We are a small business. We are anticipating that work may come to us from the USG for development and then production. We have two legal business entities. The smaller proposing business entity will soon have an approved accouting system and be eligible for CPFF awards. The larger production entity will remain as a FFP business. From researching the DAU site, I believe there are no restrictions on awarding a different contract type for the subcontractor than the prime contractor has. I believe that the subcontractor may only work 50% of the cost but not sure if that would still apply if same company but different legal business entities.
Question: Can the smaller entity be awared a CPFF contract for the development work with our other business entity acting like a subcontractor propose their production work as FFP? Do you see any issues that the USG would have with this business arrangement?
Generally speaking, the contract type employed between a prime contractor and subcontractor is not the immediate concern of the Government. The Government has a contractual relationship with the prime; not the sub. However, if award of the prime contract will be competitive, the source selection authority (typically the contracting officer) will likely evaluate the management approach and risk inherent in an offeror's proposal. Part of this evaluation may include consideration of the type of contract that the prime proposes for any subcontracts. While contract type between the prime contractor and subcontractor is a matter for the prime and sub to determine between themselves, it can have implications for the evaluation of the prime’s proposal to the Government.
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That being said, you need to present this question to the cognizant Government contracting officer, as he/she is the one who will ultimately sit in judgment of the arrangement. There may be other considerations related to the relationship between the two business entities.