Release of Cost Information to Prime Contractor

General Industry Practice

Generally, subcontractors do not release information to the Prime contractor they are working for, or anticipate working for. The reason is that rates are proprietary, sensitive, and can be trade secrets. Generally, the process is that DCAA or DCMA on behalf of the government (or the Prime Contractor) will perform a Proposal Rate Check or Proposal Audit.

In such cases, DCAA normally would ask if the subcontractor objects to the release of the information to the prime. The answer, almost without exception is yes. DCAA would then ask for the memo stating the company's objection to the release of the information.

A typical memo would read as follows:

In reference to Proposal XYZ, Customer 123, ABC Corporation requests that DCAA review and release an opinion on the validity of the proposed costs. ABC Corporation does not object to the release of the total price to the prime contractor, however, the corporation objects to the release of the detailed audit report including rate information to the prime contractor due to the proprietary nature of the data. Therefore, report information should be kept with government channels excepts to the extent that ABC corporation grants written permission to additional release of information.

15.404-3 -- Subcontract Pricing Considerations

(a) The contracting officer is responsible for the determination of a fair and reasonable price for the prime contract, including subcontracting costs. The contracting officer should consider whether a contractor or subcontractor has an approved purchasing system, has performed cost or price analysis of proposed subcontractor prices, or has negotiated the subcontract prices before negotiation of the prime contract, in determining the reasonableness of the prime contract price. This does not relieve the contracting officer from the responsibility to analyze the contractor’s submission, including subcontractor’s cost or pricing data.

(b) The prime contractor or subcontractor shall --

(1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices;

(2) Include the results of these analyses in the price proposal; and

(3) When required by paragraph (c) of this subsection, submit subcontractor certified cost or pricing data to the Government as part of its own certified cost or pricing data.

(c) Any contractor or subcontractor that is required to submit certified cost or pricing data also shall obtain and analyze certified cost or pricing data before awarding any subcontract, purchase order, or modification expected to exceed the certified cost or pricing data threshold, unless an exception in 15.403-1(b) applies to that action.

PGI 215.404-3 Subcontract pricing considerations

Follow the procedures at Procedures Guidance Information (PGI) 215.404-3 when reviewing a subcontractor’s proposal.

(a) The contracting officer should consider the need for field pricing analysis and evaluation of lower-tier subcontractor proposals, and assistance to prime contractors when they are being denied access to lower-tier subcontractor records.

(ii) It may be appropriate for the contracting officer or the ACO to provide assistance to a contractor or subcontractor at any tier, when the contractor or higher-tier subcontractor has been denied access to a subcontractor’s records in carrying out the responsibilities at FAR 15.404-3 to conduct price or cost analysis to determine the reasonableness of proposed subcontract prices. Under these circumstances, the contracting officer or the ACO should consider whether providing audit or field pricing assistance will serve a valid Government interest.

(iii) When DoD performs the subcontract analysis, DoD shall furnish to the prime contractor or higher-tier subcontractor, with the consent of the subcontractor reviewed, a summary of the analysis performed in determining any unacceptable costs included in the subcontract proposal.

If the subcontractor withholds consent, DoD shall furnish a range of unacceptable costs for each element in such a way as to prevent disclosure of subcontractor proprietary data.

The FAR requires the prime contractor or upper tier subcontractor to conduct appropriate cost or price analysis of proposed subcontract prices. As a responsible source, the contractor will always perform a price analysis to determine that the overall subcontract price is fair and reasonable. If an exception to providing certified cost or pricing data does not apply (15.403-1(b)), the contractor is also responsible for conducting a cost analysis.

In some cases the subcontractor may deny the contractor access to its proprietary cost data. This does not remove the prime contractor’s obligation with respect to the cost analysis. The Procedures Guidance Information (PGI) through DFARS 215.404-3, provides that the contracting officer or ACO may assist the contractor in carrying out its FAR 15.404-3 requirement. In this event, the contracting officer or ACO should consider the need for audit or field pricing assistance, applying DFARS PGI 215.404-2.

A subcontractor is not obligated to provide proprietary cost data directly to the prime or upper tier subcontract. However, unless the subcontract action meets an exception for furnishing certified cost or pricing data, the prime contractor should have the subcontractor provide the information to the Contracting Officer or ACO for consideration. The government authorities should consult the audit thresholds at DFARS PGI 215.404-2 to determine the need for field pricing assistance or audit, and the appropriate agency to perform assistance.

References and Guidance

DFARS 215.404-2 website reference...http://www.acq.osd.mil/dpap/dars/pgi/pgi_htm/PGI215_4.htm#215.404-2