In the private sector it is routine to withhold a percentage of fee
up to a maximum amount.  I wouldn't hesitate at all to withhold from
commercial subcontractors in the same way.  Dealing with
subcontractors without any fee is a different matter because we are
violating our own "cost reimbursement" contracts by withholding
reimbursement of incurred costs.

Rather than withhold, an alternative is to require documentation of
all invoices submitted for payment.  Before processing, a desk review
could be performed.  It's a nusisance and we fight it all the time
when the State of Oklahoma requires such documentation but.  On the
other hand, if we don't trust a subcontractor to the point where we
want to withhold, a documentation/desk review may be in order.

Still another option comes out of our Inspection/Access to Records to
clause(s).  We always have the option to do a "program review" at a
major subcontractor's location.  In private industry, a prime may
even have a tech rep on site at a major sub.  If a problem
subcontractor is audited by DCAA, an "assist audit" can be requested
through the prime contracting officer.

It's hard enough to be a subcontractor to a Beltway firm or a large
defense contractor, but think about being a small university being
prime with a huge defense contractor as subcontractor.  How
comfortable would we feel auditing on site?  We can't ask for an
A-133 audit because there isn't any such thing.  In such
circumstances a withholding of 15% of fee, up to $100,000, might be
appropriate.

This problem can be turned around whereby we may want to close a
subcontract without a final audit.  If a desk review has been
performed, including review by the prime awarding agency, and final
overhead rates may be much higher than the billing rates used
(confirmed with DCAA), it may be in our best interest to close the
subcontract at invoiced costs.  Otherwise, withholding and getting
final overhead rates could send the program into an overrun status.
This could work in the private sector because the prime could ask for
"cost growth" but universities are usually dead in the water when it
comes to asking and getting more funds.  That, and the restriction of
indirect cost on the first $25K, are two of many reasons why it is
very difficult to manage subcontractors in a university setting.

Brad Quinn
University of Oklahoma
1000 Asp Avenue, Room 210
Norman, OK 73019
(P) 405-325-7091
(F) 405-325-7229
(E) xxxxxx@uoknor.edu