Percent of cost of performance incurred for personnel

Over 100 views and not a single response.

I didn't expect to "stump" the experts here.

Any thoughts or ideas before I give up?

Ohno, I'm still at Student Life youth camp this week with only access to a phone and without the inclination to try to search the 13 CFR for Small Business on this phone but did you try looking there? I seem to remember reading about your question there.

I believe that the answer was something to the effect that if you can't determine the personnel cost share of a subcontract then you count the whole subcontract cost as subcontracted personnel. However, I suggest that you seek the answer in Title 13 of the CFRs.

Oh - First the CFR reference that Joel’s post references is 13 CFR 125.6 but by my read I see nothing that addresses subcontracts in the manner that Joel suggests.

Second and direct to the overall hypothetical I do not get it?

FAR 52.219-14 states that you, as the prime is “agreeing” to meet the subcontracting limitations stated. Pardon me but one would think that since the matter of your agreement to the limitations goes to your “responsibility” to perform that you as the prime would require your proposed and actual subcontractors to furnish you the necessary information to comply. And in those cases where you believe you cannot compel them to do so then I would suggest it would be a risk that you would have to assume. But remember if a CO does want to question your “responsibility” with regard to the limitation matter and refers the matter to SBA properly the SBA will probably ask you some very pointed questions regarding your ability to meet the standards of the subcontracting limitations before determining to issue or denying to issue a COC (FAR Part 19.6).

Yes, FAR 52.219-14 (or the similar clauses for HUBZone, SDVOSB, WOSB/EDWOSB set-asides) are an "agreement" that a prime contractor commits to with a bid. As a part of the "responsibility", I track this during performance. As work inevitably changes (whether incorporated by contract modifications or not), these percentages vary and in some cases need to be closely tracked. In my case, I have professional service providers (accountants, lawyers, etc.) that may be direct cost to the contract. I don't anticipate being able to get a DLR from these providers, but want to include them in the calculations since they are direct cost "incurred for personnel". I was just hoping that there is some precedence out there somewhere as to how the SBA would figure this...but haven't found anything yet.

Thank you

There is not much information about the enforcement of subcontracting limitations after contract award. The issue seems to come up mainly during proposal evaluation and in bid protests. It appears that not much effort goes into monitoring contractor compliance after award.

I question whether the limitations are always enforceable if the government modifies the requirement during performance. What if they change the contract in ways that make compliance impossible or impractical?

I think people are making this far more important than it is. There is simply no need to evaluate 52.219-14 compliance before award -- the only pre-award concern should be if there is something in the proposal that suggests the contractor will not comply -- the clause's real relevance is only post-award, and there it ought to be readily apparent whether or not the contractor is fulfilling the agreement -- if it is not apparent, the contracting officer should simply ask.

What if they [the Government] change the contract in ways that make compliance impossible or impractical?

I don't know the answer. If performance is possible, but expensive, well, I suppose the Government should pay for the change if it wants the contractor to honor the agreement. If the change makes compliance with the agreement impossible, well, I suppose the contractor's failure could be excused by the contracting officer and serve as a bar to termination for default (or cause).

I am not aware of any authority for the contracting officer to waive the agreement. However, waiving the agreement (because of the impossibility) and forbearing termination (because of the impossibility) are two entirely different matters.

ji, I think you have underestimated the difficulty with determining compliance with the LOS clause post award. First of all, there is no mechanism provided in the FAR that would allow the government to do this. An audit of costs incurred would not be a mechanism if the prime contract or subcontracts are firm fixed price as the government has no right to audit the costs of such contracts or subcontracts.

Next at what point in time do you measure compliance particularly for supply contracts? During the early stages of a supply contract most of the labor cost may be incurred by subcontractors who are manufacturing components of the end item. This would not be a realistic measurement of compliance for the entire contract.

I know it is hard for us to PROVE everything.

But we don't have to PROVE everything. If we have some reason to believe, post-award, that a contractor is not complying with the limitations on subcontracting agreement in its contract, it is a simple matter for the contracting officer to require the contractor to show that it is complying -- the burden is on the contractor to comply with the agreement, not on the Government to measure it. Then, the contracting officer's effort is satisfying him- or herself that the contractor has adequately told the story.

[A]t what point in time do you measure compliance particularly for supply contracts?

The contractor's compliance is overall, not on any particular day.

Consider CBCA case no. 2716, Singleton Enterprises. Singleton's contract had a 50% self-performance requirement (but I'm not sure if it was driven by a clause such as FAR 52.219-14 or 52.236-1). Government employees rarely saw Singleton employees and often say subcontractor employees -- based on those observations, the agency decided Singleton was not meeting its 50% agreement and reduced the contract price. The parties ended up at the CBCA. The judge upheld the contract price reduction, writing--

The imposition of damages for failure to meet the 50% threshold is a matter of first impression for this Board. No cases that have been brought to our attention are directly on point, either as to the propriety of assessing damages for this particular breach or how to calculate those damages. That said, after consideration, we find that the Government, as any contracting party, has a right to the benefit of its bargain and, thus, the right to recover damages due to a breach. There is no provision in this contract which prohibits the Government from seeking damages for the breach in issue or which provides a specific remedy for this type of breach.

The judge accepted the Government's observations as establishing proof of Singleton's failure to honor the agreement because Singleton did not provide any proof otherwise.

I know it is hard for us to PROVE everything.

But we don't have to PROVE everything. If we have some reason to believe, post-award, that a contractor is not complying with the limitations on subcontracting agreement in its contract, it is a simple matter for the contracting officer to require the contractor to show that it is complying -- the burden is on the contractor to comply with the agreement, not on the Government to measure it.

Nonsense. Absent a clause requiring the contractor to prove its compliance, the burden lies with the government to prove noncompliance. Let me put it this way -- noncompliance would be breach of contract. The government cannot validly terminate for default unless it can prove default, and I know of no standard clause that requires a contractor to prove that it is in compliance and not in default with respect to the limitations on subcontracting clause. The decisional language you quoted does not support your proposition that the burden is on the contractor. See Earthstar Construction and Logistics Co., ASBCA 58086, 12-1 BCA ¶ 35461:

Default termination is a drastic sanction that should be imposed “only for good grounds and on solid evidence.” J.D. Hedin Construction Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969). The government bears the burden of proof that a default termination is justified. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987). Once the government establishes default on the part of the contractor, the burden of proof shifts to the contractor to prove that the default was excusable. DCX, Inc. v. Perry, 79 F.3d 132, 134 (Fed. Cir. 1996); Double B Enterprises, Inc., ASBCA Nos. 52010, 52192, 01-1 BCA ¶ 31,396 at 155,110.

The complete citation for the quote you provided is: Singleton Enterprises v. Department of Transportation, CBCA 2716, 12-2 BCA ¶ 35069. In that case the clause in question was not the FAR 52.219-14. It was probably 52.236-1, since the contract was for construction. The Government had evidence that the contractor did not comply:

In February 2010, beyond the original completion date, but prior to final acceptance, Singleton submitted a form FHWA 1775, Notice of Subcontract Award - Supplemental Information to FHWA. On that form, Singleton specified that it was subcontracting $309,510, or 48.8% of the work, to Talley. FHWA has contended that the above information was false and overstated the value of work retained by Singleton. FHWA relied in large part for its conclusion upon the agreement set out in the August 24, 2009, letter, a document it had not seen during the contract performance. FHWA also relied upon observations of its officials at the site, who uniformly concluded that, at best, the only employees on the site being paid by Singleton were the superintendents, and all physical work was being done by Talley's forces.

If a contracting officer has no reason to believe the contractor is not meeting the agreement, he or she has no positive duty to inquire. He or she doesn't have to PROVE that the contractor is in compliance with the limitations on subcontracting agreement.

In the Singleton case, the contracting officer had a reason to believe the contractor was not meeting the agreement. The contractor was unable to prove otherwise. The contractor lost.

ji, I think you have misstated the result in Singleton. The government was able to show by a preponderance of the evidence that Singleton was in default. Singleton was unable to rebut that evidence. Singleton lost.

ji20874:

You said: 'But we [the Government] don't have to prove anything."

That's wrong. Absent some clause to the contrary, in order for a CO to rightfully take action against a contractor for failure to comply, the CO must be able to prove that the contractor has failed or will fail to comply. With proof in hand, the CO can then demand that the contractor cure or show cause why it should not be held responsible. If you meant something different than what you clearly said, I could not tell from your words.

Yes, the burden is on the contractor to comply, but the burden is on the Government to prove that the contractor did not.

Vern,

Forget taking action against a contractor. I'm not talking about that. I'm also not talking about proving that the contractor did not comply. I'm talking about contracting officers PROVING that contractors are complying.

I'm saying that as long as a contracting officer has no reason to believe the contractor is failing to live up to its subcontracting limitations agreement, he or she has no duty to PROVE that the contractor is complying. There is no affirmative duty of the contracting officer to do anything regarding the 52.219-14 clause. Absent information suggesting otherwise, contracting officers need not do anything to enforce the 52.219-14 clause. As has been pointed out, there is no good way to PROVE compliance anyway.

I reject the notion that every contracting officer in every federal agency must PROVE that every contractor is complying with its subcontracting limitation agreements, in contracts containing such.

I think people are making this far more important than it is. There is simply no need to evaluate 52.219-14 compliance before award -- the only pre-award concern should be if there is something in the proposal that suggests the contractor will not comply -- the clause's real relevance is only post-award, and there it ought to be readily apparent whether or not the contractor is fulfilling the agreement -- if it is not apparent, the contracting officer should simply ask.

ji, I disagree with you. See http://www.gao.gov/assets/670/663099.pdf

Years ago, DoD had a special SDB Set-aside program. I could see through all sorts of front schemes that we rejected during source selections. Our actions were upheld in agency protests that went no further at the time.

ji20874:

You wrote:

Vern,

I reject the notion that every contracting officer in every federal agency must PROVE that every contractor is complying with its subcontracting limitation agreements, in contracts containing such.

So, which COs in which federal agencies must, and which need not? According to FAR 1.602-2, "Responsibilities":

Contracting officers are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships.

Aren't the limitations on subcontracting a term of the contract and an interest of the United States? Isn't that why they are imposed by statute, 15 USC § 657s, and by regulation, 13 CFR § 125.6? And doesn't 13 CFR § 125.6 (j) say:

The contracting officer must document a small business concern’s performance of work requirements as part of the small business’ performance evaluation in accordance with the procedures set forth in FAR 42.1502. The contracting officer must also evaluate compliance for future contract awards in accordance with the procedures set forth in FAR 9.104–6.

In light of the statute and the regulations, why do you reject the notion that every CO should be proactive in ensuring compliance with FAR 52.219-14? I realize that would be impractical, but you seem to reject the notion as a matter of principle. Why, as a matter of principle, shouldn't every CO be proactive in ensuring compliance with the limitations?

Woah...slow down that horse!!!

Interesting exchanges here to say the least. Keep in mind that MOST of the limitations on subcontracting requirements apply to the entire contract and not to any particular arbitrary time in contract performance. I am making every effort to comply, so If I can lead you all back to the original question: How can I credibly account for the personnel cost for professional services when the only data I have is the fully burdened labor rate from that entity?

That said (and now just to stir the pot a bit), absent any other information (e.g. certified payroll) in the Singleton case, how would you know that the Singleton individuals on the contract weren't compensated at a much higher DLR than their subcontractor personnel, thus possibly meeting the applicable percentage of "cost incurred for personnel"? That is, say four performing subcontractor personnel are making $20/hr and one prime contractor superintendent is making $80/hr. The prime is, thus, incurring 50% of the cost of personnel (simplifying for the point of argument and not considering indirect cost, etc.).

How can I credibly account for the personnel cost for professional services when the only data I have is the fully burdened labor rate from that entity?

Your question pertains to the limitation on subcontracting clause, FAR 52.219-14, which says, in pertinent part:

( c) By submission of an offer and execution of a contract, the Offeror/Contractor agrees that in performance of the contract in the case of a contract for--

(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.

"The cost of contract performance incurred for personnel" is the cost to the prime. If a prime is paying a sub by the hour at a burdened hourly rate under a T&M or L&H contract, then the hourly rate paid to the sub for the labor of the sub's employees, less an amount for profit, times the number of hours worked by the sub, is "the cost of contract performance incurred for personnel", as defined in 13 CFR § 125.6(e)(2), for the employees of the sub. The prime ought to know how many hours it is billed for. The prime need not know the composition (breakdown) of the hourly rate paid to the sub, except to allow an amount for profit, which it can guesstimate.

So in order to determine compliance with the limitations clause, FAR 52.219-14( c)(1), the prime needs to know how much it spent for whatever work was done by its own personnel and how much it paid to the subcontractor for the work done by the sub's personnel [hours x (rate - profit)]. The costs for its own personnel plus what it paid for the work of the sub's personnel [hours x (rates - profit)] are the total costs of performance incurred for personnel. The total costs of performance incurred for personnel divided by the costs for the prime's personnel would give the percentage of the costs of performance incurred for personnel for the prime's employees.

Thus, if the prime spent $ 400,000 for the work done by its own employees, and paid its subcontractor at $100 per hour (rate - profit) for 6,000 hours for a total of $ 600,000 for the work done by the sub's employees, the prime's total costs incurred for personnel would be $1,000,000 and the prime would have expended 40 percent of the total cost of performance incurred for personnel for its own employees.

I have answered your question.

The total costs of performance incurred for personnel divided by the costs for the prime's personnel would give the percentage of the costs of performance incurred for personnel for the prime's employees.

I think you meant the total costs for the prime's personnel ($400,000 in your example) divided by the total costs of performance incurred for personnel ($1,000,000 in your example) would give the percentage of costs of performance incurred for personnel. Your example is correct.

One point is unclear regarding a determination as to whether a prime contractor has complied with the LOS clause and that is whether some prime G&A should be considered in that determination. If a contractor computes its G&A using a base that includes subcontract costs, a portion of the prime's G&A will be allocated to a contract because of subcontract costs allocated to that contract. It is unclear whether this G&A should be considered in determining whether the prime has complied with the LOS clause.

Yes, Don. That's what I meant. It was late when I wrote that.

Retread:

Here is the definition in 13 CFR 125.6(e)(2):

Cost of contract performance incurred for personnel. Direct labor costs and any overhead which has only direct labor as its base, plus the concern's General and Administrative rate multiplied by the labor cost.

So I think you're right that the prime's G&A must be included in the calculation. Thanks.

Vern, you were very helpful in answering the question, thank you very much. I think you can understand my hesitation as I was attempting to apply the definition in 13 CFR 125.6(e)(2) to my "cost of contract performance incurred for personnel" of my subcontractor(s). Your way is definitely easier and I hope this helps others out there with a similar question.

When the FAR is ultimately updated to included "similarly situated entities" for SDVOSB, EDWOSB/WOSB, and Total-SB set-asides (like it reads now for HUBZones) this will be increasingly important as some sub-contractors will be counted as satisfying the applicable performance requirement.

As for all of the other discussions here regarding the application of G&A, etc. to the calculation, I encourage you all to go read the “Is this Professor right?” thread started by contractor100 on 3/23/12. It's a long thread, so be sure to read all the way to the end. There is a lot of very good information and (as I mentioned in the initial post here) I have gone with Vern's alternate method in Post #25 of that thread.

Cheers and a safe 4th of July holiday to all.

Joel,

The case you cite is not relevant to my comment. In my comment, I said, "the only pre-award concern should be if there is something in the proposal that suggests the contractor will not comply."

The case you cite fully supports my comment. Here's an extract--

...MindPoint, on the face of its proposal, took exception to the requirement that employees of MindPoint will perform at least 50 percent of the cost of contract performance incurred for personnel. . . . Where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability.

Vern,

You attributed principle to me and practicality to yourself, but maybe they are the same. I say that a contracting officer need not pre-award exhaustively PROVE that a contractor will comply with the limitations on subcontracting agreement in a proposed contract award, in the absence of any indicator otherwise. It's a matter of post-award administration. Similarly, we need not pre-award exhaustively PROVE that a proposed contractor will comply with the Buy American Act all the way down to the nut-and-bolt level -- but the clause is in the contract for post-award adminisration purposes and we might have a submittals approval process. We need not pre-award exhaustively PROVE that a proposed contractor will comply with every jot and tittle of the Service Contract Act. If we tried to pre-award exhaustively PROVE that every proposed contractor would comply with every jot and tittle of every clause and statute, every single one of them, well, we would never get anything awarded -- the burdenon offerors and the contracting agencies would be too high. Note: all of this is in the absence of something indicating otherwise. If there is something indicating otherwise, such as in the procurement history or in the proposals on the table (or an indicator from a competitor), well, that's not the condition I am describing.

As in every case when discussing the nuisances of Federal contracting there is a probable exception and with regard to the review and proving of limitations on subcontracting there is.

First, remember the “clause” for subcontracting limitation does change with regard to certain set-asides and I would suggest the emphasis of pre and post contract review does too as the matter of responsibility is important to the eligibility to participate in a specific set aside program. By example see FAR 52.219-23 for SDB’s, 52.219-27 for SDVOB’s, 52.219-29 for economically disadvantaged women owned businesses, and 52.219-30 for women owned businesses.

The most glaring example is with regard to 8(a). In the case of 8(a) the 52.219-14 clause is used and not only does it go to a matter of responsibility it is with regards to a firm’s eligibility in the 8(a) Program. As such SBA emphasizes in its partnership agreements with agencies the requirement for an agency to affirmatively review the matter of subcontracting limitation by requiring imperative (shall) assessment of the limitation at contract award and requires imperative (shall) monitoring and oversight of the limitation throughout contract performance (modifications by example). As a singular reference see the current partnership for DoD found here….http://www.acq.osd.mil/osbp/docs/dod-sba-8a-partnership-agreement-20121031.pdf

Bottom line a one size general statement about the CO’s effort with regard to administration of the 52.219-14 clause and subcontracting limitation overall might be covered in this thread but there are specific places where the CO’s effort is greater than what is being implied.

???

ji, I strongly disagreed with several statements that you made in your post number 7:

"I think people are making this far more important than it is. There is simply no need to evaluate 52.219-14 compliance before award"

and:

the clause's real relevance is only post-award,

Here is your entire post for the sake of context.

Posted 02 July 2014 - 11:35 AM, ji20874 said:

I think people are making this far more important than it is. There is simply no need to evaluate 52.219-14 compliance before award -- the only pre-award concern should be if there is something in the proposal that suggests the contractor will not comply -- the clause's real relevance is only post-award, and there it ought to be readily apparent whether or not the contractor is fulfilling the agreement -- if it is not apparent, the contracting officer should simply ask.

DISCLOSURE: My concerns over self-performance of work by the Contractor over my career were not limited to small business set-asides, the various categories of small, disadvantaged business set-asides or sole source awards.

As Chief of Contract Administration Division within the USACE Chemical-Demilitarization Directorate and previously as Chief of a C.A. Section within Contract Administration Branch for a Corps of Engineers Construction Division, I oversaw or performed proposal evaluations during sole source negotiations and source selections for construction contracts. I also provided policy and oversight of numerous ACO offices that were administering construction contracts that were either bid or negotiated. As part of those duties, my employees and I took seriously, the public policies for requiring prime contractors to self-perform a certain amount of work, as expressed in various contract clauses. Part of my zealousness was formulated from my experience in my fist year as an Air Force Civil Engineer in 1971. During that year, I was assigned to inspect and technically administer several construction and repair projects at an AF Base where I never saw or met the prime contractor. The second low bidders performed each of those contracts. After going to the work for the USACE, where we administered the entire contract, I was taught the whole spectrum of construction contract formation and administration. We learned that ignoring the requirements before award, then relying only on ACO offices to monitor and enforce the self-performance of work requirements was entirely ineffective on both unrestricted contracts and on preference type awards.

In 41 Comp.Gen. 106 (1961), the GAO discussed the reasoning behind the (unrestricted) self-performance of work requirements: "The Chief purpose of the limitation on subcontracting and the required information as to work to be performed by the bidder's own organization is to limit award to bona fide contractors and to preclude award to those firms whose chief purpose in bidding is to acquire a valuable asset, whichin effect may be "peddled" to others interested in performing the work called for. In our judgment, therefore, the purpose of the information is to determine the responsibility of the bidder." This was quoted from a US Claims Court Decision, BLOUNT, INC. VS. U.S. No. 90-3974C Dec 20, 1990. The Court went on to also conclude that, in the particular case, the matter was also a matter of bid responsiveness, where the bid clearly indicated that the bidder did not intend to comply with the material requirements of the IFB. The relevant clause was 52.236-1, Performance of Work by the Contractor. FAR 36.501 states "(to) assure adequate interest in and supervision of all work involved in larger projects, the contractor shall be required to perform a significant part of the contract work with its own forces.."

As part of the statutes that establish the various small business and small disadvantaged business preference programs for set-asides, sole-source awards and price preferences, Congress has included various Limitations on Subcontracting, as expressed in the clause 1t 52.219-14 and in other clauses or requirements. For construction contracts, someone (wisely) decided to consider "personnel" rather than simply a percentage of work or percentage of cost. I think that this was due to primes trying to manipulate the system by renting equipment from their subs (often using the subs' operators as temporary employee's of the prime) or renting equipment for their subs, who were actually performing the work; or by simply purchasing (paying for) construction materials that were actually being installed by subs. These were all "paper exercises", rather than true self-performed work.

At any rate, I think for the integrity of the acquisition process, that this is an extremely important aspect of both contract formation and contract admin.

I believe that the answer was something to the effect that if you can't determine the personnel cost share of a subcontract then you count the whole subcontract cost as subcontracted personnel. However, I suggest that you seek the answer in Title 13 of the CFRs.

In reviewing my saved hardcopy "Limitations on Subcontracting" folder this morning I found copies of correspondence with and records of conversations with the SBA Southeast Regional Office in Atlanta from the 1980's and early 1990's. These related to construction contracts that used clause 52.219-14 Limitations on Subcontracting. I saw where Mr. James Hunter of the SBA had advised me to remove profit as well as to remove the prime contractor's G&A on subcontracts, where it could be determined. Also, we were to remove all profit, bonds and materials from the computations. He is the person who told me that, where the prime could not determine those portions of subcontracts, we were to consider the entire subcontract cost to the prime as the subcontract share. Of course, that was years ago and reflected internal SBA procedure and interface with us at the time.

Joel,

I agree the limitation on subcontracting agreement should be taken seriously. All aspects of our job should be taken seriouosly.

It might be helpful to look at a comparison with another serious clause -- Buy American Act--Construction Materials. Under that clause, the contractor agrees it will use only domestic construction material in performing the work (this is the general rule, as always, there exceptions). So the agreement is estabished in the contract. But when evaluating offers pre-award, do we require the offerors to PROVE that all of their materials will be domestic? Do we require pre-award material lists all the way down to screws and washers? No.

I see the limitation on subcontracting agreement in much the same way.

For a simple fixed-price competitive sealed bid construction contract, we include the Federal, State, and Local Taxes clause. Under that clause, the contractor promises that its price includes all applicable federal, state, and local taxes (again, there are exceptions, but I'm not talking about exceptions). So the agreement is established in the contract. But when evaluating bids, do we require the bidders to PROVE that their prices don't include those taxes? Do we require pre-award price breakdowns all the way to the lowest element, so we can make sure no taxes were included? No.

I see the limitation on subcontracting agreement in much the same way.

All that said, and in consonance with what I already said, if your experience in the chemical demilitarization marketplace showed serious patterns of noncompliance with the limitation on subcontracting agreement, well, there might be a basis for a contracting officer looking a little deeper pre-award. But it is an overreach to demand that every contracting officer, for every acquisition, must PROVE pre-award that the proposed contractor will comply with the limitation on subcontracting agreement. That's all I'm saying. I'm not dismissing the limitation on subcontracting agreement as unimportant.

ji, to clarify, we didn't evaluate the extent of subcontracting on IFB projects before award and we didn't have any problems on the Chem-Demil projects. I used the IFB case as a source for some of the government policy concerning limitations on the extent of subcontracting.

We did try to enforce the self-performance of work clause on IFB's after award as well as on RFP's, both pre-award and post-award. For the preference type set-asides, sole source and price preference programs, this was a significant challenge, so it was emphasized.

The clause at 52.219-14 can come up before award and after award.

Before award, the clause comes up in two ways. First, it comes up as a matter of responsibility. See 13 CFR 125.6(e) and FAR 9.104-3(d)(2), Second, it can come up as a matter of proposal acceptability. See Sealift, Inc., GAO Decision B-409001, 2014 CPD ¶ 22:

As a general matter, an agency's judgment as to whether a small business offeror will be able to comply with a subcontracting limitation presents a question of responsibility not subject to our review. Spectrum Sec. Servs., Inc., B–297320.2, B–297320.3, Dec. 29, 2005, 2005 CPD ¶227 at 6. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal's acceptability. TYBRIN Corp., B–298364.6, B–298364.7, Mar. 13, 2007, 2007 CPD ¶51 at 5.

As a matter of proposal acceptability, the GAO says:

In a negotiated procurement, any proposal that fails to conform to material terms and conditions of the solicitation is unacceptable and may not form the basis for award. Sealift Inc., B–405705, Dec. 8, 2011, 2011 CPD ¶271 at 3; Alpha Tech. Servs., B–250878, B–250878.2, Feb. 4, 1993, 93–1 CPD ¶104 at 3. The procuring agency has primary responsibility for evaluating the technical information supplied by an offeror and determining the acceptability of the offeror's item; we will not disturb such a determination unless it is shown to be unreasonable. Id. Although an agency generally may rely on information in a proposal to determine compliance, an agency may not accept at face value a proposal's promise to meet a material requirement where there is significant countervailing evidence reasonably known to the agency evaluators that should create doubt whether the offeror will or can comply with that requirement. See Sealift Inc., supra at 3; Maritime Berthing, Inc., B–284123.3, Apr. 27, 2000, 2000 CPD ¶89 at 6.

After award, compliance with FAR 52.219-14 is a matter of contract administration. Failure to comply would be default. What responsibility does a CO have to ensure that a contractor is complying or has complied with the limitation? That appears to be is an open question in this thread. I have interpreted the OP's opening question to be about post-award enforcement of the clause, and that's the way that I answered it. It seems to me that ji20874 has not been clear in his posts as to whether he is addressing the issue in terms of pre-award or post-award implications, and I think he should do that.

I regret not being understood.

The limitation on subcontracting agreement is a matter of contract administration. That's post-award.

Pre-award, it is not necessary for every contracting officer, for every acquisition, to PROVE that the proposed contractor will comply with the limitation on subcontracting agreement. In some cases, such as where there is some information suggesting a need for further inquiry, a contracting officer might inquire into the prospective contractor's intention to comply with the agreement. This is affirmed by Joel's cited case, where such information is apparent "on the face of [the] proposal" -- it is further affirmed by Vern's cited case "where there is significant countervailing evidence reasonably known to the agency evaluators." But absent this information, it is not necessary for the contracting officer to PROVE that a proposed contractor will comply with the limitation on subcontracting agreement. That's all I'm saying. To use the words from Vern's cited case, the general rule is that "an agency generally may rely on information in a proposal to determine compliance."

Does that help?

ji, how do you reconcile your latest post in regard to pre-award issues with FAR 9.103(B ), which states in part that "In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility"?

ji20874:

Yes, it helps. You have been talking about pre-award considerations. I have been talking about post-award considerations based on my interpretation of the OP's original question. Different issue, different conclusion.

Although, Retread asks an interesting question. It's similar in kind to the one I asked in Post #17.

ji, how do you reconcile your latest post in regard to pre-award issues with FAR 9.103( B ), which states in part that "In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility"?

And - for DoD, see also Carl's post #27 and read the current 8(a) Partnership Agreement between DoD and the SBA at http://www.acq.osd.m...nt-20121031.pdf

Note paragraphs IV B. 4., 5. and 9., in particular. These paragraphs describe the DoD's responsibilities regarding Limitations on Subcontracting.

Simple -- the pre-award question under FAR 9.104-3( d )( 2 ) is the prospective contractor's ability to comply with the limitation on subcontracting agreement -- showing that a prospective contractor has the ability to comply with the limitation on subcontracting agreement is different from having to PROVE, pre-award, that the contractor actually will comply with the agreement, post-award. Showing the ability to comply is all that is needed for a pre-award responsibility determination, absent other information suggesting otherwise (such as from the face of the proposal).

Suppose that you get an unequivocal promise to comply? What evidence would be sufficient to show the ability to comply?

Well, if the contractor's history shows a pattern of compliance on similar contracts, that might suffice for the purposes of FAR 9.104-3( d )( 2 ).

ji, the Court of Federal Claims disagrees with your assessment that the pre-award question is whether an offer or has the ability to comply with the LOS clause, but whether it promises to comply with it. This promise is to be determined from a detailed and close examination of an offeror's proposal. See, Hyperion V. U.S. COFC No. 13-1012C at the link below.

https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2013cv1012-37-0

Retreafed,

The very new Hyperion case agrees with my position! :-) I wrote, and have argued consistently, "Showing the ability to comply is all that is needed for a pre-award responsibility determination, absent other information suggesting otherwise (such as from the face of the proposal)." In the Hyperion case, the court found that there was other information directly from the proposals suggesting otherwise, and so a deeper inquiry was appropriate. This case turns entirely on the fact that the inability or meet the limitation on subcontracting agreement was apparent from the face of the proposal.

I have consistently included the caveat that what I am saying is conditioned on the absence of other information suggesting otherwise (such as from the face of the proposal). Yet readers here consistently ignore the caveat and proceed to tell me that I’m wrong.

Here are some extracts from the decision—

Hyperion argues that [Offeror A], [Offeror B], and TCSC submitted proposals that facially show they will be unable to comply with FAR § 52.219-14, "Limitations on Subcontracting," which was incorporated into the solicitation.

Hyperion correctly states . . . and the government acknowledges, that “a proposal that, on its face, leads an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation is technically unacceptable and may not form the basis for an award.”

It is readily apparent, on the face of TCSC’s proposal, that it would not and could not comply with the limitations on subcontracting incorporated into the solicitation, and the Army should have found its proposal to be technically unacceptable.

The salient question in this respect is whether [Offeror A]’s proposal demonstrates that it would comply with the 50% self-performance requirement, not whether it could. . . . In this case, the Army did not engage in discussions with [Offeror A] regarding its ability to comply with the limitation on subcontracting despite the facial implausibility of its ability to comply, even though it engaged in discussions about other issues of technical compliance.

Overall, like [Offeror A]’s proposal, [Offeror B]’s proposal demonstrates a significant likelihood that it would not comply with the limitation on subcontracting.

Hyperion has succeeded on the merits by showing that the Army acted unreasonably in finding that TCSC, [Offeror A], and [Offeror B] all submitted technically acceptable proposals. Each of their proposals facially demonstrated a strong likelihood that the businesses would be unable to comply with the limitations on subcontracting.

ji, you missed the point in the Hyperion decision. The issue is not whether a proposal evidences an offeror's ability to comply with the LOS clause but its intent to comply. For example, the Court stated "The court noted that the pertinent question was not whether the awardee could comply with the limitation-on-subcontracting clause, but rather whether it would comply with the limitation." Later the Court observed "In short, the parties agree that the 50% self-performance requirement applies to this procurement, but they disagree over whether the Army could have reasonably concluded that the other three offerors’ proposals demonstrated that they would comply with the self-performance requirements." As a final example of this focus on intent instead of ability, the Court noted "The salient question in this respect is whether [Offeror A]’s proposal demonstrates that it would comply with the 50% self-performance requirement, not whether it could."

So, would you say that sealed bidding cannot be done when there is a limitation on subcontracting requirement? (In sealed bidding, there is no proposal explaining how the work will be done, but you seem to be saying that a technical proposal is always required when there is a limitation on subcontracting requirement.) Or would you require a proposal along with the sealed bid?

Retread and ji20874:

Sealed bidding is not at issue here. The rules are different. There is no "proposal". Prior to award the subcontracting limitations are handled exclusively as matters of responsibility. In both sealed bidding and negotiated procurements, absent an express requirement or intention to determine responsibility with respect to a specific element of performance, most COs presume responsibility in the absence of evidence to the contrary. Whether they should do that is another matter, but, sound contracting principles notwithstanding, regulations and practical considerations will determine the course of action that most COs will take. In sealed bidding, after bid opening and identification of the low responsive bidder, and as a step in responsibility determination, a CO could ask for information that would enable him or her to determine whether the bidder can comply.

With respect to the question of proposal acceptability in negotiated procurements, the question is what COs should do. Prospective compliance with subcontracting limitations is not a mandatory evaluation factor in competitive negotiated acquisitions. Should it be? It depends on how seriously you take the statute and the clause. There are many clauses that implement statutes for which no special effort is made to determine specific intent to comply. If a firm submits an offer and takes no express exception, then, absent a regulation requiring specific review, a CO has every right and reason to expect that the offeror intends to comply, just as with any other contract term.

During review of a proposal cost or price breakdown, I believe that the CO should be concerned about anything in the breakdown that suggests that the offeror will exceed the subcontracting limitations. The CO must then decide whether to seek clarification and verification or conduct discussions. If it's decided that the matter cannot be addressed without discussions, then I think you have a proposal deficiency that renders the proposal unacceptable and the offeror ineligible for award, even if the offeror expressly indicated that it intends to comply,

Of course, it is always possible to require offerors to provide information in their cost or price proposals to demonstrate intent to comply with the limitations and to make that question a pass or fail evaluation factor. it ought to be easy to do. It's up to each CO.

None of the above applies to the discussion of a CO's post-award responsibilities.

Thank you all for contributing to a very interesting discussion. The issue of Limitations on Subcontracting may well become a hot area for both protests and compliance issues as the "similarly situated" language from NDAA for FY2013 discussed in Footnote 4 of GAO's Sealift, Inc., B-409001 decision winds its way through the process. One would have to sympathize with a contractor who got hit with a Show Cause Notice based on hearsay, innuendo, anecdotal reports or perhaps even "suggestions" from competitors to agency folks. Is it so far fetched to imagine that a frustrated offeror would opt not to protest given the uphill battle they would face challenging an award on the LoS issue, when they could potentially create havoc during contract performance by "blowing the whistle" enough to get contracting officials to make inquiries, especially where the "similarly situated" subcontractors may not be open and obvious to the competitors?

Do you think that under the “similarly situated” framework that any similarly situated second tier subcontractors (subcontractor’s subcontractors) could also be considered in the prime self performance calculation? It would seem to maintain the same spirit and intent of the clause.

That's a good question. We'll have to wait until the proposed SBA rule is issued to see what it says. If it's silent, somebody needs to ask that question.

While specific to 8(a) this report by GAO does include some minor insight into where the new regulatory changes regarding subcontracting limitation might be headed and how long it might take for the changes to occur. This report can also be found on the WIFCON home page.

http://www.gao.gov/products/GAO-14-706