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Payment for "Subcontractor" Services on T&M Contracts

Feb.16.2011

In its January 14, 2011, decision in Serco, Inc. v. Pension Benefit Guar. Corp., the CBCA addressed for the first time (the first published decision in over 22 years from any source) a long-running dispute about whether labor hours performed by employees of "subcontractors" (a term that may include consultants and labor purchased from "body shops") should be billed on T&M contracts as "time" at the fixed hourly labor rates specified in the prime contract for labor hours (the position generally taken by contractors and by GSA in published guidance) or as "material" at the actual cost charged by the "subcontractor" (the position taken by DCAA). The CBCA could have based its decision on the fact that the RFP for the contracts at issue specifically required that subcontract labor had to be billed at actual cost, but instead held that the "plain meaning" of the standard FAR payment clause requires that subcontract labor must be billed based on the actual cost, with no indication in the decision that the contractor had pointed out or the CBCA had considered the long history of public disagreement about the "plain meaning" of the language included in the contracts, the published GSA guidance supporting the contractor position, or the relevant language about this issue in promulgation comments that accompanied changes made to the relevant FAR payment provisions in 2007 specifically to resolve the long-running disagreement between DCAA and contractors.

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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