FAR Part 44: Subcontracting Policies & Procedures February 5, 2012

SCOPE Consent, advance notification (N/A to prime contracts for commercial purchases under Part 12) Review, approval of contractor’s purchasing system Definitions: Contractor: total organization including separate affiliate, division, or plant Contractor purchasing system review (CPSR) – eval of system to purchase material & services, including subcontracting process and its management Subcontract – any contract to furnish supplies or services to Prime or sub, including POs and mods

Consent to Subcontracts For approved purchasing system, consent required for: Subs specifically identified by CO [protect USG due to type, complexity, value, or special surveillance needs for critical systems, components, services ] If no approved purchasing system, consent required for: CR, T&M, labor hour, letter (sub)contracts Unpriced actions under FP contracts >SAT for CR, T&M, labor hour subcontracts FP subcontracts greater of SAT or 5% of total estimated cost (DOD, NASA, USCG) FP subcontracts exceeding either SAT or 5% total estimated cost (other civilian agencies)

Advance Notification Requirements For cost reimbursement prime contracts, there is a statutory requirement to notify CO before issuing: Subcontracts under DOD, USCG, NASA funding for CPFF or FP which exceed the greater of SAT or 5% of total estimated costs (without approved purchasing system) Subcontracts with other civilian agencies for CPFF or FP which exceed either the SAT or 5% of total estimated costs (whether or not an approved purchasing system is in place)

CO Evaluation Responsibilities ACO responsible for subcontract consent, unless retained by CO Review subcontract for appropriateness for risks, consistent with policy, business judgment If subcontractor identification and evaluation during negotiations satisfactory to meet consent requirement, CO identifies subcontracts in paragraph (j) of clause If not listed, advance notification requirements still apply

CO Evaluation Considerations Must review contractor’s decisions to subcontract for: Consistency with make or buy program Equipment already available from USG; GFE to sub? Technically justified Compliant with prime for Small business, non-profit requirements (Wagner-O’Day) Technical requirements adequately flowed down Pricing: competitive, responsible, cost analysis performed Appropriate contract type, CAS followed Excluded Parties List System check

CO Consent Limitations Approval is not determination of acceptability of subcontractor’s price or allowability of costs Consent shall be denied for the following: Subcontract CR fee exceeds limitations Payment on cost plus % of cost basis CO obligated to deal with subcontractor directly Arbitration results between Prime & Sub binding on USG Repetitive/unduly protracted use of CR, T&M or LH subcontracts Consent should not be denied for containing right of indirect appeal

Contract Clauses Subcontracts CR; letter contract > SAT; FP contract > SAT if unpriced actions anticipated; T&M > SAT; LH > SAT CR for agencies other than NASA, USCG: Alt I Not required for FP A&E, other sundry services Subcontractors and Outside Associates and Consultants A&E services Competition in Subcontracting Solicitations and contracts >SAT, unless FFP awarded on basis of adequate price competition, or prices set by law, or for a T&M, LH, or AE contract

Contractors’ Purchasing System Reviews Objective: evaluate efficiency, effectiveness of spending and compliance with USG policy Requirements ACO evaluates CPSR need based on contractor past performance; volume, complexity and value of subcontracts When 12 month sales of prime, subs, mods > $25M [Excluded: FFP and competitively awarded FP with econ price adjustment and commercial sales under Part 12] After initial determination, every 3 years review whether new CPSR needed

CPSR – Extent of Review Review excludes exclusively federal subcontracts issued for FFP, competitively awarded FP or FP with econ. price adj., or for commercial items under Part 12, unless they cannot be separated out. Same requirements as for consent evaluation Elements reviewed: Market research, price competition, pricing policies, methods of obtaining data and evaluating subcontractors, review of EPLS, treatment of affiliates, small business practices, planning & management of major subcontract programs; compliance with CAS; appropriate contract type; management control system for progress payments

CPSR – Surveillance / Approval ACO – develops surveillance plan to ensure contractor effectively managing system Preaward, postaward, performance, contract completion Other operations that affect purchasing and subcontracting Contractor’s corrective actions from previous USG recommendations Grant / withhold / withdraw approval based on determination that policies, procedures efficient and protect USG interest; contractor promptly notified of determination

CPSR – Notification Approval Identifies approved sites, stated effective date System approval applicable to all Federal contracts at site(s) Waives requirement for advance notification for FP (not CR) Waives requirement for consent to FP and specified CR contracts but not if selected for special surveillance in Schedule May be withdrawn at any time by ACO Consent for certain classes of subs may be required Contractor to reply to ACO improvement requests within 15 days

CPSR – Notification Cont. Witholding / withdrawl of approval if: Major weaknesses, insufficient information for decision Deterioration of purchasing system, protect USG Recurring non-compliance Certified cost or pricing data CAS implementation (48 CFR 99 – FAR Appendix) Advance notification Small business subcontracting ACO notifies contractor in writing of deficiencies, contractor to respond within 15d with corrective actions On request, ACO may disclose subcontractor PSR status ACO reports submitted to cognizant audit office, contractor –

Subcontracts for Commercial Items & Components Limits clauses applicable to subcontractors furnishing commercial items or components per P.L Applies to all contracts and subcontracts (Part 12) at all tiers: Incorporate commercial terms/non- developmental items Not required to include any clause except those implementing law or executive orders, consistent with customary commercial practice; Required flow down only of , Subcontracts for Commercial Items and Commercial Components, in subcontracts for these items