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  • Question

    Would performing more than 70% of a task order through an affiliate (as opposed to a subcontractor) be subject to limitations on excessive pass through?


    Answer

    As defined in FAR 52.215-23, excessive pass though charges arise when a contractor or subcontractor “that adds no or negligible value to a contract or subcontract” charges 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).” 

    Excessive pass through is prohibited, and the Government does not pay excessive pass through charges (
    FAR 52.215-22(b) and 52.215-23(b)), no matter how much of the work is subcontracted.  The 70% threshold you refer to above, and which appears in both the provision FAR 52.215-22 and the clause FAR 52.215-23 creates a reporting requirement for the offeror (in proposal) or contractor (pursuant to the contract) to notify the government if the amount of subcontracted work will exceed 70% of the total cost of the work under the contract, task order, or delivery order. 


    Whether this reporting requirement applies in your situation or not depends on whether your affiliate is a subcontractor or whether the affiliate is “part of” the prime.  Based on your background statement it appears that you are dealing with issues related to
    Foreign Ownership, Control, or Influence (FOCI) Affiliates.  If business entities are affiliates for FOCI issues, that would not necessarily lead to the conclusion that they are a single entity as prime contractor.  That would depend on what entity signed the contract with the government and the legal structure of that entity vis a vis any “affiliates.”   


    We of course cannot advise you on your legal situation, so we suggest we consult your legal advisor.  We also have no position or knowledge on the affect your Special Security Agreement (SSA) may have on the situation


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