While it is generally small businesses that have to worry about subcontracting out work, a new rule will make this an issue for every contractor.
Section 802 of the National Defense Authorization Act (“NDAA”) for Fiscal Year 2014 provides additional requirements relative to the review and justification of pass-through contracts. Where an offeror for a contract informs the agency pursuant to FAR 52.215–22 of their intention to award subcontracts for more than 70 percent of the total cost of work to be performed under the contract, the contracting officer must: (1) consider the availability of alternative contract vehicles and the feasibility of contracting directly with a subcontractor or subcontractors that will perform the bulk of the work; (2) make a written determination that the contracting approach selected is in the best interest of the Government; and (3) document the basis for the determination. The proposed rule, FAR 15.404-1(h), is being created in order to implement these statutory requirements.
This rule doesn’t apply to FAR Part 19 acquisitions, or acquisitions under the Small Business Program. The interesting aspect of this is that it effectively deters contractors from teaming together where the prime contractor passes through much of a work to a prime contractor. This is likely done to eliminate the middle man – i.e., the prime contractor – and to therefore also eliminate the markup.
This might benefit the government customer (and the taxpayer), but it also potentially reduces the incentive for contractors to team together. Subcontractors performing the bulk of the work might like this teaming arrangement because they don’t want to deal with the government customer directly (which involves considerable paperwork and liability). Or perhaps they don’t have the past performance to bid, or they have a good relationship with the prime contractor so they want to collaborate.
What do you think? If you want to comment on the proposed rule, you need to do so by September 9, 2014. Access its publication in the Federal Register here.
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