Applying Limitations on Subcontracting Only to Prime Contractor's Management Efforts

ji20874 said:

But what if the Government directs a large portion of the subcontracting

I am guessing this means sole-source contracts for needed repairs from OEM/large businesses?

ji20874 said:

A small business can do the tracking and so forth, and I want to do a set-aside if possible.

You can award a contract for the services alone, but if the subcontracting limitations can't be complied with, then you can't funnel the other orders through it. 

If I am missing the intent of the questions, please let me know.

Can you set a contract aside for small businesses if the terms of the contract would be such that no small business contractor could comply with the limitations on subcontracting?

In a situation where a small business certainly could do the work of keeping track of all the items in maintenance, and the repair work is really really pass-through where the contractor has no discretion in choosing subcontractors, maybe it makes sense not to treat the repair work as subcontracting for the purpose of the clause?  The repair work will be cost-reimbursement-no-fee, so the contractor will only provide the management services.  At least, this is the thought.

Could you create two line items—an FFP CLIN for management and a cost-reimbursement no fee CLIN (repair as-directed) for the repair work, then apply the limitations on subcontracting clause to the FFP CLIN but not the CR CLIN, with an explanatory memo to file? Treat it as a one-time FAR deviation, if necessary, in order to make a viable set-aside opportunity?

Who would complain?

That's what I'm thinking.

ji20874 said:

maybe it makes sense not to treat the repair work as subcontracting for the purpose of the clause?

Vern Edwards said:

Could you create two line items—an FFP CLIN for management and a cost-reimbursement no fee CLIN (repair as-directed) for the repair work, then apply the limitations on subcontracting clause to the FFP CLIN but not the CR CLIN, with an explanatory memo to file?

I can get behind the sub-contracting limitations being applied to only one CLIN (FFP), based on the circumstances. Hybrid (CR/FFP) = fun. With that, I am assuming that both CLINs are commercial in nature based on a traditional view. If this is the case, are we getting into an area where we have to apply a non-commercial designator to the CR CLIN? 

FAR 16.301-3(b) - "The use of cost-reimbursement contracts is prohibited for the acquisition of commercial items (see parts  2 and 12)."

I mean, it does does say CR contract and not CR CLIN. . .

Are we really talking about an acquisition strategy resulting in a "FFP (50%)/CR (50%) - Commercial items (50%)/Non-Commercial (50%) Contract?"

Forgive the new guy - here to learn.

Curious - what would be the role of the prime contractor under this arrangement, both before and after awarding subcontracts or orders for repairs? I wonder how the prime’s effort would be fixed price other than having a standing team on board to manage the subcontracted work.

The discussion sounds like jerry rigging to me rather than being aligned with the guiding principles of FAR 1.102.    Especially where in the FAR provides an avenue - individual deviation FAR 1.403.  Otherwise it would seem that Vern Edwards' comment (below) rings true when considering the procedures of FAR  FAR Part 10.

Vern Edwards said:

Can you set a contract aside for small businesses if the terms of the contract would be such that no small business contractor could comply with the limitations on subcontracting?

There is nothing untoward here -- just exploration.  I have no objection to an individual deviation to apply the limitations on subcontracting only to the management portion of the work (the work that is actually performed by the contractor), rather than the pass-through subcontracting where the prime contractor has no discretion.

If we don't do something differently, then we'll have to do this as an unrestricted acquisition even though small businesses certainly can do the management work -- and that is the reason for this discussion.  We want to set the terms of the contract so that small businesses can comply with the limitations on subcontracting.

Maybe I'm breaking new ground, but I am hopeful someone has dealt with this -- maybe in a prime vendor arrangement, for example -- or any example where there is heavy Government involvement in directed subcontracting.

ji20874 said:

I have no objection to an individual deviation to apply the limitations on subcontracting only to the management portion of the work (the work that is actually performed by the contractor)

Then aren't we talking about a partial set aside?

FAR 19.507(e) - "The contracting officer shall insert the clause at 52.219-14, Limitations on Subcontracting, in solicitations and contracts for supplies, services, and construction, if any portion of the requirement is to be set aside for small business and the contract amount is expected to exceed the simplified acquisition threshold."

Make multiple awards. However many needed to the OEM(s) and one to the small business to manage the repairs/services ordered. 

Hmmm - almost sounds like contracting out the COR's duties when I put it like that.

Constricting Officer said:

Then aren't we talking about a partial set aside?

  *    *    *

Make multiple awards.

Partial set-aside won't work, because partial set-aside contemplates multiple awards.  Through this thread, we have been talking consistently about a single award to a prime contractor with directed subcontracting.  If possible, we would like to do it as a set-aside.

Just now, ji20874 said:

Partial set-aside won't work, because partial set-aside contemplates multiple awards.  Through this thread, we have been talking consistently about a single award to a prime contractor with directed subcontracting.  If possible, we would like to do it as a set-aside.

Me thinks Not...19.502-3 Partial set-asides of contracts other than multiple-award contracts.

ji20874 said:

There is nothing untoward here

Did not say that did not imply that.   I implied - artless, rough and tumble, etc. - or in other words not using the art of the FAR to do it and meet the guiding principles.

ji20874 said:

then we'll have to do this as an unrestricted acquisition even though small businesses certainly can do the management work

Splitting a procurement to avoid a threshold?   It has already been stated that it is one need.   Just exploration!

ji20874 said:

Partial set-aside won't work, because partial set-aside contemplates multiple awards.

Yes it does. 

ji20874 said:

Through this thread, we have been talking consistently about a single award to a prime contractor with directed subcontracting.

Talking about a way to do a single award and avoiding a limitation to do so. I pointed out a process that will address both the need and the subject services being set aside.

C Culham said:

Me thinks Not...19.502-3 Partial set-asides of contracts other than multiple-award contracts.

My bad - "more than one award is intended to be made by someone other than GSA, under an DO/TO or resulting in ID/IQs."

Vern Edwards said:

Can you set a contract aside for small businesses if the terms of the contract would be such that no small business contractor could comply with the limitations on subcontracting?

Vern Edwards said:

Could you create two line items—an FFP CLIN for management and a cost-reimbursement no fee CLIN (repair as-directed) for the repair work, then apply the limitations on subcontracting clause to the FFP CLIN but not the CR CLIN, with an explanatory memo to file? Treat it as a one-time FAR deviation, if necessary, in order to make a viable set-aside opportunity?

Who would complain?

Inasmuch as the limitations on subcontracting are statutory requirements, I’m curious whether a waiver would be allowed/approved.

If it would, then I guess that only the primes share of the contract should be counted toward any goals or achievement of small business awards.

joel hoffman said:

Inasmuch as the limitations on subcontracting are statutory requirements, I’m curious whether a waiver would be allowed/approved.

The statutory limitations may be interpreted to allow some variations in application. I wouldn't be worried about it. I might check with SBA. Then again, I might not.

Why work overtime to find reasons why the agency should not find a way to facilitate a set-aside?

Look for solutions.

I read ji's post yesterday and thought about how I might do what he proposed. Then, I got busy with something else and forgot about it. Strangely enough, I had a dream last night that I stood up in front of a room full of people and explained how I would put a special definition of "cost of contract performance" in Section H that would exclude pass-through costs to the OEM subcontractors. ji, who I've never met in person, was in the crowd nodding his head in agreement. 

When I woke up, I thought "that's a pretty good idea".

True story.

Vern Edwards said:

The statutory limitations may be interpreted to allow some variations in application. I wouldn't be worried about it. I might check with SBA. Then again, I might not.

Why work overtime to find reasons why the agency should not find a way to facilitate a set-aside?

Look for solutions.

Actually, even if it was unrestricted, the prime wouldn’t self-perform any more work than a small business prime, right?  So the often held opinion that a small business or small disadvantaged prime is gaining an advantage or is acting as a “front” isn’t applicable here.

I think that was a reason why the limitation on subcontracting was instituted for the privilege of set-asides.

So go for a waiver to apply the clause to that effort which the prime can self-perform? Better yet, perhaps require the prime to self-perform all the work that the prime is responsible to perform...?

@joel hoffman I'm sure ji20874 appreciates your input.

Vern Edwards said:

@joel hoffman I'm sure ji20874 appreciates your input.

I’m agreeing with him that this would be a good SB opportunity.

As for one reason for the LOS clause, I was in charge of a District office for seven years, which, among many other things, negotiated all sole source and conducted all non-IFB, set-aside source selections for construction contracts.

I know from direct experience that what I said was not an uncommon occurrence. If some large businesses or majority owned businesses couldn’t get awards which were sole source or set-asides, they associated with firms that could. It was pretty transparent when it was a “front” arrangement.

I even had a majority owned firm once call me by accident, thinking I was a subcontractor on a sole source team for an Highway overpass project in a small town in Mississippi. The call was from the proposed primary sub on the sole source team. It was a firm that I was familiar with from numerous other projects.

My office had been unable to negotiate anywhere near reasonable price with the sole source firm that the SBA had proposed. We had just converted it to an unrestricted IFB acquisition.

The guy told me that the government was “now bidding out the job”. Then he asked me if I was “still interested in the job” and encouraged me to submit a subcontract bid to his company.

Needless to say, he stammered and stuttered after I told him who I was and then quickly hung up.

The contract was awarded to a small business for about 2/3 of the best price offered during the sole source negotiations.

Don Mansfield said:

I read ji's post yesterday and thought about how I might do what he proposed. Then, I got busy with something else and forgot about it. Strangely enough, I had a dream last night that I stood up in front of a room full of people and explained how I would put a special definition of "cost of contract performance" in Section H that would exclude pass-through costs to the OEM subcontractors. ji, who I've never met in person, was in the crowd nodding his head in agreement. 

When I woke up, I thought "that's a pretty good idea".

True story.

Without detail I now wonder if mixed contracts apply - 13 CFR 125.6 (b)

ji, you are referencing a version of the LOS clause that predates the current statutory and SBA guidance on how compliance with the clause is determined.  Because this clause is based on older SBA guidance, I would look at how the SBA addressed this issue.  In this regard, see the 2012 version of 13 CFR 125.6(e)(7).

Retreadfed,  I am intrigued, but you are asking for something that is beyond my capabilities -- I don't know how to find the 2012 version of 13 CFR 125.6(e)(7).

ji20874 said:

I don't know how to find the 2012 version of 13 CFR 125.6(e)(7).

Go to https://www.govinfo.gov/app/collection/cfr then scroll down to 2012, then scroll down to Title 13, and then go to 125.6(e)(7).

For those who are interested, here is the specific language I had in mind when I referenced this section as possibly being of interest in answering ji's problem " Where the prime contractor has been directed by the Government to use any specific source for parts, supplies, components subassemblies or services, the costs associated with those purchases will be considered as part of the cost of materials, not subcontracting costs."

Thanks, retreadfed, for the pointer to the old language -- yes, that it exactly what I was thinking.

Thanks, Vern, for the pointer to the old CFR text page -- I added that to my bookmarks.

This thread includes many great solutions to a problem complying with FAR 52.219-14, including the use of regulatory history @Retreadfed, use of the available 13 CFR 125.6 (b) "Mixed contracts" regulatory examples @C Culham, use of a special clause/deviation @Don Mansfieldand @joel hoffman, use of partial set-asides @Constricting Officer, and use of separate line items' applicabilities @Vern Edwards.

There are so, so many interpretations and loopholes to be found in Limitation on Subcontracting clause's implementation, that I was surprised in my research this year to not find one contract that set it straight within its four corners!  Now that FAR Case No 2016-011 went to Final Rule and was added to the FAR via Federal Acquisition Circular 2021-07, and both DPAP and the CAAC have issued a Class Deviation to correct it (see Final Rule comments 12A thru 12D), the calculation is simplified, less intrusive on a SB, and, in a word, practicable (everyone's favorite word).

So, since it's no longer an impossible task, I propose COs award contracts and orders that straighten out the remaining rough edges and set forth both 1. The way to calculate compliance under the contract, and 2. The way the CO will measure compliance during performance of the contract.  I work primarily with services, so I will address them only here (supply and construction will differ at b) below).

1. I propose COs require calculation of the awardee's self-performed work as follows: 

   a) Enter amount to be paid by the Government here: $_____________

   b) Subtract from line a the amount to be paid by the Contractor to subcontractors. Do not subtract the amount proposed to be paid to subcontractors in order to meet PWS requirement C.xxx [CO to fill-in known PWS section requiring service where it is both not the principal purpose of the acquisition and small business concerns do not provide the service]. Do not subtract the amount proposed to be paid by the Contractor to a "similarly situated entity", as defined in clause FAR 52.219-14 of this contract. Enter the resulting difference here: $_____________

   c) Contractor’s estimated percentage of self-performed work (b/a X 100 = c%) ________%

2. I propose simple review of invoices (thank you Final Rule!) to measure compliance, but COs need to tailor their Section G invoice instruction clauses to enable this review at the end of the POP.  Maybe in your RFP you also solicit how much dollars they plan to put in each of 1.a and 1.b above, so you're not setting them up for failure at the outset, and so there's a meeting of the minds on this new rule's implementation.  Don't just rely on course of performance interpretations with a new rule.

Does anyone have a better way of writing the calculation I did at 1., or perhaps a different understanding of the calculation?  If your NAICS is 562910 or you are awarding for work OCONUS, you can just name that work by using the Class Deviation clause language. If your PWS is not set up to allow 1.b) fill-in then you can cite the service itself I guess.  Just don't leave room for interpretation - it's your contract after all.

WifWaf said:

1. I propose COs require calculation of the awardee's self-performed work as follows:

I have read and re-read your example and I wonder if it addresses this portion of the clause (deviation) with regard to services -"Any work that a similarly situated entity further subcontracts will count towards the prime contractor’s 50 percent subcontract amount that cannot be exceeded." 

My simple calculation to illustrate my wonderment.  In this example all dollars relate to principle purpose.- 

Contract award is for $1,000 to the SB (Prime)

Prime subs $500 to LB (not similarly situated) and subs $250 to similarly situated entity.  All good at this point.

The similarly situated sub then subs $200 to a LB (not similarly situated).  Not good now as the subcontracted amount to not similarly situated entities is $700.

I have nothing to contribute to the substance of this thread, but I do have some facts that might interest you all.

In the 1984 Code of Federal Regulations, in the paperback edition published by the Government Printing Office, Title 48, the FAR, Part 19, occupied pages 253 - 283.

In the 2020 Code of Federal Regulations, in the paperback edition, same format as in 1984, Title 48, Part 19, occupied pages 428 - 501.

Count the pages. Calculate the average growth per year.

This happened during the terms of both Democrat and Republican presidents and Congresses.

We work in a utopia of rules. I find this very discouraging.

Another fact: Searching the Federal Register, I found 144 entries published between 1983 and today that involved rules about limitations on small business subcontracting.

Think of the time and effort that went into preparing, staffing, and coordinating 144 Fed Reg entries.

Think of all the time spent quibbling about wording, interpretation, and application.

Ponder how many breaches of 52.219-14, intentional and unintentional, have gone undetected. Think how much time and effort would have to be spent to prevent, detect, and  remedy such breaches.

In the movies, communist bureaucrats are often portrayed as tedious apparatchiks. (See, "Ninotchka.") But when it comes to being apparatchiks, no one tops us.

C Culham said:

I wonder if it addresses this portion of the clause (deviation) with regard to services -"Any work that a similarly situated entity further subcontracts will count towards the prime contractor’s 50 percent subcontract amount that cannot be exceeded."

You're right to question that.  From the Final Rule:

Quote

FAR 52.219-14

...

(b) Definition. Similarly situated entity, as used in this clause, means a first-tier subcontractor, including an independent contractor, that—

(1) Has the same small business program status as that which qualified the prime contractor for the award (e.g., for a small business set-aside contract, any small business concern, without regard to its socioeconomic status); and

(2) Is considered small for the size standard under the North American Industry Classification System (NAICS) code the prime contractor assigned to the subcontract.

I think we leave the calculation above as-is for use in the RFP.

But I think the invoice instructions would have to go into those weeds, and elicit what happened after the the Contractor proposed to pay so-and-so SB.  Let's try this calculation again, adjusted for Section G.  You would need to specifically require this in the final invoice of the Base and each Option period (if enforcing at the TO level), or at the end of each ordering period (if enforcing at the Indefinite Delivery vehicle level).  (Note you have the option to choose which way you want to enforce compliance where the clause is prescribed in FAR 19.507(e)(1).  You fill in one of the two methods in the clause itself.)

   a) Enter amount that was paid by the Government here: $_____________

   b) Subtract from line a the amount paid by the Contractor to subcontractors. Do not subtract the amount paid to subcontractors in order to meet PWS requirement C.xxx [CO to fill-in known PWS section requiring service where it is both not the principal purpose of the acquisition and small business concerns do not provide the service]. Do not subtract the amount paid by the Contractor to a "similarly situated entity", as defined in clause FAR 52.219-14 of this contract, UNLESS the similarly situated entity further subcontracted to an entity that does not meet this contract definition. Enter the resulting difference here: $_____________

   c) Contractor’s estimated percentage of self-performed work (b/a X 100 = c%) ________%

Trying not to overcomplicate (again).  I think it's still practicable.

WifWaf said:

I think we leave the calculation above as-is for use in the RFP

With the above clarification I really do wonder about giving this instruction/advice/calculation format in the RFP. 

The subcontracting limitation clause, in my words, is a representation made by the contractor they will meet the performance standard on limitation at proposal submission and execution of contract.   In making such a representation the contractor should be left to their own devices, pursuant to the clause, as to how they made their determination of compliance.  If the government tells them how to they are taking on a responsibility in my view that is not appropriate.

The tentacles of application of the limitation clause reach far and wide.   Agencies themselves questioning a firms size based on the limitation clause, other firms also questioning, GAO protests, SBA OHA appeals and even DOJ False Claims Act cases ( https://gtpac.org/2019/08/29/doj-cracks-down-on-set-aside-contracting-fraud/)   How often, how many, I really do not know.   In the end no matter who questions the limitation matter the one that does question will be compelled to prove their position with a preponderance of evidence.  In doing so the specific facts of the contract, how it is priced and how such pricing assists in evaluating the limitation matter will play a big role along with what the contractor is actually doing. 

And then there is 13 CFR 125.6 that carries with it its own examples of calculation.

I know my thoughts are not refined for this post but quickly stated they all lead me to think that  in the scheme of things putting a calculation method as created by the agency and placing it in the RFP does not make sense to me.

C Culham said:

I really do wonder about giving this instruction/advice/calculation format in the RFP.

I agree.

Fascinating discussion (to me) because I'm always interested in whether or not a contractor can escape liability under the False Claims Act by claiming it was making a reasonable interpretation of an ambiguous regulation or other requirement when it prepared and submitted its invoices. This discussion seems to support the notion that the rule is, if not patently ambiguous, at least so dense as to require an expert (probably a top-notch government contracts attorney) to help the contractor chart a compliant course.

@C CulhamThat's more refined than you know.

I think you're right, the USG doesn't solicit the actual calculation, because it is a certification to be examined during responsibility determination, not something for proposal evaluation.  After all:

Quote

(e) Limitations on subcontracting. By submission of an offer and execution of a contract, the Contractor agrees that in performance of a contract assigned a North American Industry Classification System (NAICS) code for -

(1) Services (except construction), it will not pay more than 50 percent of the amount paid by the Government for contract performance to subcontractors that are not similarly situated entities...

Emphasis added.  In that case, the applied calculation must not be solicited.  Oops - 13 CFR 125.6(d)(2) even explicitly calls it an "element of responsibility".

Furthermore, why am I even attempting to enforce this compliance during performance?  I just read 13 CFR 125.6 and FAR Subpart 19.5, and I drilled down through the Service-Branch regs, all without finding a single imperative CO Responsibility to determine LOS compliance.  All I found is "Contracting officers may, at their discretion, require the contractor to demonstrate its compliance with the limitations on subcontracting at any time during performance and upon completion of a contract" (13 CFR 125.6(e)(4)).  If that is the case, I suppose the weeds of this calculation are best left to post-award orientation conference banter, if they even come up at all between CO and and awardee.  Fine by me - I don't need more work to do. Someone tell DPAP and the CAAC if they need COs to do anything here, they have another class deviation to write.  Criminy, @Vern Edwards, the time we've wasted on this! 😂 

There are 154 "Contracting Officer shall" statements in FAR Part 19, but none apply here.  I'm frustrated, but not surprised.  If anyone so chooses to take up the SBA on that "CO may" duty, try using the above calculation, and let us know how it goes.

WifWaf said:

Furthermore, why am I even attempting to enforce this compliance during performance?  I just read 13 CFR 125.6 and FAR Subpart 19.5, and I drilled down through the Service-Branch regs, all without finding a single imperative CO Responsibility to determine LOS compliance.  All I found is "Contracting officers may, at their discretion, require the contractor to demonstrate its compliance with the limitations on subcontracting at any time during performance and upon completion of a contract" (13 CFR 125.6(e)(4)).  If that is the case, I suppose the weeds of this calculation are best left to post-award orientation conference banter, if they even come up at all between CO and and awardee.  Fine by me - I don't need more work to do. Someone tell DPAP and the CAAC if they need COs to do anything here, they have another class deviation to write.  Criminy, @Vern Edwards, the time we've wasted on this! 😂 

There are 154 "Contracting Officer shall" statements in FAR Part 19, but none apply here.  I'm frustrated, but not surprised.  If anyone so chooses to take up the SBA on that "CO may" duty, try using the above calculation, and let us know how it goes.

@WifWafBrace yourself. You may soon be hearing from Carl Culham about your duty to proactively enforce the clause.

As for me, I wouldn't spend even one minute enforcing the clause unless compelled to do so by some higher power. 🙄

WifWaf said:

@C CulhamThat's more refined that you know.

I think you're right, the USG doesn't solicit the actual calculation, because it is a certification to be examined during responsibility determination, not something for proposal evaluation.  After all:

Emphasis added.  In that case, the applied calculation must not be solicited.  Oops - 13 CFR 125.6(d)(2) even explicitly calls it an, "[E]lement of responsibility."

Furthermore, why am I even attempting to enforce this compliance during performance?  I just read 13 CFR 125.6 and FAR Subpart 19.5, and I drilled down through the Service-Branch regs, all without finding a single imperative CO Responsibility to determine LOS compliance.  All I found is "Contracting officers may, at their discretion, require the contractor to demonstrate its compliance with the limitations on subcontracting at any time during performance and upon completion of a contract" (13 CFR 125.6(e)(4)).  If that is the case, I suppose the weeds of this calculation are best left to post-award orientation conference banter, if they even come up at all between CO and and awardee.  Fine by me - I don't need more work to do. Someone tell DPAP and the CAAC if they need COs to do anything here, they have another class deviation to write.  Criminy, @Vern Edwards, the time we've wasted on this! 😂 

There are 154 "Contracting Officer shall" statements in FAR Part 19, but none apply here.  I'm frustrated, but not surprised.  If anyone so chooses to take up the SBA on that "CO may" duty, try using the above calculation, and let us know how it goes.WifWaf, back in the 1990’s, we had pretty straightforward forms that we included in every construction and design-build construction source selection RFP or sole source negotiated RFP to determine intended compliance with the self-performed work or limitations on subcontracting requirements.

We were ignorant of the distinction between a “matter of responsibility” and a “matter of responsiveness” to the contract requirements”. What we did know was that there were frequent examples of primes who were fronts for subs, primes who took advantage of their small or small/disadvantaged business status, contractors who couldn’t obtain award of prime contracts for various reasons or because it was reserved for small or small disadvantaged business, etc.  

One form was for unrestricted solicitations (52.236-1 Performance of Work by the Contractor) and the other was for sole source or set-asides for small business, 8(a), etc.(52.219-14 Limitations on Subcontracting).

In working with SBA Regional Office in Atlanta, we defined what was self-performed work for purposes of the -14 clause and included that in the form. We included the various lines for the contractor to fill in to determine intended compliance. After all,  the clause clearly says “(e) Limitations on subcontracting. By submission of an offer and execution of a contract, the Contractor agrees that in performance of a contract…”

Since they were “agreeing” or would have to “agree”, what did they have to complain about?  They should know at the time of proposal submission how they intended to meet the self-performance requirements.  Since we provided pretty straightforward explanation and description, there wasn’t much room for doubt or ambiguity to argue about later. And we required the prime to provide direct management and supervision of the job (consistent with the SBA regulations and requirements).

For source selections, it was a go/no-go factor.

For sole source, it was simply a requirement to include in their proposal. We never got any complaints. Those competing for set-aside construction contracts or selected for sole source construction were in a privileged class for those competitions. Congress decided that those having the opportunity to participate in a restricted competition or sole source environment must self-perform at least a certain portion of the contract work. And Congress specifically agreed that simply buying the materials for someone else to install/perform the work won’t be allowed to count as self-performed work.

Similarly, for unrestricted source selection competitions, we defined what was and examples of what wasn’t self-performed work, “on-site”,  with its own organization ” and provided the lines to fill in. Again, buying materials for subs to install/perform work wasn’t self-performed work. It was also a go/no-go factor.

Essentially, this clause was designed to prevent a contractor from obtaining and performing a contract in name only, without providing any added value (e.g., brokering or acting as a front for other firms).  It precludes a contractor from reaping the profits and credit for the work when in actuality the subcontractors perform the entire job.* FAR 36.501(a) states, in part,     “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.”

*See:https://publiccontractinginstitute.com/far-52-236-1-performance-of-work-by-the-contractor-a-hard-clause-for-oconus-construction-contractors/ 

In the 90 or so source selections and 60 or so sole source negotiated contracts while I was with the Mobile District USACE, we never had a problem, complaint or a protest from a proposer- even when we occasionally eliminated one or more proposers that didn’t or couldn’t meet the stated requirements.

If I was still in the source selection business, I’d figure out a way to get or consider the information at the responsibility determination stage of the acquisition. But that would be a much more inefficient way to try to meet the intent of the clauses. You go through the SS only to find that the apparently successful offeror doesn’t  intend to or can’t meet the requirement. Stupid, in my ignorant opinion.

There shouldn’t be any legal problem with sole source negotiated acquisitions in requiring the proposer to show how they intend to meet the -14 limitation. Go for it!

Vern Edwards said:

You may soon be hearing from Carl Culham about your duty to proactively enforce the clause.

It seems I am not the only one that beats the dead horse!

C Culham said:

It seems I am not the only one that beats the dead horse!

I was very proactive about it. Our USACE District was spending millions of dollars each year on military and civil works construction projects that were set aside or reserved for small disadvantaged businesses. I was the chief of the District office that negotiated all sole source construction acquisitions and conducted all construction and design-build source selections, among other major Contract Admin duties from late 1989-early 1997.

It was not uncommon to see various attempts by large businesses and small, non-SDB owned business companies to “capitalize” on these otherwise restricted business opportunities.

We saw all sorts of schemes to make it look like the primary entity was actually going to manage the contract or self-perform the required share of the work.

Examples included, “loaning” the key management and/or Supts./foremen personnel or trade labor operators to the primary party; CTA or JV agreements that gave the sub final say  in case of disagreement or gave it final approval authorities; providing the equipment and operators to perform the primary entity’s share of the work; providing the project controls personnel and/or handling payroll duties; providing the key personnels’ health insurance, retirement and other fringe benefits;  “locating” the project management oversight team in the sub’s home office, etc.

Once, about 25 years ago,  we couldn’t come to anywhere near a reasonable sole source (8(a) I think) negotiated price for a highway overpass project in Tupelo, MS. We cancelled the solicitation and re-advertised under full and open competition. I don’t remember whether the follow-on was an IFB or RFP.

During the advertising period, I received a call from the originally proposed primary excavation and paving sub from Columbus, MS., which was planning to bid the job as the prime. The guy asked me if I was “still interested” in the job, bidding as a sub on their “new team”.

You could probably imagine the shock and embarrassment when I informed him that I was the chief of the government’s  negotiation team on the original solicitation. After a few stutters, hems and haws, he quickly excused himself and hung up.

At any rate, we awarded the project for almost half of the originally proposed price,  within the budget and IGE.

The project was successful.

joel hoffman said:

I was very proactive about it.

My dead horse analogy was not intended to address your comments but the fact that Vern Edwards enjoys stalking my posts and relating sharp innuendo with regard to my positions on other matters discussed in Forum.   Now I can not be sure but Vern's comment was a specific reference to the SCA thread of sometime ago and if so  let the shoe fit and if not...oh well my cryptic comment missed the point.   I guess I am not as good as Vern at being cynical  to an individual's expressed position that is steeped in reasonable conclusions does not fit his own ideals.  

With regard to your most recent posts Joel I agree in general.  Specifically with my 15 years at SBA I was involved with dozens of efforts regarding the limitation clause most with the 8(a) program but many not.  Why is exactly as you point out to ensure that small businesses are not just fronts.  Some CO's may care about such matters and some may not as in the scheme of things there are lots of clauses in contracts that many CO's do not give a darn about.  I would offer that their carefree attitude in part is a matter related to those that express no need to enforce such clauses as they personally think they do not matter for some reason or another.  In this case a clause I might add that is based on statute (at Section 46 of the Small Business Act).

As it goes an expression of not enforcing a regulatory clause based on statute is our culture.   Such things happen every day where people ignore such things as a speed limit.  No big deal right until that ignoring directly relates to them.  Think about it, who cares about the limitation unless you happen to be the small business whose livelihood depends on winning contracts set-aside and you sit back and watch companies that are not eligible win the contracts all the time, encouraged by COs' that by their very word or actions say they are not wasting their time in enforcing the limitation.    Discouraging at the least and at the very most a sad representation of the undermining culture we live in today.  Sad, very sad.   

With regard to the OP I applaud the effort to figure out an easier way to "enforce" the limitation clause.  However through experience I do not believe you can dumb it down and have to take effort on each contract as like most things in contracting "it depends" on the actual facts of the matter.   

Holding the limitation clause up as the epidemy of why the FAR is not perfect in and of itself is a waste of time.   Applying a personal enforcement standard in my view goes against the very tenants of the FAR guiding principles and specific to this discussion while one can not find "a CO shall" one also can not find in the FAR where it says that where the limitation matter is a specific strategy, practice, policy or procedure provided for in the FAR that is based on statute that the the CO has full digression to ignore it.

@C Culham@joel hoffmanWhen Joel was doing whatever it was he was doing to enforce limitations on subcontracting back in 1989-1997, we weren't obligating one-half trillion dollars each year on contract actions. We hadn't yet felt the full effect of President Clinton's decimation of the civilian acquisition workforce in his pursuit of a government that works better and costs less. We hadn't suffered 9-11 and felt the impact on acquisition. There was no Department of Homeland Security. We weren't acquiring supplies and services in support of two wars, anti-terrorist operations at home and all over the world, and massive IT expansion. We weren't in a pandemic. We weren't processing the numbers of contract actions that we are today. The FAR was not 1,992 pages long. The DFARS was not 1,300+ pages long.

The new 13 CFR 125.6 and FAR 52.219-14 are almost indecipherable. I have read them several times, and I still can't say that I understand it fully. ME!  It was written by incompetent semi-literate people. Acquisition today is more complex than it has ever been, and much of today's workforce is inexperienced, poorly-trained, short-handed, and overburdened.

I say to hell with "proactive" enforcement on limitations on subcontracting. If someone  complains or presents a set of facts suggesting that a contractor is breaching its contract, and if there is time to investigate, then go to it. Otherwise, keep your eyes on the prize, which is getting what our government needs, when it needs it, where it needs it, at a fair and reasonable price.

Remember the movie "Patton"? Remember the scene in Sicily where some GI's held up a column while they tried to move two mules off a bridge, resulting in the column getting strafed by enemy aircraft? Remember what Patton did? (July 22, 1943) Well, I say we need more Pattons in acquisition.

The mission is to acquire what our country needs, when and where we need it, at a fair and reasonable price, all at the speed of relevance. I'm an ex-paratrooper, and I say, advance toward the sound of the guns, even if you're all alone on a dark drop zone. Mission. Mission. Mission. Everything else is just a distraction. When Congress gives us what we need to do what they want done, better training and more people, we'll pay more attention to the distractions. That's MY personal enforcement standard.

Vern Edwards said:

When Joel

And there you have it the new prescription for 52.219-14, put it in a contract but ignore it and not enforce it unless of course you figure out it was a front after the fact!   Me thinks that is exactly the thinking that makes a great legislator as from my single chair it seems the whole dang FAR is based on such thinking that created the law (and yes I mean statute, case law and executive order) that is saddled with today.  Knee jerk reaction to stuff that should have never happened in the first place.

Yep our bureaucracy is alive by such thinking!

C Culham said:

Yep our bureaucracy is alive by such thinking!

No. Our bureaucracy and its processes are deadened by it—sickened by overburden and confusion about priorities.

I began my civil service career in a culture of low bid, IFB culture where the contracting personnel and the design project managers were strictly rated on making awards, not on the quality of the design or the contract or whoever they awarded to. So shzt was produced.  ShZt went out the door. Dirt bag contractors continued to get awards. The slogan was “Construction (ACO’s and contract administrators) will fix it. Separate PM for construction. Change Orders, REA’s, Claims, delays, time extensions LD’s out the Wazoo. Civil Works projects were the exception to the rule because of the safety impacts of poor design or construction and we were our customer.

Then we went to where the PCO function was transferred from the Military to the 1102 Civilians and the consecutive PM arrangement was replaced by a life cycle PM, who along with Contracting were now responsible for the consequences of crappy designs and upset customers and were involved during contract execution.

We moved from IFB’s to competitive negotiations and best value. Oh - and the field finally realized that the performance ratings were more meaningful, instead of being ignored, so more effort was put into them.

By the way, Congress established the requirements for contractors to self-perform some work and manage the work and for limitations on subcontracting. 

Looks to me like, the culture is shifting back  to emphasis on just getting it out the door and awarded.

@Vern EdwardsWhether I like it or not, as a typical overburdened CO carrying out contract administration in this "utopia of rules" you describe above, whenever I decide to enforce or improve compliance against the Contractor's current interpretation of a rule, I must be very careful to avoid government overreach.  To overreach without the explicit backing of regulation is to lose all credibility with your industry partner, because the very culture is based on compliance with these rules.  I often find I am left unable to provide the proper amount of time needed to deal with the Contractor's counterarguing legal opinion if I was not properly armed by our friends in the original rule-making process.  These days when I scan a new Proposed Rule, I am always approaching my review as an advocate for armament of the CO with the written words needed to carry out Congress's intent.  This rule-making process (i.e. "promulgation") is my one shot to help future WifWaf do his job!  I wish more COs would comment on the Proposed Rules pertaining to their work by searching for it at regulations.gov, e.g., this LOS one was a quick search for "FAR Case 2016-011".  To do so is to carry out a civic duty and help improve a rule, but it is also a way that Government contracting will gain credibility by input from a diversity of perspectives.  It's okay if my suggested addition of a subparagraph or tweak of language gets shot down by the rule-maker.  The output into the FAR is up to them.

@C Culhamand @joel hoffman and others, you all know this well, but I hope to draw attention to it for our readers.  Supply me with a responsibility in the FAR and I can point to that when I initiate the conversation with my counterpart at the Contractor.  Supply me with a well-written limitation in the FAR and I will point to that when the counterargument for a different interpretation comes from their fancy government lawyer on retainer.  This occurs much more often when I am dealing with a large business.  In the case of improving LOS compliance with a SB, a CO may have better luck just having a common-sense conversation about meeting the spirit of the rule.  In the case of something as far-reaching as this latest Proposed Rule for example, though... https://www.federalregister.gov/d/2021-18339 ...I may need help from my fellow COs predicting ripple effects.  This is a topic for another discussion, but think: what does future you need to point to in the FAR to demand the Contractor help you perform a review of, "[I]nformation submitted by the offeror of recent purchase prices paid by the Government and commercial customers for the same or similar commercial items under comparable terms and conditions?"  Ask now or forever hold your peace, I say.  Or go discuss it in the Proposed Rule forum here to refine it before you ask.  And yes, you can ask anonymously on regulations.gov.  Just ask!

WifWaf, I can certainly understand your timidity to evaluate a firm’s intent to comply with limits on subcontracting/self performance requirements in a source selection. And I don’t doubt that you are too busy to spend an extra five minutes per proposal reviewing a filled in form and deciding whether it passes the sniff test.

However, if you are negotiating a sole source contract, there is nothing to prevent you from determining whether or not the proposal aligns with the requirement before awarding it.

And the excuse that it is unclear, ambiguous or too confusing to figure out is a cop out. I coordinated with the SBA to develop the form and clarifications/explanation accompanying the forms. The government has an inherent duty to understand the requirement, which is not just regulatory.

joel hoffman said:

timidity

joel hoffman said:

excuse

Oof, that's a right hook I didn't expect.

I get a feeling you were dealing with men when you were a CO.  I am dealing with lobbyist weasels.

They're like man, except they have your Agency director and Senator on speed-dial 😁

"If one party at the table is trying to take an unfair advantage of the other party, the element of good faith is not present, hence you have no real negotiation."  Gordon Wade Rule, The Art of Negotiation

All caught up and I fear we are going to end up readdressing a few other post we wasted several pages of commentary on.

I digress.

WifWaf said:

Oof, that's a right hook I didn't expect.

I get a feeling you were dealing with men when you were a CO.  I am dealing with lobbyist weasels.

WifWaf, my last post wasn’t specifically directed at you.

However, I noted that you are apparently hesitant to interpret or obtain help interpreting the rules**. If you leave it up to each offeror or contractor to interpret and argue various interpretations, of course it will become more complicated and controversial/confrontational,  too.

That’s why I consulted the Atlanta Regional Office (back in the day) and sent them the forms with our explanations to review and concur/non-concur with before we used it.

Yes, the rules have changed, so obviously my forms arent current.

Maybe you don’t negotiate sole source contract actions.  But if you do, you should have or can get enough information to be able to negotiate and mutually determine whether or not the proposal is compliant.

** Merriam Webster Dictionary “Definition of timid:

1**:** lacking in courage or self-confidence-a timid person

2**:** lacking in boldness or determination-a timid policy”

joel hoffman said:

...If you leave it up to each offeror or contractor to interpret and argue various interpretations...

YES, leave it up to each offeror or contractor -- YES, we should leave it up to each offeror or contractor to interpret and argue various interpretations.

There is no government-wide interpretation.  A contracting officer should not want to impose a single interpretation. 

Before award, let the contractor make its own representation that it will comply (just a representation, not a demonstration of proof).'

After award, if the contracting officer feels the representation is not being honored, let the contractor demonstrate that it has complied using its own arguments.  If the contracting officer is not persuaded, that is when he or she deals with it.  And YES, one contractor might be more persuasive than another contractor. 

This is not timidity -- this is prudence and professionalism.

joel hoffman said:

If you leave it up to each offeror or contractor to interpret and argue various interpretations, of course it will become more complicated and controversial/confrontational,  too.

How do you avoid an issue becoming "more complicated and controversial/confrontational,  too" by giving contractors a dumb government interpretation of what a FAR clause says?  One of the biggest mistakes contractors, particularly small businesses, make is to rely on what a contracting officer/COR tells them about the FAR.

ji20874 said:

YES

The following is not an argument against just a reminder with emphasis added.....as I said early on let the contractor figure out what they think with regard making the representation but yet......

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. In order to perform these responsibilities, contracting officers should be allowed wide latitude to exercise business judgment. Contracting officers shall-

      (a) Ensure that the requirements of 1.602-1(b) have been met, and that sufficient funds are available for obligation;

      (b) Ensure that contractors receive impartial, fair, and equitable treatment;

Retreadfed said:

One of the biggest mistakes contractors, particularly small businesses, make is to rely on what a contracting officer/COR tells them about the FAR.

No disagreement.

Would someone please point out the requirement for contractors to keep records and report their compliance with the Limitation on Subcontracting clause? Please provide the OMB Control number.

ji20874 said:

There is no government-wide interpretation.  A contracting officer should not want to impose a single interpretation... 

This is not timidity -- this is prudence and professionalism.

Hear! Hear!

ji20874 said:

There is no government-wide interpretation.  A contracting officer should not want to impose a single interpretation…. 

This is not timidity -- this is prudence and professionalism.

Welcome to service contracting 101. 😃

Don Mansfield said:

Would someone please point out the requirement for contractors to keep records and report their compliance with the Limitation on Subcontracting clause? Please provide the OMB Control number.

Good question but I might suggest in the context of this thread and comments made that the question should be  -  Please point out where the CO is to report on compliance?   The answer would be FAR 42.15, OMB Control number 9000-0142.  FAR Guiding Principle - 42.1503(b)(2)(vi)

C Culham said:

Good question but I might suggest in the context of this thread and comments made that the question should be  -  Please point out where the CO is to report on compliance?   The answer would be FAR 42.15, OMB Control number 9000-0142.  FAR Guiding Principle - 42.1503(b)(2)(vi)

Carl,

The Paperwork Reduction Act doesn't apply to reporting requirements imposed on contracting officers. Also, OMB Control number 9000-0142 covers contractor responses in CPARS in FAR 42.1503(d)--it does not create a recordkeeping or reporting requirement for contractors regarding compliance with the Limitation on Subcontracting clause.

The SBA considered imposing a subcontracting reporting requirement on small business primes, but ultimately decided it would place too much of a burden on small business. From 81 FR 34247:

Quote

SBA received several comments in response to its request for comments on whether prime contractors should be required to report to the contracting officer on their compliance with the limitations on subcontracting. Eight commenters supported mandatory compliance reporting, and five of those commenters recommended that the reporting be made at the end of the contract term. Three of the supportive commenters recommended compliance reporting on a quarterly or annual basis. Three commenters opposed mandatory compliance reporting because it would be too burdensome on small business concerns. One commenter suggested that SBA use its auditing and investigating authority to determine compliance rather than requiring contractors to report their compliance. Another commenter suggested that the only necessary compliance reporting should be made in the offer.

In addition to the requirement for a written agreement, SBA also proposed to require compliance reporting from small business concerns that rely on similarly situated entities to meet their performance obligations under a set aside contract. Notably, SBA did not propose to require compliance reporting from all small business concerns (i.e., firms that do not rely on similarly situated small business concerns to meet their performance obligations). Upon further review, SBA believes that this proposal would create a disincentive to utilize this new statutory authority. Compliance reporting was not required by the statute, and in fact, reliance on similarly situated entities to help meet their performance requirements actually makes it easier these firms to comply with their obligations. Moreover, requiring a prime contractor to report on compliance with the limitations on subcontracting when it uses one or more similarly situated entities could hamper flexibility for firms during contract performance. For example, a firm may initially intend to comply on its own, but may find during contract performance that it must rely on one or more similarly situated subcontractors to meet its performance obligations. In addition, a firm may intend to use one or more similarly situated entities to help it meet its performance obligations, but then may decide during contract performance that it will perform all of the required work with its own employees. These practical realities have led us to remove the compliance reporting requirement with respect to similarly situated entities. SBA may, in the future, propose a rule that requires compliance reporting from all small business concerns, not just those that rely on similarly situated entities. However, such a change would require notice and a request for public comment that is not part of this rulemaking.

So how are contracting officers to comply with FAR 42.1503(b)(2)(vi)?

Don Mansfield said:

The Paperwork Reduction Act doesn't apply to reporting requirements imposed on contracting officers. Also, OMB Control number 9000-0142 covers contractor responses in CPARS in FAR 42.1503(d)--it does not create a recordkeeping or reporting requirement for contractors regarding compliance with the Limitation on Subcontracting clause.

Thank you the nuance is understood and I was aware when I made my post. 

Don Mansfield said:

So how are contracting officers to comply with FAR 42.1503(b)(2)(vi)?

I guess in the same way the comply with reporting performance on Quality of product/service, Cost Control, where applicable, Schedule/timeliness, Management or business relations, SB subcontracting (as applicable) including reduced or untimely payments, Trafficking violations, Tax delinquency, Failure to report in accordance with contract terms and conditions, Defective cost or pricing data, Terminations, suspension and debarments, some I would suggest do not require a contractor to report on nor is there a OMB Control No. for. 

It would seem to me that if the government expects a contractor to do their due diligence to agree to the limitations clause by submission of a offer and execution (performance?) of a contract, just as they do for say performance of the work overall, then government monitoring is acceptable.  I just do not understand why there is always a firestorm when it is suggested by me that the government should do their job in assuring the four corners of a contract are adhered to?   Forget about the imitations clause but hold a contractors feet to the fire on adhering to a period of performance and if not expect a reduction in price, what truly is the contractual expectation difference?  None, in my view.

Here is the text of FAR 42.1503(b)(2)(vi):

Quote

(vi) Other (as applicable) (e.g., trafficking violations, tax delinquency, failure to report in accordance with contract terms and conditions, defective cost or pricing data, terminations, suspension and debarments, and failure to comply with limitations on subcontracting).

I do not read this as creating an affirmative duty on the contracting officer to investigate or the contractor to report -- I don't think the contracting officer has any affirmative duty to investigate whether the contractor is involved in human trafficking, or whether the contractor paid its taxes completely and on time, and so forth.  However, if the contracting officer learns of anything of the sort listed, he or she may report it in CPARS amenable to FAR 42.1503(b)(2)(vi).

That said, if the contracting officer's normal review of invoices and so forth demonstrates that the contractor is not complying with the LOS requirements of the contract, the contracting officer may raise the matter with the contractor -- but the burden of proof seems to be on the Government rather than the contractor.  As Don shared above, it seems that the powers-that-be have already decided that there is no requirement on the contractor for LOS compliance reporting.

C Culham said:

I guess in the same way the comply with reporting performance on Quality of product/service, Cost Control, where applicable, Schedule/timeliness, Management or business relations, SB subcontracting (as applicable) including reduced or untimely payments, Trafficking violations, Tax delinquency, Failure to report in accordance with contract terms and conditions, Defective cost or pricing data, Terminations, suspension and debarments, some I would suggest do not require a contractor to report on nor is there a OMB Control No. for.

Ok, but there are records of those things. If a contractor is not required to keep records to prove compliance with the Limitation on Subcontracting clause, how does the contracting officer determine compliance?

C Culham said:

It would seem to me that if the government expects a contractor to do their due diligence to agree to the limitations clause by submission of a offer and execution (performance?) of a contract, just as they do for say performance of the work overall, then government monitoring is acceptable.  I just do not understand why there is always a firestorm when it is suggested by me that the government should do their job in assuring the four corners of a contract are adhered to?   Forget about the imitations clause but hold a contractors feet to the fire on adhering to a period of performance and if not expect a reduction in price, what truly is the contractual expectation difference?  None, in my view.

Would you agree that monitoring compliance with every term of a contract is neither practical nor desirable? Or is it the contracting officer's duty to audit the contractor's compliance with the clause at FAR 52.204-4, Printed or Copied Double-Sided on Postconsumer Fiber Content Paper?

ji20874 said:

That said, if the contracting officer's normal review of invoices and so forth demonstrates that the contractor is not complying with the LOS requirements of the contract, the contracting officer may raise the matter with the contractor...

See 13 CFR § 125.6, which says in part:

Quote

(d) Determining compliance with applicable limitation on subcontracting. The period of time used to determine compliance for a total or partial set-aside contract will be the base term and then each subsequent option period. For an order set aside under a full and open contract or a full and open contract with reserve, the agency will use the period of performance for each order to determine compliance unless the order is competed among small and other-than-small businesses (in which case the subcontracting limitations will not apply).

See also FAR 52.219-14(f).

The limitation is based on the amount the government pays the contractor and the amount the contractor pays to subcontractors. It is not based on the contract price and subcontract prices. The amount paid will not be known until performance has been completed and all payment-related issues are resolved. Compliance may not be predictable or determinable on the basis of periodic reviews of invoices. Too much complaining, interrupting, and threatening by the CO on the basis of interim assessments might become the basis for a claim based on government interference.

And what about line items? What if the line item structure renders the contract severable (divisible) as opposed to entire? Does the clause apply to the entire contract payment, even if the line item structure renders the contract severable? Both the SBA reg and the FAR are silent on that question.

Under some contracts it may be very difficult to determine, during performance, how the contractor stands with reference to compliance. A determination may have to await resolution of contractor requests for equitable adjustment and subcontractor claims. Compliance might depend on things like unanticipated supply chain interruptions, shortages, materials cost increases (such a lumber late last year and earlier this year), and cost allowability. When all is said and done, noncompliance might come as a complete surprise to everyone. It might not be determinable until years after the contract is physically complete.

The policy and its implementation are crummy.

ji20874 said:

As Don shared above, it seems that the powers-that-be have already decided that there is no requirement on the contractor for LOS compliance reporting.

This is not settled the way you so state, although I can see how @Don Mansfield's quote from the strangely worded conclusion the SBA's rule-maker wrote in 2016 would lead one to believe it was settled that way.  She was talking about requiring compliance reporting from just the SBs using the new similarly situated entity rule... and she confused us all.  In context, though, the next few paragraphs in Don's 81 FR 34247 citation after his quote are all about looking forward to the future, where a Proposed Rule would settle this requirement for LOS compliance reporting (for all SBs):

Quote

SBA believes that to the extent compliance reporting should be required, it should be required from all small businesses...Thus, SBA intends to issue a proposed rule to request public comment on the issue of whether all small businesses...should be required to report on compliance with the limitations on subcontracting on set-aside contracts. SBA understands the recommendations made by the Government Accountability Office to strengthen the monitoring and oversight of the required performance percentages for all small businesses that receive set-aside awards, including 8(a) contractors, and believes that a separate rulemaking should address that issue more appropriately.

So, I followed the rabbit hole and located their Proposed Rule, at 83 FR 62519 and 62520, dated 12/4/2018:

Quote

SBA is proposing to add new § 125.6(e)(4) to clarify that contracting officers may request information regarding LOS compliance, and to clarify that it is not required for every contract. SBA is requesting comment on whether all small business prime contractors performing set-aside or sole source contracts should be required to demonstrate compliance with LOS to the contracting officer, and if so, how often should this be required, such as annually or quarterly. What salient data would best provide assurance of compliance? Should demonstrating compliance depend on the length of the contract or the type of contract? Whether it is for commercial products and services? Whether the contract is fixed price? Whether the contract is above the SAT or the TINA threshold? What other considerations should there be when applying the requirement for a contractor to document LOS compliance? We are requesting that industry provide comment on what information can be efficiently requested and provided.

From there, after apparently no comments advocating an outright hands-off approach, we got the resulting Final Rule on 11/29/2019 (https://www.federalregister.gov/d/2019-25517/p-36) and it produced the 13 CFR 125.6(e)(4) allowance that COs may request invoices.  Clear as mud?  My point is, the conclusion COs reading this thread must reach is not exactly, "[T]here is no requirement on the contractor for LOS compliance reporting," it is that the CO has the power to impose a demonstration of compliance at his/her discretion, and may do so by reviewing invoices. 13 CFR 125.6(e)(4) now says what is quoted below (emphasis added).  But as has been stated in this thread this is not a good use of a COs time due to inherent loopholes in the calculation.  You can maybe use this allowance to catch the bad actor who subcontracted out 90% of a service because he was not aware of the rule or mistakenly believed it did not apply to commercial services, but, that's about all this is good for.  In the CO's toolbox, 13 CFR 125.6(e)(4) is the obscure Torx screwdriver - fit for one job then rarely used again.

Quote

Contracting officers may, at their discretion, require the contractor to demonstrate its compliance with the limitations on subcontracting at any time during performance and upon completion of a contract if the information regarding such compliance is not already available to the contracting officer. Evidence of compliance includes, but is not limited to, invoices, copies of subcontracts, or a list of the value of tasks performed.

Don Mansfield said:

Ok, but there are records of those things. If a contractor is not required to keep records to prove compliance with the Limitation on Subcontracting clause, how does the contracting officer determine compliance?

If the contractor is required to comply with a limitation, how does it know whether or not it is complying?

Of course it has to have some system to know! Y’all are making mountains out of a mole hill.

Service contracting 101…Burying heads in the sand or looking the other way, hoping it will go away…

And if you negotiating a sole source task order or contract, the contractor’s proposal should reveal the plan and the proposed costs for prime and sub work. It’s not rocket science.

And if it’s a FFP construction contract, the contractor must provide the details in each progress payment invoice per the payments clause.

Don Mansfield said:

Ok, but there are records of those things.

We could continue to quibble the fine details but I do wonder about records of management and business relations, tax delinquencies readily recorded and given to the CO,  and trafficking, as officially recorded??  

Don Mansfield said:

how does the contracting officer determine compliance

Ask!

Don Mansfield said:

Would you agree that monitoring compliance with every term of a contract is neither practical nor desirable? Or is it the contracting officer's duty to audit the contractor's compliance with the clause at FAR 52.204-4, Printed or Copied Double-Sided on Postconsumer Fiber Content Paper?

Red Herring!   Would you not agree that the limitation matter does get protests and hearings and extended to False Claim Act matters and as such holds a higher degree of interest than 52.204-4? 

Otherwise I defer to Vern Edwards further posts along with that of Joel Hoffman's previous ones.   Pick and choose as you may in the end there is ability and possibly the need to determine, on the behalf of the government, compliance. 

I would not want my red face on the cover of Rolling Stone stating that I never proactively reviewed the limitation matter when in the end, at the least, shell organizations get the all the work or at the worst my actions promoted fraud forever.  But if you would like, have at it.

@WifWaf, thanks for the research. What I find interesting in the section on the Paperwork Reduction Act is that they don't account for obtaining small business representations from subcontractors. On what basis would a small business prime classify a subcontractor as small?

joel hoffman said:

If the contractor is required to comply with a limitation, how does it know whether or not it is complying?

Of course it has to have some system to know! Y’all are making mountains out of a mole hill.

Service contracting 101…Burying heads in the sand or looking the other way, hoping it will go away…

And if you negotiating a sole source task order or contract, the contractor’s proposal should reveal the plan and the proposed costs for prime and sub work. It’s not rocket science.

And if it’s a FFP construction contract, the contractor must provide the details in each progress payment invoice per the payments clause.

☝🏽️How to say you don't know without saying you don't know.

C Culham said:

Red Herring!   Would you not agree that the limitation matter does get protests and hearings and extended to False Claim Act matters and as such holds a higher degree of interest than 52.204-4? 

Otherwise I defer to Vern Edwards further posts along with that of Joel Hoffman's previous ones.   Pick and choose as you may in the end there is ability and possibly the need to determine, on the behalf of the government, compliance. 

I would not want my red face on the cover of Rolling Stone stating that I never proactively reviewed the limitation matter when in the end, at the least, shell organizations get the all the work or at the worst my actions promoted fraud forever.  But if you would like, have at it.

So your standard for determining which clauses deserve more attention than others is political sensitivity. Got it.

joel hoffman said:

Y’all are making mountains out of a mole hill.

@joel hoffmanAnd you're not being very thoughtful. If you were, you would realize that the clause is potentially very problematical for primes and contracting officers. Your many war stories about what you did when don't impress me. Try some analysis of the clause.

What are the implications of the "amount paid" criterion for small subs relying on very big primes to do difficult work very close to the limitation? Try conjuring up some scenarios and working them through for us, instead of telling us another tale.

joel hoffman said:

And if you negotiating a sole source task order or contract, the contractor’s proposal should reveal the plan and the proposed costs for prime and sub work. It’s not rocket science.

And if you had thought about the clause and the turns things can take during performance, you'd know that the plan does not mean diddly squat once the contract has been awarded and performance has begun. Things don't always turn out as planned. The criterion is amount paid.

Anyway, I think you're a civil engineer. If so, what do you know about rocket science?

Vern Edwards said:

And if you had thought about the clause and the turns things can take during performance, you'd know that the plan does not mean diddly squat once the contract has been awarded and performance had begun. Things don't always turn out as planned. The criterion is amount paid.

Anyway, I think you're a civil engineer. If so, what do you know about rocket science?

Actually I took a thermodynamics class including rocket (and jet) propulsion, an aerodynamics class and another one on aerospace trajectories in college under the Air Force’s manhole - oops I mean “whole man” concept. “Fast Neat Average Friendly Good Good”. 

And in construction contracts, it’s quite simple. The contractor must provide that information with each progress payment request. Easy to track.

joel hoffman said:

The contractor must provide that information with each progress payment request. Easy to track.

No it's not. Under 52.219-14 the standard is amount paid at the end of the job. Progress reports don't mean diddly squat if there are outstanding compensation issues to be settled or important work yet to do.

And a few classes do not a rocket scientist make.

I asked you:

Quote

What are the implications of the "amount paid" criterion for small subs relying on very big primes to do difficult work very close to the limitation? Try conjuring up some scenarios and working them through for us, instead of telling us another tale.

I and everyone else will be standing by.

joel hoffman said:

And in construction contracts, it’s quite simple. The contractor must provide that information with each progress payment request. Easy to track.

How do you verify the subcontractors are small?

Vern Edwards said:

No it's not. Under 52.219-14 the standard is amount paid at the end of the job. Progress reports don't mean diddly squat if there are outstanding compensation issues to be settled.

From 52.232-5 

“(1) The Contractor's request for progress payments shall include the following substantiation: 

(i) An itemization of the amounts requested, related to the various elements of work required by the contract covered by the payment requested. 

(ii) A listing of the amount included for work performed by each subcontractor under the contract. 

(iii) A listing of the total amount of each subcontract under the contract. 

(iv) A listing of the amounts previously paid to each such subcontractor under the contract. 

(v) Additional supporting data in a form and detail required by the Contracting Officer.”

The prime must also advise whether and how much any retainage is to be withheld  from any sub or supplier from a progress payment. The government then deducts such withholding from the progress payments to the prime until the prime is ready to pay what was retained/withheld.

Sure, something might arise during contract performance that might affect the “plan”, such as government changes that add or subtract from self performed or subcontracted work. That would have to be evaluated and it might be impossible to execute the plan as originally envisioned. I think in that case, a good faith effort would have to be taken into account. It’s not a contractor’s fault or within their control if the government changes the requirements during performance. 

EDIT: I don’t really want to conjure up, nitpick or debate possible anomalies. Under Service Contracting 101, the KO would likely not  bother tracking, let alone determine actual percentages.

Don Mansfield said:

How do you verify the subcontractors are small?

How do You verify that a subcontractor is small or that a prime is small? You likely take their word for it. If the prime wants to claim credit for a similarly situated sub, they need to show it. Otherwise it doesn’t matter whether a sub is small or not.

Don Mansfield said:

How do you verify the subcontractors are small?

13 CFR 121.404(e)

joel hoffman said:

How do You verify that a subcontractor is small or that a prime is small? You likely take their word for it. If the prime wants to claim credit for a similarly situated sub, they need to show it. Otherwise it doesn’t matter whether a sub is small

Again, you don't know.

C Culham said:

13 CFR 121.404(e)

What requires small business primes to get certifications from their subcontractors?

Don Mansfield said:

Again, you don't know.

Again, it doesn’t matter, unless they want to take credit for similarly situated subs.

Actually, the new -14 clause is simpler than the old one. And, unless the SBA’s CFR has changed, if it’s subs don’t identify the amount of their materials in their subcontract price, it doesn’t get excluded from their payment for calculating the amount paid to subs.

Don Mansfield said:

What requires small business primes to get certifications from their subcontractors?

Read the whole of 13 CFR 121.4 then you tell me.

C Culham said:

C Culham said:

Read the whole of 13 CFR 121.4 then you tell me.

I take that as you don't know.

Don Mansfield said:

I take that as you don't know.

Don, the question you are asking would be applicable to any contract or order that is subject to the limitations on subcontracting clause where the prime or 8(a) “subcontractor” wishes to claim credit for similarly situated subcontractors share of the contract.

Therefore all current PCO’s should be able to verify or obtain verification that the subs qualify as small businesses, right?

I am retired and don’t need to know. But I’m guessing that to claim status as a small business, a firm would certify under the SBA procedures and be listed in their database. There are penalties for false certifications, too. At any rate the firms would have to show that they are small businesses or similarly situated firm.

joel hoffman said:

Don, the question you are asking would be applicable to any contract or order that is subject to the limitations on subcontracting clause where the prime or 8(a) “subcontractor” wishes to claim credit for similarly situated subcontractors share of the contract.

Therefore all current PCO’s should be able to verify or obtain verification that the subs qualify as small businesses, right?

How? Are small business primes required to get small business representations from subs? There's a requirement for that in FAR 52.219-9, but that clause doesn't apply to small business concerns. I don't see anything in the Limitation on Subcontracting clause requiring primes to get representations from subcontractors regarding size or socioeconomic status. The approved information collection regarding subcontractor representations covers the primes' burden in complying with FAR 52.219-9 only.

Don Mansfield said:

How? Are small business primes required to get small business representations from subs? There's a requirement for that in FAR 52.219-9, but that clause doesn't apply to small business concerns. I don't see anything in the Limitation on Subcontracting clause requiring primes to get representations from subcontractors regarding size or socioeconomic status. The approved information collection regarding subcontractor representations covers the primes' burden in complying with FAR 52.219-9 only.

Therefore, you wouldn’t bother to verify that the similarly situated sub(s) is/are, in fact similarly situated sub(s)? The other subs don’t matter.

That would then make perfect sense under service contracting 101…

joel hoffman said:

Under Service Contracting 101...

What do you mean by that? What do you mean by "Service Contracting 101"? You have used that phrase several times now.

I can say with confidence that I have read and written more about service contracting than you have ever read or thought about, and I don't know what you mean by that.

It means, in the context of enforcement of this particular contract requirement, to be oblivious to it. According to Don, the government isn’t allowed to ask for any evidence of compliance or to require the contractor to substantiate that a similarly situated subcontractor is, in fact a similarly situated small business.

So several here have indicated that it is “prudent” to essentially ignore it unless you learn of a problem. If you don’t know how to tell if they are complying, then look the other way.

if you feel that the requirement is a performance requirement, to be left to the contractor’s discretion on how to comply, a proper performance requirement includes substantiation. Substantiation is an Inherent aspect of performance specifying.

Simply ignoring the requirement, is obliviousness and not performance specifying, enforcing it by exception. Then it is rendered useless.

joel hoffman said:

According to Don, the government isn’t allowed to ask for any evidence of compliance or to require the contractor to substantiate that a similarly situated subcontractor is, in fact a similarly situated small business.

I didn't say that. I asked you how you would verify that a subcontractor is a small business. All invoices are going to tell you is that an amount was paid to a subcontractor.

So what's your plan for verifying compliance?

Don Mansfield said:

So what's your plan for verifying compliance?

Don- Verifying compliance with what specific requirement? And are you referring to construction, services or what?  I was describing tools for how to verify compliance for construction.

The contractor would have to substantiate that a sub is a similarly situated sub if it wants to take credit for that as self performed work.

In looking at the numerous categories of set aside programs, I’m sure that the SBA would know whether a firm is in the program. If you are saying that it isn’t possible to verify that a firm is a similarly situated small business firm, That makes no sense.

And, for a sole source negotiation, the proposed prime or 8(a) would have to provide substantiation during the negotiated formation process.

joel hoffman said:

Don- Verifying compliance with what specific requirement? And are you referring to construction, services or what?

The Limitation on Subcontracting--paragraph (e) of the clause at FAR 52.219-14. Doesn't matter what it's for.

joel hoffman said:

The contractor would have to substantiate that a sub is a similarly situated sub if it wants to take credit for that as self performed work.

Vern mentioned separate line items or sub-line items for self-performed work including similarly situated subs and/or JV members and separately for other subs.

If you are saying that, one can’t determine or otherwise require substantiation of the amount of similarly situated or non similarly situated subcontracting for service contracts, well then I guess you revert to service contracting 101. See above illustration.

Don Mansfield said:

Are small business primes required to get small business representations from subs?

A prime that promises to comply with the limitations on subcontracting would be foolish not to require prospective subs to (1) certify their size status and (2) require their own subs to so certify. The prime should do that not because they're required to do so, but because it would be a prudent act of self-preservation.

As for how the prime would know that the sub is being truthful about its status, as Carl has pointed out, the prime is entitled to rely on the sub's self-certification. That's old policy. (Stalking you with praise, Carl. This time.)

Now back to CO enforcement:

FAR 52.219-14 takes the wind out of a would-be proactive CO's sails, first, because it does not require a contractor to provide regular "progress" reports to the CO. SBA expressly rejected that idea when it implemented the new law and policy. See 84 FR 65647, Nov. 19, 2019, at 65652-53. (Does anything else in FAR or elsewhere require progress reports? I don't know. If there is some such requirement, I'm sure Carl will find it. (Praise again, C.)

But even if a contractor must report progressive subcontracting limitation status, FAR 52.219-14 and 13 CFR 125.6 may prevent the CO from taking any kind of action prior to contract completion, because both expressly state the point in time at which the contractor must demonstrate compliance. I'll quote the clause:  

Quote

(f) The Contractor shall comply with the limitations on subcontracting as follows:

           (1) For contracts, in accordance with paragraphs (c)(1), (2), (3) and (6) of this clause—

          [Contracting Officer check as appropriate.] 

           □ By the end of the base term of the contract and then by the end of each subsequent option period; or

           □ By the end of the performance period for each order issued under the contract.

           (2) For orders, in accordance with paragraphs (c)(4) and (5) of this clause, by the end of the performance period for the order.

Thus, the contractor need not be within the limitation at all times during the course of performance. What should a CO do if, say, at the 25 percent completion point, the amount paid to other than similarly situated subs is more than the limit? In light of the clause language, what can the CO do? I think nothing, as long as there is still a chance that they can be within the limit by the end.

The basis for determining compliance is the percentage of the "amount paid" to subs not similarly situated by the end of performance, less the stipulated deductions of other direct costs and materials costs. That amount might not be knowable until all matters at issue between and among the parties are resolved after the work is physically complete and everyone has signed off on final payment. A CO would need both first and second-tier subcontract information to determine compliance, and would to need to know the amounts of other direct costs and materials costs to be deducted from the amounts paid. (Think about verifying compliance under each order under an IDIQ contract.) Would COs need audit assistance, or should they just accept the amounts reported?

How long will all this take, especially on large contracts with lots of subcontracting.

Who bears the burden of proof? Does the contractor have to prove compliance or does the government have to prove noncompliance?

How much time should COs and agency lawyers be prepared to devote to all this after contracts are physically complete?

How much might all this cost a small business if a CO decides to go full compliance-monkey?

In my opinion, small business policy is a political policy that was easy for our reliably dunderheaded Congress to enact and for the bureaucrats to implement in regulations. I can tell it was easy because it took only a little more than 100 pages in the Federal Register and three years and a few months.

See Big Is Beautiful: Debunking the Myth of Small Business, by Atkinson and Lind (MIT Press, 2018).

After reading what everyone has said, here is where I stand:

If I were a CO administering a contract with subcontracting limitations I would do the following:

1. I would include a clause in the contract requiring that (1) before final payment the contractor state in writing whether they complied with the limitations and (2) provide a summary statement of the amount paid to each non-similarly-situated subcontractor. I think I could ask for that information pursuant to 13 CFR 125.6(e)(4), but I'm pretty sure I'll hear from Don about such an information request.
2. I would send a letter to the contractor at the performance midway point reminding them of the limitation and asking for written confirmation of receipt.
3. Upon receipt of the contractor's final confirmation, and assuming that there were no issues, I would sign a memo to file stating that I knew of no reason to think that the contractor had not complied.

That's as far as I would go absent reliable information about noncompliance or direction from above.

@joel hoffmanJoel, about the photo you posted—How did you manage the selfie while in that position?

@Vern Edwards

Thank you for the praise.   I might add that forgotten in the back and forth on this subject is FAR 52.219-8.    

Does -8 not give the instructions on how a prime would determine small business size?  

Does -8  not give the the CO the authority to determine a contractors compliance with 52.219-14?

I might add that, as noted before, that I encourage a read of 13 CFR 121.4.   As it goes with FAR part 19, and acknowledged before in the whole of Forum, a combined read of the SBA regulations with the FAR is sometimes necessary to provide context with regard to small business matters.  Here the question is - Is it wrong thinking to encourage a read of 13 CFR where at FAR 19.000 establishes the Scope with reference to the Small Business Act.

And then there is of course FAR 19.501 and its reference to FAR 19.505.

My conclusion - We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.  

@Don Mansfield That is what I know.

C Culham said:

We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.

I think everyone agrees with this.  

I think the question is whether a contracting officer, before award, should impose absolute criteria to judge the contractor's future compliance with LOS.  To me, trying to do this would be problematic for several reasons already discussed above.  If there is a basis for questioning the contractor's compliance with LOS during contract administration at the end of a contract or task order period, I prefer allowing the contractor to show its compliance using any method it decides upon at that time.

C Culham said:

Thank you for the praise.   I might add that forgotten in the back and forth on this subject is FAR 52.219-8.    

Does -8 not give the instructions on how a prime would determine small business size?  

Does -8  not give the the CO the authority to determine a contractors compliance with 52.219-14?

I might add that, as noted before, that I encourage a read of 13 CFR 121.4.   As it goes with FAR part 19, and acknowledged before in the whole of Forum, a combined read of the SBA regulations with the FAR is sometimes necessary to provide context with regard to small business matters.  Here the question is - Is it wrong thinking to encourage a read of 13 CFR where at FAR 19.000 establishes the Scope with reference to the Small Business Act.

And then there is of course FAR 19.501 and its reference to FAR 19.505.

My conclusion - We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.

@C CulhamI don't get what point you are trying to make. I don't question a CO's authority to determine a contractor's compliance with 52.219-14. I question when and how it is to be done and how much work it will entail.

Although your comments were addressed to me, I think your issues are with Don.

C Culham said:

My conclusion - We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.

I don't think we've danced around it, but I do think that some have not discussed it as intelligently as they might.

I think the policy is overboard; I think the clause is poorly written; I think it's more difficult to enforce than some in this thread are giving it credit for; and I don't think that busy COs should devote any time to enforcement during performance unless they have good information about failure to comply. I have said what I would do.

ji20874 said:

I think everyone agrees with this.  

I think the question is whether a contracting officer, before award, should impose absolute criteria to judge the contractor's future compliance with LOS.  To me, trying to do this would be problematic for several reasons already discussed above.  If there is a basis for questioning the contractor's compliance with LOS during contract administration at the end of a contract or task order period, I prefer allowing the contractor to show its compliance using any method it decides upon at that time.

@ji20874I don't agree with Carl's "danced around" statement. I haven't danced around anything. I certainly didn't dance around in my post this morning. I said exactly what I would do and why.

As for absolute criteria for judging compliance, ideal practice would be for the contracting parties to discuss interpretation and compliance before contract award to find out how each party interprets the clause, how they would apply it, and whether they can reach a meeting of the minds. Why ignore an elephant in the room?

Ideally, the parties should be able to develop a formula for determining compliance based on the language of the clause and 13 CFR 125.6, and ideally they would document their understanding. The words in the clause should be the basis for a story problem solution. But given the press of time and work and the shortage of skills in the contracting community, I doubt that ideal practice can be achieved in most cases. So, as a practical matter, it's probably best to set the matter aside for resolution at a later time, if necessary.

Vern Edwards said:

A prime that promises to comply with the limitations on subcontracting would be foolish not to require prospective subs to (1) certify their size status and (2) require their own subs to so certify. The prime should do that not because they're required to do so, but because it would be a prudent act of self-preservation.

As for how the prime would know that the sub is being truthful about its status, as Carl has pointed out, the prime is entitled to rely on the sub's self-certification. That's old policy. (Stalking you with praise, Carl. This time.)

My question was whether a small business prime is required to get small business representations from its subcontractors--not whether you thought it would be foolish not to.

I think @C Culham's reference to FAR 52.219-8 answers my question.

Don Mansfield said:

@WifWaf, thanks for the research. What I find interesting in the section on the Paperwork Reduction Act is that they don't account for obtaining small business representations from subcontractors. On what basis would a small business prime classify a subcontractor as small?

Used to be SAM.gov's Entity Search function was open for public viewing, including their reps and certs.  With the website's most recent version update, you must be signed in as a registered user to get access to an entity's FAR 52.219-1 size attestation.  This may have unintentionally impeded compliance with FAR 52.219-14 for those primes using the new similarly situated entity authority.  I'd be interested to hear if that's the case from a prime in this Subcontract Management Forum.

Don Mansfield said:

My question was whether a small business prime is required to get small business representations from its subcontractors--not whether you thought it would be foolish not to.

@Don MansfieldWhen I post, I do not do so to please you. I don't really care what your question was. I posted what I wanted to say.

But now I will answer your question.

I do not know of any statute or regulation that expressly requires a small business prime to get small business representations from its subcontractors. However, not every contractual obligation is express, and I think I could make a persuasive argument in court that such a requirement could be inferred from other clauses in the contract, including FAR 52.219-8 and FAR 52.219-14. Among other things, I think failure to require subs to make representations could be an indication of bad faith.

Here's a thought -- since the LOS clause can only be accurately and finally assessed at the end of a contract period (when there is no remaining time for remedy), maybe the best way to enforce the clause is for the agency to debar a contractor who willfully failed to meet it or has a history of failing to meet it.

ji20874 said:

when there is no remaining time for remedy

Why wouldn't there be time for a remedy? See 13 CFR § 125.6(g).

Vern Edwards said:

See 13 CFR § 125.6(g).

Outstanding!  This citation provides for penalties for a contractor's violation of the Limitations on Subcontracting requirement of a set-aside contract.

See 13 CFR §125.6 (e)(4):

”(4) Contracting officers may, at their discretion, require the contractor to demonstrate its compliance with the limitations on subcontracting at any time during performance and upon completion of a contract if the information regarding such compliance is not already available to the contracting officer. Evidence of compliance includes, but is not limited to, invoices, copies of subcontracts, or a list of the value of tasks performed.”

It would be advisable not to wait until it is too late for the contractor to be able to comply with the limitations on subcontracting.

Joel,

Yes, that has already been pointed to in this thread.  But remember two things--

1.  It is not mandatory for the contracting officer to "require the contractor to demonstrate its compliance with the limitations on subcontracting; " rather, this is wholly discretionary on the contracting officer's part.

2.  If the contracting officer does require the contractor to demonstrate its compliance, he or she should allow the contractor to make its own demonstration -- however well-intentioned the contracting officer might be, he or she should not impose criteria for judging compliance in the solicitation or otherwise in advance of the demonstration.  At least, that's how I see it.

If the contractor's failure to comply with limitations on subcontracting is discovered after performance is complete, that is okay -- the citation provided by Vern provides for appropriate penalties, including debarment.

ji20874 said:

Joel,

Yes, that has already been pointed to in this thread.  But remember two things--

1.  It is not mandatory for the contracting officer to "require the contractor to demonstrate its compliance with the limitations on subcontracting; " rather, this is wholly discretionary on the contracting officer's part.

2.  If the contracting officer does require the contractor to demonstrate its compliance, he or she should allow the contractor to make its own demonstration -- however well-intentioned the contracting officer might be, he or she should not impose criteria for judging compliance in the solicitation or otherwise in advance of the demonstration.  At least, that's how I see it.

If the contractor's failure to comply with limitations on subcontracting is discovered after performance is complete, that is okay -- the citation provided by Vern provides for appropriate penalties, including debarment.

I guess I missed an earlier posting of paragraph (e)(4). Yes, “may” is, of course, discretionary, not mandatory.

I do wonder, if the government is totally passive during performance, whether an appeal of a serious penalty for non-compliance discovered after performance might be successful. Plus, if the government didn’t care enough about it or “have the time” to check compliance during performance, I suspect that it won’t have the time to deal with it afterwards. The stated penalties are significant.

At least that’s how I see it. 🤠

My first meeting of my civil service career was with my GS—15 Area Engineer, Fred Jones. Mr. Jones described his expectations for contract administration. He stated that the primary job of a contract administrator is to require full compliance with the contract requirements- nothing less and nothing more. If you ignore something it becomes meaningless.

Joel,

I'm not calling for total passivity regarding LOS compliance -- however, I am concerned about sloppy and/or excessive zeal on the part of contracting officers, especially in a matter as fraught with complexity as LOS.

But YES, I believe that even if the government is totally passive during performance, and the matter arises after performance is completed, that the penalties are still enforceable.

Besides, I never called for total passivity.

Rather, I have been saying all along that the contractor should be able to make its own case about LOS compliance, without well-meaning but immature contracting officers simple-mindedly declaring what constitutes compliance in the solicitation.

ji20874 said:

immature

ji20874 said:

simple-mindedly

I remember back when these descriptors fit me... earlier this month when I replied to this thread and proposed we solicit compliance demos in our RFPs.  Thanks to Wifcon, I was able to discuss that idea in a testing ground with my peers (and Vern).  The result of this collaborative process is best summed up by @Vern Edwards, and is shown for all to see now at the top of this webpage, right next to Joel's self-portrait!  Good job, team (and @joel hoffman) 

joel hoffman said:

I do wonder, if the government is totally passive during performance, whether an appeal of a serious penalty for non-compliance discovered after performance might be successful.

I think not. The responsibility to comply rests with the contractor. The government undertakes no obligation to the contractor to monitor the contractor's compliance. The contract does not condition the contractor's compliance on a government duty to monitor.

Your GS-15 Mr. Jones made a nice speech to an impressionable young contract specialist. Most of us who have ever supervised contract specialists have made that speech at one time or another. He was passing gas. So were we.

Vern Edwards said:

I think not. The responsibility to comply rests with the contractor.

I just selected the final post on this approach to the LOS compliance as I do wonder?   Wonder what?   The general statement rests okay with me but what about a 8(a) set-aside, either sole source or competitive? I raise this question with regard to SBA/Agency Partnership Agreements.  It seems there is a different standard to adhere to, and I quote a few of the paragraphs from the DoD Agreement where it states the "The Department of Defense...."

"...shall retain responsibility for compliance with the limitations on subcontracting requirement and all applicable provisions of FAR § 52.219­ 14 and any of the U.S. Department of Defense regulations; 5. shall include provisions in all contract awards, modifications, options and purchase orders awarded or issued under the 8(a) BD Program that require Program Participants to comply with the Subcontracting Limitations, and shall conduct and document an assessment at the time of contract award of the Participant's ability to comply with the Subcontracting Limitations;..."

"...shall ensure that contracting officers and other warranted officials and their equivalents obtain training on their obligations under this P A and the subcontracting limitations of FAR § 52.219-14 and 13 C.F.R. § 124.510 and 125.6;...)

"...shall include monitoring and oversight provisions for all contract awards, modifications, options and purchase orders to ensure that all contracts comply with the performance requirements (Limitations on Subcontracting) of FAR § 52.219-14 and 13 C.F.R. §124.510 and§ 125.6;..."

Carl,

Isn't all of that just blather for SBA to wash its hands of the matter and dump it on the agency?  The Defense Department does essentially nothing from that text, as far as I know -- and those obligations rest with the Department, not with individual contracting officers.  Let's not burden individual contracting officers any more than we must -- we need to be reasonable about these things.

WifWaf,

I'm glad the discussion has been helpful.  This is how we all learn.

C Culham said:

I just selected the final post on this approach to the LOS compliance as I do wonder?

Wonder all you like.

ji20874 said:

Isn't all of that just blather for SBA to wash its hands of the matter and dump it on the agency?

Vern Edwards said:

Wonder all you like.

Then gentlemen I expect to never see a negative comment on your parts regarding the 8(a) Program again.  

Said with the greatest respect with acknowledgement that any conversation regarding the FAR throughout Forum, a regulation, is pejorative.

I am concluding on....

There is nothing untorid here other than avoid responsibility and regulation, and then blame the system not the advisors charged to implement same.

Reference- FAR 19.809-2

C Culham said:

Then gentlemen I expect to never see a negative comment on your parts regarding the 8(a) Program again.  

Said with the greatest respect with acknowledgement that any conversation regarding the FAR throughout Forum, a regulation, is pejorative.

I am concluding on....

There is nothing untorid here other than avoid responsibility and regulation, and then blame the system not the advisors charged to implement same.

Reference- FAR 19.809-2

And there is nothing more boring than a moralist retiree citing a regulation as scripture.

Vern Edwards said:

And there is nothing more boring than a moralist retiree citing a regulation as scripture.

At least I am in good company!

The latest comments in this thread by Vern Edwards and ji20874 are a primary example of "You asked for it." and a failure to accept responsibility when "you" get it.

The history of the 8(a) partnership agreements will show that leading up to the mid-90's agencies were disappointed in their ability to quickly use the 8(a) Program.  Promoted by a Presidential regulatory reform initiative regulatory allowance for partnership agreements became a reality.  A reality based on the ideal of efficiency.

When available via final rule of 13 CFR in June 1998 agencies were eager to obtain the agreements.  Reference - Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998    The DoD by example entered into their first in May 1998 while SBA's final rule to further allow the agreements for other agencies was made official ,as noted,  in June of 1998.  Reference - DL 98-015, DFARS Case 98-DO11 dated/effective June 19, 1998.

 SBA twisted no agency's arm to sign the agreements and "wash their hands" of such things as monitoring 8(a) LOS, again agencies wanted the agreements and were and are willing signers of the "partnership".  

Now we have two individuals who have been very active in the acquisition world for a long time who I suspect were in their own ways catalysts for the partnership ideal yet now avow that they should have no role what so ever in 8(a) LOS monitoring , and for that matter LOS monitoring for any SB contact, as it is just too much.

Hogwash!   You are dang right I am moralist and I find it interesting that some who profess moralist ideals for some things easily state or imply sweeping  away responsibility for others especially when they asked for and profess they would follow it - "I wouldn't spend even one minute enforcing the clause unless compelled to do so by some higher power. "

@C CulhamCarl, when did this thread become about the 8(a) Program? I have been writing about the limitations on subcontracting clause, FAR 52.219-14. My comment that you quoted about enforcing the clause was about that clause. I don't recall that clause even mentioning "8(a)".

I have said nothing about 8(a) or 8(a) partnership agreements in this thread or anywhere else since I returned to Wifcon. I don't even know what they are. I have not thought much or had much to say about 8(a) since I left the Small Business Administration more than 40 years ago. I haven't read the FAR coverage of 8(a) in many years. If I have mentioned it at all in any of my writings over the past 30 years it has been only in passing. I have not read those parts of 13 CFR that address 8(a). I cannot speak for ji20874, but I certainly have not been a catalyst of anything having to do with 8(a).

I'm worried about you, Carl. Did you get any sleep last night? Have you had a seizure? I ask only because you wrote this string of words:

C Culham said:

You are dang right I am moralist and I find it interesting that some who profess moralist ideals for some things easily state or imply sweeping  away responsibility for others especially when they asked for and profess they would follow it - "I wouldn't spend even one minute enforcing the clause unless compelled to do so by some higher power. "

That kind of writing is surely the product of apoplexy or some other mental disturbance, perhaps brought on by staying up all night reading in FAR Subchapter D. Lord knows—reading Part 19 or Part 25 alone will disturb even a good mind.

Please, get help.

Vern Edwards said:

Carl, when did this thread become about the 8(a) Program?

The LOS is a clause that is specifically required in 8(a) contracts.  Guilt by association.  

Vern Edwards said:

My comment that you quoted about enforcing the clause was about that clause.

Enforcement of the clause applies to all contracts that include it.  You made a general statement that on its basis is not true and I showed you where in a polite way and you did not like that I did and returned to your sarcastic ways.  Sorry that I offended you but in truth administration of the clause is different for 8(a) when a 8(a) Partnership Agreement is in place, pure and simple. I might add that many are signed by folks like "Senior Procurement Executive" which in my view does make a difference on the validity of the partnership.

Vern Edwards said:

I don't even know what they are.

Hmmm so it is okay for you to plead ignorance of a regulation?  How does that play out with lets say the LOS clause when a contractor would claim same?   

I am surprised that in your vast and lengthy experience in government employee, consulting, teaching and extensive Forum experience that the partnership agreement regulation and use never was discussed.   

Vern Edwards said:

I'm worried about you, Carl.

Not to worry Vern.  I am of sound mind and health and I can confirm so but alas I would refuse to sign a HIPPA release in your name so please take my word for it.   And I hope to continue to be so for a long time coming.   And please do not read into this discussion that I do not get any sleep.  I would love to do some analytics on your post times as I am thinking you are the one that can not sleep.

Beyond the hogwash I hope you have a great day gazing out your window at that stellar Cascade Range mountain!

Carl,

I never called for total passivity.

Rather, I have been saying all along that the contractor should be able to make its own case about LOS compliance, without contracting officers simple-mindedly declaring what constitutes compliance in the solicitation far before performance occurs.

Measuring LOS compliance is fraught with complexity -- even the SBA cannot tell us how to do it, and even the SBA decided against any mandatory reporting scheme.  I think it is both reckless and foolish for a contracting officer to attempt to dictate how compliance will be measured in a solicitation.  I think it is both reckless and foolish for a contracting officer to over-zealously try to enforce the LOS based solely on his or her own understanding of what constitutes compliance.  If during performance or after performance, it appears that a contractor is not in compliance, appropriate inquiries can be made and there are remedies available.

ji20874 said:

I never called for total passivity.

And here's what I said on September 22, more than a week ago:

On 9/22/2021 at 4:30 AM, Vern Edwards said:

After reading what everyone has said, here is where I stand:

If I were a CO administering a contract with subcontracting limitations I would do the following:

1. I would include a clause in the contract requiring that (1) before final payment the contractor state in writing whether they complied with the limitations and (2) provide a summary statement of the amount paid to each non-similarly-situated subcontractor. I think I could ask for that information pursuant to 13 CFR 125.6(e)(4), but I'm pretty sure I'll hear from Don about such an information request.
2. I would send a letter to the contractor at the performance midway point reminding them of the limitation and asking for written confirmation of receipt.
3. Upon receipt of the contractor's final confirmation, and assuming that there were no issues, I would sign a memo to file stating that I knew of no reason to think that the contractor had not complied.

That's as far as I would go absent reliable information about noncompliance or direction from above.

Yet here's Carl's accusation against ji20874 and me:

C Culham said:

Now we have two individuals who have been very active in the acquisition world for a long time who I suspect were in their own ways catalysts for the partnership ideal yet now avow that they should have no role what so ever in 8(a) LOS monitoring , and for that matter LOS monitoring for any SB contact, as it is just too much.

In-progress monitoring cannot be determinative of compliance, because both 13 CFR 125.6 and the clause expressly state that compliance is to be determined at the end of performance. Any action taken against a contractor based on in-progress monitoring would likely be a government breach of contract unless, perhaps, it revealed that compliance would be impossible. But even then, contract changes and claims affecting subcontracted work could be a defense against assertions of contractor breach, at least pending final resolution.

All this moralistic accusation and fussing is a tempest in a looney teapot.

Vern Edwards said:

In-progress monitoring cannot be determinative of compliance, because both 13 CFR 125.6 and the clause expressly state that compliance is to be determined at the end of performance.

Just for clarity, here is what 13 CFR 125.6(d) says about when compliance is to be measured:

The period of time used to determine compliance for a total or partial set-aside contract will be the base term and then each subsequent option period. For an order set aside under a full and open contract or a full and open contract with reserve, the agency will use the period of performance for each order to determine compliance unless the order is competed among small and other-than-small businesses (in which case the subcontracting limitations will not apply).

Just for clarity, here is what the contract clause, FAR 52.219-14, paragraph (f) says:

Quote

(f) The Contractor shall comply with the limitations on subcontracting as follows:

           (1) For contracts, in accordance with paragraphs (c)(1), (2), (3) and (6) of this clause—

          [Contracting Officer check as appropriate.] 

           □ By the end of the base term of the contract and then by the end of each subsequent option period; or

           □ By the end of the performance period for each order issued under the contract.

           (2) For orders, in accordance with paragraphs (c)(4) and (5) of this clause, by the end of the performance period for the order.

Emphasis added.

So by the terms of the contract, compliance is determined on the basis of amounts paid by the end of  those periods of time. In reality, however, if at the end of those periods of time there are outstanding requests for equitable adjustment or claims, compliance might not be determinable until they are settled or litigation has been completed. That could be years after the end of those periods.

ji20874 said:

I have been saying all along that the contractor should be able to make its own case about LOS compliance, without contracting officers simple-mindedly declaring what constitutes compliance in the solicitation far before performance occurs.

Throughout this thread I have understood your position and have not questioned it.  My most recent post prior to this one where I mentioned you did not take exception to your referenced position, what it did take exception to was the characterization of SBA's intent and the DoD's presumed position regarding administration of the LOS clause related to 8(a). 

I hope this clarification helps.

One thought to your position.  My read may not be like others but it seems you are addressing post award matters of the LOS.  Based my read I just want to give the reminder that LOS is matter of pre-award as well that reaches to COC/responsibility of the proposed awardee.  I mention this as I wonder if you ever concluded on what you think the answer to your first proposed question is?

For negotiated sole source contracts under one of the FAR 19 small business programs, the offeror’s proposed price (at least for construction and design-build),  will reflect its proposed technical/execution approach, including self-performed and subcontracted share of the contract price. The intended approach can be discussed and mutually understood.

EDIT: As part of the technical analysis, which is a facet of cost analysis (15.404-1 (e) (1) and (2)) we would examine the offeror’s technical approach.

The government negotiators better have a clue as to what is self-performed and what is not self-performed. If the proposed contractor disagrees, that’s the time to work it out.

Vern Edwards said:

Yet here's Carl's accusation against ji20874 and me:

A bit of clarification.   The "accusation" was made in response to comments made regarding my post relating to LOS and 8(a) Partnership Agreements.  It should not be confused with the whole of the thread as a full read suggests, at least in my view, that our thinking is not widely divergent.

Vern Edwards said:

And here's what I said on September 22, more than a week ago:

LOS is both pre-award and post award matter.  Pre-award COC/responsibility where the FAR provides guiding principles to assist in a responsibility determination inclusive of the COC process.   Post award compliance, where this thread has seemed to evolve to, I do wonder about adding an additional clause.    Why?  While the FAR is lacking in guiding principles  13 CFR 125.6(d) provides some guidance but then there is the obscure paragraph at 13 CFR 125(e)(4).   I really do wonder if 125(e)(4) should have actually been 125(d)(4).  That said I guess if an additional clause was really something a CO wanted to try, and if that CO were me, I would be borrowing some of the language from 13 CFR 125(e)(4).

C Culham said:

LOS is both pre-award and post award matter.  Pre-award COC/responsibility where the FAR provides guiding principles to assist in a responsibility determination inclusive of the COC process.

@Contracting Officers:

The limitations on sujbcontracting are performance requirements, no different than the requirement to comply with the statement of work or specification or the Service Contract Act clause.

FAR 15.304(c)(4), which concerns proposed small business subcontracting, applies only to acquisitions that have not been set-aside. The limitations apply only to contracts resulting from small business set-asides.

Here's what the GAO said last year:

Quote

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. A proposal need not affirmatively demonstrate compliance with the limitation on subcontracting clause. See Dorado Servs., Inc., B–408075, B–408075.2, June 14, 2013, 2013 CPD ¶161 at 12. Rather, such compliance is presumed unless specifically negated by other language in the proposal. See Express Med. Transporters, Inc., B–412692, Apr. 20, 2016, 2016 CPD ¶108 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.

Hughes Coleman, JV, B- 417787.5 (Comp.Gen.), 2020 CPD P 257, July 29, 2020, footnote 4. Emphasis added.

My advice to COs is that they not treat the limitations as a special pre-award issue during bid or proposal evaluation. 

For more on the limitations on subcontracting, see the following articles:

Limitations on Subcontracting: Are They Being Enforced? Will They Ever Be?, by Vernon J. Edwards, The Nash & Cibinic Report (August 2014) 28 NCR-NL ¶ 45 (This article addressed the difficulty of enforcing the old limitations and the challenges of the new limitations as they appeared in statute, before the finalization of the SBA rules.)

Postscript: Limitations on Subcontracting, by Ralph C. Nash, Jr., The Nash & Cibinic Report (November 2014) 28 NCR-NL ¶ 62

Postscript II: Limitations on Subcontracting, by Ralph C. Nash, Jr., The Nash & Cibinic Report, December 2020, 34 NCR-NL ¶ 70.

To COs: As for post-award compliance—unless you have a lot of time on your hands and are prepared to study and think about the limitations in depth, do not let this Wifcon thread prompt you to become small business activists. As a general rule, do not try to monitor compliance on an interim basis during performance. See the first Nash & Cibinic article cited above for more on the difficulty of in-progress monitoring under the new rules.

At contract pre-performance conferences, remind contractors of the clause, of 13 CFR 125.6, of their promises and obligations, and of the possible consequences of nonconformance. Ask for written confirmation of compliance and supporting payment information at the end of performance, after the contract is physically complete, and before final payment and contract closeout. Document the file. If anything suggests a possible violation of the limitations, seek guidance from your superiors and attorney.

Let agency policy and instruction guide you about any need to take more active measures.

I will have more to say about this in the November issue of The Nash & Cibinic Report, and will provide Bob with a copy of the article to post at Wifcon after its publication.

Vern

Vern Edwards said:

I will have more to say about this in the November issue of The Nash & Cibinic Report, and will provide Bob with a copy of the article to post at Wifcon after its publication.

I hope so as I suspect it will be a very interesting read.  LOS is complicated and hope there will be discussion about -

• The relationship of FAR subpart 9.1 to FAR Subpart 19.6 (at (a)) especially in light of paragraph (e) of the LOS clause (with emphasis added -  "(e) Limitations on subcontracting. By submission of an offer and execution of a contract,..."
• The fine line of the CO's responsibility that seems to be drawn by GAO when addressing LOS protests.  This one is from 2021 -
  • An agency’s judgment as to whether a small business vendor can comply with the limitation on subcontracting provision is generally a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration; neither issue is one that our Office generally reviews. NEIE Med. Waste Servs., LLC, B-412793.2, Aug. 5, 2016, 2016 CPD ¶ 213 at 3-4; see also 4 C.F.R. § 21.5(a), (c). However, where a quotation, on its face, should lead an agency to the conclusion that a vendor could not and would not comply with the subcontracting limitation, the quotation may not form the basis for an award. See KAES Enters., LLC, B-408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 2.
• Specific efforts related to the LOS clause with regard to 8(a) in light of partnership agreements and the expressed view of GAO where in https://www.gao.gov/assets/gao-14-706.pdf   they provided - "We recommend that the Administrator of OFPP take appropriate steps to amend the FAR to include the following three requirements: • At the time of the contract award, contracting officers shall conduct and document an assessment of the 8(a) firm’s ability to comply with the subcontracting limitations; • Contracting officers shall include monitoring and oversight provisions in all 8(a) contracts to ensure that the contractors comply with the subcontracting limitations; and • Prime 8(a) contractors shall periodically report to the contracting officer on the percentage of subcontracted work being performed."

The view of the LOS is not that of a narrow view where one solution to evaluating a firms pre-award promise and post award compliance fits all, it (as it goes in Federal acquisition) depends.

@C CulhamSince there are so many things you want discussed, why don't you write an article for Contract Management?

Vern Edwards said:

@C CulhamSince there are so many things you want discussed, why don't you write an article for Contract Management?

Appreciate the suggestion however I believe you are the best to tackle it.

C Culham said:

Appreciate the suggestion however I believe you are the best to tackle it.

So you can then tackle me? 😄

On 10/2/2021 at 11:07 AM, Vern Edwards said:

My advice to COs is that they not treat the limitations as a special pre-award issue during bid or proposal evaluation.

This is an over generalization, IMO.

When negotiating the cost and price of sole source construction contracts using cost analysis, it is not usually not very difficult to determine whether the proposer intends to comply with the LOS. One of the most important aspects of construction contract negotiations is understanding the scope of the project the basis of the proposal, including the proposed technical approach. If nothing else, it should prompt clarification before or during the price negotiations.

Just saying that this isn’t sound advice for general application to negotiating sole source construction contracts.   

On 10/2/2021 at 11:07 AM, Vern Edwards said:

At contract pre-performance conferences, remind contractors of the clause, of 13 CFR 125.6, of their promises and obligations, and of the possible consequences of nonconformance.

Agreed.

However, for sole source negotiated construction contracts, if the negotiator failed to obtain or perform a technical analysis of the proposal and if it would have been apparent or obvious that the contractor wasn’t proposing an execution approach compliant with the LOS, it would highlight the government’s ignorance or due diligence during negotiations.

If the government Ignored apparent or obvious signs of intentional or mistaken non-compliance intent in the construction contract proposal evaluation or during contract negotiations, it should be embarrassing if the contractor bows up or asks if the government knew what it was negotiating.  

On 10/2/2021 at 11:07 AM, Vern Edwards said:

As a general rule, do not try to monitor compliance on an interim basis during performance.

Again, this is over generalization.I won’t comment or argue the point for other than for construction contracts.

In construction contract administration there should be adequate information during performance to provide an indication whether the contractor can or is attempting to comply. This includes involvement by similarly situated subs. The contractor generally has to identify its subcontracts. The payroll reports will identify who the labor force works for. The daily contractor reports should identify on-site activities. Each progress payment request, including  the evaluation and agreement of associated progress prior to submission will identify what work is included. The progress payment invoice must identify subcontractors and subcontract amounts. It must include sub amounts included and amounts previously paid in the progress payment.

Sure, it is certainly possible that there might be changes, claims, unexpected costs, conditions or occurrences during construction that could affect the final percentages.

If unintentionally unavoidable, I don’t think that the government should penalize a contractor for failure to meet the LOS.

But due government diligence during construction contract administration is certainly possible, especially with all of the information available to the government.

joel hoffman said:

Just saying that this isn’t sound advice for general application to negotiating sole source construction contracts.

Okay. Everyone is entitled to an opinion. But then you say:

Quote

But due government diligence during construction contract administration is certainly possible, especially with all of the information available to the government.

But what is the purpose of "due government diligence during construction" when the parties have agreed that compliance will be determined on the basis of amounts paid by the as of the end of performance, especially since construction usually involve changes and frequently involves claims litigation, moreso than any other kind of government contracting? And what is the procedure for such diligence?

Why not just wait until the end, determine compliance after the dust has settled, and then seek guidance from SBA about fines, if any appear due?

Vern Edwards said:

Okay. Everyone is entitled to an opinion.

Thanks for the acknowledgement.

The construction subcontracting community has long fought for prompt payment protections and visibility. Congress has responded. The government has plenty of information to determine who is doing what and where the money is going to. That includes subcontract amounts and  progress amounts excluded from progress payments to the contractor.

joel hoffman said:

The construction subcontracting community has long fought for prompt payment protections and visibility. Congress has responded. The government has plenty of information to determine who is doing what and where the money is going to. That includes subcontract amounts and  progress amounts excluded from progress payments to the contractor.

Who cares about progress payments? Read the clause. And what are you going  to do if you decide at some point in time during performance that the contractor might not comply by the end. T for D? When the clause expressly states that compliance is to be determined at the end?

Vern Edwards said:

Who cares about progress payments? Read the clause. And what are you going  to do if you decide at some point in time during performance that the contractor might not comply by the end. T for D? When the clause expressly states that compliance is to be determined at the end?

Well, I certainly won’t advise ignoring it for construction - especially sole source negotiated contracts, as suggested for a general approach.

joel hoffman said:

Well, I certainly won’t advise ignoring it for construction...

Okay, so tell us what you'd do instead of ignoring it?

My mother in law just went to the emergency room and I’m involved in a Maintnence and repair project at church today so won’t be available to debate you.

You can demean and belittle my opinions at will today.

joel hoffman said:

My mother in law just went to the emergency room and I’m involved in a Maintnence and repair project at church today so won’t be available to debate you.

You can demean and belittle my opinions at will today.

I'm sorry to hear that . I hope all goes well.

As for demeaning and belittling your opinions, I'm not doing that. I'm asking you questions about them. That's a sign of respect.

Vern Edwards said:

Okay, so tell us what you'd do instead of ignoring it?

Based upon your hasty replies to my posts, it is evident that you didnt read what I’ve been saying and/or don’t know what to do for routine construction contract administration. But any other opinion appears to be unacceptable to you.

joel hoffman said:

Based upon your hasty replies to my posts, it is evident that you didn't read what I’ve been saying and/or don’t know what to do for routine construction contract administration. But any other opinion appears to be unacceptable.

My replies were prompt, not hasty. I read your posts. And you're avoiding my questions.

Go to the hospital. You can come back later and tell us what you'd due by way of due diligence on sole source construction contracts.

And by the way, my last government job was Chief of Construction Contracting for the Bonneville Power Administration, U.S. Dept. of Energy, and our office received very high marks from the Department. We did construction of high voltage transmission lines and substations in the Pacific Northwest—Montana, Idaho, Washington, and Oregon. I reported to BPA's Chief Engineer.

So I know a little something about both routine and special construction contract administration.

I'm on the contractor side, not government, so I don't know all the reasons why the government might or might not want to monitor compliance during contract performance and not take a "we'll fine them at the end" approach. But at least one sticks out in my mind. 

Every week, Koprince Law posts articles on fraudulently-obtained set-aside contracts. Sure, the government collected a fine, but in every single case, a deserving SB was denied the contract. Every day the wrongdoer performed was an opportunity lost forever for a deserving contractor. Had the government caught it, the CO could have terminated the contract and recompeted. There are tons of service contracts where a new contractor could step in and take over performance. 

Seems to me that's a good reason to do at least some monitoring during performance.

Fara Fasat said:

Seems to me that's a good reason to do at least some monitoring during performance.

Those of you who call for "monitoring during performance" must explain what you mean by that phrase. What kind(s) of action(s) do you contemplate when you say "monitoring"?

After you explain that, tell us what the point of it would be, since the clause does not require compliance throughout performance, i.e., at all times during performance, but only "by the end" of performance.

Even if at the halfway point of performance you conclude that the contractor will not be able to comply by the end, what would you do about it? What could you do?

Would you try to make the contractor terminate a large business subcontractor and reward the rest of the work to a small business subcontractor? Would you have the statutory, regulatory, or contractual authority to do that?

Would you suspend progress payments, performance-based payments, or partial payments?

Would you terminate the contract for default on grounds of anticipatory breach, even if the requiring activity were happy with the contractor's work? Would you take an action that would prevent the requiring activity from getting what it needs when and where it needs it?

Or, would it make more sense to (1) remind the contractor of the limitations at the start and midway point of performance, (2) wait until the end of performance to make a determination, and then, (3) if the contractor did not comply, ask SBA to assess the minimum $500,000 fine prescribed by statute and make an appropriate entry in CPARS?

Vern Edwards said:

Those of you who call for "monitoring during performance" must explain what you mean by that phrase. What kind(s) of action(s) do you contemplate when you say "monitoring"?

After you explain that, tell us what the point of it would be, since the clause does not require compliance throughout performance, i.e., at all times during performance, but only "by the end" of performance.

Even if at the halfway point of performance you conclude that the contractor will not be able to comply by the end, what would you do about it? What could you do?

Would you try to make the contractor terminate a large business subcontractor and reward the rest of the work to a small business subcontractor? Would you have the statutory, regulatory, or contractual authority to do that?

Would you suspend progress payments, performance-based payments, or partial payments?

Would you terminate the contract for default on grounds of anticipatory breach, even if the requiring activity were happy with the contractor's work? Would you take an action that would prevent the requiring activity from getting what it needs when and where it needs it?

Or, would it make more sense to (1) remind the contractor of the limitations at the start and midway point of performance, (2) wait until the end of performance to make a determination, and then, (3) if the contractor did not comply, ask SBA to assess the minimum $500,000 fine prescribed by statute and make an appropriate entry in CPARS?

For a negotiated, sole source CONSTRUCTION contract, by submission of a proposal, the prospective contractor agrees to limit the amount of subcontracting per the LOS clause.

The government will use cost analysis, including technical analysis to evaluate the proposed contract price.

The pricing should be consistent with and reflect that promise. If not, raise and resolve the issue before and/or during negotiations on the price.

The government’s pre-negotiations objective should consider and be consistent with the LOS.

Negotiate the issue, if necessary - before award.

As for Contract administration, there should be adequate information available to the government during performance, including the extent of the subcontract amounts, to determine whether the contractor appears to be attempting to comply. If not, you can “remind the contractor” of its responsibility and of the penalties and ask the contractor how it intends to meet the limitation - before it is too late.

if the contractor makes a good faith effort and circumstances beyond the contractors control arise during performance, such that the limitation will be exceeded, I personally wouldn’t seek penalties.

One  example would be government changes that effect the amount of subcontracted or self-performed work. Another example might be a dispute that arises between the prime and a sub, the prime having to replace a non-performing sub, etc.

But, I’d never negotiate a contract price,  ignoring the LOS. That would be stupid. And, since the subcontracted amounts are available to monitor trends of the apparent end of performance payments , it would be stupid to ignore that and only “remind the contractor” of the requirement.

That is being pro-active, not reactive and reflects competence on the government’s negotiators and CAB team.

The government would look stupid if all the signs are present from the point of proposal receipt and you ignored them and awarded a contract based upon a non- conforming proposal. Even more stupid if you ignored information available early in and throughout performance .

Then you either ignore it completely to closeout or try to penalize the contractor at the end of performance and reflect it in the CPARS rating. The government would not have used due diligence. I’d give the government a negative, “incompetent”,  “GPARS” rating! 

Vern asked “Who cares about progress payments?” I think that I explained why progress payments provide most of the information to provide the indicators of attempt to comply - from very early through essentially full performance. Congress revised the requirements for progress payment invoicing, payments and payments to subs and suppliers back in the Prompt Payment Act Amendments of 1988. I’m assuming that is after Vern’s described Bonneville Power Administration construction contracting experience. The Amendments were implemented by OMB Circular and the FAR was amended for all construction contracts awarded after 30 March or April of 1989. In addition, the contractor’s proposal should provide much information about the amount of proposed materials for the prime and major subs. Other sources will also provide materials pricing.

Daily reports and payroll information will provide info on who is doing what work but the progress payment invoice submission requirements require that the contractor identify subcontractors and current subcontract amounts.  

Finally, the KO can request information on sub’s material prices. Unless the SBA has changed its policies, we were told that, if a subcontract doesn’t breakout material prices then you look at the entire subcontract amount.

As an admission, the new LOS appears to be simpler and easier to comply with for construction but if I were still working, I’d get clarification of the current material exclusion. The SBA’s construction examples don’t account for materials in their dollar breakouts and explanations or specifically address whether markups on materials are included in determining materials. That doesn’t seem to be insurmountable. I think it reflects a lack of real world construction contracting experience by the policy and regulation writers.

By the way, materials have long been excluded as self-performed work for construction in the socio-economic programs and for buying materials for subcontractors to count as as self-performed work in unrestricted construction contracts.

The background is that prime contractors would purchase materials for subs and try to use that as “self-performed work.” In reality, the subs were estimating and identifying the required materials, sourcing the materials, often receiving the materials. If the prime was actually paying for the materials, there was very little, if any investment and it was unknown, who provided for upfront payment , if any to suppliers. The government government would pay for the invoiced cost of stored materials, often before the suppliers were paid. The SBA excluded materials many years ago from self-performed work.

We excluded materials from unrestricted prime contractor’s share of the work because it wasn’t “work performed” by the contractor’s  own organization, per clause 52.236-1 “Performance of Work by the Contractor”.

Joel,

I think everyone agrees that the contracting officer might be able to obtain some insight during a pre-award sole-source construction negotiation. However, the correct principle remains: while the contracting officer cannot award a contract in the face of evidence that the prospective contractor will not or cannot comply with LOS, the contracting officer has no affirmative duty to investigate -- that's what the GAO says.

On the one hand, you call for vigorous contracting officer post-award monitoring and enforcement, and on the other hand you admit the failure of policy and regulation writers to understand and elucidate the "whats" and "hows" of LOS compliance. There is a big disconnect. One cannot vigorously enforce that which he or she cannot understand.

And, you are willing to give the contractor a pass if it makes a good faith effort. Two questions, if you will allow:  Does the LOS contract text call for simply a contractor's best effort?  And, does the contract text or 13 CFR text vest enforcement decision-making authority and penalty-waiving authority in the contracting officer, by allowing the contracting officer to decide whether best effort has been applied and thus excuse the contractor from its LOS agreement?  I am thinking the answer to both of these questions is NO, but I admit a less-than-perfect knowledge of this matter.

@joel hoffman

I simply do not think that there is any reason to devote any significant amount of time to "monitoring" the contractor's compliance with the limitations on subcontracting. Why not?

1. Because the statute (15 USC 657s), the SBA policy (13 CFR 125.6), and the implementing contract clause (FAR 52.219-14) say that compliance is determined at the end of performance, not during.
2. Because meaningful monitoring would entail more than just looking at amounts subcontracted. It would also entail verification of which subcontractors are "similarly situated entities" and which of the similarly situated subcontractors' subcontractors (second-tier subcontractors) are "similarly situated entities". 
3. Because the statute and the SBA policy provide a specific remedy for noncompliance—a minimum fine of $500,000—that can be assessed and collected only after the end of performance.
4. Because it is not clear that a CO is authorized by law, regulation, or contract to take action against a contractor prior to a determination made at the end of performance.

In short, given the terms of the statute, the SBA policy, and the clause, what is the point of "monitoring", especially when subcontracts might be affected by changes and changed conditions, and compliance dependent on the prime's ultimate settlements with the government?

Instead of devoting any time to "monitoring", I would instruct COs to adopt the measures that I have already described twice in this thread:

1. Include a special clause in the contract requiring the contractor to confirm its compliance or acknowledge  its noncompliance in writing prior to final payment.  I think this is authorized pursuant to 13 CFR 125.6(e)(4).
2. Remind the contractor, in writing, of the limitations—once at the start of performance and once at the midpoint, and ask for acknowledgement of receipt.
3. Require that the contractor confirm its compliance or report its noncompliance and provide supporting data prior to final payment and contract closeout.
4. Document a determination in the closeout file to the effect that there were or were not any indications of noncompliance.

ji, the GAO decisions concern competitively negotiated acquisitions

I’ve tried to explain some basics of one on one construction contract price negotiations when cost analysis is involved. As a condition for the privilege of being awarded “no-bid” (non-competitive) contracts, the contractor “agrees” with the submission of a proposal and with the award of the negotiated contract that it will limit the amount of subcontracting. The price proposal should reflect the intent and technical approach. 

The LOS is but one more contract requirement that shouldn’t be ignored. 

The SBA fines contractors not the KO. I don’t know whether the SBA would fine a contractor for noncompliance if it was beyond the control of the contractor and or the result of a Government cause circumstance. But I can guess.

At any rate that’s my opinion.

joel hoffman said:

For a negotiated, sole source CONSTRUCTION contract, by submission of a proposal, the prospective contractor agrees to limit the amount of subcontracting per the LOS clause.

The government will use cost analysis, including technical analysis to evaluate the proposed contract price.

The pricing should be consistent with and reflect that promise. If not, raise and resolve the issue before and/or during negotiations on the price.

The government’s pre-negotiations objective should consider and be consistent with the LOS.

Negotiate the issue, if necessary - before award.

If there is an obvious disconnect between the limitations on subcontracting and the contractor's cost breakdown and/or cost or pricing data, then a CO should, of course, inquire. But "negotiate"?

Negotiate what? A change to their cost breakdown? Or are you suggesting that COs must negotiate to a contractually binding agreement on a specific element of cost? Or, by "negotiate" do you mean try to understand the proposal?

joel hoffman said:

The SBA fines contractors not the KO. I don’t know whether the SBA would fine a contractor for noncompliance if it was beyond the control of the contractor and or the result of a Government cause circumstance. But I can guess.

Do you think the fine is the exclusive remedy for noncompliance?

Vern Edwards said:

@joel hoffman

I simply do not think that there is any reason to devote any significant amount of time to "monitoring" the contractor's compliance with the limitations on subcontracting. Why not?

1. Because the statute (15 USC 657s), the SBA policy (13 CFR 125.6), and the implementing contract clause (FAR 52.219-14) say that compliance is determined at the end of performance, not during.
2. Because meaningful monitoring would entail more than just looking at amounts subcontracted. It would also entail verification of which subcontractors are "similarly situated entities" and which of the similarly situated subcontractors' subcontractors (second-tier subcontractors) are "similarly situated entities". 
3. Because the statute and the SBA policy provide a specific remedy for noncompliance—a minimum fine of $500,000—that can be assessed and collected only after the end of performance.
4. Because it is not clear that a CO is authorized by law, regulation, or contract to take action against a contractor prior to a determination made at the end of performance.

In short, given the terms of the statute, the SBA policy, and the clause, what is the point of "monitoring", especially when subcontracts might be affected by changes and changed conditions, and compliance dependent on the prime's ultimate settlements with the government?

Instead of devoting any time to "monitoring", I would instruct COs to adopt the measures that I have already described twice in this thread:

1. Include a special clause in the contract requiring the contractor to confirm its compliance or acknowledge  its noncompliance in writing prior to final payment.  I think this is authorized pursuant to 13 CFR 125.6(e)(4).
2. Remind the contractor, in writing, of the limitations—once at the start of performance and once at the midpoint, and ask for acknowledgement of receipt.
3. Require that the contractor confirm its compliance or report its noncompliance and provide supporting data prior to final payment and contract closeout.
4. Document a determination in the closeout file to the effect that there were or were not any indications of noncompliance.

“Extensive monitoring” isn’t necessary. The government has to review all the information readily available to it to determine progress, progress payment estimates, what subs are involved and on-site, as part of normal CAB, any way.

if a contracting organization doesn’t  have or assure that adequate CAB and QA resources are available to properly negotiate and administer construction contracts, then I suggest that they shouldn’t be doing such type contracting.

Again. That’s my opinion.

joel hoffman said:

“Extensive monitoring” isn’t necessary. The government has to review all the information readily available to it to determine progress, progress payment estimates, what subs are involved and on-site, as part of normal CAB.

if a contracting organization does have or assure that adequate CAB and QA resources are available to properly negotiate and administer construction contracts, then I suggest that they shouldn’t be doing such type contracting.

Again. That’s my opinion.

We know that's your opinion. What we don't know is why.

Joel, the correct principle applies to all procurements, competitive and sole-source, construction or anything else -- it is a basic principle.  I think you err in suggesting that it applies only to competitive negotiated procurements.  No, it applies to all procurements, even sealed bids.  The correct principle:  the contracting officer cannot award a contract in the face of pre-award evidence that the contractor will not or cannot comply, but the contracting officer has no affirmative duty to investigate.

And YES, to your point, a contracting officer in a sole-source construction procurement will likely have more information or insight than another contracting officer on another procurement.  Everyone already knows that and it goes without saying.  But that does not erase, lessen, obviate, or even qualify the correct principle.  

You err in using the word "ignore" again.  No one has suggested that, and it is unkind on your part to use that word to characterize your interlocutors here.

Vern Edwards said:

We know that's your opinion. What we don't know why.

A snarky response would be then “we” probably shouldn’t be doing negotiated sole source construction contracting but I won’t say that here.

By the way, it is also relatively easy to check on the compliance trend for competitively awarded construction contract set-asides. Post award info is readily available.

@joel hoffmanWhy be snarky? The negotiation of sole source construction contracts is not really all that difficult. Try negotiating an FPI(F) (Firm-Target) contract for the development, test, and installation of a spacecraft downlink subsystem for aircraft carriers with strictly limited port availability.

Don't take too much pride in your experience, Joel. The negotiation and administration of sole source construction contracts that have been set-aside for small businesses is not rocket science.

I won't get snarky. I will say outright that I don't think you have thought through your ideas in this thread.

When I say we don't know why it's your opinion, I mean that I don't know why you think it's necessary to actively monitor the contractor's compliance with the limitations, given the natures of the statute, the SBA policy, and the contract clause. But I can see now that your position is based largely on some notion that COs must monitor and enforce compliance with every clause in a government contract.

Well, that's a fool's errand. A manager must prioritize. They must manage, which includes deciding how to allocate your resources.

I think your positions on pre-award activity and on post-award active monitoring of compliance are unsound. I think the limitations have clearly been designed for post-performance compliance assessment and enforcement.

ji20874 said:

Joel, the correct principle applies to all procurements, competitive and sole-source, construction or anything else -- it is a basic principle.  I think you err in suggesting that it applies only to competitive negotiated procurements.  No, it applies to all procurements, even sealed bids.  The correct principle:  the contracting officer cannot award a contract in the face of pre-award evidence that the contractor will not or cannot comply, but the contracting officer has no affirmative duty to investigate.

And YES, to your point, a contracting officer in a sole-source construction procurement will likely have more information or insight than another contracting officer on another procurement.  Everyone already knows that and it goes without saying.  But that does not erase, lessen, obviate, or even qualify the correct principle.  

You err in using the word "ignore" again.  No one has suggested that, and it is unkind on your part to use that word to characterize your interlocutors here.

ji, please provide a source that says that when sole source negotiating,  where the proposed contractor agrees by submission of a proposal that it will limit subcontracting,  that the cost proposal doesn’t have to reflect or be consistent with that intent- or if it doesn’t, that the negotiator isnt allowed to address that.

A primary and fundamental principle of construction one on one price negotiating when cost analysis is involved is to understand what and the proposal that they are negotiating the price for.  There should be a mutual understanding of the scope, price, cost detail, technical approach, etc. The sole source contract is priced in accordance with FAR 15.4.

EDIT- ADD:

If a proposal would or should lead the government to conclude that the contractor will not comply with the LOS or does not agree to comply with the LOS, it is either a matter of responsibility or a matter of proposal acceptability. In either case, it must be corrected before award. 

See Matter of: D&G Support Services, LLC B-419245; B-419245.3 January 6, 2021

“…An agency’s judgment as to whether a small business vendor can comply with the limitation on subcontracting provision is generally a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration; neither issue is one that our Office generally reviews. NEIE Med. Waste Servs., LLC, B-412793.2,
Aug. 5, 2016, 2016 CPD ¶ 213 at 3-4; see also 4 C.F.R. § 21.5(a), (c). However, where a quotation, on its face, should lead an agency to the conclusion that a vendor could not and would not comply with the subcontracting limitation, the quotation may not form the basis for an award. See KAES Enters., LLC, B-408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 2.”

See also Matter of: Mare Solutions, Inc. B-413238; B-413238.2 September 14, 2016

“…As a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation clause is a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration. Geiler/Schrudde & Zimmerman, B-412219 et al., Jan. 7, 2016, 2016 CPD ¶ 16 at 7. Neither issue is one that our Office generally reviews. 4 C.F.R. § 21.5(a), (c); Geiler/Schrudde & Zimmerman, supra, at 7-8. As our Office has consistently held,  

“however, where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal acceptability. See e.g., Geiler/Schrudde & Zimmerman, supra, at 8; Sealift, Inc., B-409001, Jan. 6, 2014, 2014 CPD ¶ 22 at 4. An offeror, however, need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal. Dorado Servs., Inc., B-408075, B-408075.2, June 14, 2013, 2013 CPD ¶ 161 at 12. The plain language of the subcontracting limitation clause provides that the act of proposal submission itself is sufficient to demonstrate agreement to be bound by the limitation. FAR clause 52.219-14(c)(3). Accordingly, where an offeror submits a proposal in response to an RFP that incorporates FAR
clause 52.219-14, the offeror agrees to comply with the limitation, Dorado Servs., Inc., supra, and in the absence of any contradictory language, the agency may presume that the offeror will comply with the subcontracting limitations. Of course, this presumption may be rebutted, but it is the protester that bears the burden to affirmatively demonstrate that the awardee’s proposal takes exception to the limitations on subcontracting. KAES Enters., LLC, B-408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 3.”

joel hoffman said:

If a proposal would or should lead the government to conclude that the contractor will not comply with the LOS or does not agree to comply with the LOS, it is either a matter of responsibility or a matter of proposal acceptability. In either case, it must be corrected before award.

Responsibility is primarily a matter of the offeror's ability to comply.

Legal acceptability, which is what the GAO decisions are about, is a matter of the offeror's promise to comply—its willingness to do so.

In a sole source acquisition a CO can reject a legally acceptable offer from a responsible offeror on the basis that acceptance would not be in the best interests of the government. A CO need not base the rejection of the offer on the offeror's nonresponsibility or on the offer's legal unacceptability.

A CO could reject a legally acceptable offer from a responsible offeror because the he or she thinks, based on cost analysis of the proposal, that the risk of unintentional noncompliance with the limitations on subcontracting are too great.

On the other hand, the CO could decide to take that risk, since compliance will be determined at the end of performance and the contractor promises to comply and might succeed in complying. If it fails to do so it will face penalties.

joel hoffman said:

ji, please provide a source that says that when sole source negotiating,  where the proposed contractor agrees by submission of a proposal that it will limit subcontracting,  that the cost proposal doesn’t have to reflect or be consistent with that intent- or if it doesn’t, that the negotiator isnt allowed to address that.

Joel,

Your request is an unfair request.  I never made the assertion for which you are asking me to provide a source.

ji20874 said:

Joel,

Your request is an unfair request.  I never made the assertion for which you are asking me to provide a source.

That’s okay, I answered it myself.

joel hoffman said:

That’s okay, I answered it myself.

And what answer did you give yourself?

Vern Edwards said:

If there is an obvious disconnect between the limitations on subcontracting and the contractor's cost breakdown and/or cost or pricing data, then a CO should, of course, inquire. But "negotiate"?

Negotiate what? A change to their cost breakdown? Or are you suggesting that COs must negotiate to a contractually binding agreement on a specific element of cost? Or, by "negotiate" do you mean try to understand the proposal?

joel hoffman said:

where a quotation, on its face, should lead an agency to the conclusion that a vendor could not and would not comply with the subcontracting limitation, the quotation may not form the basis for an award.

Alternatively, “where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal acceptability.”

We negotiate sole source price proposals. The pre - negotiation objective memo should address the need to resolve the issue. Yes, inquire, listen to their explanation. If the explanation resolves it, fine. If it doesn’t, then the proposer needs to revise the price proposal and perhaps their technical approach to be in concert with the LOS.

ji20874 said:

Joel,

Your request is an unfair request.  I never made the assertion for which you are asking me to provide a source.

ji, I’m sorry. I misread your post. Please disregard my request.

Vern Edwards said:

since compliance will be determined at the end of performance and the contractor promises to comply and might succeed in complying. If it fails to do so it will face penalties.

Like most things in Federal contracting there is an exception.   In the world of 8(a) the matter of LOS is a matter of pre-award consideration  where a 8(a) contract is not to be awarded if LOS can not be demonstrated.

13 CFR 124.501(g)

C Culham said:

Like most things in Federal contracting there is an exception.   In the world of 8(a) the matter of LOS is a matter of pre-award consideration  where a 8(a) contract is not to be awarded if LOS can not be demonstrated.

13 CFR 124.501(g)

Note that the SBA must make that determination, not the agency contracting officer. 

Also, see FAR 19.809-2.

Note that FAR 19.809-2(a) appears to describe the limitations applicable to 8(a) contracts differently than 13 CFR 125.6 and FAR 52.219-14. It describes the limitations in terms of costs to be incurred by the contractor for its own employees instead of percentages of amounts paid by the government to the contractor. I'm still trying to figure out if there really is a conflict. Maybe I'm missing something.

Note, too, the waiver provision in 19.809-2(c).

Vern Edwards said:

Note that the SBA must make that determination, not the agency contracting officer.

This isn't merely a note -- this is a matter of crucial significance in this discussion.

A long-standing problem in our business is that Congress enacts laws that appear in various titles of the U.S. Code and that are assigned to various agencies for implementation. The laws assign certain responsibilities and tasks to specific agencies. I'll single out Title 29, Labor, and Title 15, Commerce and Trade, and two agencies, the Department of Labor and the Small Business Administration. Those agencies write rules, and implementation of their rules accounts for two of the lengthiest and most complex parts of the FAR, Parts 19 and 22. On top of the laws, presidents write executive orders, bypassing Congress, for which agencies must write rules.

The laws, executive orders, and agency rules are to be implemented via government contracts through contract clauses. But who is primarily responsible for monitoring  and enforcement? Not the primary agencies to which the responsibilities have been assigned and that write the rules. No, they and other government policy apparatchiki commonly take the position that since the laws are to be implemented in part through contracts a large portion of those responsibilities must be fobbed off on contracting officers.

See FAR 1.602-1(b), one of the most absurd regulations ever written.

The FAR contains about 140 solicitation provisions and contract clauses that implement various socio-economic (i.e., political) policies. They cover an extraordinary span of human activity and laws, regulations, and procedures. Not even I—who gets paid to do so and have almost 50 years of professional education and experience and ample tools of the trade— can understand, remember, and keep up with changes.

Many in our country want smaller government and complain about the number of government employees (except uniformed military). The Clinton Administration made a big deal about reducing the size of government, and they decimated the acquisition workforce. And yet some people expect understaffed offices of under-trained people to understand and to find the time to implement exceedingly complex rules and procedures imposed on them by the agencies that are supposedly responsible for implementation, all while trying to buy what their agencies need, when and where they need it, at a fair and reasonable price. 

IGs, the GAO, and interest group associations complain to our idiot-infested, blowhard, and irresponsible Congress that COs don't do enough, while those COs try to cope  with a workload of requirements far beyond anything any of us old-timers ever had to process, under rules far more voluminous. And what do the COs get for their trouble? Ever more rules and procedures.

And members of our own community insist that COs actively monitor and enforce compliance with every contract clause, despite the fact that even a small government contract will contain at least 100 clauses, some of them pages in length and backed by pages of regulation and procedure. Those members see a moral imperative to such monitoring and enforcement, and they chastise those who, like me and ji20874, say, "Be reasonable," and who say that COs have no choice but to engage in policy triage.

I tell you, it's madness, and it's not good for the country. It's all a sign of the deep incompetence that infests the highest levels of our government, a level of incompetence that events of the past two years have cast in stark relief against the background of events, a level of incompetence that has cost lives and diminished our international standing.

We are a small but important part of government. It's time for more working-level contracting folk to speak out:

We are dedicated. We want to do our best for our country. But if you want to impose on us ever more rules and procedures, then give us more people, including administrative support personnel so we can focus on professional concerns, and give us better professional education and training.

I think the reason everyone seems to be talking past each other is that we are looking at different problems. Vern, ji, and maybe others, are concerned about the wisdom and practicality of doing continuous monitoring of the prime and its subs. It's a valid concern.

Joel says there is a duty to fully vet the proposal and technical approach before making an award. Again, valid. I don't read in his posts a suggestion that continuous monitoring is required or should be done.

I'm concerned about the fraud scenario, and allowing a contract to run to its end if it is clear there is fraud. Also what to do if it becomes obvious that the LOS cannot be reached by the end, even absent fraud. I'm confident that no one here would turn a blind eye to it and take a "no monitoring" approach in the face of clear evidence.

Maybe we just need to stop digging in our heels, step back, and look at the big picture (did I miss any buzzwords?). Despite this topic reaching its 7th page, I think we can agree on a few key principles:

1. monitoring the LOS throughout contract performance is neither required nor prohibited. If you have the time and the inclination, go ahead.
2. due diligence before award should include a review of the offeror's understanding and compliance with the LOS requirements. It can also detect potential set-aside fraud.
3. if evidence comes to light that suggests that all is not as it should be, the CO has a duty to investigate further.

That may be simplistic, but it seems to be the Cliff's Notes version of what everyone is saying.

I am generally okay with 1. and 3.  

For 2, there is no pre-award due diligence requirement.  I would re-write it to conform to GAO decisions:  

2.  A contracting officer may not make an award when it is apparent (such as from the face of the proposal) that the offeror will not or cannot comply with LOS.  However, the contracting officer has no affirmative duty for pre-award inquiry.

I am okay with a contracting officer deciding to remind an offeror of its LOS obligations, and I am okay with a contracting officer looking at whatever data is available to get some assurance for LOS compliance -- but I don't want to mandate it or even say a contracting officer "should" do this, and I don't want to call it "due diligence" because that suggests anything less is reckless, and that is not true.

Vern Edwards said:

Note that FAR 19.809-2(a) appears to describe the limitations applicable to 8(a) contracts differently than 13 CFR 125.6 and FAR 52.219-14.

Vern, I think you have discovered another drafting error in the FAR.  On Aug. 11, 2021, a final rule was published in the FR.  This rule dealt primarily with the changes to the LOS made by Congress in 2013.  In explaining the changes made by the rule, the Councils said "The final rule also contains revisions that were not in the proposed rule due to changes made in FAC 2020-05. For example, prior to March 30, 2020, the FAR did not include coverage of the limitations on subcontracting and nonmanufacturer rule in subparts 19.8, 19.13, 19.14, and 19.15; FAC 2020-05 added coverage tailored for each of those subparts. Due to the standardization of the limitations on subcontracting and nonmanufacturer rule, this final rule removes the coverage from those subparts and consolidates the coverage in subpart 19.5."  It looks like the Councils overlooked 19.809-2 when they issued the final rule.

Vern Edwards said:

Note that the SBA must make that determination, not the agency contracting officer.

Yes but unless things have changed in the past few years, the SBA didn’t always look too closely. If my office found that a proposer’s price proposal (construction) didnt meet the old criteria , we’d coordinate with the SBA. If the offeror couldn’t legitimately meet the minimum self-performed share of the cost, we’d ask that the SBA nominate another firm and they always agreed.

Yes, it looks like they overlooked updating 19.809-2(a).

Fara Fasat said:

I think the reason everyone seems to be talking past each other is that we are looking at different problems. Vern, ji, and maybe others, are concerned about the wisdom and practicality of doing continuous monitoring of the prime and its subs. It's a valid concern.

Joel says there is a duty to fully vet the proposal and technical approach before making an award. Again, valid. I don't read in his posts a suggestion that continuous monitoring is required or should be done.

I'm concerned about the fraud scenario, and allowing a contract to run to its end if it is clear there is fraud. Also what to do if it becomes obvious that the LOS cannot be reached by the end, even absent fraud. I'm confident that no one here would turn a blind eye to it and take a "no monitoring" approach in the face of clear evidence.

Maybe we just need to stop digging in our heels, step back, and look at the big picture (did I miss any buzzwords?). Despite this topic reaching its 7th page, I think we can agree on a few key principles:

1. monitoring the LOS throughout contract performance is neither required nor prohibited. If you have the time and the inclination, go ahead.
2. due diligence before award should include a review of the offeror's understanding and compliance with the LOS requirements. It can also detect potential set-aside fraud.
3. if evidence comes to light that suggests that all is not as it should be, the CO has a duty to investigate further.

That may be simplistic, but it seems to be the Cliff's Notes version of what everyone is saying.

My remarks concern construction contracts. There is very little effort required to monitor compliance during performance. With the amount of information available that is used for multiple purposes by the ACO office team, they can fairly easily check. It would only be periodic.

Fara Fasat said:

Maybe we just need to stop digging in our heels, step back, and look at the big picture (did I miss any buzzwords?). Despite this topic reaching its 7th page, I think we can agree on a few key principles:

1. monitoring the LOS throughout contract performance is neither required nor prohibited. If you have the time and the inclination, go ahead.
2. due diligence before award should include a review of the offeror's understanding and compliance with the LOS requirements. It can also detect potential set-aside fraud.
3. if evidence comes to light that suggests that all is not as it should be, the CO has a duty to investigate further.

That may be simplistic, but it seems to be the Cliff's Notes version of what everyone is saying.

@Fara Fasat

I would agree with #1, but I doubt that SBA, GAO, IGs and Congress would, at least not publicly. I presume  that the CO would be knowledgable and properly trained.

As for #2, what do you mean by "review"? Any "review" that could detect the fraud that worries you would have be more extensive than what I would think necessary for purposes of contract award. I also do not like the term "due diligence." That is a legal term of art. How are you using it?

I have to laugh when I think about some of the conversations that I have had with contracting people who say things about fraud. Most of them didn't know what fraud was, beyond a dictionary definition. They had never read a law review article about fraud, much less a book like Claire Sylvia's The False Claims Act: Fraud Against the Government, now in its 3d edition, or the entry on Fraud and Deceit in American Jurisprudence 2d., or the entries in the Department of Justice Criminal Resource Manual, §§ 1001 - 1099. I'm pretty well-read and knowledgable, but I tread carefully when it comes to talking about fraud. 

I know this much: The idea that the typical CO could detect attempted fraud during a pre-award "review," whatever that is, is absurd. At most they might develop an uneducated suspicion.

So tell me what you mean by "review".

I agree with #3, except that I would use the word information instead of "evidence".

joel hoffman said:

My remarks concern construction contracts. There is very little effort required to monitor compliance during performance.

@joel hoffmanI have managed construction contracts, and I say that your statement is not valid unless you state, in detail, what you mean by "monitor". If you don't, and with specifics, then your statement must be dismissed as an overly broad generalization—so broad as to be meaningless. It is especially meaningless in that it encompasses both something as trivial as constructing an outhouse for the Bureau of Land Management and something as large and subject to change as a new space launch facility at Vandenberg Space Force Base.

Everyone seems to be on board with 1 and 3 (substituting "information" for "evidence" in 3). For 2, I was simply trying to condense what Joel has been saying about his contracts, and that "review" means what he was saying about the pre-award evaluation. I can't comment further on it other than to say that the ability of a typical CO to recognize fraud doesn't make the statement invalid. I think there are some COs who are fully capable of suspecting when an SB is being used as a front on a set-aside contract.

Fara Fasat said:

I can't comment further on it other than to say that the ability of a typical CO to recognize fraud doesn't make the statement invalid.

Doesn't make what statement invalid? And who is "everyone"? Ji20874, you, and me?

And thus we're on page 8. 🤣

Anyhow, I'm referring to those who have been commenting. I'll say 'most everyone.' Seriously, is there much more than can be said on this topic?

There's always more that can be said, but what is its quality?

Are you asking us to shut up?

Is anybody forcing you to read it?

Vern, when I mean “monitor the contractor for compliance” I don’t necessarily mean calculate the exact Percentage. Construction contractors have to provide much more information to the government for progress payments and for other contract admin purposes than before April 1989. Each progress payment request  includes subcontract amounts and amounts earned, owed, paid or excluded from the payment request to each sub, for example.

The ACO office and contractor generally review the status of each Network Analysis System (schedule) activity before the contractor submits the invoice. The activities are coded to identify which resources (firms) are performing the activity work. Each activity is also coded to the applicable contract line item.  

The contractor separately has to identify all subcontractors that will be on-site. Thus, the government reps know who is performing the various work activities. 

As for a space launch complex at Vandenberg AFB, that would never be a set-aside or sole source SB contract.

I don’t really care whether you dismiss my opinion. If you have to ask for all the details, you don’t really know current construction contract admin procedures for organizations who are staffed and organized to execute construction programs or how it can be monitored during performance on a periodic basis.

joel hoffman said:

If you have to ask for all the details, you don’t really know current construction contract admin procedures for organizations who are staffed and organized to execute construction programs or how it can be monitored during performance on a periodic basis.

@joel hoffmanIf I don't know, isn't that all the more reason for you to answer my questions?

@Fara FasatAs you can see, Joel is not just talking about pre-award. He's an advocate of active in-process monitoring. The question is: Given the terms of FAR 52.219-14, why does in-process monitoring matter? What does a CO do with in-process information? What can a CO do with it? 

Can a CO terminate for default or suspend payment based on in-process information, while performance is underway, based on interim facts, when the SBA policy and the clause say that compliance will be determined as of the end of performance?

If the answer is no, if compliance must be determined at the end, then why not just wait until the end? That's one of the most important questions to arise from the SBA policy and the contract clause.

Have SBA and the FAR clause, by setting the agreed upon date of compliance assessment and prescribing a minimum $500,000 fine for failure to comply, effectively precluded anticipatory action by the CO? I have asked that question in one form or another several times. No one has answered.

I am curious as to whether the SBA will actually assess any fines, after the water has already run over the dam, especially if an emerging business might not be able to pay a fine.

For construction, if the ACO can discern early on during performance that it doesn’t appear that the contractor intends to meet the LOS, the agency can contact the SBA for notification of possible non-compliance and for advice and assistance. The SBA is technically the Prime on an 8(a) contract, so should take appropriate action to warn and/or manage its sub.

The ACO and/or KO can proactively raise the issue with a  construction contractor early for notification and possible corrective action. The contractor can show that it is complying or respond on how it will comply.

As I have explained over the years at WIFCON, this is a real issue with construction contracts that are set-aside or reserved for sole source small businesses. We’ve seen all sorts of arrangements that are or appear to be fronts for non-eligible construction firms large and small or for some participants that take advantage of the opportunities.

This is nothing new. The construction industry has long complained to Congress about the problems.

For that matter, the problem isn’t limited to the Part 19 programs. We’ve long seen similar problems or the appearance of collusion in unrestricted construction acquisitions, too. That’s a discussion for another time. And there is a separate clause for self-performance on unrestricted construction contracts. L

My personal experience dates as far back back as 1971 in the Air Force at Castle Air Force Base. I was in the Base CE Engineering and Construction Branch in charge of the QA of Base awarded construction/maintenance and repair and custodial service contracts. We had several contracts where the second low bidder actually performed the work and we never met the actual prime contractor. 

It was a problem in 1980 when I went to work for USACE in the field.  It was a problem in 1989 when I was assigned to supervise the District Office section that negotiated all source sole source construction contracts and conduct all construction and some service contract source selections.we were able to avert numerous pre-award issues.

We also  provided policy and CAB oversight of all the construction ACO offices. I was also an ACO.

When I was assigned to Germany in the late 80’s, there were real issues with collusion between bidders/proposers and kickbacks to German government officials that eventually resulted in criminal prosecutions of several higher level government employees and contractors. 

Im just saying that this has been an important issue to us and to me over the years.

I see little value in not being pro-active.  I doubt that simply letting the SBA handle such issues by dumping the entire problem and solution on SBA will solve the problem.

Closing the barn door after the horse has left, maybe issuing a fine.

That ship has already sailed.  I doubt that it will solve the problem, which already occurred .

I ran out of cliches. 🤠

Vern Edwards said:

Note that the SBA must make that determination, not the agency contracting officer.

ji20874 said:

This isn't merely a note -- this is a matter of crucial significance in this discussion.

Specific to Section 8(a)  the process as provided by the Small Business Act and implemented by regulation at 13 CFR 124 and the FAR provides for a prime (SBA) sub (Agency) relationship and yes SBA is responsible for making that determination.  However as allowed by the Act and regulation the SBA and Agency can and have entered into a partnership agreement where the Agency assumes the responsibility of the SBA in making the determination. 

The same stipulation on award is carried at Section 15(o) of the Small Business Act with regard to contract awards under Small Business set-asides authorized by Section 15(a) of the Act.   The stipulation is carried through to 13 CFR 121 and the FAR. 

To the discussion as a whole.   The view of subcontracting limitation determination by a CO at pre-award has not changed.   That view has been articulated and demonstrated through the various quotations of the GAO found in this discussion thread and I would add that the COFC has taken essentially the same stance.  Post award the new language has shifted the measure of determination from cost of performance to amount paid.  I would like to say it is a simple shift but I do wonder after a 7 page WIFCON discussion.

In the end there are two red face tests.   The first is for the small business who if it fails to address internally the LOS matter where their offer could face protest (think here GAO, COFC, SBA OHA) and at post award liability that could extend to such things as the penalties prescribed under the CFR, the FCA, 18 USC and/or suspension and debarment.  The latter being much more rare than protests but all the same have occurred.   The second is for the CO who overlooked the LOS pre-award  and a protest is sustained (another rare occurrence) and at post award where an investigation shows that a SB with intent did not subscribe to the LOS and the CO turned a blind eye (very likely another rare occurrence).

All said it is up to the CO to determine their degree of review of the matter of LOS.   In the view of again 7 pages of discussion it is my belief that an education has occurred that would give a CO a better understanding of LOS to help them gauge the level of degree they might employee in their everyday efforts of offer review and contract award.

As to long standing problems I will simply endeavor to do what I have always done and hope that it helps just a little bit but as I age I am not sure my efforts have been worth it.

On 10/9/2021 at 7:08 AM, C Culham said:

Post award the new language has shifted the measure of determination from cost of performance to amount paid.  I would like to say it is a simple shift but I do wonder after a 7 page WIFCON discussion.

Emphasis added.

Carl, It's good that you wonder. (That's praise.) Wondering is a good thing.

To those who think this thread is too long, please blame me. But I think I am doing what a contracting professional should do when reading a new clause. I'm trying to foresee possibilities and think how to handle them proactively and effectively, to think how I might write a solicitation and contract so as to minimize misunderstanding and conflict, if possible, and to think how not to waste human resources. Except for distractions caused by some war stories, I think this has been a good thread for firing up the critical thinking neurons.

In seeking to simplify the limitations on subcontracting Congress and the SBA have created new complications. 

Consider one possible application of FAR 52.219-14(d), which might provide, in part:

Quote

The Contractor shall comply with the limitations on subcontracting... By the end of the base term of the contract...

I searched the FAR, 48 CFR Chapter 1, for "base term." I found it in only three places. Guess where: 19.505, 19.809-2, and 52.219-14. I searched the DAU online glossary of acquisition terms and did not find it. I couldn't find it in Black's Law Dictionary or the new edition of The Government Contracts Reference Book.

To what does "the base term of the contract" refer? What part of a contract written in the Uniform Contract Format specifies its "base term"? Section F, which is entitled "Deliveries or performance"? 

What if a contract does not use the phrase "base term"? When I hear or read "base term" I think of a contract for 12 months of severable services with 12-month options. What if a contract is not for that kind of service? What is the "base term" of a construction contract? Of an R&D contract? Of a software development contract?

The phrase "base period" appears in FAR, without official definition, in 8.404, 9.104-3, 16.601, and 52.219-9. It uses and explains the phrase in the context of 31.203 as follows: "A base period for allocating indirect costs is the cost accounting period during which such costs are incurred and accumulated for allocation to work performed in that period."

I found the phrase "base term of the contract" used in only seven board of contract appeals decisions and two Court of Federal Claims decisions. The most recent such decision was in 2011. In every instance the phrase was used without explanation or specific reference to the contract. I have explained elsewhere in this forum that the term "period of performance" is unofficial and often unclear in use. I explained in a recently published Briefing Paper that contracts with multiple line items might have multiple "performance periods" or dates of delivery. If so, which one would be the "base term"? What if the line items were severable (divisible)?

Does "the amounts paid"... "by the end" mean that you count only those payments made or due as of the last day of the base term? What about amounts paid weeks, months, or even years later, after final settlements? Could a contractor avoid a violation by delaying final settlements with and payments to "not similarly situated" subcontractors?

What about outstanding contractor claims for equitable adjustment seeking money and/or time? Compliance or noncompliance might well depend on the outcome of such claims. Many such claims have taken years to settle after a CO's final decision.

To those who think that the foregoing are nothing but petty quibbles, I remind them that such quibbles are the very corpuscles in the life blood of law. Think of the quibbles we've had in this country over the phrases "a well regulated militia" and "the right of the people to keep and bear Arms." If the FAR councils thought more about prospective petty quibbles they might write better clauses.

We have only scratched the surface in analyzing FAR 52.219-14 and the regulations that it implements. I much prefer analytical discussions to answering basic questions. But I dislike war stories about what someone did when in the long long ago. They are not relevant to this discussion. Congress did not authorize limitations applicable to all small business set-asides until 2013. Before that they applied only to special small business programs, like 8(a).

This topic has been going on so long the original clause under discussion was replaced in September with one of the most significant re-writes I've ever seen.

But as a contractor, my issue was  that a service contract is constantly in flux simply because of that one big annoyance in contracting: people.  They come and go, meaning the prime/sub workshare changes from month to month.  So the best you can do is manage it over the long-term.  Simply picking a point in time to evaluate the workshare is the definition of arbitrary and could certainly be viewed as capricious in certain circumstances.

REA'n Maker said:

This topic has been going on so long the original clause under discussion was replaced in September with one of the most significant re-writes I've ever seen.

We have been discussing the current (September 2021) version of the clause since September 18.

If this topic is too long for you, why are you reading it? Why did you make it longer?

Don't complain about the length of a discussion. Complain about the quality. If you complain about the quality, be specific, so we can decide if you have a good point or are just full of beans. That way, if you have a good point, we can try to improve the discussion.

REA'n Maker said:

...a service contract is constantly in flux... the prime/sub workshare changes from month to month.

What kind of service contract? What you described is not true of all service contracts. Be specific!