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Limitation on Mark-Up of Subcontractor Costs

Apr.30.2007

In an interim rule effective immediately, the Defense Department amended DFARS on April 26, 2007 to permit the Government to "disallow" (including on firm-fixed price contracts) "excessive pass through charges" on subcontracts where the total subcontract costs exceeds 70 percent of the contract value. "Excessive" charges are defined to include costs and profit that the contractor cannot demonstrate to the contracting officer add something other than "no or negligible" substantive value to performance, so any contractor with an accounting practice that allocates G&A to subcontract costs could run afoul of these rules.
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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Terry L. Albertson
Senior Counsel – Washington, D.C.
Phone: +1 202.624.2635
Email: talbertson@crowell.com