Summary
For primes and subcontractors without a Government or CPA approved accounting system, time is running out to bid on this $670M IDIQ re-compete.
Background
The 2019 Federal Transit Administration (FTA) Project Management and Oversight (PMO) contract, under solicitation 69319519R000001, is a re-compete of the 2014 PMO Services contract. The FTA PMO program’s mission is to protect federal investments in transit infrastructure by providing effective, risk-based oversight of the project sponsor’s delivery of major capital projects. The objectives of the PMO contracts are to provide FTA with professional services in the form of oversight to render critical programmatic inputs for a variety of FTA program decisions for its grants programs and major capital projects.
The 2019 procurement is a full & open competition conducted under FAR Part 15 with a $670M combined ceiling (which is $80M lower than the 2014 PMO contract ceiling of $750M). FTA will make multiple Indefinite Delivery/Indefinite Quantity contract awards with a five-year ordering period. While FTA did not disclose the total number of 2019 potential awards (the 2014 contract had 20 total awardees), they intend to award at least five IDIQ contracts to small businesses.
Pricing Volume Contents
The draft RFP heavily reuses content from the 2014 solicitation. In some cases, the 2019 solicitation inaccurately refers to 2014 sections (example Section B.18 is now B.28, and Section B.19 is now B.29). The cost/price proposal contains three tabs: 1) cost and price, 2) cost and price proposal, and 3) accounting system, and audit information.
First, all teammates, including non-major subcontractors, must submit their prior fiscal year balance sheet and income statements ‘to demonstrate the financial capability to perform a contract of this size and duration’. All teammates must also specify the financial resources available (i.e. working capital, lines of credit, etc) and provide a bank point of contact (or other financial institution). Primes additionally must provide their two most recent audited financial statements (or reviewed statements in the case of a small business prime).
Second, there are three pricing attachments required. Attachment J-7 contains the cost plus fixed-fee (CPFF) pricing summary. Attachment J-8 contains the firm fixed price (FFP) pricing summary. Attachment J-13 contains the “B.18 and B.19 Labor Rate Matrix” tables that identify proposed ceiling rates. For pricing the proposal, FTA identified a 5-year total of 87,500 staff hours distributed among 29 prescribed labor categories (as compared to 19 prescribed labor categories from the 2014 solicitation). Three of the 29 positions are ‘key’ and (new for this contract) twelve are considered ‘Mission Critical Personnel’. Offerors cannot propose additional labor categories for the IDIQ award. The contract generally calls for personnel with experience from 3 years for clerical, 5-7 years for level I staff and 10 years for Level II staff and for the Program Manager.
Like the prior contact, PMO 2019 has two sets of annual labor ceiling rates, one for “CPFF” task orders (Table B.28) and a 2nd set for “FFP” task orders (Table B.29). The FFP ceiling rates are fully burdened rates and inclusive of profit. Both schedules have a “TBD” escalation. However, Section L instructs offerors to use 3.0% escalation which is slightly higher than the 2.75% rate prescribed in the 2014 solicitation. Ceiling rates are intended to reflect ‘composite team rates’ (prime and all subcontractors). We recommend offerors plan on separate rate justifications since the rates utilized in Attachment J-7 are used as part of the evaluated price while rates utilized in Attachment J-13 establish the IDIQ contract ceiling rates.
Buried in the instructions, the RFP requires offerors to propose their rates on a contract-year basis, not contractor fiscal year. However, FTA has not provided an anticipated contract start date. Given the fact FTA has requested offeror proposals be valid for 365 days, we would assume a 1 Jan 2020 contract start date since the 2014 FTA competition took slightly less than one year to award after the final RFP drop.
In the third and final part of the pricing volume, offerors must provide evidence of: 1) an adequate accounting system and 2) approved final indirect rates. The accounting system approval can be in the form of a formal approval from either a cognizant government audit agency or a Certified CPA. Importantly, the accounting system must be approved at the time of submission of the proposal for the prime and all major subcontracts or JV partners. Additionally, these same companies must provide a completed pre-award accounting system survey (Attachment J.6).
For final indirect rates, the prime and each proposed subcontractor (team member) must submit statements certifying the most recent year for which final audited indirect rates have been approved by a Federal Government cognizant audit agency. Importantly, if the prime’s, or their major subcontractors’, indirect rates have not been audited, each must provide detailed information showing cost accounts included in each of their cost pools to explain all overhead rates, G&A markups, labor burden (fringes), and any other pools and provide statement from an independent Certified Public Accountant (CPA), not an employee of the contractor stating:
- Established cost pools are currently in accordance with FAR 31 regarding overhead, G&A, and other indirect costs as well as the overhead, G&A, and other indirect cost rates and
- the Offeror’s, JV, Partnering/Teaming, or major subcontractor accounting system is deemed acceptable and in compliance with Generally Accepted Accounting Principles (GAAP).
Indirect Rates
Offerors will establish both their provisional and ceiling indirect rates in Section B.24. Similar information is required for all subcontractors in Section B.25. (This table makes no distinction between major and minor subcontractors). For indirect rates, FTA requires a full buildup that show both pool and base cost for each indirect rate. This information is required for all members of the bidding team (FTA did not distinguish between major and non-major subcontractors). The instructions also require the indirect rate information by contract year, so offerors should be prepared to show pool and base information annually. Next, offerors must include their negotiated indirect rate agreement. Finally, offerors are required to show final year-end indirect rates or audited final indirect rate for the prior three contractor fiscal years.
Subcontract Pricing
The draft RFP distinguishes a ‘major subcontractor’ as any proposed subcontractor anticipated to perform work with a value of $2M or more over the contract period. Importantly, essentially all subcontractors and teammates proposed must also provide similar levels of pricing details and pricing backup.
For evaluation purposes, the RFP compels the bidding team to adhere to a ‘CPFF’ type pricing buildup. Attachment J.7 is the ‘cost proposal worksheet’ to calculate the ‘notional’ contract CPFF. Interestingly, Section M.2(d) amplifies the expectation of cost reimbursable type subcontracts, “…[P]rime offerors, JV, teaming arrangements, major subcontractors/team members will be required to perform on a cost-reimbursement basis shall possess an adequate accounting system in order to receive an award.” Meanwhile, Attachment J-8 is used to compute annual fully burdened labor rates inclusive of profit. The attachment does not distinguish between prime and subcontractor rates and does not (by default) account for possible separate burden of subcontractor costs.
Fee is disallowed on consultant costs (as well as travel and other direct costs). Curiously, FTA’s pricing attachment J-7 refers to subcontract labor cost as ‘Subcontracted Consultant Services’ and subsequently excludes this line item from the prime’s fixed fee calculation. We know that some offerors pool fixed fee at the prime level, but caution offerors to carefully weigh their fee strategy. While a CPFF pricing structure is mandated for the RFP, there’s no guarantee that once the IDIQ contract is awarded, CPFF subcontracts will be utilized for all subcontractors, especially those small business subcontractors without an adequate accounting system. Primes, if not careful, could end up unintentionally diluting their actual fee on cost rate significantly during contract execution.
Proposal Evaluation
Like the 2014 PMO procurement, FTA will follow a two-step evaluation process to cull bidders. To make the 1st cut, offerors must have ‘an acceptable accounting system in accordance with FAR 16 and ‘sufficient corporate capability (including resources and financial)'. Final awards will be based on ‘best value’. FTA warns that offerors whose accounting system has not been reviewed and formally approved by a cognizant Government audit agency or Certified by a CPA for determining costs under a cost-reimbursement contract are not eligible for award. Thus, offerors who can’t meet this basic requirement should forgo bidding on this contract and save their B&P funds.
FTA will conduct a cost realism analysis. The prime’s and major subcontractor/team member’s proposed cost rates and cost factors will be adjusted to reflect any increases or reductions in cost elements to realistic levels based on the results of the cost realism analysis. Analysis of non-major subcontractors will be limited to review of major cost elements to determine whether they are realistic and reasonable. While FTA doesn’t state non-major subcontractor prices will be adjusted, the draft RFP states FTA “reserves the right to employ the detailed cost analysis procedures”, presumably to include cost realism adjustments.
These evaluation instructions clearly apply to the Attachment J-7 CPFF pricing template. However, Attachment J-8 also contains a pricing template to compute total contract value based on fully burdened labor rates. Offerors must fill in the labor hours for each prescribed labor category, presumably using the same hours identified for use in Attachment J-7. The fully burdened rates are then applied to the annual labor hours to derive a ‘5-Year Sum of Total Direct Cost’. It is unclear whether or how the J-8 calculated labor cost influences the total evaluated price since the draft RFP is not clear on whether the total evaluated price reflects J-7 only or a combination of J-7 and J-8. We think this is an important issue to clarify with FTA.
Conclusion
First, for offerors (especially small business primes) without an approved accounting system, time is running out. Offeror accounting systems must be approved by the time of proposal submission. Second, time may also be running out for subcontractors. The pricing and documentation requirements for this solicitation, while detailed, aren’t necessarily that complex. However, this pricing and documentation detail is required from almost all teammates and subcontractors. It will be essential for primes to aggressively plan, track, and evaluate subcontractor pricing submissions, including accounting system and final indirect rates, to ensure submission of a compliant bid.
Finally, we think offerors should request FTA clarify what pricing and documentation requirements are applicable to ‘non-major’ subcontractors, especially those that are small businesses.
About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a consulting firm focused on providing expert federal contracts pricing analysis and pricing volume support to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at
https://www.federalpricinggroup.com/.
