Wednesday, November 4, 2015
Does my Fruit Vendor really need to acquiesce to a Trafficking in Persons Clause? Consent & Flow Down Requirements under USAID Contracts.
This post is kind of a variation on the previous topics covered by:
also Lost in Regulation™: Audit Issue: Consent to Subcontract & Overseas Allowances for Consultants.
The question is what is a “subcontract” for the purpose of consent requirements and flow down of clauses?
Illustrative line-up of potential audit spoilers on a typical USAID Cost Type contract overseas:
Food Services at compounds
Local Labor Law & Tax Advisors
Short Term Expert Consultants (individuals)
The answer, as discussed in the previous posts lies with the definitions:
FAR 52.244-2 (a) Definitions “Subcontract”, mean 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 flow downs.
The line up above (leases, consultants etc) therefore technically qualifies as contracts and hence, subcontracts.
The question of consent and flow downs however hinges upon whether or not those subcontracts provides goods or services for the PERFORMANCE of the prime contract or subcontract.
This has been debated over the last few years by all the demi-gods of Government contracting, including Vern Edwards, Professor Nash etc. The frequent calls for the FAR Councils to make things clear go unanswered given the multitude of other, more important problems with the FAR.....
The answer is more or less simple:
DIRECT CHARGED SUBCONTRACTS = REQUIRE CONSENT & FLOW DOWN
If the contract or agreement or whatever you call it to procure services or goods from organizations or individuals meet the definition of “contract” at FAR 2.101, and as discussed above, therefore meet the definition of “subcontract”, entered into by you (the contractor) in order to perform the prime contract or subcontract (the “but for” rule) AND are charged directly to such prime contract or subcontract, then the consent and flow down requirements apply.
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
If the purchase of goods or services relate to a general matter and is consistently charged to an indirect overhead pool, then the consent and flow down requirements would not follow.
MINIMIZE BURDEN OF CONSENT REQUIREMENTS
As discussed in my posts previously, in order to minimize the admin burden on the CO and you, an Advance Agreement prior to implementation should discuss a possibility of waiving the consent requirements for non-programmatic subcontracts, like leases, security and food services and other support agreements, like Tax & Legal Advice.
You will ask why would we ask the poor CO to consent to every lease if the fixed monthly price is less than $150,000? The subcontracts’ values are considered in aggregate, i.e. even though the lease is paid month to month on fixed price basis, the total lease values may reach $150,000 at some point and will therefore require consent, unless you secure a waiver in the Advance Agreement.
The same rule applies to modifications to any fixed price subcontracts by the way. If you issue a fixed price subcontract for $150,001 and get CO's consent, and then decide to modify it by $10, technically the new aggregate subcontract modification is over $150,001 (actually $150,011) and requires a new consent. Another issue to address in an Advanced Agreement if you plan to have a lot of subcontracts and do not want to spend your life sending consent letters.
Individual Consultants are paid a fixed daily rate, which is typically considered a labor hour contract, hence requires consent at any value. The Advance Agreement could address a waiver of consent for programmatic individual consultants (commonly referred under USAID contracts as STTAs – Short Term Technical Advisors) by proposing to the CO that his/her technical and rate approval, normally required under Cost Type contracts, should serve as consent. If no technical and rate approvals are required, ask for a straight waiver or propose to inform the CO on quarterly basis of all the short term consultant contracts that you enter into.
DO NOT FEAR FLOW DOWNS
The subcontracts which require flow down clauses are not as burdensome or scary as you may think. The mandatory flow down clauses are not that numerous and many of them do not apply to subcontracts performed entirely overseas or below a certain value. Make sure your Contracts department has a good matrix of clauses which should or should not be flown down to different levels of subcontractors.
Your Fruit Vendor under a Fixed Price subcontract for $150,001 worth of bananas will however require consent AND a Trafficking in Persons clause flow down......