1. Subcontract Management Responsibilities

2. Subcontract Management Overview Subcontract Management Tasks by Phase
Discussion Topics
Introduction
Subcontract Management Overview
Subcontract Management Tasks by Phase
Take-Aways
Noah

3. FAR 42.202(e)(2) identifies prime contractor responsibilities
Introduction
Complexity of Federal procurements, organizational limitations, socio- economic programs and teaming agreements drive subcontracting requirements
The government relies on the prime to procure goods and services and administer the subcontractor as the government does with the prime in a normal competitive business environment
Government must rely on the prime contractor to manage subcontract effort due to the absence of a direct contractual relationship (privity) with the subcontractor
Subcontract management is a combination of administrative and oversight tasks crossing over regulatory, technical and financial requirements
FAR (e)(2) identifies prime contractor responsibilities
Noah

4. Subcontract Management Overview
Subcontract management can be defined as the management of the administration and oversight responsibilities of subcontracts
Defining and understanding roles and responsibilities of the prime and subcontractor is critical to subcontract management success and eliminates confusion
Noah

5. Subcontract Close-Out Project Cost Analysis & Reporting
Subcontract Management Phases
Pre-Award Planning
Resource Analysis
Statement of Work
Subcontract Risk Considerations
Terms and Conditions
RFP/RFQ Package
Award
Proposal Analysis
Representations & Certifications Evaluation
Key Subcontract Management Related T&Cs
Award Meeting
Post-Award
Project Set-Up
Administrative Compliance
Performance Oversight and Acceptance
Invoicing
Changes
Subcontract Close-Out
Subcontract Requirements
Performance Evaluation
Final Invoice and Payment
Project Cost Analysis & Reporting
Subcontract Level
Program Level
Resource Mix and Margin Modeling
Estimates to Complete
Billing Status
Understanding the subcontract lifecycle aids in managing the subcontract process
Specific tasks, requirements and responsibilities can be identified and assigned throughout the phases
Many of the requirements expected of the prime in managing the subcontractor are similar, if not the same, as those inherent to the government in managing the prime
Understanding what is included in the contract is critical to administering and managing the subcontract
Anne

6. Subcontract Life Cycle Phase – Pre-Award
Pre-Award Planning
Resource Analysis
Statement of Work
Subcontract Risk Considerations
Terms and Conditions
RFP/RFQ Package
Pre-Award activities center around the planning the procurement
Examples of tasks during the Pre-Award phase may include:
Identifying capability vs. capacity and the costs and the costs and benefits
Defining technical, performance and/or deliverable requirements
Identifying pricing and funding considerations
Identifying subcontract types based upon the type of work
Identifying terms and conditions to be flowed down to the subcontractor
Developing the request for proposal and required submission content, format and timing
Developing evaluation criteria
Anne

7. Subcontract Life Cycle Phase – Award
Proposal Analysis
Representations & Certifications Evaluation
Key Subcontract Management Related T&Cs
Award Meeting
Award activities center around the successful award of the subcontract
Examples of tasks within the Award phase may include:
Performing the technical and price reasonableness evaluation as part of the proposal analysis
Identifying past performance/reputation considerations
Evaluating representations & certifications
Validating debarment status
Consideration of Socio-Economic Considerations
Negotiating key subcontract related terms and conditions
Establishing awarded subcontract value and funding levels
Planning and holding the award meeting to review contract and expectations
Anne

8. Importance of Contract Clauses
The prime contract’s FAR clauses (Section I) significantly influence subcontract management
Understanding the entire contract is critical
Frequent differences between the IDIQ award and task orders
Certain clauses are explicitly required to be flowed down
Failure to comply could result in system deficiencies and non- compliance with contract terms
Optional clauses exist that the prime may wish to flow down to protect its own interest
Anne

9. Consent to Subcontract
FAR , Subcontracts, identifies the requirements for subcontracting and is included in solicitations and contracts when contemplating the following contract types -
Cost-reimbursement
Letter contracts > simplified acquisition threshold (SAT)
Fixed-price contracts > SAT when unpriced actions anticipated
Time-and-materials > SAT
Labor-hour > SAT
Consent is required when the Contractor does not have approved purchasing system
Consent may also be required as part of the contract when the Contractor has an approved purchasing system for specific subcontracts
Failure to obtain consent could lead to cost disallowance
Noah

10. Requirements to Support Consent
Thirteen minimum considerations to support consent are prescribed in FAR (a) and reflect those activities performed by the government
Is the decision to subcontract consistent with the contractor’s approved make-or- buy program, if any?
Is the subcontract for special test equipment, equipment or real property that are available from Government sources?
Is the selection of the particular supplies, equipment, or services technically justified?
Has the contractor complied with the prime contract requirements regarding small business subcontracting and nonprofit agencies ?
Was adequate price competition obtained or its absence properly justified?
Competitive sourcing utilized to the maximum extent possible
Justification and adequate cost/price analysis for sole source awards
Potential consequences could include:
Weakened negotiation position
Cost disallowance as “unreasonable” (FAR )
Noah

11. Requirements to Support Consent
Did the contractor adequately assess and dispose of subcontractors’ alternate proposals, if offered?
Does the contractor have a sound basis for selecting and determining the responsibility of the particular subcontractor?
Evaluation of price, quality, technical capabilities, and financial capabilities
Selection excludes debarred or suspended subcontractors
Maintain complete and accurate documentation of purchase history
Has the contractor performed adequate cost or price analysis or price comparisons, and obtained certified cost or pricing data and data other than certified cost or pricing data?
Maintain accurate documentation to support vendor selection and prices paid
Access to cost or pricing data is prime’s primary challenge and must request the government to audit, otherwise prime must develop a strategy to evaluate
Potential consequences could include
Withholding of consent to subcontract (may impact performance period)
Cost disallowance as “unreasonable” and weakened negotiation position
Prime could be responsible for the effect of the defective subcontract price impact on the prime contract price
Noah

12. Requirements to Support Consent
Is the proposed subcontract type appropriate for the risks involved and consistent with current policy?
Does NOT have to follow the Prime contract type
Should align with the nature of the work the subcontractor will provide
Determining the adequacy of subcontractor’s accounting system is a primary challenge
Request the government to audit, otherwise the prime must develop a strategy to evaluate
Potential consequences could include
Cost disallowance as not allocable
Cost disallowance in accordance with cost principle of FAR 31
Has adequate consideration been obtained for any proposed subcontract that will involve the use of Government-provided equipment and real property?
Has the contractor adequately and reasonably translated prime contract technical requirements into subcontract requirements?
Noah

13. Requirements to Support Consent
Does the prime contractor comply with applicable cost accounting standards for awarding the subcontract?
Prime Contractor has responsibility to administer CAS on covered subcontracts
Determine Disclosure Statement adequacy if necessary
Resolution of Cost Accounting Practice Changes and Cost Impacts when cost accounting practice changes or noncompliance has occurred
Common for subcontractors to deny prime access to accounting records
Potential consequences could include:
Cost impacts becoming the prime contractor’s responsibility
Is the proposed subcontractor in the System for Award Management Exclusions
Check SAM Exclusions upon identifying potential subcontractors and prior to award
Noah

14. Subcontract Life Cycle Phase – Post-Award
Project Set-Up
Administrative Compliance
Performance Oversight and Acceptance
Invoicing
Changes
Post-Award activities ensure obligations and deliverables of the subcontractor are being properly managed
Selected tasks of note within the Post-Award phase include:
Maintaining subcontract files from both procurement and program management perspectives
Ensuring compliance with the subcontracts administrative requirements
Reviewing and approving/rejecting subcontract deliverables
Obtaining, reviewing, and acting upon subcontractor status reports
Reviewing and approving payment on subcontractor invoices
Tracking funding levels and obtaining funding notifications
Administering subcontract administrative and technical changes
Anne

15. Subcontract Life Cycle Phase – Project Cost Analysis & Reporting
Cost analysis and reporting activities focus on the impact of subcontractor costs to overall program funding, reporting and profitability
Selected tasks of note within project cost analysis and reporting include:
Obtaining and reporting subcontractor costs at the proper levels
Incorporating subcontractor costs into program level on a timely basis
Identifying how subcontractor utilization is impacting performance, funding and contract levels; is resource mix and funding accurate
Incorporating subcontractor costs into timely EACs and ETCs
Ensuring subcontractors billed and unbilled costs are current and align to status reports
Project Cost Analysis & Reporting
Subcontract Level
Program Level
Resource Mix and Margin Modeling
Estimates to Complete
Billing Status
Anne

16. T&M contracts are subject to FAR 52.232-7
Invoicing Guidance
Payment terms should be in accordance with terms and conditions of the contract and no more favorable than offered by the government
Payments on cost-reimbursable and T&M (material component only) contracts are subject to FAR
(a)(1) The Government will make payments…in amounts determined to be allowable by the Contracting Officer in accordance with Federal Acquisition Regulation (FAR) Subpart 31.2…The Contractor may submit …in such form and reasonable detail as the representative may require, an invoice or voucher supported by a statement of the claimed allowable cost for performing this contract.
T&M contracts are subject to FAR
Direct labor hours performed at prescribed hourly rate
Direct materials, subcontracts, Other Direct Costs (ODCs), and applicable indirect costs (all subject to FAR )
Prime is responsible for ensuring costs claimed by the subcontractor are reasonable, allocable, in accordance with CAS or GAAP, in accordance with terms of the contract and Limitations in FAR 31.2
Demonstrates the importance of the subcontractors accounting system on contract type
Anne

17. Cost-Reimbursable Considerations
Invoicing Guidance
Cost-Reimbursable Considerations
Requires an adequate subcontractor accounting system
Payments to subcontractors are based on actual incurred costs and provisional indirect cost rates
Provisional billing rates may be different than forward pricing rates
Prospectively or retroactively revised to prevent substantial over or under payments
T&M Considerations
Subcontractor may be restricted invoicing indirect costs and potentially ODCs and materials depending on accounting system adequacy
Obtain time-cards and ODC support to allow for self-audit and closeout
Application of indirect rates to materials and ODCs requires incurred cost submission
Fee limits and withholding per T&Cs
Fixed fee limits on cost-plus-fixed-fee contracts as prescribed by FAR
T&M limits of 5% as prescribed in FAR
Anne

18. Incurred Cost Submission Requirements
Subcontractor required to submit incurred cost proposal if FAR is included in the subcontract
Prime should review adequacy of subcontractor incurred cost proposals and supporting data
Prime contractor should make arrangements to have subcontractor incurred cost proposal reviewed for adequacy and completeness if subcontractor does not agree to submit directly to prime
Prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request (FAR (d))
Prime should make arrangements with government or third party to determine final indirect cost rates of subcontractor
FAR requires that within 60 days after settlement of final indirect cost rates, the contractor shall update the billings on all contracts to reflect the final settled rates and update the schedule of cumulative direct and indirect costs claimed and billed
Ensure the subcontractor submits timely invoice and indirect rate adjustments to reflect the claimed or settled year-end indirect cost rates
Noah

19. Funding and Cost Monitoring
Limitation of Funds (LOF) / Limitation of Cost (LOC) clauses
Apply to cost-plus type contracts
LOF (FAR ) applies to contracts that are incrementally funded
LOC (FAR ) applies to contracts that are fully funded
Both clauses require that the contractor provide separate, written notice regarding sufficiency of funds provided
Generally 60 days before reaching 75% of funding or estimated costs
May be modified to suit individual contract needs
Should be based on a current EAC using “best guess” indirect rates
Compliance permits a contractor to stop work when funding has been expended. Noncompliance may require a contractor to continue performance without additional funding.
Noah

20. Subcontract Life Cycle – Close-Out
Subcontract Close-Out
Subcontract Requirements
Performance Evaluation
Final Invoice and Payment
Subcontract close-out activities ensure final subcontract performance and administrative requirements are satisfied and captured prior to contract close-out
Examples of tasks within the Close-Out phase may include:
Verifying completion and acceptance of SOW and all deliverables
Managing government furnished property
Obtaining waivers and releases
Finalizing indirect rates
Obtaining and paying final invoices
Completing performance evaluations
Anne

21. Contract Close Out
FAR (a)(9) provides that the Government cannot closeout a prime contract until all of the subcontracts are settled
The subcontract can be close-out by subcontract management office when it has received evidence of physical completion
Government Property is received
All interim or disallowed costs are settled
Prior year indirect cost rates are settled
Contract audit is complete
Subcontractor’s closing statement is completed
Subcontractor’s final invoice has been submitted
Cost Type Contracts
Verify agreed to direct costs and indirect rates
Anne

22. Contract Close Out
Prime contractor is responsible for closing subcontractors generally using procedures similar to the Government
FAR requires that “within 120 days (or longer period if approved in writing by the Contracting Officer) after settlement of the final annual indirect cost rates for all years of a physically complete contract, Contractor shall submit a completion invoice or voucher to reflect the settled amounts and rates.”
The completion invoice or voucher shall include settled subcontract amounts and rates
The prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request.
Anne

23. Take-Aways
The subcontract life-cycle can help guide subcontract management by defining phases, tasks, roles, and responsibilities
Subcontract management is a combination of administrative and oversight tasks and it is critical to understand what is required and who is responsible for managing regulatory, technical and financial tasks
Understand mandatory and optional flow down clauses, and ensure the subcontractor understands their responsibilities
Subcontract management is not a one-size-fits-all; consider program size, subcontract type, and complexity of the arrangement in defining responsibilities
The government lacks privity of contract with the subcontractor, as a result, mimic what the government requires of you to the subcontractor
Noah

24. Questions and Comments: Noah Leiden, CPA Partner (703) 923-8321 noah
Questions and Comments: Noah Leiden, CPA Partner (703) Anne Coviello, CPA Manager (703) Connect with us: bakertilly.com/governmentcontractors