Breakout Session # 1910

2. Benefits of Subcontract Management on Federal Contracts Breakout Session # 1910 Susan L. Rush, Supervisory Contract Specialist, Mid-Atlantic Regional Maintenance Center, Portsmouth, VA John S. Rush, Director, Acquisition Management Center LLC, Chesapeake, VA Date April 16 Time 1:30 pm – 2:30 pm

3. Agenda • Reasons for subcontracting • Benefits and negative aspects • Government’s need of subcontract management • Impact of Subcontracting on contract and program objectives • Consent/CPSR/Approved system/Surveillance • Best Practices

4. Reasons for Subcontracting • Strategic Advantage • Increase capabilities of prime contractor • Facilitate entry into otherwise closed markets • Spread financial risk • Drive technology • More cost effective than performing in-house • Provide better customer service and support • Enhance utilization of resources • Small Business considerations • Requirements of government contract

5. Benefits of Subcontracting • Enhanced or greater capabilities • Greater value to customer • Complimenting competencies of prime and subcontractor • Greater risk mitigation • Better performance against project/contract constraints • Cost • Schedule • Technical Quality • Implementation of government’s socio-economic policies

6. Negative Aspects of Subcontracting • Prime contractor perspective • Prime responsible for subcontractor’s performance • Prime determines responsibility of subcontractor • Government directed subcontracts • Reporting of costs on cost reimbursement contracts • Timely notification of reaching funding limitation • Integrating subcontract cost-schedule info into EV system • Prime’s performance assessment dependent on subcontractor performance • Government oversight • Consent • Purchasing system reviews • Surveillance

7. Negative Aspects of Subcontracting • Subcontractor perspective • Performance as subcontractor typically is not reported in government’s past performance reporting systems • Government perspective • No privity with subcontractors • Added oversight responsibilities • Added risk of breaching constraints • Cost • Schedule • Technical quality

8. Government’s Need for Oversight • Provide the customer with timely best value solution to requirement • Maintain public trust in government acquisition system • Implement public policy • Protect government’s interests • Assure contract performance • Ensure public funds are wisely spent

9. Government’s Oversight Requirements • Fixed Priced Prime Contracts • No oversight of subcontracting • Except on unpriced contract actions (UCA) • Cost Reimbursement Prime Contracts • Advance Notification • Consent • System Surveillance • CPSR

10. Government’s Oversight Requirements • Consent for subcontracts under FP-type prime contracts not required • Except for unpriced modifications (the Government’s financial liability is undefined) • Consent under CR-type contracts • Depends on the state of the Prime Contractor’s Purchasing System • Approved or Not Approved • Approved Systems consent only required for specific subcontracts identified in prime contract • Not Approved Systems consent for all CR subcontracts and significant FP subcontracts

11. Government’s Oversight Requirements • Clause 52.244-2 defines “consent to subcontract” • KO’s written consent for the Contractor to enter into a particular subcontract • Contactor must notify KO reasonably in advance of placing any subcontract for which consent is required, and provide salient information and justification for entering subcontract • Clause does not provide for contractor’s failure to obtain KO’s consent

12. Government’s Oversight Requirements • The Guidance in Subpart 44 makes it clear that the basis of CPSR and Surveillance is to assess the efficiency and effectiveness with which the Contractor spends Government funds and complies with Government policy (FAR 44.301) • Approved systems protect the interests of the Government • In the absence of an approved system, consent process protects the Government’s interests

13. Limitations of Consent • Clause 52.244-2 limits consent as not being a determination of • Acceptability of any subcontract terms or conditions • The allowability of any costs under the contract • Relief for the Contractor of any responsibility for performing the contract (52.244-2(f)) • Failure to obtain consent does not relieve the Contractor of the responsibility performing the contract

14. Limitations of Consent • The following are reasons why a CO may not grant consent • Material or services not required for contract performance • Contractor did not justify subcontractor selection • Contractor did not justify subcontract price • Inappropriate subcontract type • Subcontract provides direct claims or appeal to CO for disputes within subcontract • Contractor fails to comply with Government Regulation or statute • Contractor selection of an ineligible, suspended, or debarred vendor, unless there is compelling reason to subcontract with contractor

15. Subcontracting Risks on Program/Contract Objectives • Increased costs of consent requirements compliance • Contractor costs • Government costs • Potential risk to schedule • Potential risk of not meeting technical/quality objective

16. Subcontract Impact on Program/Contract Objectives • Failure of timely integration of subcontractor cost/schedule data • Potential impact on contractor’s management and reporting • Potential impact on government’s management, program reporting, and remedial actions

17. Best Practices • Government perspective • Be prepared to accommodate consent requirements • Cost associated with subcontracts with no consent may be questioned by audit activity on final cost audit • Consent must be timely • Contractor can seek equitable adjustment on Government Delay of Work (52.242-17)

18. Best Practices • Government perspective • Standardize consent process • Who does what and when do they do it • Educate contractors who need to obtain KO’s written consent • What constitutes an adequate consent package • What is the “goal” for responding • How are problems going to be managed • Create and maintain a record • Consent requests • Disposition of requests

19. Best Practices • Government perspective • Assess contractor for need of CPSR • ACO decision • Past performance • Volume, complexity and dollar value of subcontracts • If contractor’s sales are expected to exceed $25M (excl. competitive FFP and FP/EPA) in next 12 months • ACO performs a review to determine need for CPSR • Sales include prime contracts and subcontracts under government prime contracts and modifications

20. Best Practices • Government perspective • CPSR • Should be intensive review of contractor’s purchasing system and practices • Coordinate with other reviews and findings • Estimating system reviews • Material Management Accounting Systems • Make/Buy Decision Review

21. Best Practices • Government perspective • Perform periodic surveillance • Contractors with approved purchasing systems • Share lessons learned with contractor • Identify weaknesses and strengths to contractor • Provide feedback to contract incentive structures • Award Fee determinations

22. Best Practices • Contractor perspective • Documented procedures • Working documented procedures – not for show • Reflect values of contractor • Promote government’s goals • Timely best value to user • Promote public trust in acquisition system • Implement public policy • Competition • Commercial products • Small and Small Disadvantaged Business participation

23. Best Practices • Contractor perspective • Develop and maintain vendor rating system • Record subcontractor performance • Against prime contractor’s values • Project/contract objectives • Use rating system • Source Selection • Identifying areas of subcontract risk

24. Best Practices • Contractor Perspective • Team management of subcontractors • Major or critical subcontractors • Contract managers, quality specialist, project managers • Status meetings • Lesson Learned • Monitor subcontractor corrective actions

25. Best Practices • Don’t ignore consent requirements • Training for buyers/subcontract managers • Know what the government expects for documentation • Coordinate consent requests with KO • Create and maintain consent request log

26. Best Practices • Contractor Perspective • Urge ACO for Approval of Purchasing System • Implement corrective actions in timely manner • Keep government’s value and requirements in mind

27. Questions and Answers