FAR 52.236-1, Performance of Work by the Contractor (A Hard Clause for OCONUS Construction Contractors)

The US government, and in particular the DoD, has spent, and will continue to spend, millions of dollars on OCONUS construction projects.  Contracts have been awarded for building complete compounds in Djibouti, Africa, troop barracks in Afghanistan, and runways in Qatar.  Unsurprisingly, there’s no shortage of bidders for these projects – with their millions of dollars in revenue.  Many large US government contractors, as well as foreign construction firms, have competed over and over again for these projects.  Inasmuch as all of these construction projects are FAR based, the RFPs are substantially similar, containing identical clauses and provisions, even though, of course, the SOWs differ.  One clause consistently included in all of the respective RFPs, and which causes a great deal of angst for many contractors, is FAR 52.236-1, Performance of Work by the Contractor. In essence, this clause mandates that the awarded contractor perform a certain percentage of the work, usually between 15 and 20 percent.  While contractors may not find this percentage too burdensome on stateside projects, they may encounter difficulties in satisfying the percentage requirement on OCONUS project.

 

Applicability:  This clause is inserted into fixed-price construction solicitations and contracts expected to exceed $1.5 million dollars, except where awarded pursuant to various small business set-aside programs.  The clause may, at the discretion of the contracting officer, be inserted into solicitations and contracts expected to be $1.5 million or less.

 

Key Requirements:  The clause contains three key requirements:

1) The contractor must perform a certain percentage of contracted work;

2) The contractor must perform the work on the actual site;

3) The contractor must perform the work with its own organization.

 

Compliance Verification: The contracting officer and the contracting officer’s representative are responsible for verifying the contractor’s compliance with this clause. Of course, the CO and COR must necessarily rely heavily upon the contractor’s various progress schedules to perform any percentage analysis. Moreover, although an agency may want to ensure that a contractor is capable of complying with the percentage requirement pre-award, it is clear that the issue of a contractor’s meeting the percentage requirement is a matter of responsibility determined during contract performance.

In Luther Construction Company, Inc., B-241719, Jan 28, 1991, 1991 CPD ¶ 76, GAO ruled against the agency where the agency rejected the protester’s bid as nonresponsive for failure to comply with the clause’s percentage requirement. In sustaining the protest, GAO held that the issue of whether a contractor can satisfy the percentage requirement is a matter of responsibility and not a matter of a bid’s responsiveness. (See also Iber & Sons, Inc., B-208365.2, Apr. 20, 1983, 1983 CPD ¶ 424).

Whether a contractor complies with the clause’s percentage requirement can also make it way to the Boards of Contract Appeals although, admittedly, there are very few cases thereon. In ESC Polytech Consultants, Inc., GSBCA 12509, 95-1 BCA¶ 27,629, a contract for various energy upgrades, the Board found unjustified the contracting officer’s attempt to use the contractor’s failure to meet the clause’s percentage requirement as a sufficient basis for default where the record failed to demonstrate that the contractor was unlikely to work percentage at contract completion.

 

Remedies: The clause itself does not have specific remedies for the violation thereof.(e.g., the contractor is not required to return any monies if it does not achieve the required percentages).  In theory, and as attempted in the above referenced decision, a violation could serves as the basis of a default termination.  Such a drastic measure, however, would require a finding that the contractor’s record of performance demonstrates the contractor’s failure to meet the percentage requirement. Short of a default termination, a CO could certainly have the contractor’s inability to meet a contractual requirement reflected in its past performance rating.

 

Background: Essentially, this clause was designed to prevent a contractor from bidding and performing a contract in name only, without providing any added value.  It precludes a contractor from reaping the profits and credit for the work when in actuality the subcontractors perform the entire job.  Thus, the clause ensures that the prime is significantly involved in the project and is actually at the project site.  The clause gives the contracting officer broad discretion to set the percentage, consistent with the complexity of the work and the required specialty subcontractors, but the percentage should not ordinarily be lower than 12 percent.  However, the work of specialty subcontractors, such as electrical, heating, and plumbing, is not considered in the percentage calculation of work performed by the contractor.  Additionally, the clause also permits the parties to agree, during contract performance, to reduce the work percentage if the contracting officer, upon request by the contractor, determines that the reduction would be to the advantage of the government. Of course, contractors consider this authority to be an important tool of contract administration because when scheduling or subcontractor issues negatively affect the contractor’s initial work percentage.

 

Other Key Information: One primary problem with the clause and its implementation is its lack of transparency.  That is, the clause gives broad discretion to the contracting officer to establish the percentage of work the contractor has to perform, but it fails to provide direction on how to do such.  And, although agency regulations may provide methods of calculating the percentage, the contractor may not necessarily have access thereto.  To challenge a RFP’s percentage determination, then, a contractor could ask a question during the pre-award stage and hope to get a responsive answer or file an agency or GAO protest, although this latter option is not particularly viable in most instances.

Conclusion: As mentioned earlier, this clause is particularly significant to OCONUS construction contractors.  Depending upon the site location, an OCONUS contractor may subcontract work that it would normally perform Stateside.  To submit a competitive proposal in a tight market, contractors will likely rely upon the local workforce with their lower wages instead of proposing its higher priced company employees.  Thus, OCONUS contractors have to really work their schedules and stay on top of their job performance to ensure compliance with the Performance of Work by the Contractor clause.

 

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