By AnonYmus on Tuesday, October 01, 2002 - 06:09 pm:

Here's my two centavos --

1. The value of the contract is the value of the contract. It doesn't matter whether the contract supports only one prime or a dozen.

2. Arguably, this is a commercial contract not a Government contract. That is, the shipbuilder buys parts into its inventory under the contract and then relieves inventory at a price by charging the appropriate Government contract.

3. On the other hand, if the shipbuilder has treated this like a subcontract under its prime contract(s), then somebody had better be worrying about flow-down clauses. However, based on your description, I think the scenario in #2 is likely what is going on.

By Ron Vogt on Tuesday, October 01, 2002 - 07:55 pm:

The fact that the prime is buying these parts for inventory does not make this a commercial contract, nor does the shipbuilder's treatment of it determine whether it is a commercial or government contract. If the parts are being bought to fill requirements under a government contract, then this is a government subcontract and the flowdowns and anything else that applies to government subcontracts will apply.

It might be a "commercial item" subcontract, in which case CAS, TINA, and many other requirements become irrelevant, and you don't have to worry about the threshholds. If the parts do not meet the definition of commercial items, then you are stuck with a full-blown government subcontract.

As for how to figure the CAS and other threshholds if the subcontract and POs cover all four primes, I'll defer to the experts. The rest is the usual flowdown exercise. However, if the subcontract and POs have already been issued, it would seem to be a little late. The prime seems to be stuck with a difficult "should have" problem.

By AnonYmus on Wednesday, October 02, 2002 - 08:39 am:

Ron,

First of all, neither you nor I have all the facts to be certain as to how to classify the contract in question. However, I felt comfortable enough with the facts to advance a theory about how the contract might be classified.

That being said, I absolutely disagree with your statement that

"The fact that the prime is buying these parts for inventory does not make this a commercial contract, nor does the shipbuilder's treatment of it determine whether it is a commercial or government contract. If the parts are being bought to fill requirements under a government contract, then this is a government subcontract and the flowdowns and anything else that applies to government subcontracts will apply. "

I may have a requirement to communicate with my Government customer via the telephone. That does not make my contract with AT&T a government contract. I may have to travel (and charge travel costs directly to the contract) but that does not make my contract with the travel agency a government contract.

I do agree that if parts are being purchased to MIL-STD requirements or pursuant to a subK under a prime, then it is a Government (sub)contract. BUT absent a formal procurement made under a prime or subK, contractors can fulfill their contractual requirements through a variety of means ... including commercial contracts.

Many contractors do enter into commercial requirements contracts. This situation is sometimes called "strategic sourcing" and, I believe, GAO has called for DoD to emulate such practices.

Anyway, maybe our original Anonymous will come back with more facts to help us help him/her.

By Anonymous on Wednesday, October 02, 2002 - 09:19 am:

I am the original Anonymous with some more information. Both of the parties (the prime and the sub) realize that the parts will be used only on military ships, that the parts will be incorporated into ships that the prime is building under four DoD prime contracts, and that the subcontract, or subcontracts, once they are identified and defined, will be subject to certain FAR and DFARS requirements. In fact, the underlying requirements contract itself contains a long list of FAR/DFARS clauses that are incorporated into the contract "as applicable" (i.e., the list includes FFP clauses, T&M clauses, cost-type clauses, and every type of clause under the sun to account for the fact that different orders placed under the contract can be of different types).

The problem is to define the "subcontract(s)." Is there only one subcontract: the five-year requirements contract itself? If so, the value is large enough to trigger some important provisions, including full CAS coverage. Or are there four subcontracts: the four "segments" of the requirements contract dealing with the prime contractor's four different prime contracts? Or are there 100+ subcontracts: each purchase order issued under the requirements contract? Or are there 400+ subcontracts: each "segment" of each purchase order dealing with a distinct prime contract?

It seems to me like one of the first two alternatives is probably the right one, but I can't seem to find any guidance on this point. And I don't think the answer is to have the prime and sub sit down and reach an understanding, because it is the govt's (e.g., DCAA's) position that matters and for a variety of reasons neither party has any desire to ask the govt to sort this out.

Thanks.

By AnonYmus on Wednesday, October 02, 2002 - 10:59 am:

Thanks for the update. I'm going to hold with my initial point that the value of the contract is the value of the contract.

CAS defines contract value as the value of the contract, all options exercised. (Cite: Promulgation comments of the new CAS Board, available at 48 CFR 99.)

Good luck

By Kennedy How on Wednesday, October 02, 2002 - 11:55 am:

I think I've gone through this before, but it was so long ago (and I was only peripherally involved), I can't remember the details. But, my gut reaction is that there is only one subcontract; and it supports a multitude of prime contracts.

I had a manufacturer of primarily aluminum hulled vehicles. That company had a subcontract with a big aluminum mill to supply it with whatever raw materials is needed. They'd issue orders for materials to build the various vehicles under separate DoD contracts. But, it was just a single subcontract, with all the usual flowdown clauses.

Kennedy

By Anon on Wednesday, October 02, 2002 - 01:44 pm:

It's been so long since I've been involved with CAS, what are the implications if you include CAS clauses in the subcontract and get the required cert (52.230-1) if CAS kicks in for a specific contract?

I feel really dumb asking the question.

By Ron Vogt on Wednesday, October 02, 2002 - 08:59 pm:

AnonYmus,

I had enough facts and I stand by my statements. I think you are falling for a semantics debate over whether a subcontract issued under a government prime contract is a commercial subcontract or a government subcontract.

Those on the "commercial" side say it is a commercial subcontract because the government is not a party, the parties are two commercial firms, and the ASBCA and claims court are not available to them in the event of a dispute between them. Those on the "government" side say that it is a government subcontract because it is a subcontract under a government prime and TINA, CAS, and various flowdowns may apply to it.

I don't care what you call it, the plain fact is that if a prime orders parts in support of a government contract, those are subcontracts that are subject to various government requirements, depending on the type and size of the subcontract. Those facts were clear in the original question (Contracts A, B, C and D were all to DoD). Therefore, any subcontract issued for supplies in support of these prime contracts are government subcontracts. Read the definition in Part 44: "Subcontract...means any contract...entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract."

There have been earlier debates in this forum as to whether utility services and other ancillary services meet this definition, since they support a prime's performance on a prime contract, but there should be no debate over the scenario presented in the original question. You can't "launder" the government requirements by holding the items in inventory before you sell them to the government, when you bought them specifically for those prime contracts.

The important issue here is how you figure out CAS threshholds when one subcontract supports four primes.

By AnonYmus on Thursday, October 03, 2002 - 02:55 pm:

Ron,

You misunderstand. Please re-read my 10/02 10:59 am post about what I'm staying with. Thanks.

For calculating CAS coverage thresholds, the value of the contract is the value of the contract, regardless of how many primes are supported.

I believe we are dealing with a single procurement to put a requirements contract into place. Each order likely should be treated as a modification to the original action. Given my assumptions (which may be wrong but, based on the original scenario, seem to be reasonable), the contract value to be used for CAS purposes is the value of the ORIGINAL procurement, not the modifications.

In the original CAS pronouncements, authorized funding was used to determine CAS status. The new OFPP CAS Board changed that. See 48 CFR 99.

'Nuff said.

By Ron Vogt on Thursday, October 03, 2002 - 04:53 pm:

AnonYmus,

Which line did I misunderstand?
"Arguably, this is a commercial contract not a Government contract."
"if the shipbuilder has treated this like a subcontract under its prime contract(s), then somebody had better be worrying about flow-down clauses"

In the first, you say it could be a commercial contract, not government. In the second you imply that how a prime "treats" the subcontract will determine whether government requirements will apply. Both statements are wrong.

What did I misunderstand? Although this issue is off-topic from the original question, it is nonetheless important. I have run across many people, both government and contractor, who do not understand the prime-sub relationship. I just finished teaching a class to a business unit because I found out that some of them thought all subcontracts were commercial and the FAR didn't apply at all, because the contract was between two commercial entities. That's why warning flags went up when I read your statements.

When people read this forum for guidance, it doesn't help them when they read that what you put in a subcontract all depends on how you "treat" that subcontract.

By AnonYmus on Thursday, October 03, 2002 - 10:48 pm:


Ron,

This is what I posted at 10:59 am on 10/02 --

"Thanks for the update. I'm going to hold with my initial point that the value of the contract is the value of the contract."

You may be correct as to the prime/subK issue. I didn't express an opinion on that issue in the post you clearly misread. While I did express an opinion on that issue in a previous post, I did not reiterate it in the post to which you posted your somewhat heated reply.

When people post opinions on this forum, it doesn't help when folks create arguments regarding things that were not said or things that are clearly taken out of context.

While you and I might legitimately disagree about whether and under what circumstances a Government contractor might enter into a general requirements contract that is exempt from FAR requirements, there's no reason to attack my more current posts based on positions I espoused in old posts. That's not only illogical, but it's also rather unfair.

You're not the only one who teaches classes and let me be clear on this for anybody else who cares --

FAR is a regulation; it is not a statute. FAR does not apply to commercial entities unless incorporated into solicitations and/or contracts as provisions/clauses.

Whether a contract between two commercial entities (one of whom is a Government contractor) is covered by FAR provisions depends on a number of factors. Some of the factors include the statement of work; quality control, delivery packaging or other requirements; and absolutely the accounting treatment of the costs.

For example, a contract whose costs are charged to indirect cost objectives, such as G&A, may not be covered by any FAR clauses whatsoever. (Although any costs subsequently allocated to Government contracts likely will have to be treated in accordance with the FAR provisions of the contracts, including such things as 52.216-7 and/or CAS.)

Are we clear?

(I'm done with this thread.)

By Vern Edwards on Friday, October 04, 2002 - 04:22 am:

Original Anonymous:

You have asked a fascinating question! I don't think you can find a definitive answer to it in the FAR.

If you have written the subcontract with two line items -- one for each prime contract -- and issue orders accordingly, then I would support an argument that the appropriate dollar value for the purposes of flowing down clause and other requirements from the prime contracts should be the estimated amount of each applicable line item.

This alternative makes more sense to me than to apply the total estimated value of the subcontract when flowing down clauses and other requirements from each prime contract. However, the thing to do would be to reach an advance agreement with the government's ACO in this regard.

By Ron Vogt on Friday, October 04, 2002 - 01:36 pm:

AnonYmus,

Thank you for that clarification. Your views on subcontract FAR coverage are...interesting.

Vern,

A logical solution to the original question.