Though initially limited to only certain services (e.g. ancillary services in support of a commercial supply item) the government decided the designation “commercial” should apply to any service that is of a type commonly sold to the general public on a T&M basis. Rather than limit applicability to a type of service, use of T&M contracts were to be used only in circumstances where requirements were not sufficiently understood to complete a well-defined scope of work needed for a fixed price contract. The FAR imposes significant requirements before an agency can use a T&M contract.
For commercial T&M contracts, the final rule permits prime contractors to request payment for subcontract labor (including third party subcontractors and interdivisional transfers) at the hourly rates prescribed in the contract for those employees that satisfy the contract’s applicable labor category qualifications. These hourly rates may be a singe set of labor rates that do not distinguish between work performed by prime contractor or subcontractor employees. A new solicitation clause FAR 52.216-31 requires the prime contract to identify the categories to which the hourly rates apply including (1) the offeror (2) its subcontractor and/or (3) divisions, subsidiaries or affiliates of the prime contractor. Another new clause at 52.212-4 (Alt 1) provides that services not corresponding with the labor categories in the prime contract will generally be considered to be “incidental services” and are reimbursed as “materials” (discussed below). The FAR Council rejected the earlier approach that would have limited government payment for subcontract labor to the prime contractor’s cost unless the subcontractor was preapproved by the CO. After receiving numerous comments, the Council concluded such a practice was contrary to commercial practices, would discourage prime contractors to use subcontractors which are primarily small businesses and would impose government-unique cost accounting requirements on interdivisional transfers.
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