Are Material and Subcontract Fees Appropriate
Q. I am a contracting officer in the Dept of Interior and have a question about material and subcontract (M&S) fees. I have a prime contractor who is charging M&S fees for them to process subcontractor timesheets, payroll and travel vouchers. I cannot find anything where the prime can charge M&S fee on these costs. Is it legitimate?
A. Part of the problem is the meaning of M&S fees. Sometimes that term may really be an indirect cost rate that is applied to certain costs identified in the indirect cost base. So in that case, the fees are really an add-on cost like overhead or G&A that may be applied to the costs identified in the indirect cost base. Other times M&S fee is a contract arrangement between the prime and the government customer where there is a set fee or profit rate that may be charged to specific types of costs that are incurred.
As for what costs the fee applies to (whatever it is) there is no one “should” answer. If it is a profit rate, it depends on what costs are identified in the contract (or if silent, in the proposal). If it is an indirect cost rate, then if payroll and travel related costs are included in the M&S base then yes the M&S fee can apply; if those costs are not included in the M&S base but rather in one of the other indirect cost pools or even the M&S cost pool then it should not apply to those costs.
