DHS considers rule change to protect subcontractors

Homeland Security Department officials may retool some of their rules to avoid a bonanza for prime contractors at the expense of their subcontractors.

DHS officials are proposing to amend the Homeland Security Acquisition Regulation--the department's supplement to the governmentwide Federal Acquisition Regulation-- in two ways.

First, companies bidding for work would have to "propose separate, individual labor hour rates for each category of labor to be performed by the prime contractor, each subcontractor, and other divisions or subsidiaries or affiliates of the prime contractor under common control," reads a Federal Register notice published Aug. 21.

They also want to require their contractors and subcontractors to describe their process for accounting for overtime labor hours for employees exempt from the Fair Labor Standards Act.

DHS wants “to eliminate unintentional windfall payments to the prime contractor" that can come when work done by subcontractors is billed at the prime contractor's labor rate, according to the notice.

In fiscal 2010, DHS awarded 1,779 contracts based on labor hours, which were worth more than $652 million in total. That same year, the department awarded 4,160 time-and-materials contracts, worth more than $1.9 billion.

DHS officials are accepting comments on a proposed rule change until Oct. 22.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Sat, Aug 25, 2012 Jaime Gracia jgracia@sevillegovcon.com

This will lead to just more gaming of the system, as primes can not afford to lose further margin, so subcontractors will get even more taken out of their hides. The government holding primes accountable for executing according to small business subcontracting plans would be a step in the right direction to help small businesses. Enforcement is needed, not further policy and regulations. You don't give a drowning man a glass a water.

Thu, Aug 23, 2012 DR

Sadly, it seems to me that this will only serve to increase prime contractor direct labor rates to cover the overhead of managing the subcontractors - the cost of which could previously have been recouped by the markup on their labor. In other words, it will come out the same in the long run.

Wed, Aug 22, 2012 SPMayor Summit Point, WV

DHS certainly has the 'right' to proceed with this regulatory change.Their rationale is not without merit in select cases. But, this change has the potential of dramatically altering the T&M 'world' by applying a pricing technqiue commonly associated with non-commercial DoD service acquisitions in the civiliian non-commercial marketplace even when there is adequate price competition.

Wed, Aug 22, 2012 Vanla Arlington, VA

The so called "windfall" payments are the only real justification to the Prime to include subcontractors. Do you really think we add subs out of the kindness of our hearts? We do it because you require us to reach out to the small business community. If we lose all incentives to do this, why would we continue to add subs unless they provide a part of the solution that we don't have the ability to provide. The Prime has to get something out of the contract to bring on a sub. There is a cost to administering subcontracts, or had you forgotten that fact? I am sad to see how many skilled acquisition professionals have left the Government for private industry or to retire. The remaining staff just don't understand how Private Industry works. What a shame!

Wed, Aug 22, 2012 OccupyIT

Here we go with another well intentioned effort by the misinformed. Sure some large prime contractors gouge their subs but most follow cost accounting standards (they have to actually for CPFF contracts) to allocate a portion of their costs to the value of subcontracts. Remember, the prime is the only party with privaty of contract with the USG. THEY are solely responsible for the performance and financial risk of the contract. A fair and reasonable (and most are) allocation of these costs is justified to meet subcontractring management challenges and risks forced on them by subcontracting goals of the USG. If the USG wants to avoid cost allocation to subs, and accept the separate risk of performance and the headaches of multiple invoices, the CTAs already exist to make the subs peers of the prime. Please don't break one part of the system in an attempt to fix another... again. If you think their is abuse of the cost allocations to subs then do some research and put a cap on it, say the same thing GSA's FAS charges the USG for managing other agency contracts.... 11%? or OPM.... 14% or the National Business Center? What's good for the goose... Think about it first

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