Defense Contracting: Contract Risk a Key Factor in Assessing Excessive Pass-Through Charges

In May 2008, DOD issued an interim rule in the Defense Federal Acquisition Regulation Supplement (DFARS) on preventing excessive pass through charges. Prior to final implementation of the DFARS change, however, Congress enacted Section 802 of the National Defense Authorization Act (NDAA) for Fiscal Year 2013 which included an additional requirement related to preventing pass through charges, altering any potential changes to the DFARS. Specifically, Section 802 required the Secretary of Defense, the Secretary of State, and the Administrator of the United States Agency for International Development to issue guidance and regulations for situations where the offeror intends to award subcontracts for more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order. The contracting officer must (1) consider the availability of alternative contract vehicles and the feasibility of contracting directly with a subcontractor or subcontractors; (2) make a written determination that the contracting approach selected is in the best interest of the government; and (3) document the basis for such determination. In May 2015, the Federal Acquisition Regulation was amended to implement the requirements of Section 802, however these changes do not fully implement our recommendation. In August 2016, an official from DOD's Defense Procurement and Acquisition Policy office explained that DOD decided not to issue guidance because issues such as contract type, risk, unique factors and urgency are factors that contracting officers routinely consider in all contracts. They did, however, create a proposal adequacy checklist which requires the contracting officer to consider various aspects of the proposed costs, such as the level of detail of subcontractor costs and contract type. By determining whether the proposal is adequate using this checklist, the contracting officer is evaluating the risk. As a result of the proposal adequacy checklist and the changes to the FAR implementing section 802 of the NDAA of Fiscal Year 2013, we are closing this recommendation as implemented.

In May 2008, DOD issued an interim rule in the Defense Federal Acquisition Regulation Supplement (DFARS) on preventing excessive pass through charges. Prior to final implementation of the DFARS change, however, Congress enacted Section 802 of the National Defense Authorization Act for Fiscal Year 2013 which included an additional requirement related to preventing pass through charges, altering any potential changes to the DFARS. Specifically, Section 802 required the Secretary of Defense, the Secretary of State, and the Administrator of the United States Agency for International Development to issue guidance and regulations for situations where the offeror intends to award subcontracts for more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order. The contracting officer must (1) consider the availability of alternative contract vehicles and the feasibility of contracting directly with a subcontractor or subcontractors; (2) make a written determination that the contracting approach selected is in the best interest of the government; and (3) document the basis for such determination. In May 2015, the Federal Acquisition Regulation was amended to implement the requirements of Section 802. These changes meet the intention of this recommendation and thus we have closed it as implemented.