CFCM Subcontract Management 4 — Questions and Answers
Question 1: A prime contractor on a cost-plus-fixed-fee contract proposes to subcontract specialty IT work to its wholly owned subsidiary. What is the primary concern the contracting officer must address?
- The subcontract will violate limitations on subcontracting rules
- The inter-organizational transaction may involve unallowable costs or lack arm's-length pricing (Correct answer)
- The subsidiary cannot hold a federal subcontract without its own facility clearance
- The FAR prohibits subcontracting to affiliated entities on CPFF contracts
Correct answer: The inter-organizational transaction may involve unallowable costs or lack arm's-length pricing
Inter-organizational transfers between affiliates must be priced at cost or at established catalog prices under FAR 31.205-26 to prevent inflated costs charged to the government.
Question 2: Which of the following is NOT a valid basis for withholding consent to subcontract under FAR 44.202-1?
- The subcontractor is on the System for Award Management exclusions list
- The proposed subcontract type is inappropriate for the work
- The subcontractor is a small business that cannot provide performance bonds (Correct answer)
- The price is not fair and reasonable based on the prime's cost analysis
Correct answer: The subcontractor is a small business that cannot provide performance bonds
Small business status and inability to provide bonds is not a valid basis for withholding consent; the government cannot penalize small businesses for bond limitations in subcontracting decisions.
Question 3: Under the Miller Act, a payment bond on a federal construction contract over $150,000 protects which parties?
- Only the government and first-tier subcontractors
- Subcontractors and suppliers who furnish labor or materials (Correct answer)
- Only the prime contractor and the government
- The surety company that issued the bond
Correct answer: Subcontractors and suppliers who furnish labor or materials
The Miller Act payment bond protects subcontractors and materialmen who provide labor or materials to the project but lack a direct contract with the government.
Question 4: What is the significance of a 'subcontract consent threshold' in a prime contract's special contract requirements?
- It sets the maximum dollar value any single subcontract may have
- It defines the dollar level above which the prime must obtain CO consent before awarding subcontracts (Correct answer)
- It establishes the profit rate allowed on subcontracts
- It determines when certified cost or pricing data is required from subcontractors
Correct answer: It defines the dollar level above which the prime must obtain CO consent before awarding subcontracts
The subcontract consent threshold in the contract specifies the dollar amount above which the prime contractor must seek and receive the contracting officer's prior approval before awarding a subcontract.
Question 5: A prime contractor wants to use a time-and-materials subcontract for a fixed-price prime contract. What must the prime contractor demonstrate to obtain consent?
- That no other subcontract type is suitable and that appropriate surveillance will be performed (Correct answer)
- That the subcontractor has an approved purchasing system
- That the subcontract value is below $150,000
- That the subcontractor is an 8(a) certified small business
Correct answer: That no other subcontract type is suitable and that appropriate surveillance will be performed
To use a T&M subcontract under a fixed-price prime, the contractor must justify why no other type is suitable and demonstrate adequate surveillance plans, consistent with FAR 16.601 requirements.
Question 6: Under FAR 52.215-12, which subcontractors must submit certified cost or pricing data directly to the government (not just to the prime)?
- All subcontractors at any tier when required by the prime contract
- Only first-tier subcontractors with subcontracts exceeding $2 million
- Subcontractors at any tier when the CO determines it necessary and the subcontract exceeds the TINA threshold (Correct answer)
- Only subcontractors that are cost-type entities
Correct answer: Subcontractors at any tier when the CO determines it necessary and the subcontract exceeds the TINA threshold
FAR 52.215-12 allows the CO to require subcontractors at any tier to submit certified cost or pricing data directly to the government when subcontracts exceed the TINA threshold.
Question 7: What is the purpose of a 'limitation of cost' clause (FAR 52.232-20) in a cost-reimbursement subcontract?
- It caps the prime contractor's profit on the subcontract
- It requires the subcontractor to notify the prime when costs approach the funded ceiling (Correct answer)
- It limits the government's total liability on the prime contract
- It prevents the subcontractor from hiring additional personnel without approval
Correct answer: It requires the subcontractor to notify the prime when costs approach the funded ceiling
FAR 52.232-20 requires the subcontractor to notify the prime (and ultimately the government) when actual costs are expected to exceed the funded limit, enabling funding actions before work stops.
CFCM Subcontract Management 4
A prime contractor on a cost-plus-fixed-fee contract proposes to subcontract specialty IT work to its wholly owned subsidiary.
What is the primary concern the contracting officer must address?