Lack of Detail on Subs’ Pricing Leads to Lost Contract

Small government contractors competing on set-asides are in a unique position.  Unlike in the commercial world (and on unrestricted government contracts), small primes in the set-aside arena routinely subcontract to larger and more powerful companies.  Sometimes these large subcontractors aren’t used to being in a secondary role, and can make life difficult for their smaller primes.

Case in point: subcontractors sometimes balk at providing small government prime contractors with their direct labor, fringe benefit, General and Administrative, or other pricing information, preferring to simply offer a fixed-price lump sum.  Even when the government is uninterested in such details, having a full breakdown can help ensure compliance with the FAR’s subcontracting limits.  But as one prime contractor found out, when the government wants a pricing breakdown, failing to include a subcontractor’s information can be fatal.

One small contractor recently learned this lesson the hard way.

In Orion Technology, Inc., B-405077 (Aug. 12, 2011), a small business teamed with multiple subcontractors to submit a proposal for garrison support services at various Army installations.  The solicitation asked offerors to submit a breakdown of their costs, including direct labor rates, fringe benefits, and G&A, along with the total cost.

Orion Technology Inc., the small business, submitted a proposal containing Orion’s own cost breakdowns, but not the cost information for some of its subcontractors.  Instead, the proposal only included the total cost, with fee, for the subcontract work.

The agency eliminated Orion’s proposal from the competition for failing to include the required cost information for its subcontractors.  The GAO denied Orion’s bid protest, holding that the agency reasonably rejected Orion’s proposal for failing to include information required by the solicitation.

So what can small contractors do if faced with a similar situation?  First, consider a strong non-disclosure agreement, prohibiting the small prime from using the subcontractor’s cost information for any purpose other than the proposal at hand.  Non-disclosure agreements are commonplace between prime contractors and subcontractors, and will likely help the subcontractor feel that its information is secure.

If the subcontractor still balks (perhaps because it doesn’t want its prime to know its profit), the prime may wish to check with the procuring agency to see if the agency will allow the subcontractor to submit its information directly to the government.  But even if the agency is agreeable, it’s not a perfect solution, especially for a set-aside contract, as it indicates that the small business does not have control over its own proposal, which could create ostensible subcontractor affiliation problems.

Finally, if nothing else works, the small business may wish to think about firing the subcontractor (assuming the teaming agreement allows it) and working with someone else.  After all, if the subcontractor does not trust its prime to keep its information secure, even with a non-disclosure agreement in place, will this really be a team that can work together successfully on a government contract for months or years?

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