far subcontractor flowdown terms: contract...

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Presenting a live 90-minute webinar with interactive Q&A

FAR Subcontractor Flowdown Terms:

Contract Negotiation Strategies

for Primes and Subs

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, JANUARY 11, 2017

Holly A. Roth, Partner, Reed Smith, Washington, D.C.

Stephen B. Shapiro, Partner, Holland & Knight, Washington, D.C.

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5 5

Subcontractor Flowdown Requirements

in Government Contracts

Holly Roth Partner Reed Smith LLP 79 Tysons One Place Suite 500 McLean, VA [email protected] 703-641-4284

Stephen B. Shapiro Partner Holland & Knight LLP 800 17th Street, NW Suite 1100 Washington, DC [email protected] 202- 457-7032

mailto:[email protected]

mailto:[email protected]

6 6

Overview

I. What is a Flowdown Provision?

II. Types of Subcontracts

– Considerations when deciding which type of

contract to enter

III. The Christian Doctrine

7 7

What is a Flowdown Provision?

Clauses prescribed by the Government that:

– Prime Contractor incorporates into subcontracts;

– Subcontractor incorporates into lower-tier subcontracts;

and

– are incorporated either by reference or in-text

Methods of incorporation: FAR 52.102

– Clauses requiring verbatim incorporation

– Clauses that must be incorporated in substance

– Clauses that are silent on incorporation

8 8

What is a Flowdown Provision?

DoD “covered” contracts require Prime Contractors

establish and maintain policies and procedures to

ensure that mandatory and applicable flowdown

clauses are contained in:

– Subcontracts and

– Purchase Orders

The term “covered contract” means a contract that is

subject to the Cost Accounting Standards.

9 9

Types of Contracts

Fixed Price

Cost Reimbursement

Incentive Contracts

IDIQ

Time & Materials, Labor Hour and Letter Contracts

Combinations/Hybrids

– Commercial Item

– GSA (VA) Federal Supply Schedule

10 10

Fixed Price Contracts – FAR 16.202

Contract provides a firm price for the goods

or services to be delivered.

Price will not be adjusted except in the case

of certain events anticipated by contract.

– i.e. change in the scope of work to be performed

Typically used for tasks with a great deal of

cost certainty, because contingencies must

be included in bid.

11 11

Fixed Price Contracts:

Considerations

Considerations for the Prime Contractor:

– Provides cost certainty

– Helps limit risk

– Allows for price competition

– Requires a well-defined scope of work

– Limits flexibility

12 12

Fixed Price Contracts:

Considerations

Considerations for the Subcontractor:

– Requires accurate cost estimate

– No profit ceiling; subcontractor keeps all profit

beyond the cost of performance

– Fewer administrative costs

– May not require disclosure of cost figures to the

Prime or Government

– Subcontractor assumes all unexpected costs

13 13

Cost Reimbursement Contracts –

FAR 16.301

Subcontractor is reimbursed for all allowable

costs, as defined by contract.

Includes a total cost estimate and ceiling

figure.

Typically used for contracts where

specifications are incomplete or the scope

of the work cannot be easily defined.

– i.e. Research & Development Contracts

14 14

Cost Reimbursement Contracts:

Considerations

Considerations for the Prime Contractor:

– Provides flexibility and mitigates transaction costs in

contracts where frequent changes are anticipated

– May be difficult to determine potential costs

– Subcontractor bears risk of exceeding the cost ceiling

Considerations for the Subcontractor:

– Less risk in connection with cost overruns

– Increased accounting requirements

– Added compliance issues

15 15

Cost-Plus-Fixed-Fee Contracts – FAR

16.306

A variant of a Cost Reimbursement

Contract.

Contract provides for the payment of cost of

performance, plus a pre-determined profit.

– Profit will not be reduced even if the actual cost

of performance is less than anticipated

Often used for contracts where the level of

effort required is not yet known.

– Contracts for research or preliminary exploration

16 16

Cost-Plus-Fixed-Fee Contracts:

Considerations

Considerations for the Prime Contractor: – Fee certainty; will not swell with cost of performance

– More efficiency incentive than cost reimbursement

contract, but still must supervise subcontractor

Considerations for the Subcontractor: – Typically low profit, but guaranteed; little risk of loss

– High administrative costs

– Heightened audit risk

17 17

Time & Materials Contract – FAR

16.601

Labor paid at fixed hourly rates

– Reflecting wages, overhead and administrative

costs, and sometimes profit

Materials reimbursed at actual cost.

Typically used when anticipating the time or

extent of work required is difficult to

quantify.

– Allows work to begin immediately with

reassessment at a later point

18 18

Time & Materials Contract:

Considerations

Considerations for the Prime Contractor: – Most of the performance risk is on the Prime

– Must obligate Subcontractor to extensive compliance

requirements

– Allows work of an uncertain duration or nature to begin

quickly

Considerations for the Subcontractor: – Prime contractor has most of the performance risk

– Guaranteed profit included in rate

– Potentially high administration costs

19 19

Commercial Item Contract – FAR Part

12; FAR 44.400

A contract to purchase an item or a service

which is commonly used by non-

governmental agencies.

– “item” includes the installation, repair, and

support of a commercial item

– “item” includes services of a type offered and

sold competitively and in substantial quantities to

the commercial (non-government) marketplace

20 20

Commercial Item Contract:

Considerations

Considerations for the Prime Contractor: – Fewer administrative costs

– Requires more detailed consideration before including

non-required clauses

Considerations for the Subcontractor: – Simplified acquisition process

Many flowdown provisions are dispensed with

– Slim profit margin

– Other helpful procurement provisions removed

i.e. the notice and cure period for a Termination for

Default

21 21

FSS Schedule Contract

IDIQ contract for commercial items and/or

services with prices deemed to be the result of

full and open competition.

Requires accurate disclosure of Commercial

Sales Practices and lengthy negotiation

process.

GSA: 5 year base with 3 five year option

periods.

VA: 5 year base with 1 five year option period.

Approved “Ordering Activities” place orders under

the contract

22 22

FSS Contract: Considerations

Considerations for the Prime Contractor: – Large contract and profit potential

– Fewer transactional costs than several individual contracts

– Extensive application and negotiation process

– Compliance with Trade Agreements Act Country of Origin

Requirements

Considerations for the Subcontractor: – Uncertainty

Will an agency order?

How much will the agency order?

– Need to flow down pricing obligations

– Accurate disclosure of country of origin

23 23

The Christian Doctrine

A mandatory contract clause that expresses

a significant tenant of public procurement

policy is considered to be included in the

contract by operation of law. G.L. Christian

& Assoc. v. United States, 312 F.2d 418 (Ct.

Cl. 1963).

Only clauses that are both mandatory and

speak to public procurement policy are

covered by the doctrine.

24 24

The Christian Doctrine: Examples of

Mandatory Provisions for Prime

Contractors

Termination for Convenience – FAR

52.249(1)-(7)

Termination for Default – FAR 49.401

The Changes Clause – FAR 52.243(4)

The Payment Clause – FAR 52.232(1)-(7)

The Buy-American Act – FAR 52.225(1)-(4)

Equal Opportunity and Affirmative Action

Clauses

25 25

Examples of Non-Mandatory

Provisions for Prime Contractors

Clauses often required by contract but not

mandatory:

– The Government Property Clause – FAR 52.245

– Fast Payment Procedure – FAR 14.301

– Protest After Award – FAR 52.233-3

– Excusable Delay – FAR 52.249-14

26 26

The Christian Doctrine and

Subcontracts: Considerations

Don’t assume that a mandatory provision will flowdown

automatically.

– The Christian Doctrine does not apply to subcontracts

– Exceptions for social policy:

Notice of Requirement for Affirmative Action To Ensure Equal

Employment Opportunity for Construction- FAR 52.222-23

Affirmative Action Compliance Requirements for

Construction- FAR 52.222-27

Equal Opportunity for Special Disabled Veterans, Veterans of

the Vietnam Era, and Other Eligible Veterans- FAR 52.222-

35

Affirmative Action for Workers With Disabilities- FAR 52.249-

36

27 27

“Mandatory vs. Discretionary”

28 28

“Flowdown” Clauses

Clauses prescribed by the government that

a Prime Contractor incorporates into

subcontracts.

– Subcontract clauses "flow down" responsibilities

of the Prime Contractor to the subcontractor.

– Subcontract clauses frequently triggered by

subcontract dollar value threshold.

– Some, but not all, nonmandatory flowdown

clauses are negotiable.

29 29

Mandatory Flowdown Clauses

Prime contract clauses that specifically

require the inclusion of all or substantially all

of their text in all subcontracts entered into

in support of the prime contract.

– “The Contractor shall include the substance of

this clause ... in all subcontracts with

subcontractors... ”

– Mandatory flowdown clauses are not negotiable.

30 30

Mandatory Flowdowns Imposed by

Executive Order & Statute

– Equal Employment Requirements:

Prohibition of Segregated Facilities (APR 2015)

E.O. 11246, Equal Opportunity (APR 2015) (52.222-26) – Threshold $10,000.

38 U.S.C. 4212, Equal Opportunity for Veterans (OCT 2015) (52.222-35) - Threshold $100,000.

29 U.S.C. 793, Equal Opportunity for Workers with Disabilities (52.222-36) (JUL 2014) - Threshold $100,000.

38 U.S.C. 4212, Employment Reports on Veterans (OCT 2015) (52.222-37).

E.O. 13673, Fair Pay and Safe Workplaces

– Apply to all “subcontracts” even when omitted from subcontract terms and conditions.

– Department of Labor audits compliance.

31 31



Labor and Employment Requirements for Service Contracts (including Construction):

– E.O. 11246, Equal Employment Opportunity (52.222-26)

– E.O. 13495, Nondisplacement of Qualified Workers (MAY 2014) (52.222-17) – Threshold $150,000.

– E.O. 13502, Project Labor Agreement (MAY 2010) (52.222-34) - All large scale construction subcontracts.

– E.O. 13496, Notification of Employee Rights under the National Labor Relations Act (DEC 2010) (FAR 52.222-40) - Threshold $10,000.

– 41 U.S.C. Chapt. 67, Service Contract Labor Standards (MAY 2014)

(52.222-41) – Threshold $2,500. – 40 U.S.C. Chapt 31, subchapter IV, Wage Rate Requirements

(Construction) (MAY 2014) (52.222-6) – Threshold $2000.

– 18 U.S.C. 874 and 40 U.S.C. 3145), Copeland (Anti-Kickback) Act (SEP 2015) (52.222-10)

32 32



Labor and Employment Requirements for Service Contracts (including Construction):

– 40 U.S.C. Chapt. 37, Contract Work Hours and Safety Standards, (MAY 2014) (52.222-4).

– E.O. 13658, Establishing a Minimum Wage for Contractors, (DEC 2015) (52.222-55) – All Service and Construction Contracts

– Apprentices and Trainees (JUL 2005) (52.222-9)

– Subcontracts (Labor Standards) (MAY 2014) (52.222-11)

– E.O. 13673, Fair Pay and Safe Workplaces (52.222-59)

33 33

E.O. 13673, Fair Pay and Safe

Workplaces (52.222-59)

Final Rule Issued October 25, 2016

Tiered compliance

Contractor Date Dollar Value

Prime 1/1/2017 $50M

Prime 4/25/2017 $500K

Subcontractor 10/25/2017 $500K

34 34

E.O. 13673, Fair Pay and Safe

Workplaces (52.222-59)

Mandatory disclosure and assessment of

labor law compliance for all contractors

(based on table in previous slide) under

consideration for contracts (based on value

equal or greater than amount in previous

slide).

Mandatory Disclosure enjoined by U.S. Dist.

Ct. for the Eastern District of Texas

35 35

E.O. 13673, Paycheck Transparency

(52.222-60)

NOT enjoined

Requirements

– Wage statements and content

nonexempt employees

Exempt employees

– Notice of independent contractor status

– Flow down to all contracts greater than $500K

for other than commercially available off-the-

shelf items.

36 36

Mandatory Flowdowns Imposed by Statute

(Commercial Items) – Threshold Mandatory

Flowdown Requirements

Commercial Items (FAR 2.201) – in general:

– Any item, other than real property, that is of a type customarily used by

the general public or by non-governmental entities for purposes other

than governmental purposes, and—

– (i) Has been sold, leased, or licensed to the general public; or

– (ii) Has been offered for sale, lease, or license to the general public.

Commercial Service (FAR 2.201)

– offered and cold competitively in substantial quantities in the commercial

marketplace based on established catalogue or market prices under

standard commercial terms and conditions.

37 37


Statute (Commercial Items)

FAR 52.212-5, Contract Terms and Conditions

Required to Implement Statutes or Executive

Orders—Commercial Items (DEC 2015):

– (e)(1) Notwithstanding the requirements of the clauses in

paragraphs (a), (b), (c), and (d) of this clause, the Contractor is

not required to flow down any FAR clause, other than those in

paragraphs (e)(1) of this paragraph in a subcontract for

commercial items. Unless otherwise indicated below, the extent

of the flow down shall be as required by the clause—

– (e)(2) While not required, the contractor May include in its

subcontracts for commercial items a minimal number of

additional clauses necessary to satisfy its contractual obligations.

38 38



FAR 52.244-6, Subcontracts for Commercial

Items (DEC 2015):

– Clause used in Prime Contracts for other than

“commercial items.”

– Requires contractors and subcontractors to

incorporate, and require subcontractors at all

tiers to incorporate commercial items or

nondevelopmental items as components of items

to be supplied under this contract.

– Requires contractor and subcontractors to

incorporate this clause in subcontracts.

39 39



– Pub. L. 110-252, Title VI, Chapter 1 (41 U.S.C. 251 note), Contractor

Code of Business Ethics and Conduct (OCT 2015) (52.203-13) -

Threshold $5.5M and 120 days performance

– 15 U.S.C. 637(d)(2) and (3), Utilization of Small Business Concerns

(OCT 2014) (52.219-9) - Threshold $700,000 for supplies or $1.5M

for construction of any public facility with further subcontracting

possibilities

– Section 1553 of Pub. L. 111-5, Whistleblower Protections Under the

American Recovery and Reinvestment Act of 2009 (JUN 2010)

(52.203-15) – if the subcontract is funded under the Recovery Act

– 22 U.S.C. chapter 78 and E.O. 13627, Combating Trafficking in

Persons (MAR 2015) (52.222050).

40 40



– Section 862, as amended, of the National Defense Authorization

Act for Fiscal Year 2008; 10 U.S.C. 2302 Note, Contractors

Performing Private Security Functions Outside of the United

States (JUL 2014) (52.225-26)

– Promoting Excess Food Donation to Nonprofit Organizations.

(MAY 2014) (42 U.S.C. 1792). Flow down required in accordance

with paragraph (e) of FAR clause 52.226-6. (52.226-6).

– Preference for Privately Owned U.S.-Flag Commercial Vessels

(FEB 2006) (46 U.S.C. Appx 1241(b) and 10 U.S.C. 2631). Flow

down required in accordance with paragraph (d) of FAR clause

52.247-64 (52.247-64).

41 41



– 41 U.S.C. Chapt 67, Exemption from Application of the Service

Contract Labor Standards to Contracts for Maintenance,

Calibration, or Repair of Certain Equipment—Requirements

(MAY 2014) (52.222-51).

– 41 U.S.C. Chapt 67, Exemption from Application of the Service

Contract Labor Standards to Contracts for Certain Services—

Requirements (May 2014) (52.222-53).

– E.O. 12989, Employment Eligibility Verification (OCT 2015)

(52.222-54):

Not applicable to contracts for COTS items

41

42 42

Mandatory Flowdowns

(Noncommercial Items) – Examples

– Anti-Kickback Procedures, The Anti-Kickback Act of 1986 (41 U.S.C.

51-58), (52.203-7) (MAY 2014).

– Limitation on Payments to Influence Certain Federal Transactions

(52.203-12) (OCT 2010).

– Audit and Records— Negotiation, (10 U.S.C. 2313, 41 U.S.C. 254d, and

OMB Circular No. A-133), (52.215-2) (OCT 2010).

43 43

Mandatory Flowdowns: The American

Recovery and Reinvestment Act

Whistleblower Protections (Section 1553 of Pub. L. 111-5), (52.203-

15) (JUN 2010).

FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders – Commercial Items (ALT II) (APR 2015) – applies to the use of funds appropriated or otherwise made available by the American Recovery and Reinvestment Acto of 2009 and permits GAO:

– Audits of subcontractor records relating to transactions.

– Interview executives and employees regarding transactions.

44 44

Non-Mandatory Flowdown Clauses

Prime contract clauses that should be

flowed down in a subcontract to ensure that

the subcontractor will provide adequate

assistance or cooperation to enable the

Prime Contractor to meet its contractual

requirements with the government.

45 45

Non-Mandatory Flowdown Clauses:

Examples

Acquisition of Supplies:

– The Buy American Act - Supplies (41 U.S.C. 10a

- 10d) (52.225-1) (MAY 2014).

– Buy American Act—Free Trade Agreements—

Israeli Trade Act (NOV 2012) (52.225-3).

– Trade Agreements (19 U.S.C. 2501, et seq.)

(NOV 2013) (52.225-5).

– Restrictions on Certain Foreign Purchases

(52.225-13) (JUN 2008).

46 46

Non-Mandatory Flowdown Clauses:

Examples

Acquisition of Commercial items:

– FAR 52.212-4, Contract Terms and Conditions – Commercial Items (MAY 2014).

Acquisition of Commercial Services (T&M or Labor Hour)

Termination Clauses for Other Than Commercial Items:

– 52.249-8, 9 and 10, Termination for Default.

– 52.249-1 through 6, Termination for Convenience.

47 47

Offeror Representations and

Certifications

Requires disclosure of information during the solicitation

phase that the government will use to determine the fitness

and integrity of a potential contractor.

Failure to accurately and completely answer any

representation and certification could have unforeseen and

potentially negative consequences.

Can be submitted electronically on the System for Award

Management (www.sam.gov).

48 48

Offeror Representations and Certifications

Commercial

Items – 52.212-3 (NOV 2015)

– General.

The Offeror shall complete only paragraph (b) of the

representations and certifications if the Offeror has

completed the annual representations and certification

electronically via the System for Award Management

(SAM) Web site accessed through

http://www.acquisition.gov.

If the Offeror has not completed the annual

representations and certifications electronically, the

Offeror shall complete only paragraphs (c) through (p)

of this provision.

49 49


Commercial

Items – 52.212-3 (NOV 2015) (Definitions)

Forced or indentured child labor means all

work or service—

– (1) Exacted from any person under the age of 18

under the menace of any penalty for its

nonperformance and for which the worker does

not offer himself voluntarily; or

– (2) Performed by any person under the age of 18

pursuant to a contract the enforcement of which

can be accomplished by process or penalties.

50 50


Commercial

Items – 52.212-3 (NOV 2015) (Definitions)

Inverted domestic corporation, as used in this section, means a

foreign incorporated entity which is treated as an inverted domestic

corporation under 6 U.S.C. 395(b), i.e., a corporation that used to be

incorporated in the United States, or used to be a partnership in the

United States, but now is incorporated in a foreign country, or is a

subsidiary whose parent corporation is incorporated in a foreign

country, that meets the criteria specified in 6 U.S.C. 395(b), applied

in accordance with the rules and definitions of 6 U.S.C. 395(c). An

inverted domestic corporation as herein defined does not meet the

definition of an inverted domestic corporation as defined by the

Internal Revenue Code at 26 U.S.C. 7874.

51 51


Commercial

Items – 52.212-3 (NOV 2015) (sample

clauses)

The offeror represents that either—

(A) It [ ] is, [ ] is not certified by the Small Business Administration as

a small disadvantaged business concern and identified, on the date

of this representation, as a certified small disadvantaged business

concern in the database maintained by the Small Business

Administration (PRO-Net), and that no material change in

disadvantaged ownership and control has occurred since its

certification, and, where the concern is owned by one or more

individuals claiming disadvantaged status, the net worth of each

individual upon whom the certification is based does not exceed

$750,000 after taking into account the applicable exclusions set forth

at 13 CFR 124.104(c)(2); or

52 52


Commercial

Items – 52.212-3 (sample clauses)

– (B) It [ ] has, [ ] has not submitted a completed application to the

Small Business Administration or a Private Certifier to be certified

as a small disadvantaged business concern in accordance with

13 CFR 124, Subpart B, and a decision on that application is

pending, and that no material change in disadvantaged

ownership and control has occurred since its application was

submitted.

53 53


Commercial


– (f) Buy American Act Certificate. (Applies only if the clause at

Federal Acquisition Regulation (FAR) 52.225-1, Buy American

Act—Supplies, is included in this solicitation.)

54 54


Commercial


– (1) The offeror certifies that each end product, except those listed

in paragraph (f)(2) of this provision, is a domestic end product

and that for other than COTS items, the offeror has considered

components of unknown origin to have been mined, produced, or

manufactured outside the United States. The offeror shall list as

foreign end products those end products manufactured in the

United States that do not qualify as domestic end products, i.e.,

an end product that is not a COTS item and does not meet the

component test in paragraph (2) of the definition of "domestic

end product." The terms "commercially available off-the-shelf

(COTS) item," "component," "domestic end product," "end

product," "foreign end product," and "United States" are defined

in the clause of this solicitation entitled "Buy American Act—

Supplies."

55 55


Commercial


– (h) Certification Regarding Responsibility Matters (Executive

Order 12689). (Applies only if the contract value is expected to

exceed the simplified acquisition threshold.) The offeror certifies,

to the best of its knowledge and belief, that the offeror and/or any

of its principals—

– (1) [ ] Are, [ ] are not presently debarred, suspended, proposed

for debarment, or declared ineligible for the award of contracts by

any Federal agency;

56 56


Commercial


– (2) [ ] Have, [ ] have not, within a three-year period preceding this

offer, been convicted of or had a civil judgment rendered against

them for: Commission of fraud or a criminal offense in connection

with obtaining, attempting to obtain, or performing a Federal,

state or local government contract or subcontract; violation of

Federal or state antitrust statutes relating to the submission of

offers; or Commission of embezzlement, theft, forgery, bribery,

falsification or destruction of records, making false statements,

tax evasion, violating Federal criminal tax laws, or receiving

stolen property;

57 57


Commercial


– (3) [ ] Are, [ ] are not presently indicted for, or otherwise criminally

or civilly charged by a Government entity with, commission of any

of these offenses enumerated in paragraph (h) (2) of this clause;

– (4) [ ] Have, [ ] have not, within a three-year period preceding this

offer, been notified of any delinquent Federal taxes in an amount

that exceeds $3,000 for which the liability remains unsatisfied.

58 58

Flowdown Clause Obligations from the

Prime Contractor’s Perspective

59 59

Analysis for Flowdown Clause

Compliance

Multi-step analysis

– What is considered a subcontract?

– Which clauses are required to be flowed down?

– When must required clauses be flowed down?

– Is the commercial item clause included in the

prime contract, and does the subcontract involve

the purchase of a commercial item?

– Which clauses should a prime consider flowing

down, in addition to mandatory clauses?

60 60

What Qualifies as a Subcontract?

Necessary to the performance of one or

more government contracts. E.g.,

– specifically required by the prime contract

– substantially or directly related to performance of

the prime contract

– directly charged to the prime contract

61 61


Typically not a government subcontract:

– Purchases of goods and services necessary for

the management and administration of the

company as a whole

E.g., general usage supplies or services (paper,

computer toner, telephone service, etc.).

– Purchases of standard inventory items

E.g., standard parts used in many or all of the

company’s products, for both government and

commercial projects.

62 62


Likely a government subcontract:

– Purchases of goods and services substantially or

directly related to the performance of the

government contract

Products or services unique to the end product

Products or services customized for inclusion in the

end product

63 63

Which Clauses are Required to be

Flowed Down?

Is the clause required to be flowed down to

subcontracts?

Generally, this is not a difficult determination

Requires substantive review of each clause

incorporated into the prime contract

64 64

When must Required Clauses be

Flowed Down?

Not all clauses with flowdown language must be flowed down in every instance

The text of the clause will indicate when the clause is required to be flowed down to a subcontract

Sometimes the prime contractor’s best judgment will need to be applied – projected value of the subcontract

– whether the subcontract will involve certain activities

65 65

When must Required Clauses be

Flowed Down?

Example:

FAR 52.203-6 Restrictions on Subcontractor

Sales to the Government

“(c) The Contractor agrees to incorporate

the substance of this clause, including this

paragraph (c), in all subcontracts under this

contract which exceed the simplified

acquisition threshold [$100,000].”

66 66

Does the Subcontract Involve the Purchase

of a Commercial Item?

Does the prime contract include a clause

limiting the number of clauses to be flowed

down to a subcontract for commercial

items?

– Required flowdown clauses for commercial item

subcontracts are largely socio-economic clauses

with which most companies already comply

Minimizes the compliance burden placed on the

subcontractor

67 67

Clauses to Consider Flowing Down

For the prime contractor’s protection, the following clauses can be flowed down – Termination for convenience clause

Will provide the prime the ability to terminate the subcontractor should the Government terminate the prime

– Changes clause

Will provide the prime the ability to make changes of the subcontractor’s requirements should the Government make changes to the prime’s requirements

– Definitions clause

Will ensure a standard set of definitions is applicable

68 68

Clauses to Consider Flowing Down

For the prime contractor’s protection, the

following clauses can be flowed down

– Protest After Award clause

Will allow the prime to issue a stop work order to the

subcontractor

– Disputes clause

Will put the sub on notice of the disputes process,

including the requirement to submit a certification of a

claim

– Other clauses

Specific to the nature of the prime contract

69 69

Implementing Flowdown Obligations

Approaches to meet flowdown clause obligations – Craft a unique document that incorporates the applicable

flowdown clauses for each subcontracting opportunity

– Attach an addendum with applicable flowdown clauses to a standard purchase order or commercial subcontract form

– For commercial item purchases, include a provision in standard purchase order or commercial subcontract form requiring compliance with flowdown clauses when applicable

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Challenging Issues Regarding Flowdown

Clauses

Assertion from prime that clause is “self-deleting”

Refusal from sub to accept required flowdown

clause(s)

Incorporation of entire prime contract into

subcontract

Implementation of process by new government

contractors to identify which vendors qualify as

subcontractors and ensure flowdown of clauses

far subcontractor flowdown terms: contract...

Documents