(Editor’s Note. Whether for reduced workload or efforts to create economies and efficiencies, many contractors have and are continuing to do more with less. However, when they are not able to lease or dispose of the assets they originally acquired, contractors are often quite surprised to find the costs of the assets are being disallowed while if they did not take the actions to streamline the same costs might not be questioned. Since many contractors have or will be confronted with these issues we thought it would be a good idea to closely examine the cost principle, see how related board decisions clarify the principles, guidance auditors are asked to follow and suggest some ways to handle the costs to maximize recovery of these costs for the longest period. We have used a classic article by Frank Knapp in the discontinued Government Contract Costs, Pricing & Accounting Report (May 1993) with updates from Mathew Bender’s Accounting for Government Contracts as well as the Defense Contract Audit Agency’s Contract Audit Manual.)
Definition. FAR 31.205-17 defines “facilities” as land, plant, equipment or other tangible assets owned or leased by the contractor. “Capacity” refers to the unused capacity of partially used facilities where “unused” is the difference between what was used in an accounting period versus what a facility would use under 100 percent operating time on one shift less normal operation disruptions (e.g. set-up, repair, rework, etc.). A multiple shift basis could be substituted if it could be shown to be normal usage for the facility.
Types of cost. Before discussing questions of allowability and allocability, FAR 31.205-17 identifies the type of cost attributable to idle facilities or capacity as rent, depreciation, repair, maintenance, property taxes and insurance costs. In General Dynamics (ASBCA 19607), other costs under appropriate circumstances can qualify such as salaries, wages, fringe benefits of maintenance and security personnel as well as travel and communication expenses related to managing activities associated with idle facilities.
Allowability. Costs that arise from idle facilities are unallowable unless they meet one of the following criteria:
The facilities were necessary when acquired but are now idle because of changes that could not be forseen (because, for example, of unforseen changes in government requirements, production economics, reorganization or terminations).
The facilities are necessary to meet workload fluctuations.
If these conditions are met the costs of idle facilities are not allowable indefinitely but only for a reasonable time – usually one year – depending on the actions taken to avoid them. We will look at a few of these considerations in more detail.
“Necessary When Acquired.” The Appeals Boards have interpreted “necessary” as a “reasonable expenditure” which is appropriate for conducting business (Boeing Co. ASBCA 13625). Thus allowability hinges on whether the contractor can demonstrate it made a reasonable business decision at the time the facility was bought or leased. Board decisions have ruled that the business decisions may be based on (1) anticipated increases in business (Vare Industries, ASBCA 12126) (2) need to expand facilities to produce at a rate to provide economies of scate to compete in a particular market (Raytheon ASBCA 32419) and (3) the unique characteristics of a product preclude use of its other facilities (Aerojet-General, ASBCA 15703). However, another case – Hercules Inc., ASBCA 18382 – ruled that the costs of idle facilities were unallowable when they were not needed when obtained (they were acquired to enter a new market but the new business could have been handled by existing facilities) and hence the new facilities were considered a calculated business risk the contractor chose to take rather than a necessary action.
Length of Time. After determining the costs were necessary, how long the costs are to be allowed must be addressed. This is the most contentious issue we encounter. FAR 31.205-17(b)(2) suggest the period “generally” should not exceed one year. As a practical matter, when left to its own judgment, DCAA interprets the one year as a maximum period while Board Decisions offer opportunities to go beyond one year. For example, in General Dynamics, the Board ruled a showing of “diligent or reasonable efforts” to dispose of facilities “permits recovery of costs for a longer period.” The Board went further recognizing that diligent efforts to mitigate the costs may be unsuccessful for several years resulting in extending the period of allowability. The board has not decided what constitutes “reasonable effort” though the authors indicate the “prudent business person” standard should apply and be decided on a case-by-case basis.
(Editor’s Note. Though some Board cases and as we show below, even DCAA guidance, indicates the one year language of the FAR should be a general guideline allowing some flexibility to negotiate longer periods, it is usually quite an uphill battle to convince DCAA or a contracting officer to go beyond one year. If the cost of idle facilities is expected to exceed one year, your best chances of prevailing is to go to the CO (DCAA will rarely take the initiative to extend the period) and negotiate, beforehand, a special agreement rather than attempt to justify a longer period after the costs were incurred and a longer period has elapsed.)
Workload Fluctuations. FAR 31.205-17(b)(1) permits contracts to treat didle facilities costs as allowable if they are necessary to meet fluctuations in workload. Board decisions provide little guidance to when this condition is met, leaving such determinations to be made on an individual basis. The discussion above related to “necessary” can be used and on case – Aeroject-General Corp. – has validated the principle that facilities need not be used continuously for them to be allowable. Facilities used intermittently for research and development or to store unused equipment and machinery meet the non-continuous princople (see Cook Electric Co. ASBCA 17100).
To better ensure recovery of idle facilities costs, the authors recommend contractors maintain detailed records of all efforts taken to use, lease or dispose of those facilities. The records should document unique circumstances such as environmental problems, the local real estate market (e.g. preventing subleasing or only partial recovery of lease costs). Also, market projections, production schedules or other information useful to justify a decision to retain facilities to meet expected fluctuations in workload.
FAR 31.20517(a) defines idle capacity as the “unused capacity of partially used facilities.: Under FAR 31.205-17(c), the costs of idle capacity are viewed as normal costs of doing business and are considered as a factor in the normal fluctuations of usage or overhead. Like idle facilities, they are allowable proved the capacity (a) “is necessary” or (b) “was originally reasonable and not subject to reduction or elimination by subletting, renting or sale.” The cost principle does advise that widespread idle capacity in a plant or group of assets may be considered idle facilities, subject to the same rules as idle facilities.
There have been some cases ruling on when capacity is considered idle but there is no clear guidance. In AVCO Construction (ASBCA 10858), 13 percent of the company’s capacity was considered idle and hence unallowable. In Cook Electric, the Appeals Board ruled that buildings with less than 25 percent idle capacity did not gie rise to unallowable costs but higher amounts did. When the government suggested idle capacity existed due to excessively high overhead rates, the Board ruled in Stanley Aviation Corp. (ASBCA 12292) that high overhead rates, in themselves, did not establish the existence of idle capacity.
Standby Costs. Standby costs, which are costs incurred to maintain a facility at a capacity higher than currently needed, are usually allowable if reasonable. In Big Three Industries, Inc. (ASBCA 16949), the Board allowed standby costs when the government reduced its contract needs but failed to notify the contractor who presumably could have taken action to either reduce costs or obtain other business with better notification. In Fred D. Wright Co. (ASBCA 7200), the board ruled reasonable standby costs were allowed, because the standby costs were for the government’s convenience.
Allocability. Once a facility become idle the basis for allocating the facility’s continuing costs becomes an issue. The Aerojet-General decision established that consistency with past parctices should be seriously considered. The case established other criteria to be considered when establishing an appropriate allocation base: (1) the relationship of thw work previously performed at the idle facility to the contractor’s other work (2) historical relationship of the idle facility with other business units within the company and (3) the effect of reactivating the facility would have on the contractor’s other work.
In General Dynamics, the Appeals Board endorsed the principle that idle facility costs can be likened to independent research and development/bid and proposal costs characterized as normal costs of an ongoing business and hence allocated on a broad base (e.g. G&A base). The Board rejected the government’s attempt to restrict allocation of the costs to only those contracts directly related to the closed facility, reasoning such a approach would systematically deny recovery of otherwise allowable costs. The Board said the criteria for allocations should be what is “equitable”, indicating “burdening small firms with large extraneous sums” (???) was inappropriate.
The authors say that DCAA guidance on how to treat environmental cleanup costs incurred at contractors’ previous sites constitutes sound guidance on how to allocate idle facilities costs. In that guidance (DCAA MRD No. 92-PAD163IR, October 14, 1992), DCAA suggests that continuing costs from closed sites be assigned to the business unit where the remaining work of the closed site was transferred and included in that unit’s G&A expense pool. If no work remains from the site that was closed then the guidance suggests the site costs be transferred to the next higher group or home office and be included in the residual expense pool of the office and then be allocated just like any other residual pool expense.
DCAA Guidance. DCAA audit guidance in Chapter 7-1906.3a only addresses the length of time issue. Other references related to idle facilities (e.g. depreciation costs of idle facilities) reference the FAR cost principle only. In our experience, we have never seen DCAA allow a period longer than one year for otherwise allowable idle facilities costs unless there was a prior agreement with the ACO. Interestingly, the guidance explicitly recognizes the validity of extending the period beyond one year and provides some detailed conditions and criteria for extending this period. It states the regulation provides the CO with flexibility to accept a longer period. It urges auditors to recommend the CO obtain justification for a longer period when the facilities are expected to be idle for more than one year. The guidance specifies, at a minimum, the proper justification to ?? including (1) whether the facility will be needed in the future and why (2) if not needed, what actions are being taken to lease or dispose of the facility and (3) an estimate of time to lease or dispose of the facility based on current market conditions, surveys of real estate prices, public record of real estate sales for similar facilities, etc.
The guidance states the auditor should assist the CO in determining a reasonable period bu stresses both the CO and contractor should seek an advance agreement specifying the maximum period for which idle facility costs will be reimbursed. Without such an agreement, DCAA will question any amount over one year.
A timely protest on winnable grounds is an effective tool to win those important awards. The following should be used to identify the best opportunities to win a protest.
Usually modifications to a contract after an award is made is not reviewed because it is considered to be contract administration which is beyond the GAO’s’protest jurisdiction. An exception to this rule applies when it is alleged the modification is beyond the scope of the original contract where the work covered by the mod sould be subject to competition requirements absent a valid justification for sole-source award (Paragon Sys. Inc., Comp. Gen Dec. b-28494.2). Similarly under indefinte-delivery/indefinite quantify (IDIQ) contracts, task orders orders are usually not protestable unless the protest alleges the task order increased the scope, duration or maximum value of the underlying contract. In Floro & Assocs., Comp. Gen. Dec. B-285451, the GAO found the award of a task order for management support services was beyond the scope for hardware/software integration services. The GAO said its scope analysis should compare the task order to the original contract not to any modification of the contract.
The GAO also established it usually does not want to settle matters related to subcontracts (unless it is established the government’s involvement is so extensive as to make the subcontract, in effect, a prime contract), allegations of violating antitrust laws (In CHE Consulting Inc., Comp. Gen. Dec.(In Instrument Control Serv., Inc, Comp. Gen. Dec. B-285776 protestor claimed an exclusive agreement between an original equipment manufacturer and support service offerors was am antitrust violation) and disputes between private parties.
Timeliness. Several cases have established the need to file protests promptly. Protests must be filed within 10 days of an agency’s report (SDS Intl., Comp. Gen. Dec. B-285821), within 10 days of a preaward debriefing following elimination from the competitive range (United Intl. Investigative Svcs., Comp. Gen. Dec. B-286327) and within 10 days of learning an agency will not address past performance issues in a reopended solicitation (Oregon Iron Works, Comp. Gen. Dec.). Also, don’t wait to file a preaward debriefing until after award since a failure to file a protest against not being included in the competitive range until after debriefing on the contract award was ruled untimely (United Intl.).
Procedures, Standards of Review and Evidence. When reviewing protests of an agency’s technical evaluation of proposals the GAO will not reevaluate proposals but will examine the record to determine whether the evaluation was reasonable and consistent with the stated evaluation criteria. In a solicitation making price twice as important as past performance a protest was sustained because the record did not provide a basis for how the tradeoff was made in an award made to a higher priced, outstanding past performance over a lower priced, satisfactory past performance offeror (Si-Nor Inc. Comp. Gen. Dec. B282064). Similarly in J&J Maint., Inc. Comp. Gen. Dec. B-284708.2, the GAO sustained a protest because the record of the evaluation on an offeror’s oral presentation was “so sketchy” it had no means to determine the reasonableness of the award.
In Parameteric Filter Corp., Comp. Gen. Dec. B-285288, a solicitation required the prime to have a compliant quality control program. The Agency rejected the proposal because thought the prime did have a compliant QC program the subcontractor did not and the GAO ruled it was proper to focus on the subcontractor.
The GAO will not sustain a protest unless the protester demonstrates competitive prejudice. To establish prejudice, the record must show the protester had a “reasonable possibility” or “substantial chance” or receiving the award absent the agency’s actions (McDonalds Const. Inc., Comp. Gen. Dec. B-288980). In Advanced Data Concepts Inc. vs. U.S., the protestor failed to show prejudice when its price was 26% lower than the award and its technical score would be no higher than 27% lower its alleged evaluation errors were confirmed. In Myers Investigative & Security Svcs., vs U.S., prejudice was not demonstrated brecause it did not show how icould have been capable of performing the contract.
Competition Under FSS Contracts. Though competition is not required on all task or delivery orders under Federal Service Schedule contracts, if competition is held then a decision is protestable. If a FSS contract contains services priced at hourly rates, merely comparing competing vendors’ hourly rates withot considering number of hours or labor categories is an inadequate indicatior of which vendor offers the lowest price (Computer Pdts., Inc., Comp. Gen. Dec. B-284702). If an agency relies on FSS competition, then virtually all items orderd must be on the schedule contract unless the items are below the $2,500 (SMS Sys. Maint Serv., Inc., Comp. Gen. Dec. B-284550.2). In addition, an agency may be forced to use full and open competition for the entire requirement of those items not on the schedule (T-L-C- Sys., Comp. Gen. Dec. B-285687.2).
Defining Commercial Items. In Crescent Helicopters, Comp. Gen. Dec. B-284706 the GAO ruled helicopter services can be acquired as commercial items under FAR 12 procedures when they are “of the type” offered and sold competitively by the aviation industry in substantial quantities to commercial entities and need not be identical to what offerors provide to commercial customers. (An article by Professor Nash in the August 2000 issue of Nash & Cibinic Report indicates the current definition of commercial items is still rather fussy is evolving through Comptroller General decisions. They conclude that thus far the agencies have considerable flexibility on deciding whether a product or service is a commercial item and their determination will not be challenged by the GAO unless it can be showed it was unreasonable.)
OMB Circular A-76 Competitions. In Aberdeen Techncial Servs., Comp. Gen. Dec. the GAO sustained the commercial company’s protest over award to the government finding (a) the government’s in-house proposal did not comply with the solicitation requirements because it did not include staffing (b) the agency improperly disallowed certain of the protestor’s cost reductions and (c) the agency did not conduct a proper “best value” comparison because it failed to compare the proposals to each other. In Rice Servs., Ltd., Comp. Gen. Dec. B-284997) the GAO sustained an A-76 protest because the record failed to reflect any meaningful comparison by the agency of the governent’s in-house proposal’s performance and quality with the private sector offer. Though the solicitation describe technical merit and past performance as significantly more important than price, the agency characterized the commercial firm’s evaluated strenghts as “unnecessary expenses” and redundancies thus making the award on the basis of lowest price rather than performing a direct comparison of nonprice aspects to determine whether the same level of performance would be obtained. In LBM, Inc. Comp. Gen. Dec B-286271, the GAO ruled that compliance with quality control standards are relevant when work commences rather than at the time the proposal was submitted. Since there was sufficient time between the time the proposal was submitted and start of actual work for all offerors to become compliant with QC standards, it ruled the A-76 solicitation was invalid for requiring compliance of QC standards at the time of proposal submission.
Submission of Offers. There is no prohibition against submitting a below-cost bid for a fixed price contract. Protesters frequently argue the selected contractor cannot perform at the low price but these allegations concern a contractor’s responsibility which the GAO cannot review absent bad faith. Though agencies may conduct a price realism analysis a fixed price offer that is below cost is quite legal and cannot be rated lower or downgraded in the price evaluation section simply by virtue of a low price (Arctic Slope World Servs., Inc., Comp. Gen. Dec. B-284481).
In another decision, the GAO ruled a proposal that is submittted before the solicitation issue data was a valid “offer” as defined in FAR and could not be rejected because it was submitted early (STG Inc. Comp. Gen. Dec. B-285910). In a procurement conducted by electronic commerce where the solicitation material was available only on the Internet the GAO denied a protest that the lateness of a proposal was caused by the unavailability of the agency’s webste on the date set for receipt of proposals and by the agency’s refusal to delay the closing date. The GAO said the primary reason for the lateness was the protester’s failure to check the website before the date of delivery which is not grounds to grant the protest (Performance Constr., Inc., Comp. Gen. Dec. B-286192).
Unbalanced Offers. A bid is materially unbalanced if it si based on prices significantly less than cost for some work and significantly overstated for other work and these is a reasonable doubt the bid will result in the lowest overall cost. The GAO ruled in one decision that that an award based on a bid that may have included unbalanced pricing was still alright where the agency had compared bids along with an analysis of the awardee’s contract line item prices and concluded the prices were reasonable and did not present an unacceptable level of risk for the government (Reece Contracting Inc. Comp. Gen. Dec. B-285666). The decision cited two other recent cases where the GAO ruled it is prudent for an agency to make sure prices for each line item of a suspected unbalanced bid are reasonable (Duke Eng’g & Servs., Inc., Comp. Gen. Dec. B-284605) and an unacceptable risk did not exist when potentially under and overpriced work to be ordered were considered a package (Beldon Roofing Co., Comp. Gen. Dec. B-283970).
Negotiated Contracts. The government’s ability to use a variety of evaluation factors when considering proposals provides flexibility in contracting decisions. Far 15-203(a((4) provides the RFP must describe the factors and significant subfactors to be used in evaluating proposals as well as their relative importance. In Brown & Root, Inc. & Perini Corp., Joint Venure, Comp. Gen. Dec. B-270505.2 the GAO held an agency need not disclose its evaluation guidelines as long as it uses a rational evaluation method that is consistent with the stated criteria. In Lympus bodg. Servs., Inc., Comp. Gen. Dec. B-285351, the GAO ruled the agency’s proposal evaluation and resulting competitive range decision was unreasonable and resulted in an irrational outcome when offerors’ experience, staffing and management approach were evaluated by mechancial and otherwise unsupported application of undisclosed source selection plan standards.
Proposals need not be considered technically equal simply because their technical points scores were nearly identical. Instead the issue was whether the competing proposals offered differing levels of technical merit, requiring more than a “mechanistic view of the numbers themselves. In R&D Dynamics Corp., Comp. Gen. Dec. B-285979.3, because the technical evaluation team carefully documented its decisionmaking process, the GAO sustained the agency’s selection of a competing proposal as technically superior despite a mere 3 point out of 100 difference. In DevTech Sys., Inc., Comp. Gen. Dec. B-284879 t he GAO rejected the protester’s argument its proposal was superior because its technical score was 6% higher ruling the agency was justified in asserting the proposals were technically equal.
Price Versus Technical Tradeoff. In Beneco Enters., Comp. Gen. Dec. B-283154 the GAO sustained a protest where the agency’s unwillingness to accept a 26% price premium on a proposal scored 36% higher than the awardee’s without any evidence of consideration of technical merit or tradeoff analysis demonstrated the selection was price driven which was contrary to the stated evaluation scheme. In Kathpal Techs., Inc. Comp. Gen. Dec. the GAO ruled the agency improperly excluded the protesters technically acceptable offer from consideration without considering price. It stated an agency may not eliminate a technically acceptable proposal from the competitive range without taking into account the cost of the proposal, particularly where the protestor’s cost advantage is significant and its technical rating is close to the other proposals in the competitive range.
Organizational Conflict of Interest (OCI). In DSD Labs., Inc. VS US Cl. 467 the Court upheld the CO decision to exclude the protester from competition because they had been engaged as a subcontractor to provide the agency with recommendations that formed the basis of the statement of work. Even if OCI clauses had not been included in the subcontract the CO retained the inherent authority to prevent impropriety or the appearance of impropriety. The GAO ruled there was no OCI in LeBouef, Lamb Greene & MacRae, Comp. Gen. Dec. B-283825 where a DOE contract for legal services was awarded to a law firm that previously performed similar services as a subcontractor to a DOE management and operations contractor. The GAO ruled there was no OCI in spite of a teaming agreement between the agency’s software integration contractor and awardee software vendor because the teaming agreement did not apply to the protested procurement and there were no other connections between the integrator and software vendor (American Mgmt., Sys., Inc., Comp. Gen. Dec. B-285645). Finally, the GAO ruled in Global Readiness Enters., Comp. Gen. Dec. B-284714 that there was no OCI inspite of the fact two members of a team submitted separate prime contractor proposals where each relied on the other as a subcontractor.
Discussions and Past Performance. FAR 15.306(b)(1)(I) and 15.306(d)(3) provide for discussions in negotiated procurements and provide offerors the opportunity to clarify adverse past performance information. For awards without discussions, FAR 15.306(a)(2) provide that offerors may be given the opportunity to clarify adverse past performance information. In A.G. Cullen Const., Comp. Gen. Dec. B-284049.2 the GAO held that under FAR 15.306(a) the agency, absent bad faith, was not required to provide the offeror an opportunity to response to adverse past performance information unless there wsas a “clear reason” to question the validity of the past performance evaluation (for example, if the narrative comments from the reference were not consistent with the actual rating).
Challenging Past Performance Evaluations. In OneSource Energy Servs., Inc. Comp. Gen. Dec. B-283445 the protester and agency had frequently disagreed during a prior contract on who was contractually liable for certain repairs and as a result received a low past performance rating. The GAO sustained the protest ruling the past performance downgrade was improper because it was inappropriately based on the protestor’s exercising its valid contractual rights. In Seattle Sec. Servs. vs US, Cl. 560, which underscores the need for an agency to follow the solicitation ground rules, the Court held it was arbitrary and capricious for an agency to evaluate a different number of references and to use different methods for different offerors when evaluating past performance stating “the CO does not have the discretion to employ a rigid point system for evaluationg one bidder’s references and not use the same system to evaluate another bidder’s references.”
To evaluate past performance the government may rely on information in an electronic database without giving offerors an opportunity to respond to the data because the safeguards of the system provide contractors with an opportunity to challenge and correct ratings. In TLT Constr. Corp., Comp. Gen. Dec. B-286226 the GAO denied a protestor’s challenge to its past performance evaluation in a solicitation to be awarded without discussion finding the government properly relied exclusively on its electronic database even though doing so might effectively “debarred” the protestor from competing.
Because a trucking contractor’s past performance rating was based on the actual number of late or problem shipments rather than the proportion of such shipments in comparison to total deliveries the GAO ruled in Green Valley Trans., Inc., Comp. Gen. Dec. B-285283 the past performance evaluation was “irrational.” In Oregon Iron Works, Inc. the GAO ruled though FAR 42.1503(e) directs agencies not to retain past performance for more than three years the provision is not a blanket prohibition against considering offerors’ performance on contracts completed over three years earlier.
In Beneco Enters., Comp. Gen. Dc B-283512 the GAO rejected the awardee’s “excellent” past performance rating in negating the award ruling the awardee’s corporate experience was not comparable to the work required in the solicitation agency improperly. Absent a solicitation provision authorizing agencies to consider a key employee’s experience in its evaluation of an offeror’s corporate past performance there is no general requirement the agency credit the corporation with the experience of its key personnel (Project Mgmt Group, Inc., Comp. Gen. Dec. B-284445). The following two cases illustrate that when your firm is new or is entering a new business activity and you are relying on key personnel to demonstrate ability to perform you should thoroughly document the past performance of the personnel and obtain a formal commitment to perform te work covered by the solicitation. If the solicitation allows source selection officials to consider experience of key personnel in assessing corporate past performance experience there must be a commitment by the key personnel to work on the contract (SWR, Inc., Comp. Gen. Dec. B-286044.2). In Menendez-Donnell Assocs., Comp. Gen. Dec. B286599 the GAO ruled an agency reasonably rated a proposal unacceptable based on the offeror’s failure to establish adequate experience and performance for its subcontractors and key employees. In SDS Intl., Comp. Gen. Dec. B-285822 a high past performance evaluation based on the experience of a single employee was considered reasonable where the employee possessed recent unique experience and would be directly and extensively involved in the project. In Universal Fabric Structures, Inc. Comp. Gen. Dec. B-284032 the GAO ruled there was notheing unreasonable about considering the past performance information of the awardee’s predecessor company where the awardee had the same management and employees and operated out of the same location. In the same decision, the GAO found nothing unreasonable about considering the awardee’s performance information of contracts for which performance had not be completed because those contracts were relevant. In AJT & Assocs., Comp. Gen. Dec. B-284305 the GAO found nothing unreasonable for an agency to consider a large subcontractor’s past performance information in a small set-aside procurement where the solicitation expressly provided for subcontractors’ past performance. In Clean Venture, Inc. Comp. Gen. Dec. the GAO ruled there was no problem with rating a company “fair” despite prior ratings of “good” where prior contracts were considered simpler in scope than the protested contract and the solicitation provided that the agency would evaluate contracts for similar services. Conversely in Ti Hu Inc. Comp. Gen. Dec. B-284360 a lower past performance rating was upheld where the agency reasonably concluded that exceptionperformance on previous complex contracts did not necessarily translate into likelihood of success on a less complex contract. In a case underlying the need to notify references and have them agree to provide timely information the GAO denied a protest where the RFP required offerors to submit at least three references and the protestor challenged a past performance rating based on only one reference because others could not be contacted by the agency. The GAO justified its ruling because the RFP expressly placed the risk of failure to reach a reference on the offeror (North American Aerodynamics, Inc., Comp. Gen. Dec. B-285651).
Constructive Changes. A change to a contract entitles the contractor to an adjustment in price. A constructive change to a contract occurs when a contractor must perform work without a formal “order” to do so under the “Changes’ clause (either by informal order or by the fault of the government). In Defense Sys. Co., ASBCA 50918, the contractor alleged it was coerced into performing government-directed work on nonconforming rocket locketwires and the Board ruled the government was entitled to strict compliance with the technical data package. In T&M Distib., Inc. ASBCA 51404 despite the absence of contract terms limiting the types of orders the government could place, the ASBCA ruled the parties “course of dealing” under prior contracts supplemented the current contract. Consequently, the government’s decision to place orders in excess of the parties’’prior dealing constituted a constructive change to the existing contract and entitled the contractor to monetary relief. In Unarco Material Handling, PSBCA 4100, the contract provided delays had to be agreed to by both parties and when the Postal Service unilaterally set a later start date but insisted on its original completion deadline the Postal Board ruled the Postal Service constructively accelerated performance and entitled the contractor to relief.
Equitable Adjustments. A contractor generally carries a burden of proving the amount by which a change increased its cost of performing the contract. In Clark Constr. Group, Inc., VABCA 5674, the Board upheld the use of percentage estimates for calculating the loss of labor efficiency due to the change. In Delta Const. Intl, Inc. ASBCA 52162 a contractor may be entitled to recover the difference between guaranteed minimum payment under an IDIQ contract and actual orders if the contractor was required to be on standby for the entire contract period. In Golden West Envtl. Servs., DOTBCA 2895 when the government shortened the performance period due to delays before award and lowered the contract price without lowering the amount of waste contracted to be disposed, the Board ruled a unilateral change to the bid price occurred and the contractor was entitled to a price adjustment to the extent it could demonstrate the change increased its cost of performance. In Minuteman Aviation , Inc. AGBCA 99-115-1, the contractor bid on the basis of “light truck” drivers and was required by the Labor Department to pay rates for “medium truck” drivers and sought the difference. The Board denied relief stating the purpose of the Fair Labor Standards Act and Service Contract Act clause (FAR 52.222-43) is not to correct mistakes made in the bidding process but to provide a mechanism for adjusting wage rates in subsequent years of multiyear contracts where new wage determinations have changed the rates to be paid. A contractor’s settlement agreement with the DOL requiring back pay for employees who had been paid as laborers rater than plumbers did not retroactively modify the wage determination and hence did not entitle the contractor to an equitable adjustment (Hunt Bldg. Corp. ASBCA 50083).
Termination Settlement Costs. A termination for the convenience of the government essentially converts a fixed price contract to a cost-reimbursement contract entitling the contractor to recover allowable costs incurred in the performance of the terminated work, a reasonable profit on work performaed and certain additional costs associated with the termination (See our article on Maximizing Termination Cost Recovery in the GCA DIGEST, Vol. X, No. X). Where a default termination is converted to a termination for convenience (T of C) because of impossible specifications, the contractor’s recovery is not limited to the contract price nor is recovery subject to the T of C loss formula (D.E.W., Inc. & D.E. Wurzback, ASBCA 50796). The same case also established that, as a general rule, the government is not entitled to reduce the termination settlement by the costs of defective or noncompliant work except when the costs are a result of “gross disregard” of contract obligations. However, in Defense Sys. Corp., ASBCA 44131R, the Board held the contractor was not entitled to recover costs in excess of the contract price when the contractor failed to demonstrate the government was responsible for the specified costs. Cost of special equipment to be used for developing technology in antipation of the government’s exercise of an option but not necessary for performing the existing contract were unallowable as well as the costs of renting and adapting rental premises to house the equipment (Compression Research Corp., ASBCA 46566). Bid and proposal preparation costs are not allowable as part of a termination settlement (Barsh Co., PSBCA 4481). A contractor was not entitled to collect interest on its termination settlement proposal following a settlement because the resulting settlement agreement was conclusive proof that negotiations had not reach an impasse which are grounds for the interest clock to start (Rex Sys. Inc. v Cohen, 224 F.3d 1367).
Legal and Accounting Costs. In Caldera V. Northrop Worldwide Aircraft Servs., Inc. 192 F.3d 962, the court ruled a contractor can recover a cost claimed to be necessary to the overall operation of the contractor’s business only upon showing that the government “benefited” from the expenditure. Following Caldera, in Boeing N. Am., Inc. ASBCA 49994 the ASBCA ruled that a contractor could not recover legal fees and other costs incurred in defending against a shareholder suit alleging a director participated in a course of action that lead to defrauding the government. Since the contractor pleaded guilty and paid fines the Board reasoned the costs were not allocable to Government contracts because it could not discern any benefit to the government in a contractor’s defense of a suit in which the contractor’s prior violations of federal law were an integral part of the suit’s allegations. On the other hand, the ASBCA ruled that even though an employee entered a guilty pleas as a result of a government fraud investigation the contractor was entitled to recover the attorney fees and other costs in defending the company ageinst that investigation where the contractor itself had not be guilty of misconduct DynCorp., ASBCA 48714). In Information Sys. & Networks corp., ASBCA 42659 the Board held the costs of litigation between a contractor and subcontractor regarding defective goods were allocable to the contract because the litigation clearly involved work performed under the contract. The Board stated it is reasonable for a contractor to defend itself when a subcontractor’s performance is nonconforming and the government’s arguments that the defective work did not “benefit” the contract – and hence is not allocable to it – is without merit.
Other Costs. In Information Sys., & Networks Corp. v. US, CL. 265 the Court found the cost principles allow a Subchapter S corporation to recover costs associated with payment of state income taxes on cost-reimbursement contracts where the company had an agreement to reimburse its sold shareholder for the state tax paid on the corporation’s income. The court concluded the corporation’s tax liability was not abate or reduced but merely paid by the shareholder and thus qualifies for reimbursement.
Though the case included questions related to total billing in excess of the original amount we focus only on the following issue: Should the government pay the contractor for services of consultants at the direct labor hourly rates specified in the contract for “employees” or reimburse the contractor for these services as “other direct costs.”
Definitions. “Engineering services” were defined a “those function normally performed by qualified engineers or technicians in accomplishing” as set of functions set out in the contract. “Direct labor” was defined as “all effort expended in performance of orders under this BOA by personnel/equipment in the categories listed” above. “Direct Parts/Materials/Subcontracts” was defined as “those parts and/or materials and/or subcontracted items or services which the contractor must furnish incidental to the accomplishment of the engineering services.” Provided the contractor’s accounting system did not consider these items indirect they would be charged as other direct costs (ODCs) where the 7% G&A rates and 5% profit rate would be applied. “Contractor personnel” are “ecmployees of the contractor and under its adminstrative control and supervision” and the contractor “shall select, supervise and exercise control and direction over its employees under this contract.” “Employees” were not defined.
Billing Rates.The Air Force awarded a time and material contract, a Basic Ordering Agreement (BOA) for engineering services to support a radar warning systemThe contractor would be paid for direct labor hours worked times hourly rates for the following labor categories: Senior Technical Direct – $77.75; Technical direct – 62.19; Senior Technical Specialist – $47.51 and Technical Specialist – $42.87. These billing rates were agreed to after a DCAA audit was conducted and negotiations with the CO were conducted and the result was an average raw labor costs for each labor category where a 107.5 percent overhead rate, G&A rate of 7 percent and profit rates of 8.2 and 5 percent for various labor categories were applied.
Use of Consultants. In addition to its regular employees, the contractor used three professionals hired at hourly rates established under consulting agreements. Two out of three of the consultants worked at the contractor’s office. The consulting agreement stipulated they would be free to exercise their discretion as to method and means of performing their duties and they would “in no sense be considered an employee” entitled to benefits or privledges given to the contractor’s employees. (These conditions were, no doubt, stipulated to firmly establish their non-employee status for purposes not paying payroll taxes.) Set rates were established for each consultant and like employees, were required to obtain necessary security clearances. The contractor did not notify the CO it would have some of the work preformed by individuals who were not regular employees nor did it seek approval for the arrangement.
Billings. The contractor submitted monthly invoices and progress reports which listed, by name, the individuals who worked on the project, their hours and applicable hourly rate for each individual corresponding to the labor category they were assigned. The three consultants were included in the monthly invoices and were not specifically identified as consultants.
The Defense Contract Audit Agency conducted a review of the final invoice after it was forwarded by the ACO. In its report, it disputed the right to charge the consultants services at direct labor rates and stated they should have been charged as ODCs resulting in a $59,000 overcharge. In response to DCAA’s preliminary findings the contractor asserted that it was proper to charge at direct labor rates because (1) the consultants were “common law employees” because they were under the control and supervision of the contract and two of the individuals performed work at the contractor’s office and (2) the project manager had approved all earlier invoices. DCAA responded in its audit report that it was improper to charge the indivduals at direct labor rates and in response to the contractor’s comments (1) “common law employee” status was not confirmed since one of the individuals did not work at the office (2) the project manage approval related to the individual’s competence not their cost accounting treatment and (3) to charge the consultants’s time as if they were employees could result in a “windfall profit” for the contractor. DCAA concluded the contractor was entitled to only amounts paid to the consultants plus 7 percent G&A (the contractor used a total cost input base for calculating and applying G&A) and 5 percent profit.
The ACO sided with DCAA’s position and issued a final check representing amount outstanding after deducting the $59,000 “overcharge”. The contractor cashed the check and appealed the decision as a claim. In its arguments to the appeals board, the government asserted the propriety of reimbursing the consultants as ODCs because (1) the contractor did not consider the use of consultants when its determined the direct labor hourly rates (2) the CO was never advised nor was his approval sought (3) the consultants did not receive employee benefits but were paid more than employees so they could supply their own benefits (4) the consultants are part of the “parts/material/subcontractor” category and their services should be considered ODCs incidental to contract performance and hence the contractor is entitled only to the amount paid plus applicable G&A and profit.
Decision
The Armed Service Appeals Board addressed the issue of whether the government should pay for the consultants as direct hourly rates specified in the contract for “employees” or whether those services should be reimbursed as ODCs. The Board restated the government positions stated above and clused though the government’s position may be “technically acceptable” it ignors the “realities under which contract work was performed with the participation of the consultants.”
In its rejection of the government’s position the Board made the following points:
The Board concluded there is no “logical reason” to have the contractor compensated for the consultants work on a basis different from that of its regular employees. With respect to the services performed on the project, the three individuals were “indistinguishable” from their “employee counterparts” and hence the contractor should be compensated for their services on the same basis as their employees i.e. at the direct labor hourly rates (Software Research Associates, ASBCA 33478).
A negative finding by the Defense Contract Audit Agency is rarely good. Questioned costs, whether it follows audits of forward pricing action, incurred cost, post award reviews or claims/terminations costs you money. A finding of inadequate accounting practices can include costly fixes, payment delays and prevention of future contract and subcontract awards. Though auditors sometimes play it close to the vest and do not show their hand, awareness of negative findings are usually quite visible through out the audit process – during question and answer sessions, requests for data, informal discussions, more formalized communications of preliminary findings, distribution of draft reports, exit conferences, discussions with contracting officials, issuance of Form 1 and decision to dispute the findings through litigation. Usually, audit positions becoming more hardened as the process continues so the “earlier the better” is the best advice to reverse an adverse audit position.
Conduct During the Audit. It is very important to maintain a close liaison with the auditor during the course of the field audit. It is during this period the auditor begins to perceive problems and starts to develop a position with regard to the allowability or allocability of a cost and you (the contractor) want to know about it as soon as possible. The person designated as the contractor representative where audit requests for data and interviews are funneled is the primary person to observe emerging audit problems. Depending on this person’s experience and the auditor’s forthrightness, additional insight in potential problems may be caught through periodic meeting with another company official.
Once a problem surfaces, it will be much easier to persuade the auditor to accept your point of view before they have expended a lot of effort developing their adverse position. You will also want to have as much time as possible to ascertain the facts and review the appropriate regulations, opinions and decisions and decide how and when to present your position. The timing and method is critical. For example, you may want to present sufficient reasons to accept your position (e.g. consistent with prior practices, immaterial impact to the government) without divulging all your arguments (e.g. Board decisions, expert’s opinions) to allow them time marshall effective counter-arguments.
If problem areas have not surfaced beforehand, the Audit Exit Conference is the last best time to identify audit positions. The level of detail divulged depends on the type of audit. For audits of incurred costs, the results should be discussed in detail. Also, if needed to understand their position, the contractor is entitled to receive copies of the audit workpapers (e.g. Allied Materials and Equip. Co., ASBCA No 17318 established DCAA audit workpapers are not priviledged) but, in practice, certain auditors may be uncertain of their authority so judgement about pressing the issue if refused needs to be made. For initial pricing proposals auditors will generally not disclose results of audit on the rationale the government negotiator does not want to “tip their hand.” The auditor should be willing to disclose what factual data they relied on and discuss in general terms the areas of questioned costs. For example, they should be able to tell you they disagree with your proposed labor hours or rates without disclosing their specific recommendations. For defective pricing audits the auditor should discuss any factual indication that cost or pricing data was defective and a draft copy of the report with exhibits and footnotes should be supplied and the contractor given the opportunity to review the matter and provide any additional information. Results of audits of termination proposals should be provided to the contractor. For equitable adjustment claims, the ACO frequently instructs the auditors not disclose audit results – they are, in effect treated like initial pricing proposals – but when historical data is used to price the price adjustment the contractor should request the ACO to authorize DCAA to openly discuss cost issues. Sometimes auditors will try to attempt to avoid an exit conference but this should be adamently rejected since some audit reports can wind up as fruad investigations and it is quite common for last minute problem areas to emerge when the auditor is compiling their workpapers and writing their report. (An exit conference by phone is acceptable if there are no major cost disallowances or all issues have been surfaced and they are clearly understood.)
Mitigating the Impact of an Adverse DCAA Report
Though many auditors chose not to divulge negative opinions (many are temperamentally adverse to potential confrontation) close liaison through the audit and effective exit conference should inform the contractor of their position. Contractors commonly obtain copies of audit reports in draft form prior to an audit exit conference (with references to recommended rates on initial pricing audits deleded). When this happens the best that a contractor can expect is that the auditor will agree to append the contractor’s comments and rebuttal to the audit report. If you do not agree with the auditor’s position, it is here you should prepare in writing and submit to DCAA by certified mail, return receipt requested, a comprehensive rebuttal. In addition, you should formally request that a copy of your rebuttal be appended to any adverse DCAA report. (When DCAA has negative system findings – accounting, billing, budgeting, EDP, etc. – or CAS non-compliance findings they usually distribute their report to procurement offices so make sure DCAA distributes your rebuttal to all the offices its report is sent.) The recipient of the report, usually the ACO or CO, will be more favorably inclined to accept your position or at least question the DCAA audit report if they have the opportunity to understand the contractor’s opinion and compare it with DCAA.
Without this comprehensive written rebuttal, the contractor may find itself faced with a PCO or CO that does not budge from DCAA’s position. In order to write an effective rebuttal you should have a clear understanding with regard to the basis upon which DCAA has formulated its opinion and the results of any negotiation largely depends on how well you have done your homework beforehand. Do not go to the negotiation with just general statements; be prepared to discuss specifics, regulations and board/court decisions when applicable. Assume the DCAA auditor will be equally prepared. Be prepared to answer questions, know the facts and understand the weaknesses and merits of your position. Be prepared to question the auditor and do not hesitate to put them on the defensive – remember, you are trying to persuade the CO to adopt your position so you must demonstrate it makes more sense than the auditor’s.
Window of Opportunity Within DCAA
There is an informal “window of opportunity” to challenge the auditor’s position between the time an audit issue surfaces and negotiations with the CO commence. (The incentive to reach a settlement with DCAA is particular strong when the negotiators often say “don’t convince me, convince the auditors”.) There is no formal appeals process within DCAA but the opportunities for informal agreements are significant. It is an often repeated truism that, especially at the branch level, supervisors will simply rubberstamp the auditor’s position. In our experience, this sometimes occurrence is overstated. We are constantly surprised at how often the original audit position is either reversed or some other mutually-agreed to position is found following discussions with a supervisor or branch manager.
Within the branch office there are usually two distinct avenues of informal appeal. The first is the audit supervisor or audit manager. Though the supervisor often develops the audit position with the auditor it is far from always so. The supervisor may have had other administrative duties, training, sick or just “hands-off” and if properly approached with a request for an open mind, will give a fair hearing to your position. Even if involved in the original position, they may have relied more on the auditor’s judgment and the presentation of a strong counter argument may be sufficient to change their mind. There may be other motives to not “back” the auditor – hesitancy to fight a weak position, desire not to be bothered, etc.
Opportunities to receive an open-minded reevaluation of the original audit position is even greater with the branch manager. Unless the issue impacts large dollars from a large contractor, the branch manager is unlikely to have been deeply involved in the original position. Recent cutbacks and greater span-of-control between supervisors and auditors (change from 5-to-1 to 10/12-to-1) results in more time spent in administration and less participation in audit issues. Their promotion to branch manager however is usually a result of their competent understanding of contract costing issues and their interpersonal skills at resolving problems. In our experience, most branch managers are quite intelligent and predisposed to resolving issues to everyone’s satisfaction. They are often a fair appeals board and if the contractor’s position is strong and the audit position relatively weak they will sometimes reverse the original position or seek a reasonable compromise (e.g. give in on this issue if another issue is not challenged, find ways of lessening the financial impact).
The third window of opportunity within DCAA is at the regional level with the Regional Audit Manager (they usually have 4-6 branch offices they supervise). The RAM is unlikely to be aware of the original audit position so they have even less of a stake in supporting the original position. Since an audit report is issued under the branch manager’s signature, your chance of resolving the issue to your satisfaction is best at the RAM level if you do not success at the branch office. RAMs are usually quite experienced in handling a variety of issues, are technically competent and often quite personable (we have a couple of former RAMs on our staff).
The next window of opportunity is at the regional office where either the Deputy Regional Director or Regional Director can hear your case. Though we have seen considerable success going to the audit supervisor, branch manager and RAM you will need a very strong position and be very clear that an important point was not adequately considered by the other three if you expect to prevail at either the Regional Office or Headquarter level. It is quite common for the branch manager and RAM to have obtained expert legal and accounting advice within the agency before rendering their opinion so it is unlikely that you will change any minds higher up.
Of course, it cannot be stressed too much to prepare your position paper or memorandum before you approach the audit supervisor or go higher. Make sure the points and authorities of law and commentary clearly identifies the issues and discusses the application of the accounting and/or legal principle to the facts.
Before expending the effort through the DCAA chain of command, be reasonably assured your position has sufficient merit to be able to reverse the original audit opinion. (Editor’s Note. This might be a good use of our new “Ask the Experts” service to subscribers – you can email or call us with an explanation of your situation and we will ask one or more of our imminent legal and accounting experts to give you their opinion of DCAA and your position at no charge.)
Steps Before the Form 1 is Issued
Once DCAA has taken a formal position relative to the unallowability of a particular cost (whether it be a allowability issue per FAR cost principles or an allocation issue) it is supposed to issue a Formal Notice of Disallowability – commonly known as a Form 1. The Form 1 serves as a notice of suspension or disallowance of costs under cost reimbursement contracts and after DCAA receives notice of the contractor’s acknowledgement of receipt, the form is distributed to buying offices (for more detail on Form 1, see DCAA Contract Audit Manual, Chapter 6-900).
Once DCAA is ready to issue a Form 1 you can be reasonably assured that is DCAA’s final position and further effort to change their mind is fruitless. Though it used to issue Form 1s more frequently, DCAA will now commonly consult with the ACO before issuing one. Though the ACO will often defer to DCAA since they are the authorized representative of the CO for purposes of issuing a Form 1, we find the ACO usually takes an active interest in hearing out the contractor. If a good argument is put forth by the contractor, they will often obtain advice from in-house from their price analysts and legal counsel. If the dollar value is significant, the issue may be elevated to special Overhead Center in the Defense Contract Management Agency tasked with resolving high priority cost issues. If the contractor’s position has merit, the ACO commonly seeks a position to satisfy both DCAA and the contractor rather than go through the disputes process and avoid issuance of a Form 1..
(Editor’s Note. Since Kathy Szymkovicz, a former contracting officer and source selection official and one of our favorite guest authors, has been working with several firms putting together various teaming arrangements we asked her to provide some interesting and practical insights into common problems team members are having as well as some useful pointers on how to help present the team to win contracts. This article is not intended to cover all the legal aspects of team arrangements (we can suggest some good attorneys for this purpose) or cost and pricing issues since this was covered in a prior article in the GCA DIGEST, NO. Vol. Kathy is a consultant with The Acquisition Network that provides acquisition assistance and training to federal contractors and can be emailed at TANetwork@hotmail.com or called at 415-861-0556. Kathy has also joined our “Ask the Experts” panel, a resource exclusive to GCA subscribers to get government contract-related questions answered at no charge.)
Whether you are a large business looking for a small business with which to partner, or a small business looking for a large business to help you grow, teaming can be a tricky business. Knowing some of the pitfalls and making wise decisions up front can avoid many of the catastrophes that happen everyday as a result of teaming gone wrong.
Understand first that teaming disasters are only rarely a result of actual intent to defraud on the part of one party or the other. It is true that occasionally a firm will misrepresent itself to trick another firm into a situation that it would have never willingly entered. For example, there is the business that hides an affiliate from its teaming partner, representing itself as small and developing a teaming arrangement for bidding as a small business. When SBA investigates and learns the business is large, both members suffer damage to their reputations and pocketbooks. In this situation, the intent to mislead the Government sticks to both firms, with the Contracting Officer and staff skeptical that one firm did not know that its teaming partner was large.
Much more common than this situation, however, are simple misunderstandings that occur as the result of differing assumptions by the teaming partners. The need to develop a team once an opportunity is found can lead firms into quick agreements with firms that they do not know well. Often the agreements are verbal. Things such as proposal costs, profit and loss sharing, and management control are not specifically discussed, with both firms thinking the arrangements are obvious. Unfortunately, what is a logical assumption to one firm may not be to another.
Some things that need to be addressed in a teaming agreement:
Who pays for the preparation of the Proposal. This sounds obvious, and often it is the obvious nature of this item that leads the failure to spell out the specific terms. The cost sharing terms for this item should be stated in the written Agreement. More than one small firm has been shocked to receive a substantial five figure bill from a large business that offered to write the proposal. The smaller company assumed preparation included covering the costs and never verbalized this assumption for confirmation.
Profit/Loss sharing and a clear statement of financial responsibility. A small firm may assume limited liability (since the larger firm can so easily incur more loss without disastrous consequences) and at the same time expect 50% profit. Obviously the sharing arrangements should be discussed and documented. Many a firm has ended up in court by assuming this type of “obvious” arrangement.
Responsibly for any space (such as offices or warehouses) or equipment that was leased or purchased prior to submitting the bid. Clarify who will be responsible for lease payments, including if one firm or the other uses the leased location or property.
These examples concentrate on a large firm-small firm arrangement, but that is only for dramatic effect. The same disagreements are relevant to firm close in size, whether both are small or both are large.
Once a Teaming Agreement is firmly in place, the presentation of the Team to the Government needs to be considered.
It is vital that the Team is presented as an entity in itself. To present the Government with two firms, who plan to work together, while it may seem to be an attractive arrangement, will not be attractive to the Government. The Government wants to see a single entity, one firm, with clear responsibilities. To represent the Team as two firms working together invites Government fears of finger pointing and failure to take responsibility. What the Government wants to see is a single entity comprised of the strengths of the Team members, but with a single management point of contact that can commit the JV.
If the firms have worked together in the past, this is an important element to the Government and one that should be emphasized. Once again, the Government is looking for a seamless arrangement with a minimum of impact on the contract administration. If you can show that you have accomplished this with your teaming partner on a previous contract, the Government will view the arrangement favorably. Whether you have this past experience or not, it is vital to show your management plan for integrating the Team into a single entity.
Teaming, with all its pitfalls, is a wonderful way to expand the reach of a firm. Two firms can combine past experience to create a path to new venues in Government opportunities.
Of course the rules are important as well. A Teaming arrangement is a Joint Venture by definition, and as such, the gross annual receipts of both firms together must total an amount under the size requirement for the appropriate NAICS in order to qualify as a small business. An 8(a) set aside requires that both firms be 8(a) to qualify the Joint Venture as an 8(a). Additional information and details on the rules for determining size status can be reviewed under 13 CFR 121 and 13 CFR 124.
An 8(a) firm that wants to work with a small business on an 8(a) set aside would need to show the small business as a subcontractor, meeting the subcontracting rules as they apply to the specific procurement. Knowing the rules gives you the flexibility to create the best arrangement for a particular procurement.
Past performance can be picked up through the various methods of procurement. As long as it is identified accordingly, the prime contractor can show the Past Performance of a teaming partner, a subcontractor, or even that of an employee with another firm.
Too often, short bid periods and unanticipated opportunities that look too good to miss, lead firms to jump into teaming arrangements with other firms that are not fully investigated. Before entering into a Team with a firm that is less than familiar, you should ask yourself whether the opportunity that you wish to pursue is worth more than your reputation. Sometimes that is the final tradeoff.
When a teaming partner breaks the rules, both firms suffer. If your “partner” fails to pay Davis Bacon rates to its employees, Department of Labor will look at you both, and while only your partner will suffer the monetary consequences imposed by DOL, the damage to your reputation will stick to you both.
Most often, it is assumptions and an unfamiliar partner that get the teaming arrangement into trouble. If you want to create a joint venture, do your market planning now, deciding what type of procurements you want to pursue and what type of partner you need to do so. Create the team in advance of a specific opportunity so that your planning is well thought out, thoroughly investigated and not rushed. As in most situations, it is far better to plan than to react.
© 2024 Government Contract Associates. All Rights Reserved.