Commercial Item Acquisition
NOTE: This is the third in a three-part series on Time-and-Materials/Labor-Hour Proposal Requirements. Part 1 addressed non-commercial item acquisition with adequate price competition (FAR 52.215-29). Part 2 addressed non-commercial item acquisitions where there is not adequate price competition (FAR 52.216-30). This Part 3 addresses commercial item acquisitions at FAR 52.216-31 (which must, by law, be awarded based on adequate price competition).
Applicability: As stated at FAR 16.601(f) (3), the solicitation provision at FAR 52.216 31 applies to Time-and-Materials/Labor Hour (T&M./LH) solicitations for all acquisitions contemplating the use of a Commercial Time-and-Materials or Labor-Hour contract.
Key Requirements: T&M/LH contracts provide for reimbursement to the contractor based on a fixed hourly rate for each labor category listed in the contract. Under the current FAR T&M payment clause for commercial items (FAR 52.212-4, Alternate I), subcontractor costs for labor categories specified in the contract are also reimbursable at the fixed hourly rates in the contract. The purpose of this FAR solicitation is to state whether the contractor is required to propose a separate rate for each subcontractor or is allowed to use a single rate. For example, if the contract proposes a labor category for a Senior Engineer, can the contractor propose a single fixed hourly rate (e.g., $200 per hour) for all Senior Engineers performing under the contract, or must the contractor propose separate rates (e.g., $200 per hour for a Senior Engineer of the Prime Contractor, $180 per hour for a Senior Engineer of Subcontractor A, $210 per hour for a Senior Engineer of Subcontractor B, etc.).
Under FAR 52.216-31, the contractor has the option of proposing a single fixed hourly rate or separate rates, i.e., the contractor is not required to propose a separate fixed hourly rate for each subcontractor. Furthermore, FAR 52.216-31 does not permit the contractor officer to alter this provision and require separate rates (as opposed to FAR 52.216-29, which does provide such authorization to the contracting officer). Therefore, whether or not to propose separate rates is at the sole discretion of the contractor.
Compliance Verification: Due to the fact that the contractor has discretion on whether or not to propose separate rates, the need for compliance verification with this solicitation provision is essentially moot. Compliance verification would be limited to assuring that the contractor has clearly specified in the proposal whether or not there is a single rate for each category, or if there are separate rates for some or all subcontractors within all or any particular labor category.
Remedies: When the Government determines that the offeror has failed to clearly specify whether or not separate rates as required by the provision, the proposal may be deemed as non-responsive and the offeror eliminated from award consideration. However, since this would most likely be a minor deficiency, in almost all cases the Government will most likely provide the offeror an opportunity to revise the proposal to specify whether there is a single or separate rates included in the proposal. It is strongly recommended that offerors provide a specific statement in the proposal as to whether or not it includes a single rate or separate rates for each labor category to preclude any potential delay or possibility of elimination from award consideration.
Background: In the early 2000’s, a new payment clause was implemented for T&M contracts for commercial items. This clause specifically provides for subcontractors to be reimbursed at the fixed hourly rates in the contract. As a result of this new payment clause, it became necessary for the FAR Council to address whether or not T&M contracts for commercial items should provide for a single fixed hourly rate for each labor category, or separate fixed hourly rates by contractor/subcontractor.
Contrary to the debate on T&M/LH contracts for noncommercial items, the debate for T&M/LH contracts for commercial items did not require discussion of whether the award was based on adequate price competition. This is because the law requires that all commercial item T&M/LH acquisitions be awarded on a competitive basis. As a result, the discussions of the FAR Council focused on whether commercial T&M solicitations should require separate rates or permit a single rate. During its deliberations, the Council noted that the concept of a commercial T&M contract is to do business in a commercial manner. Therefore, the Council did a survey of several commercial contractors to determine what the normal practice was when those contractors awarded T&M contracts to their vendors. While the Council found that T&M contracts were not commonly awarded in the commercial market, it also found that when they were awarded, there was no company found in the survey that required the use of separate rates. As a result, the Council concluded that the FAR should also not require separate rates. This conclusion was consistent with the concept of FAR Part 12 commercial item acquisitions, which is to follow commercial practices to the maximum extent possible when awarding contracts for commercial items. However, the Council also recognized that a particular contractor may, for its own business reasons, want to provide separate rates. Thus, the provision provides an option – offerors may propose a single rate or separate rates. In providing this option, the solicitation provision required that the offeror specify in the proposal which method they have used, so that the Government has a clear understanding of whether or not the contractor is proposing single or separate rates for each labor category.