Is there any prohibition against contracting with a state agency to perform services for the Government? Is there any basis for treating the state agency other than as another contracting entity?
While research resulted in no specific prohibitions against contracting with a state agency, I cannot cite any instances where this has been done in my (or fellow instructors’) experience. The Economy Act addresses Federal agencies satisfying their requirements through other Federal agencies contracts (not contracting directly with them), but it doesn’t address Federal to state agencies.
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I would recommend that you contact the state agency directly and ask them if they have provided the service to other Federal agencies in the past and by what authority and what means. Then you should coordinate the action you take with your legal counsel.