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Wednesday, March 28, 2012

Semantics of FAR 52.244-2 – When is Consent to Subcontract required?

This issue has come up now in recent days several times, so I thought I would do some research, ask some smart people and also some friendly lawyers ( just kidding, most lawyers are smart people J) and put together some guidance as it relates specifically to USAID contracts, which contain FAR Clause 52-244-2 Subcontracts.

The said clause is normally included in cost reimbursement prime contracts or fixed price prime contracts with value above $150,000 under which unpriced actions are anticipated.

The clause basically requires that, unless your company has an approved Contractor Purchasing Review System (CPSR), a notification and consent request must be submitted to and written consent must be obtained from your Contracting Officer if you are awarding a subcontract which is

 a) cost reimbursable, time and materials or labor-hour type of any value,
              or
b) fixed price and either exceeds the simplified acquisition threshold (currently set at $150,000) or exceeds 5% of the total estimated price of the prime contract

So far, pretty straight forward.

The questions, which I am being asked again and again and which make up the reason for this post are:

1.  What constitutes a subcontract?   Is “lease” of an office space, a “subcontract” for the purpose of the consent requirement?  Is a Service Agreement for Internet Services a “subcontract”?  Is a Purchase Order for bananas, a “subcontract”?

and

2.  Does the consent requirement apply to modifications of such subcontracts for which CO’s consent has already been given?

These are the burning questions, which contract geeks like me ask themselves and lie sleepless at night wondering about…   Well, fear no more, here comes your Sleep Aid!

As my new favorite person at the Department of Justice’s fabulous team in Kabul says “let’s just eat this bear in small pieces”….

Piece Number #1 - What is a Subcontract?

FAR 52.244-2 (a) Definitions already has an answer: “Subcontract” means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders.

Aha, so subcontract = definition of contract at FAR Subpart 2.1, which is:

Contract means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements.

So, this means that any written agreement to provide service or goods is a “contract” and therefore a “subcontract” for the purpose of consent requirement.    And so, to attend to our earlier examples, that would include a “lease of office space” and “service agreement for Internet services” and  “purchase order for bananas”. 


However, remember that the consent requirement only applies to subcontracts which are:

a) cost reimbursable, time and materials or labor-hour type of any value,
     or
b) fixed price and either exceed the simplified acquisition threshold (currently set at $150,000) or exceed 5% of the total estimated price of the prime contract

therefore, unless you are buying $150,001 worth of bananas, you are good on that Purchase Order not requiring consent.  If your office lease or Internet services agreement, however, exceeds the $150,000 threshold or 5% of your estimated contract value, it does require CO’s consent under the clause.

We all agree that it is pretty burdensome both for the contractor and for COs to ask for consent to enter into office leases and Internet services agreements, therefore my practice tip of the day is to clear this with your CO in advance in your “Advance Agreement” document at the time of award and make sure you have negotiated additional exemptions for consent requirements then. 

Piece #2 – Does the consent requirement apply to modifications?

As you can see from the definition of “contract” under FAR Subpart 2.1, which equals definition of “subcontract” under the clause FAR 52-244-2, bilateral modifications, i.e. modifications signed by both parties meet the definition of “contract”, and therefore meet the definition of “subcontract” for the purpose of consent requirement. 

Therefore, the same rules apply.  If the modification:

a) cost reimbursable, time and materials or labor-hour type of any value,
    or
b) fixed price and either exceeds the simplified acquisition threshold (currently set at $150,000) or exceeds 5% of the total estimated price of the prime contract

then the consent is required and should be applied for under this clause.  The limits above for modifications are CUMULATIVE.  In other words, if your fixed price subcontract is $150,000 and you have received consent, and then you issue a change order, which makes the subcontract $160,000, the modification to document the bilateral change order is considered to be a cumulative modification of $160,000, and a new consent/notification is required.

5 comments:

  1. And as my best lawyer friend reminds me: failure to obtain consent may (and probably will) result in disallowance of the entire cost of the subcontract. Pretty harsh, the Government is very serious about this one.....

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  2. This was an amazing entry. Just wanted to say thanks for all your input. Very helpful for someone new to the industry like me. I was just wondering if you have any other sources you could recommend that are just as helpful. Thanks!

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  3. Following the definition of a contract, if the prime is a cooperative agreement (not a contract), is consent required to issue vendor agreements (services) and/or subawards (Research)?

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    Replies
    1. If the prime is a Cooperative Agreement, you are required to obtain approval from AO for all contracts for services or sub-awards regardless of value pursuant to 22CFR226.25 requirements. The approval is not required for vendor supply contracts or routine services, like internet, janitorial etc.

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  4. Hello! i tried few times to leave a comment but somehow the system is not letting me. This is my last try.
    Just want to say thank you so much for creating this blog! i cant believe i didnt find it sooner! the semantics of USAID regulations are really mind boggling. You start to read one section which always refers you to another section and its never really simplified anywhere.
    I have a follow on question on your Piece # 2
    - since we require a consent to subcontract even on modifications, do we still need to include the Negotiation Memorandum and 44.202-2 Considerations check list? this is the information provided on how we acquired the subcontractor and methods used. I figured since this is already included in the original consent, there is no need to present this again as its a modification to existing contract thats been approved already by the CO.
    Let me know your thoughts on this.

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