FAR 52.215-23 Limitations on Pass-Through for FFP

Bear with me, while I round out the specific clauses and get to my point/opinion.....

Since the "Pass Through" clauses are in the contract, albeit by a CO who want to apparently "exert" their right to insert a clause because the FAR says they "can" - - sure would like to see the documentation on why they feel it is that important....

Within your proposal you are required per 52.215-22 to:

1.Identify in its proposal the total cost of the work to be performed by the offeror, and the total cost of the work to be performed by each subcontractor, under the contract, task order, or delivery order.

2. Identify any subcontract more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order, to include the proposed amount of the offeror’s indirect costs and profit/fee applicable to the work to be performed by the subcontractor(s); and(ii) A description of the added value provided by the offeror as related to the work to be performed by the subcontractor(s).

Additionally, If any subcontractor proposed under the contract, task order, or delivery order intends to subcontract to a lower-tier subcontractor more than 70 percent of the total cost of work to be performed under its subcontract, the offeror shall identify in its proposal the same information for the work to be performed by the lower-tier subcontractor(s).

So before we get to 52.215-23, you are clearly, within your proposal explaining to them what you intend to make on your subcontractor based on the proposed cost and explicitly stating what your added value to the contract is. So the CO is clear on your intent, I feel this is very important.

Now with 52.215-23, Limitations on Pass-through charges, the key words related to the above are:

“Added value” means that the Contractor performs subcontract management functions that the Contracting Officer determines are a benefit to the Government (e.g., processing orders of parts or services, maintaining inventory, reducing delivery lead times, managing multiple sources for contract requirements, coordinating deliveries, performing quality assurance functions).

“Excessive pass-through charge”, with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs).

“No or negligible value” means the Contractor or subcontractor cannot demonstrate to the Contracting Officer that its effort added value to the contract or subcontract in accomplishing the work performed under the contract (including task or delivery orders)

And it states in "General" The Government will not pay excessive pass-through charges. The Contracting Officer shall determine if excessive pass-through charges exist

So to my final point..

If you clearly state within your proposal all applicable subcontract cost, especially those related to the "70%" or more items, outline your profit/OH detail, the CO MUST make a determination as to the whether or not the pass through charges exist. If they make the award of a FFP contract for services as proposed without mention of issues with your proposed subcontract cost, in my opinion they have approved and stated that "No pass through charges" exist and as such all costs are allowable. I feel this would be the same as to any FFP modification proposed, negotiated and awarded. The key is to show your "added value" and why your costs associated to the subcontracting management roles is invaluable to the cost proposed.

Thanks. As with any contract modification, I would disclose all of these costs anyway. It just seems like a lot of trouble to go through for a clause that shouldn't be in this contract in the first place.

Worse, I just know this contracting officer to be uncooperative based on years and years of experience with him. He's never worked these clauses in before and feels that GC's add no value and are only in business for the mark-up. I can see that he's working them in now to try to eliminate as much mark-up as possible and having to go to battle with every change.

I need to retract my previous interpretation on the definition excluding "charges for the cost of managing subcontracts and any applicable indirect costs and associated profit/fee based on such cost". This means that the GC can markup their own costs, but markup on subcontractors may still be deemed "excessive pass-through" by the CO.

So, now I have a significant objection to these clauses being included. Does everyone else interpret 15.408(n)(2)(ii) the same way that I do? That is, “The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added). Because of the word "and", this contracting officer's discretion to use the clause is only applicable if the total estimated contract is below the simplified acquisition threshold...right?

Reading the prescription as a whole, it lists the circumstances under which the CO should insert the clause, then lists exceptions based on dollar value and contract type, then provides the CO the flexibility to include it if s/he determines it to be appropriate. I do not agree that the COs authority to insert the clause if they determine it to be appropriate for one of the excepted contract types is limited only to those circumstances where the total estimated value is below the thresholds identified in 15.408(n)(2)(i). Why would that make sense? Just because of the grammar ("and" instead of "or")? Setting that aside, if the CO believes it is appropriate and the clause is included, you are going to have to deal with it as instructed above.

Subs, thanks for the input. I'm surprised that we haven't hear from Vern and Joel on this topic yet...but WHY would you set aside the language of the FAR that clearly states "and" and not "or"? There is plenty of case precedence that essentially ruled that if the lawmaker intended it to be "or" they would have said so. Meanwhile, it reads "and" until such time as the language is changed. Perhaps I'm too anal on this one, but isn't that what the courts would see.

I'm looking to get this clause taken out of the solicitation because I can see it turning into the CO attempting to deny a prime contractor markup on his subcontractor. On a FFP construction project that is crazy and would put most GCs out of business.

Does everyone else interpret 15.408(n)(2)(ii) the same way that I do? That is, “The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added). Because of the word "and", this contracting officer's discretion to use the clause is only applicable if the total estimated contract is below the simplified acquisition threshold...right?

I do not read the FAR as you do.

1. In your last sentence, the reference to below the simplified acquisition threshold is incorrect. The Navy (the contracting activity you identified in your post) is part of DoD, and for DoD (n)(2)(i)( says the clause is required only for contracts or orders in excess of the threshold for obtaining cost or pricing data, not the simplified acquisition threshold. Your sentence is probably a result of typing too quickly rather than misreading the FAR.

2. I read 15.408(n)(2)(ii) (as applied to Navy contracts) as giving the contracting officer discretion to include the clause as follows:

• "When the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i)" gives the contracting officer the discretion to include the clause in contracts below the threshold for cost or pricing data.
• "And for any contract type" gives the contracting officer the discretion to include the clause in contracts above the threshold for cost or pricing data when the clause would not otherwise be required because of the contract type (e.g., the contracting officer may include the clause in a contract above the threshold for cost or pricing data when it is a "firm-fixed-price contract awarded on the basis of adequate price competition").

3. If your reading were correct, the proper word would be "regardless" rather than "and".

Scenario: A competitive-bid solicitation for a FFP general construction Navy contract in GA under any of the various socio-economic categories.

This solicitation includes FAR clauses 52.215-22 and 52.215-23: Limitations on Pass-Through Charges, with the obvious intention of applicability to any change orders. Whereas these clauses are not intended for FFP contracts “awarded based on adequate competition” per 15.408(n)(2)(i)( B )(1)(i), the contracting officer responded to a solicitation question by quoting 15.408(n)(2)(ii) that states “The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added).

Forgetting for the moment that this acquisition is NOT below the threshold for obtaining cost and pricing data (and thus 15.408(n)(2)(ii) should not apply), as a general contractor managing a very multi-discipline project with multiple working subcontractors, there is hardly a modification that I can contemplate that a subcontractor, lower-tier subcontractor, or some combination thereof, is not performing at least 70% of the cost of the work.

So I guess my question is: Do I have any reason to be concerned that these clauses are included given that 52.215-23(a) specifically excludes “charges for the cost of managing subcontracts and any applicable indirect costs and associated profit/fee based on such cost” from the definition of “Excessive pass-through charge”?

1. Is this an IFB for a set-aside, FFP single award construction contract? You said that it is a competitive bid solicitation.

2. If this is a Part 14 IFB, and I was concerned and were bidding it, I would submit a bid inquiry concerning the use of provision 52.215-22 and whether the government intends to require this information with the bid itself. You aren't submitting a "contract proposal" under Part 14. According to 15.400 -- Scope of Subpart., "This subpart prescribes the cost and price negotiation policies and procedures for pricing negotiated prime contracts (including subcontracts) and contract modifications, including modifications to contracts awarded by sealed bidding." This is is a "provision". The prescription for inclusion of 52.215-22 is under 15.4, although the prescription says to use it when the clause at 52.215-23 is in the solicitation. Thus, I don't know if the provision at 52.215-22 would be applicable to modifications after award of the FFP contract under an IFB. I don't think that FAR 15.4 is applicable to the original bidding process. However, I'm not 100% sure of either of those two assumptions and would probably include those type questions in a pre-bid inquiry.

EDIT: The point: Even though the prescription for the clause says to use it when clause at 52.215-23 is in the solicitation, I don't think that Subpart 15.4 applies to thie initial award; it comes under Part 14 I don't know if this provision is applicable after award or if it requires any submission of information with the bid.

3. You indicated that there is an "obvious intention of applicability to any change orders." For an IFB, I would tend to agree that if the the clause at 52.215-23 were in the contract, it would apply to modifications . In that case, it would appear that the K.O. wants some horsepower to enforce any limitations on subcontracting and to avoid "front" type prime-subcontractor arrangements by making the prime justify its participationn and management role of subcontractors, especially on modifications.

EDIT: The point: 52.215-23 would apply after award to changes in subcontracts and to modifications.

4. For modifications, I would expect that the prime should provide enough detail in its proposals for the KO to determine the prime-subcontract cost relationship and who is going to perform the modification work, who was going to perform deleted work, etc. anyway. The KO can question the reasonableness of the need for and the proposed levels of subcontracting, tier arrangements, pricing, etc. in negotiation of modification work - with or without the clause at 52.215-23. So, if you are going to actually manage the construction contract as the prime and perform at least your minimum required self-performed work, I don't think that this should be a problem - but I could be wrong. Is the prime construction contractor required to perform 30 or more percent of the work under the contract?

5. FAR 15.408(n )(ii) does not fall under 15.408 (n )(i )( B ) for DoD. And there is an exception for FFP contracts with adequate competition at 15.408 (n )(i )( B )( 2) ( i ).

EDIT: The point: FAR 15.408(n )(ii) stands on its own, irrespective of 15.408(n )(i)

6. I suggest consulting your counsel rather than rely on these answers so far, including mine.

Agree with Joel but would like to add a suggestion. If complying with the clause requirements will add performance costs, why not bid those costs (and clearly show them)?

Hope this helps.

Agree with Joel but would like to add a suggestion. If complying with the clause requirements will add performance costs, why not bid those costs (and clearly show them)?

Hope this helps.

H2H, if this is an IFB, I don't think that there is a way to clearly identify added performance costs to comply with the clause - at least without possible repercussions or possibly a gov't determination of non-responsiveness of the bid, if it looks like the bidder is adding conditions. I may be wrong. Plus, the decision to add those costs should be weighed in consideration of the quest for award as the lowest, responsive and responsible bidder.

wvanpup: Thank you for your kindness in calling it a typo. Yes, the clause is referring to the threshold for obtaining cost or pricing data. However, to interpret this as you do in your items #1 and #2, why would the first part of this be necessary? Again the clause reads:

“The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i)

AND for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.”

What you are saying is that you read the clause the same as if the words "when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and" were not there???!!!

Joel: Great to hear from you (yes, I'm donning my usual camouflage).

1. This IS an IFB for a set-aside, FFP single award construction contract?

2. The information NOT required with the original bid.

3. The intent is clearly to apply to modifications and the K.O wants that horsepower...but how do we counter the "front" type accusations when we are a GC and the contract is a very multi-discipline contract with 10-12 first-tier subcontractors. Any modification would likely result in subs performing 70% or more of the work for that change.

4. As a SDVOSB, SB, EDWOSB, WOSB, or 8(a) set-aside, the prime contractor performance requirement is 15% of the labor (disregarding any discussions on "similarly situated entities" that may help satisfy the 15% requirement).

5. The "exception for FFP contracts with adequate competition" is precisely why these clauses do not belong in this contract.

6. Good suggestion to consult counsel, just a major expense for a (very) small business to have to consult counsel when bidding just because a few clueless contracting officers want to exert their will. Most contracting officer's aren't this way, but a few bad eggs!

Finally to H2H (and Joel's response): As an IFB, I can include any costs that I want............then sit back and watch the low bidder do the work.

So, I am deeply concerned that the KO will use this clause to disallow a significant amount of my normal mark-up in what could be substantial changes. I argue that this clause is clearly not applicable to a "FFP contract awarded on the basis of adequate price competition" [15.408(n)(2)(i)( B )(2)(i)] and is NOT subject to addition at the contracting officer's discretion because the total estimated contract value is anticipated to be above the threshold for certified cost and pricing data [15.408(n)(2)(ii)].

ohnoudidnt14,

I think you are misinterpreting FAR 15.408(n)(2). Here's the relevant text:

Except as provided in paragraph (n)(2)(ii), the contracting officer shall insert the clause 52.215-23, Limitations on Pass-Through Charges, in solicitations and contracts including task or delivery orders as follows:

(i) [...]

(B ) For DoD, insert the clause when—(1) The total estimated contract or order value exceeds the threshold for obtaining cost or pricing data in 15.403-4; and

(2) The contemplated contract type is expected to be any contract type except—

(i) A firm-fixed-price contract awarded on the basis of adequate price competition;

(ii) A fixed-price contract with economic price adjustment awarded on the basis of adequate price competition;

(iii) A firm-fixed-price contract for the acquisition of a commercial item;

(iv) A fixed-price contract with economic price adjustment, for the acquisition of a commercial item;

(v) A fixed-price incentive contract awarded on the basis of adequate price competition; or

(vi) A fixed-price incentive contract for the acquisition of a commercial item.

(ii) The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.

FAR 15.408(n)(2)(i) requires use of the clause when the two stated conditions are met. FAR 15.408(n)(2)(ii) provides guidance on the use of the clause when the stated conditions are not met. The guidance is the same regardless of whether the first condition or second condition is not met. It has the same meaning if it were written as:

"The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) when the contracting officer determines that inclusion of the clause is appropriate. The clause may also be used for any contract type when the contracting officer determines that inclusion of the clause is appropriate."

Don. I've always appreciated your input to postings on Wifcon. Glad you chimed-in here.

So, even the way you have re-written the clause at (n)(2)(ii), it still doesn't give the KO authority to include the clause IF the order value is ABOVE the thresholds of 15.408(n)(2)(i). The exclusion for "A firm-fixed-price contract awarded on the basis of adequate price competition" from (n)(2)(i)( B )(2)(i) is, thus, still valid?

If this isn't right, then there is no reason to have the exclusions of (n)(2)(i)( B )(2) because the KO would have the authority to include it at their discretion on any action.

Ohno, For what it's worth, I agree with Don's interpretation that the KO may insert the clause for solicitations with a value less than the stated thresholds when appropriate and may use it on any contract type when considered appropriate.

If the prime is performing it's required share of the work and the prime is actually managing its subs and there isn't unnecessary tie ring of subcontracts, I don't see what leg the KO would have to stand on if he decided to withhold normal markups for overhead and profit based upon a measuring stick of 30%. This is construction with many specialty subcontractors after all.

Ohno, For what it's worth, I agree with Don's interpretation that the KO may insert the clause for solicitations with a value less than the stated thresholds when appropriate and may use it on any contract type when considered appropriate.

If the prime is performing it's required share of the work and the prime is actually managing its subs and there isn't unnecessary tie ring of subcontracts, I don't see what leg the KO would have to stand on if he decided to withhold normal markups for overhead and profit based upon a measuring stick of 30%. This is construction with many specialty subcontractors after all.

Thanks Joel, you are putting my mind at ease. Don's interpretation "that the KO may insert the clause for solicitations with a value less than the thresholds when appropriate and may use it on any contract type when considered appropriate" addresses two separate issues...what about when the value is ABOVE the stated threshold? Doesn't the exclusion at (n)(2)(i)( B )(2)(i) apply? If not, then why have it?

For what it's worth, for this GC contract, we generally would not satisfy the "measuring stick" of 30% on any reasonably conceivable modifications...thus the concern in the first place.

Ohno, the exclusion at 15.408(n)(2)(i)( B. )(2)(i) [i HATE tracking down these subsubsubparagraphs and I hate autocorrect] does apply to recovery of excessive charges in the existing contract price in paragraph ( d ) of the clause at 52.215-23.

Have you inquired of the govt how they intend to apply this clause considering that the public policy for construction contract subcontracting under your type of set-aside for a construction contract or for any type of general construction does not require 30% of contract or individual mod costs to be expended or performed by the prime?

The standard for limitations on subcontracting by the prime contractor on a competitively bid FFP general construction contract (i.e., multiple trades involved) under any of the various socio-economic categories has been established by law and is already expressed in the construction contract. It isn't 30% of the contract cost for mods or for the original work and that amount isn't consistent with general industry practice for competitively bid FFP construction contracting that I am aware of. Some cities or states might use similar standards but the federal government hasn't done so on a widespread basis so far, to my knowledge.

There are still primes that self-perform a large share of work but this is becoming more rare now days. Actually the contractual limitations on subcontracting for the various set-aside programs aren't even based upon "percent of the total cost of work to be performed under the contract". That is a totally different yardstick that would seemingly conflict with the various limitations on subcontracting under FAR 19.

I would expect the prime contractor to self-perform at least the required share of work and moreover would fully expect the prime contractor, as the general contractor on a multi-trade project, to actively manage and integrate the safety, cost, schedule and quality of its own work and that of its subs. I would expect that the prime as well as its subs would propose and price modification work based upon a reasonable need for first or second tier subcontracting that wouldn't be prudent for the prime or higher level sub to self-perform. The proposal should be consistent with the concept that it originally bid the work competitively, so had to reasonably limit excessive layering of work and subcontracting. The mod proposal should not reflect unnecessary tiering of the work to simply maximize prime and/or subcontractor markups on work performed by subs or sub-subs.

If it isnt necessary and reasonable to subcontract or sub-subcontract the work - especially if the originally required, work associated withj a change wasn't organized that way, I would challenge that during negotiations. I could use the clause (if it was in the contract) as a negotiating tool. But I wouldn't arbitrarily use "30%" as the yardstick. The yardstick isn't consistent with established public policy for such contracts as described here.

(SORRY - I CAN'T CRACK THE CODE FOR CONSISTENTLY FORMATTING FONT SIZE ABOVE)

[EDIT: One of my duties in the 1990's was to negotiate and/or to supervise negotiations of all sole source and competitively negotiated construction contracts for a USACE District. If I sound theoretical or idealistic - believe me that we successfully rejected front type contracting schemes during the process. We were able to get the SBA to replace firms with ones that could at least propose a reasonable approach to the project or made the proposed prime adjust its proposed approach to accomplish the work. I couldn't control what actually occurred after award in the field but at least was able to exert some control and restraint upon the award process.

Don Mansfield or NAVFAC WIFCON folks, is there a NAVFAC policy concerning use of this clause on set-aside FFP, competitively bid construction contracts?

Thanks again Joel. I'm going to save some of your language for use in the inevitable future negotiations. Meanwhile, I'm hopeful that the KO will come around and just take the clause out. Any modification proposal will be consistent with the original bid concept and will not have any unnecessary layering. That said, there are several subs and sub-subs that will be performing on-site, it's the nature of the project.

ohno wrote:

wvanpup: Thank you for your kindness in calling it a typo. Yes, the clause is referring to the threshold for obtaining cost or pricing data. However, to interpret this as you do in your items #1 and #2, why would the first part of this be necessary? Again the clause reads:

“The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i)

AND for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.”

What you are saying is that you read the clause the same as if the words "when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and" were not there???!!!

I am not saying anything close to what you are implying. For DoD, the clause is not required for one of two reasons. The first reason is because the contract is below the TINA threshold. The second reason is because the contract, while above the TINA threshold, is of a certain type. I am saying that the provision gives the contracting officer the discretion to include the clause regardless of the reason it is not required. I am saying that "and of any contract type" applies independently of "below the threshold." The reason I am saying this is threefold.

• There is no "contract type" associated with the below the threshold provision for not including the clause. Therefore, adding the contract type language would be unnecessary.
• If the contract type language is to be tied to the below the threshold language, the proper word would be regardless (i.e., the contract type does not matter).
• It makes absolutely no sense to say that the contracting officer can use his discretion to include the clause in a contract below $700,000, but cannot use his discretion to include the clause in a contract of $150,000,000 (pick any large contract value). If I were drafting a regulation and wanted to impose a limitation on the contracting officer's discretion, it would be to prohibit the clause in the small contract where the amount in question is minimal, and authorize the clause in large contracts where the amount in question is significant.

This solicitation includes FAR clauses 52.215-22 and 52.215-23: Limitations on Pass-Through Charges, with the obvious intention of applicability to any change orders. Whereas these clauses are not intended for FFP contracts “awarded based on adequate competition” per 15.408(n)(2)(i)( B )(1)(i), the contracting officer responded to a solicitation question by quoting 15.408(n)(2)(ii) that states “The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.” (emphasis added).

* * *

So I guess my question is: Do I have any reason to be concerned that these clauses are included given that 52.215-23(a) specifically excludes “charges for the cost of managing subcontracts and any applicable indirect costs and associated profit/fee based on such cost” from the definition of “Excessive pass-through charge”?

Answer to the question: Yes.

Do you have any other questions?

Don. I've always appreciated your input to postings on Wifcon. Glad you chimed-in here.

So, even the way you have re-written the clause at (n)(2)(ii), it still doesn't give the KO authority to include the clause IF the order value is ABOVE the thresholds of 15.408(n)(2)(i). The exclusion for "A firm-fixed-price contract awarded on the basis of adequate price competition" from (n)(2)(i)( B )(2)(i) is, thus, still valid?

If this isn't right, then there is no reason to have the exclusions of (n)(2)(i)( B )(2) because the KO would have the authority to include it at their discretion on any action.

ohnoudidnt14,

You're hung up on the "and" at FAR 15.408(n)(2)(ii). You think that two conditions must be met in order for the CO to exercise their discretion to include the clause. That's not what it says. The CO may include the clause, at their discretion,--

1. When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i) and the contract type is one that is not listed FAR 15.408(n)(2)(i)( B )(2), or

2. When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i) and the contract type is one that is listed FAR 15.408(n)(2)(i)( B )(2).

I think that you are having a problem seeing this because you want it to say something different.

Don Mansfield or NAVFAC WIFCON folks, is there a NAVFAC policy concerning use of this clause on set-aside FFP, competitively bid construction contracts?

Not that I know of.

Thanks again Joel. I'm going to save some of your language for use in the inevitable future negotiations. Meanwhile, I'm hopeful that the KO will come around and just take the clause out. Any modification proposal will be consistent with the original bid concept and will not have any unnecessary layering. That said, there are several subs and sub-subs that will be performing on-site, it's the nature of the project.

Since you are concerned, I suggest that, if time permits, you should submit a pre-bid inquiry regarding how the government intends to apply the clause after award. Bear in mind that recovery of excessive charges in the existing contract price in paragraph ( d ) of the clause at 52.215-23 should not be applicable (at least according to my interpretation of the plain language of the clause). You could ask them to verify that interpretation.

I would at least want to know what yardstick they intend to apply to pricing of construction contract modifications in lieu of or in addition to the other limitations on subcontracting. In reading the contract, as a whole, and in considering common practice for general construction contracting where most specialty work is often subcontracted, this clause is unclear in its intent and as to its appropriateness for inclusion here. That's my non-lawyer advice.

In what way is the clause unclear in its intent? It seems perfectly clear to me.

Don, 52.215-23 is based in part on section 852 of P.L. 109-364. The relevant part of 852 says

Not later than May 1,
2007, the Secretary of Defense shall prescribe regulations to
ensure that pass-through charges on contracts or subcontracts
(or task or delivery orders) that are entered into for or on
behalf of the Department of Defense are not excessive in
relation to the cost of work performed by the relevant
contractor or subcontractor.
(2) Scope of regulations.--The regulations prescribed under
this subsection--
(A) shall not apply to any firm, fixed-price
contract or subcontract (or task or delivery order) that
is--
(i) awarded on the basis of adequate price
competition; or
(ii) for the acquisition of a commercial item,
as defined in section 4(12) of the Office of
Federal Procurement Policy Act (41 U.S.C.
403(12)); and
( may include such additional exceptions as the
Secretary determines to be necessary in the interest of
the national defense.

How do you square this with your interpretation of 15.408(n)(ii)?

Vern (#20) - I like it...to the point. I guess my second question is: How the hell, using only appropriate regulatory references, can I convince the KO to get this out of the solicitation?

Don - I'll admit I was a bit hung up on "and", but based on your (and wvanpup's) interpretation, the exclusions of FAR 15.408(n)(2)(i)( B )(2) might as well not be there because you are giving the KO full discretion regardless of anticipated contract value or contract type.

Retread - I know your question was directed at Don, but I figure 15/208(n)(ii) incorporates the "additional exceptions" mentioned in ( B ).

Joel – I’m still attempting to get the clause removed completely and am struggling with the disclosure requirements as this is a low-bid / IFB.

Thank you to everybody...this is what makes WIFCON so valuable. (Vern, I look forward to being a student in one of your classes someday).

Retreadfed,

There you go keeping me honest again. I'll edit my post.

Wait, Don, you've edited your post so that both remaining options start with "When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i)"...does this mean that you are agreeing with my AND hang-up and the KO DOESN'T have the discretion when the estimated contract or order value is ABOVE the stated threshold?

Vern (#20) - I like it...to the point. I guess my second question is: How the hell, using only appropriate regulatory references, can I convince the KO to get this out of the solicitation?

In Post #10, you said that the solicitation is an Invitation for Bids, I thus presume that the procurement is being conducted pursuant to FAR Part 14. That being the case, I would say this to the CO:

1. The provision at FAR 52.215-22 and the clause at FAR 52.215-23 are prescribed by FAR 15.408. FAR 15.408 applies to solicitations and contracts in acquisitions being conducted by negotiation, not to acquisitions being conducted by sealed bidding. See FAR 15.000.

2. FAR Part 14 makes no mention of FAR 15.408, the provision at FAR 52.215-22, or the clause at FAR 52.215-23. Thus, inclusion of the provision and the clause in an IFB is a FAR deviation as defined at FAR 1.401(a). If the deviation is unapproved, the clause will be unenforceable.

3. Nothing in FAR Parts 14 or 15 provides for application of the pass-through policy to contracts awarded by sealed bidding or to modifications of such contracts. Compare the implementation of the pass-through policy with the implementation of the Truth in Negotiations Act. See FAR 14.201-7. Thus, again, the use of the provision and the clause in an IFB or contract awarded pursuant to sealed bidding is a deviation.

If the solicitation closing date has not already passed, I would file an agency-level protest with the CO or one of his or her superiors, or a protest with the GAO.

Wait, Don, you've edited your post so that both remaining options start with "When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i)"...does this mean that you are agreeing with my AND hang-up and the KO DOESN'T have the discretion when the estimated contract or order value is ABOVE the stated threshold?

Yes, I agree that the CO does not have the discretion to include the clause in contracts above the thresholds for the types of contracts listed at FAR 15.408(n)(2)(i)( B )(2).

Don, thanks. It's nice to know I'm not completely losing it.

Vern, YOU ROCK! This IS a FAR Part 14 IFB.

Don, you wrote:

You're hung up on the "and" at FAR 15.408(n)(2)(ii). You think that two conditions must be met in order for the CO to exercise their discretion to include the clause. That's not what it says. The CO may include the clause, at their discretion,--

1. When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i) and the contract type is one that is not listed FAR 15.408(n)(2)(i)( B )(2), or

2. When the total estimated contract or order value is below the thresholds identified in FAR 15.408(n)(2)(i) and the contract type is one that is listed FAR 15.408(n)(2)(i)( B )(2).

Based on this, you concluded:

Yes, I agree that the CO does not have the discretion to include the clause in contracts above the thresholds for the types of contracts listed at FAR 15.408(n)(2)(i)( B )(2).

As expressed in an earlier post, I came to a very different conclusion.

For DoD, the clause is not required for one of two reasons. The first reason is because the contract is below the TINA threshold. The second reason is because the contract, while above the TINA threshold, is of a certain type. I am saying that the provision gives the contracting officer the discretion to include the clause regardless of the reason it is not required. I am saying that "and of any contract type" applies independently of "below the threshold." The reason I am saying this is threefold.

• There is no "contract type" associated with the below the threshold provision for not including the clause. Therefore, adding the contract type language would be unnecessary.
• If the contract type language is to be tied to the below the threshold language, the proper word would be regardless (i.e., the contract type does not matter).
• It makes absolutely no sense to say that the contracting officer can use his discretion to include the clause in a contract below $700,000, but cannot use his discretion to include the clause in a contract of $150,000,000 (pick any large contract value). If I were drafting a regulation and wanted to impose a limitation on the contracting officer's discretion, it would be to prohibit the clause in the small contract where the amount in question is minimal, and authorize the clause in large contracts where the amount in question is significant.

I am curious; what is the flaw in my logic?

In post number 29, Vern said in part:

In Post #10, you said that the solicitation is an Invitation for Bids, I thus presume that the procurement is being conducted pursuant to FAR Part 14. That being the case, I would say this to the CO:

1. The provision at FAR 52.215-22 and the clause at FAR 52.215-23 are prescribed by FAR 15.408. FAR 15.408 applies to solicitations and contracts in acquisitions being conducted by negotiation, not to acquisitions being conducted by sealed bidding. See FAR 15.000.

While this is correct concerning the initial acquisition conducted by sealed bidding under Part 14, Part 15.4 does apply, where applicable, to modifications of contracts that were awarded by sealed bidding under Part 14 (italics added):

15.400 -- Scope of Subpart.

This subpart prescribes the cost and price negotiation policies and procedures for pricing negotiated prime contracts (including subcontracts) and contract modifications, including modifications to contracts awarded by sealed bidding.

As I mentioned earlier, I don't think that the provision at 52.215-22 is applicable to an IFB. The prescription at 15.408 (n) (1) states

(n) Limitations on Pass-Through Charges.

(1) The contracting officer shall insert the provision at 52.215-22, Limitation on Pass-Through Charges—Identification of Subcontract Effort, in solicitations containing the clause at 52.215-23.

However, the provision refers to requirements and restrictions concerning the contract proposal, which don't appear to be applicable to a sealed bid under Part 14. In addition, solicitation provisions generally are intended to address pre-award matters - thus here, Part 15 solicition processes. Subpart 15.4 is not applicable to IFB acquisition process itself - only to modifications after award.

So why would a Part 15 solicitation provision that is inapplicable to an IFB have to be included even if the clause at 52.215-23 could be used in an IFB? And Vern said that there is no reference in the Part 14 solicitation provisions to this provision (that is numbered 52.215-22). I'd think that if it were intended to apply to the original contract award, or to restrictions on the original contract price, there would be a corresponding provision in 14.206-6, Solicitation Provisions.

I don't really want to argue as to whether or not the prescription at 15.408 (n) (ii) for the clause at 52.215-23 could be applicable to a sealed bid FFP construction contract modifications, if 15.408 (n) were applicable. I doubt it.

(ii) The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.

1. Regardless, I think that its use is inappropriate for the several reasons that I explained in earlier posts. It seems to be totally inconsistent with the way that U.S. construction contracts are traditionally formulated, subcontracted and managed not only in federal contracting but under normal commercial practice.

2. As I stated earlier, recovery of excessive pass through charges for the original contract price under paragraph ( d ) of the clause is specifically inapplicable to firm-fixed-price contracts awarded on the basis of adequate price competition. Thus, this major part of the clause is meaningless here.

3. if the clause were applicable to IFB's, that leaves only some type of possible restriction on excessive pass-through charges under negotiated construction contract modifications, In my reading of the clause, it seems to indicate that the contractor could only include costs and fee on the actual costs to manage subcontracts but not on the subcontract costs, themselves. This - again, is NOT appropriate for construction contracting, where the contractor must bond the entire contract cost and bears the risk for quality, safety and schedule as well as integration and performance impacts of its subs. I don't know of any construction contractor that doesnt normally mark up subcontracts. Why be in the business and assume such risks if one can't spread your costs over subcontracts or earn profit on them???

4. The KO can always question unnecessary subcontracting, levels of subcontracting or tiering of subcontracts during mod negotiations anyway. Thus, there is really no need for this clause, here. Again, I question the propriety of the clause under a FFP construction contract.

So, regardless of whether or not the government could successfully defend a protest concerning the theoretical applicability of the prescription for including the clause at 52.215-23 under 15.408 (n )(ii), if the intent is to disallow prime contractor markups on anything other than the actual direct or indirect costs to manage the subcontracts, it is not appropriate for use on modifications to construction contracts, .

I'm not in a position to advise that you submit a pre-bid protest but it sure seems like it should be tested as to its propriety. I seriously wonder whether the drafters of the legislation and rulemaking for the provision and the clause clearly thought through the appropriateness for applicability to 1) IFB's and 2) construction contracts.

Vern said in post 24 above:

In what way is the clause unclear in its intent? It seems perfectly clear to me.

It may be perfectly clear to Vern but it's not perfectly clear to me as to its intent on a firm-fixed-price construction contract awarded on the basis of adequate price competition using an IFB. A major portion of the clause (recovery) is specifically inapplicable to such awards. The rest of it is inappropriate or unnecessary.

wvanpup,

The problem with how we were interpreting FAR 15.408(n)(2)(ii) was that it was not consistent with the statute. As Retreadfed pointed out, the statute (section 852 of P.L. 109-364) states:

Not later than May 1, 2007, the Secretary of Defense shall prescribe regulations to ensure that pass-through charges on contracts or subcontracts (or task or delivery orders) that are entered into for or on behalf of the Department of Defense are not excessive in relation to the cost of work performed by the relevant contractor or subcontractor.
(2) Scope of regulations.--The regulations prescribed under this subsection--
(A) shall not apply to any firm, fixed-price contract or subcontract (or task or delivery order) that is--
(i) awarded on the basis of adequate price competition; or
(ii) for the acquisition of a commercial item, as defined in section 4(12) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(12)); and
( B ) may include such additional exceptions as the Secretary determines to be necessary in the interest of the national defense.

DoD chose to implement the requirements of the statute in contracts exceeding the cost or pricing data threshold. The final FAR rule (75 FR 77741) contains the following exchange:

Issue 8: One respondent recommended that the rule should use the threshold in FAR 15.403-4 to ensure a consistent minimum threshold among all executive agencies in lieu of multiple thresholds currently in the rule. The respondent believed that if the Councils utilize the threshold in FAR 15.404-4, the rule “will exclude a significant number of subcontracts from this burdensome requirement but still cover the vast majority of the total value of subcontracts.”

Response: The Councils do not concur with the respondent's recommendation. By statute, civilian agencies are required to establish the threshold at the simplified acquisition threshold, while DoD established its threshold at the threshold for obtaining cost or pricing data in FAR 15.403-4.

FAR 15.408(n)(2)(ii) provides guidance on the use of FAR 52.215-23 below the cost or pricing data threshold--it is not implementing the requirements of the statute. The use of "and for any contract type" has the same meaning as "regardless of contract type." This interpretation harmonizes the regulation with the statute.

If we interpret FAR 15.408(n)(2)(ii) as permitting a CO to include FAR 52.215-23 in, for example, a fixed-price contract awarded on the basis of adequate price competition that exceeds the cost or pricing data threshold, we would be in direct conflict with the prohibition in the statute.

It may be perfectly clear to Vern but it's not perfectly clear to me as to its intent on a firm-fixed-price construction contract awarded on the basis of adequate price competition using an IFB. A major portion of the clause (recovery) is specifically inapplicable to such awards. The rest of it is inappropriate or unnecessary.

What's perfectly clear, as I pointed out above, is that neither the provision nor the clause is applicable to an acquisition conducted by sealed bidding. The use of the provision or clause in an IFB or a contract awarded by sealed bidding is not just a FAR devision, but a violation of the statute, as well. If everyone had focused on the original question asked the thread would have died shortly after Post #10.

Vern, I'm glad this thread didn't die too quickly, there is a lot of valuable information here. I've learned a lot and I'm glad it will be here for future researching Wifcon-ers (Wifconeers? Wifconians? Wifconettes? Whatever). I will try to come back here with the outcome. Thank you to all who contributed.

What's perfectly clear, as I pointed out above, is that neither the provision nor the clause is applicable to an acquisition conducted by sealed bidding. The use of the provision or clause in an IFB or a contract awarded by sealed bidding is not just a FAR devision, but a violation of the statute, as well. If everyone had focused on the original question asked the thread would have died shortly after Post #10.

Roger, 10-4. I thought you were saying that you knew the KO's intentions for using the clause on this FFP construction contract awarded on the basis of adequate price competition using an IFB. I now Copy.

I, too, am curious about the CO's intentions about the clause. It may be that he/she wants to apply the pass-through limitation to mods of a sealed bid contract, on grounds that FAR 15.400 says: "This subpart prescribes the cost and price negotiation policies and procedures for pricing negotiated prime contracts (including subcontracts) and contract modifications, including modifications to contracts awarded by sealed bidding." If that's what the CO is thinking, then he/she is not reading the regulation as a whole. FAR 15.400 does not bring everything in FAR Subpart 15.4 into play.

With respect to sealed bidding, the policy in 15.4 that applies is in 15.403, which concerns the submission of certified cost or pricing data for mods. See FAR 14.103-1 "The policy for pricing modifications of sealed bid contract appears in 15.403-4(a)(1)(iii)" That brings in certain ancillary parts of 15.4. See, e.g., FAR 15.403-5, 15.404-1(a)(3), 15.404-3( c), and 15.404-4(a). It also brings in 15.406-2, 15.407-1, and 15.408(l) and (m).

However, FAR 15.408(n)(2)(i) is clear that the pass-through clause does not go into a firm-fixed-price contract awarded after adequate price competition, which description fits a sealed bid contract. Since the clause does not go into such a contract, it would not apply to within-scope mods. However, since an out-of-scope mod ("cardinal change") would be a "new procurement" and awarded without adequate price competition, such a mod should require application of the pass-through clause to that mod, if other applicability criteria apply, but not to the entire contract.

What I've done is make sense of a regulation that ought to be clearer, but isn't and never will be. I'm using standard regulatory interpretation methods. My conclusion is consistent with what the regulators did with TINA. In FAR Part 14 they prescribe a clause that applies TINA to mods of sealed bid contracts, which they did not do for the policy about pass-through. My argument is that they would have developed a similar clause if they had wanted to apply the pass-through policy to mods of sealed bid contracts.

Don, I understand your interpretation. However, isn't yours just as inconsistent with the statute as you say mine is? The statute (PL 109-364, sec 852) says the implementing regulations shall not apply to an FFP contract awarded on the basis of adequate price competition. It makes no distinction based on the value of the contract (actually, I did not see anything in the statute that sets TINA as the threshold). If it violates the statute to give discretion to include the clause in FFP contracts based on adequate competition which are above the TINA threshold, why doesn't it violate the statute to include the clause in the same contracts which are below the TINA threshold?

I don't think either of us will convince the other. One of the best features of this discussion is the ability to disagree without being disagreeable.

wvanpup,

You're correct that the statute does not contain a dollar threshold. However, in implementing the statute, DoD decided to set a threshold (at the cost or pricing data threshold) above which the requirements of the statute would apply. DoD can do that. Below the threshold, the requirements of the statute do not apply. So, a contracting officer could include the clause in a FFP contract awarded on the basis of adequate price competition below the threshold and not be in violation of the statute.

FAR 15.408(n)(2)(ii) merely provides guidance on the use of FAR 52.215-23 below the cost or pricing data threshold--it is not implementing the requirements of the statute.

wvanpup,

Below the threshold, the requirements of the statute do not apply. So, a contracting officer could include the clause in a FFP contract awarded on the basis of adequate price competition below the threshold and not be in violation of the statute.

I disagree, Don. The statute clearly prohibits application of the policy to firm-fixed-price contracts awarded after adequate price competition.

The regulations prescribed under this subsection--(A) shall not apply to any firm, fixed-price contract or subcontract (or task or delivery order) that is--(i) awarded on the basis of adequate price competition....

DOD used statutory authority to except contracts value at less than the TINA threshold from the statutory pass-through rule. However, DOD cannot apply the policy to contracts to which the statute prohibits its application. I do not understand your reasoning.

Vern,

FAR 15.408(n)(2)(i)( B ) implements the statute for DoD. It states:

For DoD, insert the clause when—

(1) The total estimated contract or order value exceeds the threshold for obtaining cost or pricing data in 15.403-4; and

(2) The contemplated contract type is expected to be any contract type except—

• (i) A firm-fixed-price contract awarded on the basis of adequate price competition;

  (ii) A fixed-price contract with economic price adjustment awarded on the basis of adequate price competition

  (iii) A firm-fixed-price contract for the acquisition of a commercial item;

  (iv) A fixed-price contract with economic price adjustment, for the acquisition of a commercial item;

  (v) A fixed-price incentive contract awarded on the basis of adequate price competition; or

  (vi) A fixed-price incentive contract for the acquisition of a commercial item.

​

Note the "any contract type" except--...(i) A firm-fixed-price contract awarded on the basis of adequate price competition.

FAR 15.408(n)(2)(ii) provides guidance on the use of the clause below the stated threshold:

The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.

Unlike FAR 15.408(n)(2)(i)( B ), it does not limit the application by "contract type" as that term is used in the paragraph. It does not say "any contract type except the following--".

Vern,

FAR 15.408(n)(2)(i)( B ) implements the statute for DoD.

​

...Note the "any contract type" except--...(i) A firm-fixed-price contract awarded on the basis of adequate price competition.

So, as previously stated for DoD, the clause is not to be inserted for a FFP construction contract that exceeds the threshold, awarded under adequate price competition.

The statute in question (Section 852 of the FY 2007 NDAA) was originally implemented in the DFARS in an interim rule on April 26, 2007 (72 FR 20758-02). The prescriptions for the implementing provision and clause appeared as follows:

Use the provision at 252.215-7003, Excessive Pass-Through Charges—Identification of Subcontract Effort, and the clause at 252.215-7004, Excessive Pass-Through Charges, in all solicitations and contracts (including task or delivery orders) except for—

(i) Firm-fixed-price contracts awarded on the basis of adequate price competition;

(ii) Fixed-price contracts with economic price adjustment, awarded on the basis of adequate price competition;

(iii) Firm-fixed-price contracts for the acquisition of a commercial item; or

(iv) Fixed-price contracts with economic price adjustment, for the acquisition of a commercial item.

On May 13, 2008, a second interim rule was issued (73 FR 27464-02). The preamble contained the following comment and response:

Comment: The final rule should include a contract threshold that triggers the applicability of the rule (e.g., $100,000 for construction contracts and $50 million for major systems acquisition, or $650,000).

DoD Response: This interim rule includes a threshold tied to the cost or pricing data threshold, which provides for periodic inflation adjustment. In addition, the clause also allows for contracting officer discretion below that threshold based on potential risks or other considerations.

The prescription for the implementing clause was changed to read as follows:

Use the clause at 252.215-7004, Excessive Pass-Through Charges, in solicitations and contracts (including task or delivery orders)—

(A) With a total value that exceeds the threshold for obtaining cost or pricing data in accordance withFAR 15.403-4, except for—

(1) Firm-fixed-price contracts awarded on the basis of adequate price competition;

(2) Fixed-price contracts with economic price adjustment, awarded on the basis of adequate price competition;

(3) Firm-fixed-price contracts for the acquisition of a commercial item; or

(4) Fixed-price contracts with economic price adjustment, for the acquisition of a commercial item; or

( With a total value at or below the threshold for obtaining cost or pricing data in accordance with FAR 15.403-4, when the contracting officer determines that inclusion of the clause is appropriate.

In response to the second interim rule, the Professional Service Council submitted the following comment on July 14, 2008:

DFARS 215.408(3) prescribes the circumstances when the solicitation provision at 252.215-7003 should be used, and includes a floor for application of the requirement where the total value of the solicitation is above the TINA threshold unless one of four exceptions applies. The section also provides authority for including the clause even where the total value is below that threshold if the contracting officer determines that inclusion of the clause is appropriate. A similar construct is included in 215.408(4) regarding the circumstances when the clause at 252.215-7004 is to be included. While we support creating a general threshold, the construct of the rule in both places implies that the four statutory exclusions would not be available if the total value of the solicitation is below the TINA threshold and the contracting officer determines to include the clause. However, the statute is clear on the exclusion of certain types of contracts without regard to their dollar value. Therefore, we recommend that both DFARS 215.408(3) and DFARS 215.408(4) be amended to also apply the exceptions to solicitations with a value below the TINA threshold even where the contracting officer has determined to include the two clauses.

On October 14, 2009, the FAR Council issued an interim rule to implement Section 852 of the FY 2007 NDAA in the FAR. The DFARS case was incorporated into the FAR case. The interim rule did not contain a response to the comment submitted by the PSC. The prescription for the implementing clause, now at FAR 15.408(n)(2)(i), read as follows:

Except as provided in paragraph (n)(2)(ii) of this section, the contracting officer shall insert the clause 52.215-23, Limitations on Pass-Through Charges, in solicitations and contracts including task or delivery orders as follows:

(A) For civilian agencies, insert the clause when—

(1) The total estimated contract or order value exceeds the simplified acquisition threshold as defined in section 2.101 and

(2) The contemplated contract type is expected to be a cost-reimbursement type contract as defined in Subpart 16.3; or

( For DoD, insert the clause when—

(1) The total estimated contract or order value exceeds the threshold for obtaining cost or pricing data in 15.403-4; and

(2) The contemplated contract type is expected to be any contract type except—

(i) A firm-fixed-price contract awarded on the basis of adequate price competition;

(ii) A fixed-price contract with economic price adjustment awarded on the basis of adequate price competition;

(iii) A firm-fixed-price contract for the acquisition of a commercial item; or

(iv) A fixed-price contract with economic price adjustment, for the acquisition of a commercial item.

(ii) The clause may be used when the total estimated contract or order value is below the thresholds identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.

[bold added].

Instead of limiting the applicability of the clause below the cost or pricing data threshold to certain prescribed contract types, as the PSC suggested, the FAR Council explicitly stated that the clause may be used "for any contract type" without exception.

Don:

So, you are saying that DOD has decided to ignore the statute's positive prohibition against applying the pass-through policy to FFP contracts awarded after adequate price competition. You are saying that DOD has decided that it is okay to apply the policy to FFP contracts awarded after adequate price competition if the contract is valued at less than the TINA threshold, even though the statute says that DOD's regulations "shall not" apply the pass-through policy to such contracts.

Do I understand you correctly?

Don:

So, you are saying that DOD has decided to ignore the statute's positive prohibition against applying the pass-through policy to FFP contracts awarded after adequate price competition. You are saying that DOD has decided that it is okay to apply the policy to FFP contracts awarded after adequate price competition if the contract is valued at less than the TINA threshold, even though the statute says that DOD's regulations "shall not" apply the pass-through policy to such contracts.

Do I understand you correctly?

It was actually the FAR Council that added "for any contract type" without exception at FAR 15.408(n)(2)(ii)--not DoD. I don't know for sure if the FAR Council deliberately decided to permit application of the pass-through policy to contracts below the TINA threshold or if they did so by mistake. There was no explanation of why "for any contract type" was added in the FR notice.

Well, Don, since the statute says "shall not apply," maybe the FAR is in violation of statute and unenforceable. What do you think?

That's a possibility. There could be some legal justification that I am not aware of. I'll see what I can find out.

Follow-up for all. Good news, the KO has "seen the light" and today issued an amendment to the solicitation removing reference to this clause (without the need for a solicitation protest). Well done!

I can already see that my next battle is going to be convincing the KO that inclusion of the clause for FFP acquisitions below the TINA threshold is still not "appropriate". A lot of good information in this thread to help that cause.

Thank you!

If they do include it for contracts under the threshold, I would suggest that you ask to see the decisional documentation of the rational for considering it to be appropriate for a FFP competitively awarded construction contract.

EDITED TO ADD MY SUMMARY ASSESSMENT:

The contract already states limits on subcontracting. Current construction industry practice often involves general contractors subcontracting specialty trades - the GC that self performs a wide variety of trades is few and far between and will likely be a very large contractor that isn't interested in dink sized contracts anyway. Public policy encourages wide participation by small business (e.g., subcontracting goals and plans). And, as I explained earlier, the prime is responsible and at risk for the time, quality, safety and cost performance or failures of its subs. It is standard industry practice to allow the prime to charge markups and fee on its subcontract costs. Much of the clause pertaining to government recovery of excess costs isn't applicable to competitively bid or negotiated contracts, as stated herein.

If the intent is to have some control over negotiated modifications to a construction contract, the Contractor already must demonstrate that the level or sub levels of subcontracting are reasonable vs. the prime or it's applicable sub self-performing the work .

I just don't see the "appropriateness" of including the clause in construction contracts, especially those that are awarded under competition and probably most of those that are negotiated.