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  • Question

    Would the proposed AE subcontractor fee fall under the application of FAR 52.215-22 and if not than what authority and points of discussion would be prudent when faced with such a issue?


    Answer

    There is not enough information in your request to provide a complete response because of the number of possible variables in the government requirement and an A&E contractors proposal. However, I will provide a few comments that may  assist you in reaching a conclusion.
     
    The prime A&E contractor is responsible for all actions of their subcontractors IAW FAR 52.236-23, Responsibility of the Architect-Engineer Contractors. Therefore, the government should expect to pay the prime contractor for some level of sub-contract management. The clause makes the prime contractor "responsible for the professional quality, technical accuracy, and the coordination of all designs...furnished by the contractor..." The responsibility would include any work performed by subcontractors. 
     
    FAR 52.215-22 Limitation on Pass-Through Charges --Identification of SubContract Effort is included in the solicitation and contract IAW FAR 15.408(n)(1) which requires that FAR 52.215-23, Limitations on Pass-Through Charges first be included in the solicitation and contract. FAR 52.215-23 is  included in the solicitation and contract IAW FAR 15.408(n)(2) which in part  requires that the estimated value of the government requirement exceed $700,000 and the contemplated contract be awarded based on other than adequate price competition. A&E contractors are selected based on technical superiority with pricing negotiated on a less than adequate price competition basis. 
     
    FAR 52.215-22 may not be the most applicable clause to your situation. FAR 52.215-22, states in paragraph (c) Performance of work by the Contractor or a subcontractor.
    (1) The offeror shall identify in its proposal the total cost of the work to  be performed by the offeror, and the totalcost 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). 
     
    FAR 52.215-23 may be more applicable to actions you will need to take with the prime contractor if you consider the 10 percent direct cost to be excessive since the clause addresses excessive pass-through charges, no or negligible value, access to records, and a determination by the contracting officer if excessive pass-through charges exist. However, both FAR 52.215-22 and FAR 52.215-23 address only the issue of "indirect costs and profit/fee" and you have indicated the proposed 10 percent subcontract management cost is a "direct" cost.
     
    Other considerations: Does the prime contractor include subcontract management costs in their overhead rate as well as a percentage in direct costs? Why is a percentage of subcontract costs the best methodology for pricing subcontract  management?  Is this a duplication of indirect and direct costs? How many tiers of subcontracting is proposed? What is the overall estimated values, complexity, and criticality of the project? How much of the total project is  being subcontracted?
     
    These and several other items must be considered when a contracting officer is making a determination of "fair and reasonable" price. In addition, in negotiating a fair and reasonable price with an A&E firm, you are negotiating with the firm the selection board was supposed to determine to be the "most qualified" firm willing to do business with the government. The "most" qualified firm is rarely the cheapest.
     

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