the ACO will determine the adequacy of the contractor's accounting system. The contractor's accounting system should be adequate during the entire period of contract performance. The adequacy of the contractor's accounting system and its associated internal control system, as well as contractor compliance with the Cost Accounting Standards (CAS), affect the quality and validity of the contractor data upon which the Government must rely for its management oversight of the contractor and contract performance. Acting on the advice of DCAA and perhaps DCMA if applicable, the ACO, in light of the eventual requirement to conduct incurred-cost audits, determine if the contractor's accounting system are effective to support the required audit(s).