Subcontracts are ubiquitous in government contracting. Some subcontractors are selected based upon complimentary technical capabilities (typically through the use of Teaming Agreements), or through competitive selection, or as a result of a prime needing to achieve its small business subcontracting goals. Regardless of the reason, prime contractors are required to select and manage their subcontractors in accordance with certain laws and regulations. Prime contractors can also be held liable for their subcontractor’s failure to comply with federal procurement regulations. For example, if a subcontractor is found to have engaged in defective pricing, it is the prime contractor that will be held responsible and have to repay monies to the government.
Many procurement regulations are required to be “flowed-down” to a prime’s subcontractors and suppliers, but which ones? What happens when a subcontractor refuses to include those provisions in the contract you are attempting to negotiate with them? What if what you are selling is a commercial item? Many primes simply copy their prime contract and change the name to the subcontractor thinking they have a suitable contract in place. This is not the case as many of the contract terms between the federal government and the prime are unenforceable as written between the prime and the subcontractor. And there is no such thing as a “self-deleting clause” under the law.
And for subcontractors, what do you do with the plethora of seemingly inappropriate clauses a prime contractor is attempting to impose? Many clauses are not mandatory flow-downs such as the “Changes” or “Stop Work” clauses. What clauses must be accepted and which can be appropriately tailored?
There are numerous issues that arise between a prime and a subcontractor, both during the negotiation phase and the performance effort. A contract between a prime and a subcontractor is a unique blend of a commercial contract and federal procurement law. Striking the right balance and ensuring risk is appropriately managed and allocated is critical for both parties to be successful.
If you are seeking workable guidance and assistance related to federal subcontracts, I can provide affordable help that focuses on solving problems and understanding, negotiating and managing risk appropriately.
I welcome you to contact me to discuss your legal needs with regard to government subcontracts.