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By
carol athey on Monday, March 24,
2003 - 02:05 pm:
We are a small business with several NIH prime
contracts. We use a variety of consultants (often physicians) to
provide fairly small amounts of consulting work. Sometimes these
physicians are incorporated for their consulting activities. We
also sometimes subcontract with other small businesses for
regulatory (FDA) submission support. I am trying to understand
when I must propose a "full blown" subcontract where I flow down
all the appropriate FAR clauses and when a consulting agreement
that merely lays out the scope of work and payment terms and
other basic legal obligations (no reference to the FAR) is OK. A
recent NIH Guide announcement stated that the Executive Salary
Rate Limitation did not apply to consultants but did apply to
subcontractors. when does a consultant become a subcontractor?
My NIH CO doesn't seem to know the answer to this question.
Thanks.
By
AnonYmus on Monday, March 24, 2003
- 03:03 pm:
Suggest you develop a policy that defines it for your
organization. You might consider such factors as dollar amount,
whether a certain portion of the SOW is being handed-off,
whether a negotiation regarding price and other issues is
conducted, and contract type.
In my experience, what is important is a clear policy that is
consistently applied.
By
cm on Monday, March 24, 2003 -
03:28 pm:
Subcontract" means any agreement (other than one
involving an employer-employee relationship) entered into by a
Government prime contractor or subcontractor calling for
supplies and/or services required for performance of the
contract, contract modification, or subcontract. The FAR
defionition above may help.
By
Anonymous on Monday, March 24, 2003
- 03:29 pm:
You might find your pool of consultants dries rapidly
if you have impose FAR flow down. A "consultant" accepting such
is probably pretty hard-up for work.
By
Vern Edwards on Monday, March 24,
2003 - 04:08 pm:
Carol:
If you are a government prime contractor or subcontractor and
hire a consultant to work for you, the consultant is a
subcontractor. See the definition of subcontractor in FAR §
44.101, which is as follows:
"'Subcontractor' means any supplier, distributor, vendor, or
firm that furnishes supplies or services to or for a prime
contractor or another subcontractor."
You must flow down government contract clauses to all your
subcontractors, including consultants, as required by the terms
of the prime contract or subcontract and business judgment.
By
AnonYmus on Monday, March 24, 2003
- 10:10 pm:
Actually, I disagree with Vern. (Big surprise, huh?)
Vern's FAR 44.101 definition omits a crucial distinction. In
toto, the definition reads:
""Subcontract," as used in this part, means any contract as
defined in Subpart 2.1 entered into by a subcontractor to
furnish supplies or services for performance of a prime contract
or a subcontract. It includes but is not limited to purchase
orders, and changes and modifications to purchase orders.'
Notice the phrase "as used in this part". What is the Part of
the FAR? FAR Part 44, dealing with consent to subcontract and
contractor purchasing system reviews (among other things) but
NOT dealing with flowdown of clauses, which is covered
throughout much of the rest of the FAR.
The plain reading of the definition limits its applicability to
the topics covered in FAR Part 44 and no other Part of the FAR.
If the definition had FAR-wide applicability it would be found
in the definitions of FAR Part 2.1, not in Part 44 only.
Which is a good thing, because if Government contractors lived
by Vern's restrictive and prescriptive definition, then every
time they leased an office building or called in a plumber, then
they would have to flow-down FAR clauses. Thank the Lord that is
not the case.
(Fire away Vern.)
By
Vern Edwards on Monday, March 24,
2003 - 11:35 pm:
Anonymous:
My goodness! A bolt out of the blue, a highly charged one, at
that, and apparently from someone who knows me but prefers to
remain an anonymouse. So be it! I pick up your gauntlet, masked
man! uh, er, woman?
But wait! Since you don't like my (actually, the FAR's)
definition, I insist that you furnish one of your own. (I will
not engage in a battle of wits with an unarmed person. A matter
of ethics, you know.) There are other definitions of
subcontractor in the FAR, and perhaps you want to use one of
those. (I fear, however, that they are all defective in the same
way that you found the one I chose.)
How about one of the ones in 41 CFR? The one in Black's Law
Dictionary, 7th ed.? The one in The Government Contracts
Reference Book, 2d ed.? The one in The Oxford English
Dictionary, 2d ed., Vol. XVII?
I am more than willing to let you offer us an authoritative
definition of your own in place of mine. I am sure that I will
learn from it. Seriously. I'll hold fire while you load your
weapon.
Vern
By
formerfed on Tuesday, March 25,
2003 - 07:32 am:
Until this thread, I always assumed consultants and
subcontractors were different. Now I agree with Vern that
they're not. I just wonder how often primes enter into a
consultant agreement, using the standard boilerplate three or
four page letter, and not realize the flow-down clauses also
apply? I remember looking at proposals many times and seeing
consultant agreements included that make no reference to the
FAR. These also were from the largest government contractors.
By
Anonymous on Tuesday, March 25,
2003 - 09:08 am:
This is a tough question and, IMHO, the answer is not
as easy as either Vern or Anonymous suggest.
I don't think it's as easy as Vern suggests for three reasons.
First, the NIH Guide for Grants and Contracts does in fact say
that consultants and subcontractors are to be treated
differently, thus indicating that this federal agency, which is
subject to the FAR, does not view all consulting agreements as
consituting FAR-type "subcontracts." See NIH Guide, Notice No.
NOT-OD-03-034, March 18, 2003, which says:
o The salary limitation does NOT apply to payments made to
consultants under an NIH grant or contract although, as with all
costs, those
payments must meet the test of reasonableness and be consistent
with institutional policy.
o The salary limitation provision DOES apply to
subawards/subcontracts for substantive work under an NIH grant
or contract.
This distinction appears to mirror the distinction in the DHHS
grant regs regarding the flow-down of procurement provisions to
contractors under a grant. According to those regs (45 CFR Part
74 Appendix A), flowdown is required only where the contract
cost will be direct-charged to the grant: "All contracts awarded
by a recipient, including small purchases, shall contain the
following provisions as applicable where the cost of the
contract is treated as a direct cost of an award." Perhaps the
NIH Guide Notice envisions the same distinction?
Second, the FAR defines "subcontract" as "any contract ...
entered into by a subcontractor to furnish supplies or services
FOR PERFORMANCE OF A PRIME CONTRACT OR SUBCONTRACT" (emphasis
added). In my view, an agreement with a lawn maintenance
service, or with a plumber, or even with a consultant who will
provide overall, non-contract-specific, general advice might not
be seen as a "contract ... for performance of a prime contract."
Again, this view leans heavily on the direct-indirect
distinction as reflected in the DHHS grant regs.
Third, I think Vern's position is impractical. It is simply not
realistic to expect primes and subs to flow down a plethora of
FAR/DFARS/XXXFARS clauses into every single agreement they enter
into. What do you think would happen if a contractor demanded
that the phone company agree to the four FAR clauses required to
be included in subcontracts for commercial items?
Not only do contractors struggle with this issue, the courts
have as well. There are a few cases in which courts have
addressed whether agreements under federal prime contracts were
"subcontracts" subject to certain federal requirements, or
agreements with "mere suppliers" and thus not subject to those
requirements. You can find decisions both ways. When I last
checked, the Federal Circuit had not weighed in on this
question.
On the other hand, Anonymous's position is also problematic. As
Vern notes, there are some agreements that clearly do constitute
"subcontracts" under the FAR and thus require inclusion of
certain FAR clauses. Where would Anonymous draw the line between
these agreements and those not subject to the FAR?
To me, this is an unsettled issue. I like the conceptual appeal
of the direct vs. indirect distinction, but I don't doubt that
some agencies would take a different view. As a practical
matter, I try to include at least the four clauses required for
agreements for commercial items in as many subcontracts as I
can, and try to include all required FAR clauses in all
significant, high-dollar, non-commercial subcontracts. Yes,
subjectivity and judgment are involved, but I've yet to see a
clear, practical, consistent, easy-to-apply solution to this
longstanding problem.
By
formerfed on Tuesday, March 25,
2003 - 09:45 am:
Anonymous,
The FAR and statute use "consultant" in a somewhat different way
and that may be what the NIH document refers to. The government
may hire consultants under special conditions. See 5 USC 3109
and FAR 37.104(f).
By
AnonYmus on Tuesday, March 25, 2003
- 11:03 am:
Hi Vern!
Though I may remain anonymous I trust use of the nom d'net
"AnonYmus" permits sufficient accountability.
The good news (for me) is that I don't need to supply a good
definition. See my post of 3:03 PM March 24, 2003 for my view on
the topic. My views on the topic have been consistent -- see my
posts under other threads.
Granted, many contracts between otherwise commercial entities
are, in fact, actual subcontracts that require clause
flow-downs. We know when a subcontract is such because (1) its
costs are charged directly to a Government prime (or lower tier)
contract, (2) its SOW can be directly traced to the SOW of the
benefitting Government contract, (3) it is issued within and
through the contractor's Government contract purchasing system
(as distinguished from its indirect, corporate or other
commercial purchasing systems) and (4) the contracting parties
(and cognizant Federal officials) recognize it as such.
Consultants may be subcontractors or they may not be
subcontractors. There is overlap but not necessarily so. Arguing
that they are the same thing makes redundant a number of
regulatory principles (e.g., 31.205-33) and, as others have
pointed out, directly conflict with at least some agency
procedures and definitions. Quote all the dictionary definitions
you wish; it doesn't change how the parties -- Government, prime
contractor and consultant -- view the reality of the situation
and deal with it on a daily basis.
Have a nice day!
By
AnotherAnon on Tuesday, March 25,
2003 - 11:51 am:
I agree with Anonymous of 9:08 AM that this is a tough
question. There are numerous situations where subcontracts and
consulting agreements are subject to different rules. For
example, per FAR 44.201-1(b), if a prime contractor does not
have an approved purchasing system, then "consent to subcontract
is required for cost reimbursement, time-and-materials,
labor-hour, or letter contracts." I've never heard of a CO
applying this provision to consulting agreements (let alone
leases or plumbing arrangements).
Another example: The company I work for has a DCAA-approved
NICRA which limits the amount of subcontract costs we can
include in our G&A base. We can charge G&A on all the consultant
fees we want, but not on all the subcontract costs. If
consulting agreements are just another kind of subcontract, then
why would DCAA allow such a distinction?
If I were in Carol's situation I think I'd start by using a few
common-sense tests to answer the question "When does a
consultant become a subcontractor?" For instance:
o If the individual providing the services (e.g., Dr. John
Smith) refuses to be paid with a check in his own name and
instead requires that the check be made out to his company
(e.g., Smith & Associates), then he should be hired through a
subcontract and not a consulting agreement, with all the
appropriate flowdown clauses.
o If the individual proposes to charge overhead in addition to
consulting fees, then again the hiring should be done through a
subcontract rather than a consulting agreement.
o If the arrangement is for consulting services and related
expenses only, there is no overhead, and the check is to be made
out directly to the individual providing the services, then a
simple consulting agreement is appropriate.
These tests may not be definitive, but I believe they would hold
up in practice. Besides, the only flowdown clauses I can think
of that would actually be relevant for an individual consultant
are the ones on allowable costs and the ones on rights in data.
You could include appropriate language on both those subjects in
the text of the agreement, without reference to the FAR. (If
anyone can think of others, please feel free to chime in.)
By
cm on Tuesday, March 25, 2003 -
01:22 pm:
May I suggest a simple test---how was the prime
awarded? If it involves a FAR based document that says its a
contract award then clauses flow....if it is not FAR based then
it is something else entirely....What say you?
By
formerfed on Tuesday, March 25,
2003 - 01:41 pm:
cm,
Here's a twist. I did some research to see if I can find a
conclusive answer and came across an FAA BCA decision. It's
entitled “Emerson-Sack-Warner” and the board ruled even though
there's no enforceable contractual relationship between a
contractor and a supplier, the term "subcontractor" applied
because the prime contractor and supplier were dealing with each
on a regular and continuous basis to fulfill requirements under
the contract. That decision had with excusable delays but if it
acts like a subcontractor, then that's what the court calls it.
By
AnotherAnon on Tuesday, March 25,
2003 - 02:22 pm:
cm: If the prime contract doesn't include any FAR
clauses, then of course you can't flow them down to consultants.
The question is: If it does, do you have to?
formerfed: Suppliers are included in the FAR 44.101 definition
of subcontractors, which was cited by Vern above. But are
consultants necessarily included in the definition of
"suppliers"?
By
cm on Tuesday, March 25, 2003 -
02:29 pm:
another anon I think you do and must. To be honest I
have never seen a FAR based contract that did not have clauses.
By
Vern Edwards on Tuesday, March 25,
2003 - 05:30 pm:
Good grief! I never saw so many people get so wrapped
around the axle about a simple issue.
If a consultant is hired to do any part of the work specified in
a prime contract, then the consultant is a subcontractor under
that contract. This would be true under virtually any definition
of subcontract or subcontractor that you can find. A consultant
hired to provide general advice to the prime that does not
constitute performance of any part of the contract work is not a
subcontractor.
My business name is Vernon J. Edwards, Consultant, L.L.C. I have
been hired as a "consultant" to perform a specific part of prime
contract work and have had appropriate FAR clauses flowed down
to me. I sometimes decline work over a certain dollar value
because I don't want to be bothered with certain clauses. I have
also been hired to provide advice to firms about their
contracts. Such work did not entail performance of any part of
the contract work and, therefore, did not constitute a
subcontract.
In Carol's case, it appears that her "consultants" are
consulting physicians. As such, they may be doing part of the
contract work. If so, then, Carol, flow down the appropriate
clauses.
By
joel hoffman on Tuesday, March 25,
2003 - 06:50 pm:
Vern is correct. That is the proper distinction
between a "consultant" and a "subcontractor".
Pretty simple - if the firm or individual performs any part of
the contract scope of work, it is a "subcontractor." If it
merely provides consulting advice to the Contractor, it is a
"consultant". happy sails! joel hoffman
By
dave on Wednesday, March 26, 2003 -
08:22 am:
But Vern, don't you realize we love to get wrapped
around the axle, it gets the brain juices flowing and sometimes
we find a new way to skin that acquisition cat. All in all I
agree with you and the other post that made the distinction
about direct vs indirect cost pool. Can the cost of the
consultant be passed along as a direct expense, if so, then I
would say subkr.
By
CM on Wednesday, March 26, 2003 -
10:33 am:
AMEN
By
AnonYmus on Thursday, March 27,
2003 - 10:10 am:
Vern,
I agree with your post of 3/25 5:30 PM with respect to whether
clauses flow or not. Virtually without exception, I would expect
that a consultant performing part of the contract SOW would be
treated like a subcontractor and charged as a direct expense of
the subcontract.
I would add that I have seen different contractors add in
additional distinctions within their procurement systems. For
example, one large contractor has a policy that states that no
negotiated subcontract can be awarded for an amount less than
$10,000. Anything below that value must be on a company PO with
standard Ts and Cs. (I understand that with respect to FAR Part
44 the distinction is irrelevant, but it does make a difference
to the company buyers...)
By
AnotherAnon on Thursday, March 27,
2003 - 10:38 am:
Vern,
It now appears you won't have to blast AnonYmus (as you hinted
you would do in your second 3/24 post). That means your weapon
is still loaded - and I know you're a good shot, too, so I'm
taking my life in my hands here. But the reason so many people
have gotten "wrapped around the axle" on this one is that it's
not a no-brainer. Here are three reasons why I say that:
1. If all consultants hired by prime contractors are truly
subcontractors, then their consulting agreements should require
CO consent under FAR 44.201-1(b). Yet I have never seen a CO
interpret that clause to require such consent, or a voucher
examiner disallow consultant fees for lack of it. How do you
explain that?
2. A key aspect of Carol's original question, which no one in
the consultants-are-subs camp has addressed yet, relates to the
Executive Salary Rate Limitation. The NIH Guide notice Carol
mentions states that "For FY 2003, the Consolidated
Appropriations Resolution 2003, Public Law 108-7, which includes
appropriations for the Department of Health and Human Services,
restricts the amount of direct salary of an individual under an
NIH grant or cooperative agreement... or applicable contract to
Executive Level I of the Federal Executive Pay scale." Moreover,
as Anonymous of 3/25 noted above, "The salary limitation does
NOT apply to payments made to consultants under an NIH grant or
contract" but "DOES apply to subawards/subcontracts for
substantive work under an NIH grant or contract" [emphasis in
original].
Now if the salary rate payable under a subcontract is limited by
law, and all consulting agreements under prime contracts are
subcontracts by definition, then it can't be legal to exempt
consultants from the limit, right? So what is the basis for the
above statement that "The salary limitation does NOT apply to
payments made to consultants under an NIH grant or contract"?
Here's a link to the document in question:
NOT-OD-03-034
3. An example from a different agency: On a USAID contract in
Country X, with a Geographic Code of 000 (USA), you cannot use a
subcontractor from Country Y without a waiver; this would
violate the source/origin/nationality requirements in 22 CFR
228.31. But you can still hire a consultant from Country Y, as
established by AIDAR 725.703(a): "Except [on certain
construction projects], there are no nationality restrictions on
employees or consultants of either contractors or subcontractors
providing services under an USAID-financed contract, except that
they must be citizens of a Geographic Code 935 [free world]
country, or non-U.S. citizens lawfully admitted for permanent
residence in the U.S." So again, as in the NIH example,
consultants are being exempted from a requirement universally
imposed on subcontractors. Doesn't this suggest a distinction
between the two?
I'll stop there, Vern, but I hope this is a high enough caliber
argument to merit some return fire. I will now take cover. Fire
at will.
By
Vern Edwards on Friday, March 28,
2003 - 10:39 am:
AnotherAnon:
You wrote:
"If all consultants hired by prime contractors are truly
subcontractors, then their consulting agreements should require
CO consent under FAR 44.201-1(b). Yet I have never seen a CO
interpret that clause to require such consent, or a voucher
examiner disallow consultant fees for lack of it. How do you
explain that?"
Who said that all consultants hired by prime contractors
are truly subcontractors? Not me. But even if we assume that to
be true for some particular prime contractor, it does not follow
that FAR § 44.201-1(b) requires CO consent to the subcontract.
FAR requires consent to subcontracts only if the prime contract
is cost-reimbursement, T&M, or L-H, and if the subcontract is to
be awarded under an unpriced modification of a fixed-price prime
contract in excess of $100,000; and it requires consent only if
the subcontract is cost-reimbursement, T&M, L-H, or both
fixed-price and in excess of one of the specified dollar
thresholds, which are quite high. This might explain why you
have never seen a CO require consent. Perhaps the prime
contracts or the subcontracts were fixed-price and the
subcontracts were below the dollar threshold. Another
explanation for why you have never seen a CO require consent
might be that the COs you have know were clueless about the FAR
subcontracting rules. That wouldn't surprise me. In any event,
your personal experience with COs proves nothing about what is a
subcontractor.
As to your remarks about the executive salary rate limitation
which you say applies to NIH grants and contracts, your logical
analysis, "Now if the salary rate... then it can't be legal...
," is not valid, because your conclusion does not follow from
your premises. You cannot validly concluse that consultants are
not subcontractors because they have been exempted from a rule
that is applicable to some subcontractors. An exemption makes
them privileged subcontractors with respect to that rule, but it
does not mean that they are not subcontractors.
The same logic applies to your USAID example. Again, it does not
follow that a particular class of firms working for a prime
contractor and doing contract work are not subcontractors simply
because they are exempt from a rule that is applicable to some
subcontractors. They are just privileged subcontractors with
respect to that rule.
Get some ammunition for that weapon of yours.
Vern
By
AnonYmus on Sunday, March 30, 2003
- 01:30 pm:
The power of words ...
On 3/28 at 10:39 AM Vern wrote:
"Who said that all consultants hired by prime contractors are
truly subcontractors? Not me."
On 3/24 at 4:08 PM Vern wrote:
"If you are a government prime contractor or subcontractor and
hire a consultant to work for you, the consultant is a
subcontractor."
Vern, speaking solely for myself, the reason this thread has
gone on so long is that your two statments are contradictory.
Yes, I understand that a very close reading of your 3/24 4:08 PM
post clarifies that you were speaking only of consultants hired
pursuant to a prime contract, but I bet many folks -- including
me -- took issue with your generalization without reading the
rest of the post closely enough to make out that you were
distinguishing subcontracted consultants from consultants hired
pursuant to other that a prime contract or lower tier
subcontract.
Let's chalk this one up to "lessons learned" okay?
By
Vern Edwards on Sunday, March 30,
2003 - 07:03 pm:
AnonYmus:
I'm glad you learned your lesson.
Vern
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