Subcontracting Issues Under GSA Schedules Breakout Session #1203 Barbara S. Kinosky, Esq., Centre Consulting, Inc. James S. Phillips, Esq., Centre Consulting, Inc. April 7, 2009 10:30am–12:00 p.m.

Challenging Issues Contractor teaming arrangements (CTAs) vs. Prime/Sub: the differences and their impacts How to bill and be Billed as a GSA Schedule subcontractor New DOD Authorization Act subcontracting requirements Mandatory vs. non-mandatory flow downs & audit rights Small business subcontracting plan compliance & reporting

CTAs vs. Prime/Sub What’s the Difference? CTA: All teammates are selling off their own Schedule. Prime/Sub: All teammates are selling off the Prime’s Schedule!

CTAs vs. Prime/Sub What’s the Difference? Prime/Sub: Only the “Prime” has privity with the Gov’t customer. CTA: All teammates are “Primes” with “privity” to the Gov’t customer. But one may act as “team leader” for invoicing and management purposes of the convenience of the Gov’t.

Issue #1: Who Pays/Reports IFF? CTAs vs. Prime/Sub Issue #1: Who Pays/Reports IFF? Prime/Sub: Prime reports all sales and pays IFF. CTA: Presumption is that each teammate separately reports and pays IFF on their “share” of the sales. Important to address this in the teaming agreement!

CTAs vs. Prime/Sub Issue #2: Prime Markups Prime/Sub: Prime sets the mark-up on teammate work subject to price limits of Prime’s Schedule. CTA: Leader may bill for entire team but can never bill more than applicable teammates Schedule rate/price. Compensation to leader needs to be addressed in teaming agreement.

Issue #3: Is a Commercial Discount Involved? CTAs vs. Prime/Sub Issue #3: Is a Commercial Discount Involved? Problem: GSA considers dealings between a Sub & a Prime to be a “commercial” transaction – If Sub bills prime below its own GSA rate it may trigger a price reduction! Unless Prime has LOA to buy for Gov’t off Schedule

Is A Commercial Discount Involved? CTAs vs. Prime/Sub Is A Commercial Discount Involved? Prime/Sub: Clearly a commercial transaction that could trigger a price reduction. CTA: Not a commercial transaction! But many Gov’t auditors get it confused.

Issue #4: Small Biz Set Asides CTAs vs. Prime/Sub Issue #4: Small Biz Set Asides Prime/Sub: Prime must be small and must do >50% of work on TO or BPA. CTA: All teammates must be small and “team” must do >50% of the work on TO or BPA.

FY 2009 DOD Authorization Act Provisions Applicable to Subcontractors

FY 2009 Defense Authorization Act “Clean Contracting Provisions”: Subcontracting Mandates FAR changes limiting use of multiple tiers of subcontractors Applies only to civilian agency contracts (reaction to Hurricane Katrina stories) FAR amendment must limit use of subcontractors that add “no or negligible value” FAR amendment must ensure that higher level subcontractor cannot receive indirect costs or profit for work performed by lower level subcontractor unless higher level subcontractor adds value Section 866

Significant Changes in the FAR Regarding Subcontracting

New Mandatory Contractor Compliance Program and Integrity Reporting FAR changes applicable to contractors and subcontractors receiving awards over more than $5 million and in excess of 120 days Exception for commercial item contractors and small businesses Applicable to both domestic contracts and contracts performed entirely overseas

New Mandatory Contractor Compliance Program and Integrity Reporting Mandatory written codes of business ethics Codes must be provided to employees Mandatory internal control systems within 90 days after contract award Rules became effective 12/12/08

GSA Mentor-Protégé Program

GSA Mentor-Protégé Program Proposed rule would amend GSAR to establish a GSA mentor-protégé program designed to encourage GSA prime contractors to assist small businesses, small disadvantaged businesses, women-owned small business, veteran-owned small business, and HUBZone small businesses.

GSA Mentor-Protégé Program A large prime contractor would be eligible to serve as a mentor if it is: Currently performing under at least one approved subcontracting plan within the last 5 years; and Able to provide developmental assistance that will assist protégé.

T&M Rules & Subcontracting Under FAR 16 IDIQ Contracts FAR 16 provides for Multiple & Confusing Solutions Rule #1: T&M for commercial services (FAR 52.216-31) - Prime & Subs bill at Prime’s rate. Rule #2: T&M for non-commercial services with competition (FAR 52.216-29) - Prime & Subs bill at blended rate. Rule #3: T&M for non-commercial services without competition (FAR 52.216-30) - establish separate bill rates for Prime & each Sub.

The New T&M Rule & Subcontracting What’s the Rule for GSA Schedules? All Subcontractor labor that meets the qualifications of a Schedule labor category may be billed at the Schedule holders’ Schedule rate. See FAR 52.212-4, Alt I.

GSA Prime/Sub Flowdown & Audit Issues Mandatory Flowdowns Per FAR Part 12 Utilization of small business concerns (FAR 52.219-8) Equal employment opp (FAR 52.222-26) Affirm. action for disabled Vets (FAR 52.222-36) Affirm. action for disabled workers (FAR 52.222-36) Preference for privately owned US flagged vessels (FAR 52.222-41) Service Contract Act (FAR 52.222-41)

GSA Prime/Sub Flowdown & Audit Issues Other “Desirable” Flowdowns Termination rights Changes rights Gov’t audit rights Buy America/Trade Agreement Act obligations Any requirements imposed on the Prime by the Government

GSA Prime/Sub Flowdown & Audit Issues Special Subcontractor Audit Issues Products: Buy America & Trade Agreements Act compliance Services: Time keeping and labor qualification compliance

Small Biz Subcontracting Plans ISSUE #1 - Compliance Applies to large businesses only Plans set forth goals that contractor is to strive to achieve in performing GSA task order awards GSA is relatively inflexible in negotiating the “goals”. Views requirement as an SBA mandate Plans become a contract requirement whereby large business must exercise & demonstrate “good faith” in pursuing socio-economic goals

Small Biz Subcontracting Plans Compliance Response Annual reports of goal achievement to be submitted to GSA – individual subcontract report (i.e., the former SF 294). Failure to achieve goals subjects contractor to potential audit of whether it exercised “good faith” in pursuing goals. Be prepared to demonstrate “outreach” efforts if goals aren’t met.

Small Biz Subcontracting Plans Issue #2 – Reporting Historical issue: ordering agencies want credit for subcontracting on GSA task orders. GSA’s position is that ordering agencies should not require subcontracting plans on GSA task orders. GSA claims including a subcontracting plan on a task order is an illegitimate modification to the terms of the schedule contract - double counting.

Small Biz Subcontracting Plans Other Issues – FFATA Reporting FAR 52.204-10 reporting subcontract awards Implements the Federal Funding and Accountability Transparency Act Contractors required to report subcontracts over $1 million to www.esrs.gov

Subcontracting Issues Under GSA Schedules Questions?

Subcontracting Issues Under GSA Schedules Thank You! bkinosky@centreconsult.com jphillips@centreconsult.com