How To Use the NDAA Pages

Back to NDAA Contents

TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED MATTERS

Subtitle A--Acquisition Policy and Management

P. L. 112-

House Conference Report 112-705

SEC. 802. REVIEW AND JUSTIFICATION OF PASS-THROUGH CONTRACTS.

Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense, the Secretary of State, and the Administrator of the United States Agency for International Development shall issue such guidance and regulations as may be necessary to ensure that in any case in which an offeror for a contract or a task or delivery order informs the agency pursuant to section 52.215-22 of the Federal Acquisition Regulation that the offeror intends to award subcontracts for more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order, the contracting officer for the contract is required to--

(1) consider the availability of alternative contract vehicles and the feasibility of contracting directly with a subcontractor or subcontractors that will perform the bulk of the work;

(2) make a written determination that the contracting approach selected is in the best interest of the Government; and

(3) document the basis for such determination.

The Senate amendment contained a provision (sec. 822) that would prohibit the Department of Defense and other federal agencies from awarding a contract for the performance of services unless the contractor agrees that at least 50 percent of the direct labor on the contract will be performed by the contractor or by a subcontractor that is specifically identified in the contract.

The House bill contained no similar provision.

The House recedes with an amendment that would require the Secretary of Defense, the Secretary of State, and the Administrator of the United States Agency for International Development (USAID) to revise guidance applicable to contracts, task orders, and delivery orders awarded by such agencies for which the prime contractor is expected to subcontract more than 70 percent of the total cost of work to be performed and ensure that contracting officers consider alternative contracting structures and approaches and justify their decisions in writing.

The conferees note that Section 52.215-22 of the Federal Acquisition Regulation, which implements the requirements of section 866 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Public Law 110-417), requires offerors for certain contracts, task orders, and delivery orders, to notify the government in their proposals if they intend to subcontract more than 70 percent of the total cost of the work to be performed. In accordance with Defense Contract Audit Agency (DCAA) memorandum 11-PSP-003(R), DCAA is responsible for reviewing pass-through charges in connection with any such contract, task order, or delivery order to ensure that such charges are reasonable. In accordance with applicable DCAA standards, pass-through charges may be determined to be reasonable because they are in accordance with a prime contractor's established rates, even in a case where the prime contractor does little more than monitor the performance of a subcontractor. In such cases, the issue that should be addressed by contracting officials is not whether the charges are reasonable, but whether the contract structure and approach is in the best interest of the Department of Defense, the Department of State, or USAID.

The conferees direct the Comptroller General to report to the congressional defense committees not later than 2 years after the date of the enactment of this Act on the implementation of this provision by the Department of Defense, the Department of State, and USAID. The Comptroller General's review should assess existing statutes and regulations relating to pass-through contracts and pass-through charges and make any recommendations that the Comptroller General determines to be appropriate.

Senate Report 112-173

Prohibition of excessive pass-through contracts and charges in the acquisition of services (sec. 822)

The committee recommends a provision that would prohibit the Department of Defense (DOD) from awarding a contract for the performance of services (other than a firm, fixed price contract that is either competitively awarded or for commercial services) unless the contractor agrees that at least 50 percent of the direct labor on the contract will be performed by the contractor or by a subcontractor that is specifically identified in the contract.

Section 852 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364) was intended to address the problem of excessive `pass-through' charges--charges for profit and overhead from a contractor who provides little or no value added on work performed by a lower-tier contractor or subcontractor. Despite the enactment of this legislation, DOD continues to pay profit and overhead for multiple layers of contractors in cases where work is performed by lower-tier contractors and subcontractors--in some cases, because prime contractor overhead is considered `value added,' in other cases, because prime contractor overhead and profits are built directly into labor rates included in the contract.

The committee notes that section 15(o) of the Small Business Act (15 U.S.C. section 644(o)) already requires that small businesses agree to perform at least 50 percent of the work under their DOD contracts. The committee concludes that a similar standard applicable to contractors of all sizes would serve to protect DOD from paying multiple layers of contractors for profit and overhead on work performed by subcontractors.