T&M Rate Evaluation During Award

Have you reviewed the guidance at FAR 15.404-1(d)?

If the offeror's proposed price includes an estimated cost paid to a subcontractor for performing part of the SOW or PWS, then I would think that the subcontractor's estimated cost would be an item subject to analysis. Why wouldn't it be?

On 3/15/2023 at 6:00 AM, Mannaf said:

How would you treat a T&M rate proposed by a subcontractor during cost evaluation for award under a CPFF type contract? This is a competitive effort and the prime submitted some of its subcontractor proposed labor rates as T&M rate. So, my question is can I make probable cost adjustment to the subcontractor proposed T&M rate for the purpose of cost realism evaluation?

So you are analyzing the realism of the proposed estimated cost for a prospective cost-reimbursement prime contract.

Is that right?

And the prospective prime contractor is planning to use a subcontractor who would be paid on a time-and-materials basis. In short, the subcontract will be T&M.

Is that right?

And what you want to know is whether you should determine if the sub's proposed time-and-materials hourly labor rate is realistic and, if not, adjust it. 

Is that right?

If I am right about those things, then the answer to the bolded question is: No, you should not make a probable cost adjustment to the labor rate.

Do you understand why I say that the answer is no?

But if the proposed T&M subcontract is like a government T&M contract, and has a ceiling price, then you should consider whether the subcontract ceiling price is realistic and, if not, adjust it appropriately.

Do you understand why I say that you should determine the realism of the ceiling price?

@Vern Edwards Yes, all assumptions your made in response to my question are accurate. 

FAR 16.601 (b)(1) states, "Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit".

So, based on that my read is T&M rate is a fixed type labor rate and should not be subject to probable cost adjustment for the purpose of evaluation!

However, I'm not sure I'm clear about the last comment you made regarding realism of ceiling price? If you can elaborate, please, that would be helpful. Thank you.

Is it because the cost realism analysis should be analyzing hours here, not labor rates?

Voyager said:

Is it because the cost realism analysis should be analyzing hours here, not labor rates?

Mannaf, Is there a defined or open ended scope for the T& M effort?

Mannaf said:

I'm not sure I'm clear about the last comment you made regarding realism of ceiling price? If you can elaborate, please, that would be helpful

@MannafA T&M contract is like a cost-reimbursement (CR) contract in that the contractor promises to make its best effort to complete the work within the ceiling price, which is basically an estimated cost, like in a CR contract. The contractor gets to stop work when it reaches the ceiling price, unless the buyer decides to increase the ceiling price and continue funding the work. So, although the labor rates are fixed, a buyer should try to determine whether the ceiling price is is realistic, as well as reasonable.

Does that help?

Vern Edwards said:

@MannafA T&M contract is like a cost-reimbursement (CR) contract in that the contractor promises to make its best effort to complete the work within the ceiling price, which is basically an estimated cost, like in a CR contract. The contractor gets to stop work when it reaches the ceiling price, unless the buyer decides to increase the ceiling price and continue funding the work. So, although the labor rates are fixed, a buyer should try to determine whether the ceiling price is is realistic, as well as reasonable.

Does that help?

Thanks for the clarification. For this particular effort the LOE is given for the purpose of evaluation. And TO will be issued as per CLIN ceiling requirement.

joel hoffman said:

Mannaf, Is there a defined or open ended scope for the T& M effort?

The scope is defined and each CLIN has a ceiling for the effort.

Mannaf said:

For this particular effort the LOE is given for the purpose of evaluation. And TO will be issued as per CLIN ceiling requirement.

I have no idea what that means in the context of what has gone before, but I don't need to know.

Mannaf said:

And TO will be issued as per CLIN ceiling requirement.

Well I will throw in a curve.   Why cost evaluation at all why not price evaluation?   If a TO (Task Order) was not the hourly rate analyzed at parent IDIQ contract level?   If so it would seem Vern's point is even more on point.   It would be very interesting to read what was actually stated as the evaluation criteria for the fair opportunity award of the TO.

Mannaf said:

The scope is defined and each CLIN has a ceiling for the effort.

Mannaf said:

For this particular effort the LOE is given for the purpose of evaluation. And TO will be issued as per CLIN ceiling requirement.

Vern Edwards said:

So, although the labor rates are fixed, a buyer should try to determine whether the ceiling price is is realistic, as well as reasonable.

No need to evaluate the ceiling price.  It appears to be pre-established.

joel hoffman said:

No need to evaluate the ceiling price.  It appears to be pre-set.

I don't know what you're talking about, but I don't care. I've had enough of this thread. Bye.