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Thursday, February 22, 2018

I Don’t Think It Means What You Think It Means. Government Consent to Subcontract under Cost Type Contracts

This is the language that all Contracts Professionals cringe to see in a consent to subcontract, received from the Government: “this approval does not constitute determination of allowability of costs”.

After laboring to comply with FAR 44 in determining the needs, conducting exhaustive competition and selection of the right contractor and painstakingly documenting all the factors to present to the CO, this one little sentence tells you that all your work may be in vain, once a particularly angry auditor finds your methods not to his/her liking. 

But does this language really mean what the auditors think it means? Can the Government’s knowledge, approval and acquiescence really mean that little?

Well, not quite… This brilliantly written decision from a while ago shows you just how it is all supposed to make sense:

Husky Oil NPR Operations, Inc., IBCA 1792, 86-1 BCA ¶18,568, stating at 93,246

Although the contract provision for CO approval of subcontracts and purchase order does contain exculpatory language that such approvals do not constitute a determination of the allowability of such cost, the approval process must be taken to have some meaning. At the least, the approval process provides continual monitoring by the CO to assure that the contractor was adhering to accepted procurement practices to secure adequate competition or utilizing acceptable negotiation procedures to assure cost-effective awards. The disclosure of complete information by the contractor to the CO in order to secure the mandated approvals did assure that the CO was in the knowledgeable position to concur in the proposed award. While the approvals do not assure allowability of “such cost”, meaning the entire costs of the subcontracted tasks, the approvals must indicate a general agreement of the CO with the judgement of its CPFF contractor-manager that the award was necessary to the project, that the approach taken in subcontracting for the needed equipment, supplies or effort was acceptable, and that the costs properly expended under the subcontract would be allowed. For such judgments to be reversed by a successor CO after an auditor suggests a different approach should have been taken is an unwarranted interference with the management prerogatives of the CPFF contractor, and a lack of consistency in the Government’s obligations towards the contractor. The contemporaneous judgement of an informed CO to agree to a sole source awards, or to an award to another instead of the low bidder should be binding on the Government and successor CO’s as it is on the contractor, otherwise, the position of the Government, after audit, is that despite our agreement at the time of award, we now accept only those judgments that retrospectively applied prove to be most cost effective. This violates the basic nature of the relationship of the parties under a CPFF contract expressed in J.A. Ross & Company, ASBCA Nos.2326, et al., (Dec. 12, 1955) 6 CCF 61,801 (emphasis added)

Government knowledge. The Government obtains knowledge dealing with allowability of costs in various ways: from audit reports, disclosure statements, procurement system reviews, payment of invoices and administrative functions, like approvals of subcontracts.   It is in the contractor’s best interest to document it all with the view of proving that the Government had specific knowledge of the allowability of cost in question and it did not disagree with the proposed approach or treatment (we are not talking about expressly unallowable costs here, which Cos are not authorized to overrule).

It is not sufficient to just show that the Contractor sent something to the Government and they did not said “no”. Specific knowledge and action must be established. It is essential that you show that you relied on the Government’s knowledge, not knowing that the Government disagrees or specifically disapproves something. 

In the example of a subcontract consent pursuant to 52.244-2, the extent to which the CO is provided and examines the details of awarding a specific subcontract, determination of pricing, sole source etc. can be paramount in defending allowability for the pesky auditor or under a claim.

FAR 44.202-2 provides a road map for requesting a proper consent to subcontract and detailing the specific actions which went into determining the needs for the project, the approach taken in procurement methods, the type of awarded subcontract and price reasonableness determination.   If you follow this process, document it properly and your CO consents in writing, the documentation will go a long way to support allowability of all resulting costs (provided your subcontract is properly written and subsequently managed and enforced to protect Government’s interests).

Here are some of the details to include in your request for consent:

  • Is this subcontract needed to assist the Prime in performing the work? Was an in-house option considered?
  • General description of the services/goods being purchased and how they benefit the ongoing Prime Contract (FAR 44.202-2 (a) (3))
  • Type of Competition: Open Competition, Short List Competition, Sole Source
  • Basis for Procurement Evaluation:  Lowest Price/Technically Acceptable; Best Value Overall/Trade-Off; Sealed Bids etc.
  • Were Small Business Subcontractors considered? (not applicable if all work is performed entirely overseas) (FAR 44.202-2 (a) (4)).
  • Which Company was selected? Name, address, DUNS number (if available), Tax ID (if available)
  • Nationality of Supplier/Source of Commodity (USAID Contracts)
  • Type of Contract Selected. Is this an appropriate type of contract for risks involved and consistent with Prime Contractor procurement policy? (FAR 44.202-2 (a) (9)).
  • Environmental Considerations and Form Completed? (if applicable)
  • Was a Selection Committee convened? PCI/OCI forms on file?
  • What was the step-by-step process for evaluating the submissions, including scores, explanation of trade-off (for best value procurement) etc?
  • What was the Prime Contractor cost estimate for this procurement? 
  • Provide adequate price competition or absence explanation. For example: if only one bid was received, how was the price independently verified? (FAR 44.202-2 (a) (5)).
  • Provide adequate cost or price analysis or price comparisons and the certified cost or pricing data certification (if required). (FAR 44.202 (a) (8)).
  • Provide sound basis for selecting and determining the responsibility of the selected contractor.  What due diligence was performed?  (FAR 44.202 (a) (7)). FAR 44.202-2 (a) (12)).
  • Were all Prime Contractor Procurement Policy Forms Completed and Included in procurement File?

Tuesday, November 14, 2017

Achieving Functional Excellence in Development Programs

There are so many different resources and recommended learning programs out there that it makes one’s head spin.  The more we send our employees on uncoordinated, non-sequential and non-strategic training jaunts to check the box of “we offer training”, the more confused and, ironically, uneducated in the areas of their functional responsibility they become.  There is, after all, no greater threat to any program than people who know just enough to be dangerous.

An intelligently designed training program for your staff, especially Procurement, Contracts, Grants and Finance staff can lead to nonpareil functional excellence in the areas which represent the back bone of a solid and effective development program management.

Having been around a bit, I have now finally noodled out that a good training program consists of three main categories of training, provided online or in classroom (on regular and repetitive basis) for all existing and incoming employees:

General Mandatory Training –these would be training sessions on topics mandated by state, federal or local laws and regulations as well as those specific to the corporate status of each entity, as well US Government mandated training topics for its contractors and grantees.

Functional Mandatory Training – this would consist of basic training courses which link each person’s functional category/position/job description to the standards of excellence expected of them by the company.  For example: Understanding company’s Procurement Policy for Procurement staff, Finance SOP for finance staff etc.  This would also include continuous education courses for those who would like to progress and deepen their knowledge of their chosen functional area/field.  These should be designed with built in exams, to assess the progress and understanding of advanced topics, and linked to promotion opportunities within the chosen category.  For example:  Contracting Officer 1 with $100,000 warrant and signatory authority upon completion of Basics to Contracting Officer 2 with $1,000,000 warrant and signatory authority upon completion of Advanced and so on.

Functional and Cross Functional Elective Training - these could be almost anything designed to deepen personnel’s knowledge of their own or adjacent functional categories.  For example:  Procurement Personnel learning about Grants or Finance staff being apply to apply for Procurement Positions within the company.

As an example of a good program, addressing all three categories of training, I would like to use my Functional Excellence Training Dream Plan for Contracts & Grants staff working on USG (primarily USAID and DoS) programs:

General Mandatory (All Staff across Functional Categories)
·       Ethics and Business Conduct
·       Ethics and Business Conduct Compliance: Cross-Cultural Component (include cross cultural element for all countries of performance)
·       Business Etiquette and Professionalism
·       Cultural Diversity in Workplace
·       Overview of Company:  Core Competency, History, Past Experience, Mission, Vision, Current Strategy
·       Safety & Security in Workplace (include global component if necessary)
·       Fraud, Waste and Abuse in Overseas Programs
·       Protection Against Sexual Exploitation (PSEA)
·       Trafficking in Persons (TIP)
·       Preventing Corruption in Humanitarian Aid
·       Anti-Harassment
·       Timekeeping and Time Allocation (including use of Work Authorizations and CAS considerations)
·       Contract/Award Brief and Overview of Terms and Conditions – for projected dedicated staff specific to their contract/award

Functional Mandatory: Contracts & Grants Staff
All of the above +

·       Basic: Procurement Policy Overview and Procurement
·       Basic: Grants Overview: Grants under Assistance, Grants under Contract  
·       Basic: Subcontract and Vendor Management
·       Basic: Subgrantee Management
·       Basic: Audit Readiness for Pass Through Instruments (subcontractors, subgrantees, grants under contract etc.)
·       Basic: Procurement & Grant Fraud Awareness, Mitigation and Prevention:  Best Practices
·       Advanced: Assistance & Acquisition Instruments in Depth
·       Advanced: Procurement Methods, Best Practices and Records
·       Advanced: Grant Methods, Best Practices and Records
·       Advanced: Cost Principles in Depth
·       Advanced: Identification and Treatment of Unallowable Costs

Functional and Cross Functional Elective:  Contracts & Grants Staff

All of the above +

·       Advanced Plus: Property Management
·       Advanced Plus: USAID Project Management Cradle to Grave Basics:
Proposal-Negotiation-Implementation-Close Out-Audit
·       Advanced Plus: Effective Communication and Presentation Skills
·       Advanced Plus: Teaming Agreements
·       Advanced Plus:  Foreign Language
·       Cross: Direct & Indirect Cost Policy Overview
·       Cross: Financial Management of USG Contracts
·       Cross: Financial Management of USG Awards
·       Cross: Program Start Up and Close Out
·       Cross: Monitoring & Evaluation: Effective Design and Implementation of M&E Programs

Thursday, October 20, 2016

Indirect Rate Ceilings on CPFF contracts = #winning?

I googled “caps on indirects” before writing this and found very little in the area of any other agency but USAID. The chief reason for that is the fact that establishing indirect ceilings in cost type contracts is not widely used by any other Government procurement agency. The reason why they don’t is simple - if they desire to fix costs, they use Fixed Price or T&M type instead.

Losing money on the sure thing– how improper contract administration makes CPFF contracts a looser for contractors…

So, I love cost reimbursable contracts; what’s not to love?  You estimate the total cost based on, most of the time, a very generous scope of work and then bill the Government for all your allowable direct and indirect costs plus a profit for job well done.  Risk = 0, right?

It is what the Pretty Woman would call “a sure thing” for contractors.

And therefore the riskiest for the Government… or is it?

Thursday, September 10, 2015

Competition for Subcontractors Included as Part of Proposal

With thanks to fabulous Babylonia Aziz for the great topic.

The question of the day is:

Do you have to conduct a full and open or, even, limited competition and therefore have on file a complete procurement package IF the subcontractor or vendor is being included in your (winning) proposal?

Tuesday, June 9, 2015

Exercising Option Years under USAID Contracts

This blog post is about the rights of both, the contractor and USAID, in dealing with the Government’s right to exercise options under any particular contract.  

What is an option?

Per FAR 2.101, an option is a “unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract.”

Just because USAID requests, evaluates and includes an option in a contract, it does not mean USAID is required to exercise such option (s). All it means is that USAID can at its sole discretion purchase additional quantities of supplies or services or to extend the contract performance period.

Options offer USAID flexibility to require continued contract performance when a contractor is performing well and the services/good continue to be needed.  Although the decision to exercise is a unilateral decision, before being able to exercise an option, USAID’s CO is required to determine that the exercise of the option is “the most advantageous method of fulfilling the [USAID]’s need, price and other factors…considered.”

For example, if USAID believes it can obtain better pricing or other terms more favorable than those applicable under the option, it can elect not to exercise the option and instead conduct a new procurement. On the other hand, it can elect not to procure the items or services at all.

There are also very important restrictions that affect the contractors under this USAID’s right to exercise its option to continue with the contract.  As discussed further below, an option must be exercised strictly in accordance with its terms, as evaluated during the proposal and award stage, and,  as included in the contract, including price, terms etc. 

Any change to the terms or conditions of the option upon exercise by USAID renders the attempted exercise a counteroffer that may then be accepted or rejected by the contractor.

We will deal with services contracts as part of this blog post.

There are two standard clauses for services contracts which allow the Government: FAR 52.217-8, Option to Extend Services (NOV 1999) and FAR 52.217-9, Option to Extend the Term of the Contract. I

In addition, there is FAR 52.237-3, Continuity of Services (JAN 1991), which requires a contractor to provide phase-in training and best efforts to “effect an orderly and efficient transition to a successor. We will not be discussing this particular clause as it is rare and specific to the types of essential services, like security etc.

FAR Subpart 17.2 describes two standard service contract options: (1) the so-called -8 option, named after its standard clause, FAR 52.217-8, which provides for short term extensions of up to six months, originally intended for use when award of a new contract is delayed, and (2) the so-called -9 option, named after its clause, FAR 52.217-9, which is the common additional option periods clause, often known to USAID contractors as “Option Years”. Thus, if a contract is awarded with one base year and four one-year options, the CO would need to exercise each of the four one-year option periods by following the requirements in FAR 52.217-9.

Notice of Intent to Exercise Options

FAR 52.217-8 and 52.217-9 include blanks for the CO to fill in with the required notice period to exercise the option, and, in the case of FAR 52.217-9, the time by which the CO must give preliminary notice to the contractor of its intent to exercise the option.

Which Option to Choose?