The prime contractor is responsible for managing the planning, placing, and administering of subcontracts. Make-or-buy program analysis considers the prime contractor's decisions in determining if certain components or services will be subcontracted. In this section, we will consider means available to the government to evaluate how those decisions are implemented.
Weapon systems contractors have always needed support from other firms in meeting their contractual obligations. Prime contractors must purchase a wide variety of raw materials, parts, subassemblies, and services.
In this age of increasing specialization, prime contractor reliance on subcontractors has become increasingly important. Typically, 70-80 percent or more of total prime contract dollars are eventually paid to subcontractors. Effective management of subcontractors therefore becomes essential to effective contract performance. As a result more government attention is being directed toward the prime-subcontractor relationship.
Special care must be exercised when considering government involvement in this relationship. The government has no privity of contract (direct contractual relationship) with subcontractors. Any government efforts to control subcontractors must be accomplished by affecting the prime contractor's management of subcontracts. Subcontractors should not be asked or expected to follow government direction. If they do and problems result, the government will likely be open to substantial claims from both the prime and subcontractors.
Government consent to subcontract placement may be required when subcontract work is complex, the dollar value is substantial, or the government's interests are not adequately protected by competition and the type of prime contractor subcontract. The consent requirement is implemented through the subcontract clause in the prime contract. This consent does not establish any direct contract relationship between the government and the subcontractor nor does it relieve the prime contractor of any responsibility for selection and management of subcontractors.
10.8.2 Contractor Purchasing System Review
A contractor purchasing system review (CPSR) is an on-site review of an institution's purchasing system. Each service uses contractor purchasing system reviews to evaluate the efficiency and effectiveness with which the institution spends government funds and complies with government policies when subcontracting. The review provides the administrative contracting officer (ACO) with information which is used as a basis for granting or withdrawing approval of the institution's purchasing system.
The CPSR objective is to evaluate the efficiency and effectiveness with which the contractor spends government funds and complies with government policy when subcontracting. Approval of the contractor's purchasing system significantly reduces requirements for review and consent to individual subcontracts.
The ACO shall determine the need for a CPSR based on, but not limited to, the past performance of the contractor, and the volume, complexity and dollar value of the subcontracts. If a contractor's sales to the government are expected to exceed $25 million during the next 12 months, perform a review to determine if a CPSR is needed. Sales include those represented by prime contracts, subcontracts under government prime contracts, and modifications. Generally, a CPSR is not performed for a specific contract. These reviews devote special attention to the items identified in Table 10-7.
- Degree of price competition obtained.
- Pricing policies and techniques.
- Methods of evaluating subcontractor’s responsibility.
- Treatment accorded affiliates and other concerns having close working arrangements with the contractor.
- Policies and procedures pertaining to labor surplus area concerns and small business concerns.
- Planning, award, and postaward management of manor subcontract programs.
- Compliance with Cost Accounting Standards (CAS) in awarding subcontracts.
- Appropriateness of types of contracts used.
- Management control systems, including internal audit procedures, to administer progress payments.
Table 10-7 Contractor Purchasing System Review Special Concerns
10.8.3 Subcontractor Evaluation Support
Because subcontractors are performing larger and larger portions of contract effort, government organizations are becoming more directly involved in prime contractor evaluation of subcontractor cost and price proposals and subcontractor ability to manufacture systems and deliver quality product. Government personnel have participated as team members on prime contractor reviews of Should Costs, Manufacturing Management/ Production Capability Reviews (MM/PCRs), and Production Readiness Reviews (PRRs) at subcontractor facilities. Government participation is based on government responsibility to evaluate the total contract effort and special provisions in the prime contract.
