SUBCONTRACTOR EXPECTATIONS IN FEDERAL CONTRACTING

Transcription

1 SUBCONTRACTOR EXPECTATIONS IN FEDERAL CONTRACTING Reducing Risk & Meeting Requirements as Government Subcontractor

2 AGENDA ointroduction othe Process oproposal Phase onegotiations ocompliance and Accountability

3 COMMON ACRONYMS CO Contracting Officer FAR Federal Acquisition Regulation PoP Period of Performance SOW Statement of Work CAS Cost Accounting Standards DCAA - Defense Contract Audit Agency Ts and Cs Terms and Conditions NDA Non Disclosure Agreement TA Teaming Agreement

4 INTRODUCTION

5 WHAT IS SUBCONTRACTING? Procurement = the purchase of goods, services, and materials from vendors, subcontractors and consultants in support of a government contract May be referred to as purchasing, buying, acquisition or subcontracting Subcontractor may also mean vendor or consultant FAR Acquisition means the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease, whether the supplies or services are already in existence or must be created, developed, demonstrated, and evaluated. Acquisition begins at the point when agency needs are established and includes the description of requirements to satisfy agency needs, solicitation and selection of sources, award of contracts, contract financing, contract performance, contract administration, and those technical and management functions directly related to the process of fulfilling agency needs by contract

6 DEFINITION OF SUBCONTRACT FAR Subcontract means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders FAR Part 44 Subcontractor means any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor FAR Part 19 Subcontract means any agreement (other than one involving an employer-employee relationship) entered into by a Government prime contractor or subcontractor calling for supplies and/or services required for performance of the contract, contract modification, or subcontract.

7 WHY COMMERCIAL PRACTICES DON T ALWAYS APPLY Contractors are entrusted to use tax payer appropriately Therefore, primes must follow the same procurement rules as a government contracting activity and require subcontractors to use tax payer money appropriately. Government has the right to review and approve a prime s purchasing system and procurement policy. Government may require approval of prime s purchases

8 GOVERNING REGS FAR Part 6 Competition Requirements FAR Part 19 Small Business Programs (for large businesses) FAR Part 44 Subcontracting Policies and Procedures DCAA Contract Audit Manual Chapter Audit of Purchasing System Internal Controls Purchasing System -- Contract Clause Flow Down Purchasing Management and Administration (Make or Buy) Purchasing Source Selections Pricing/Cost Analysis and Negotiated Purchases Subcontract Award and Administration Purchasing System - Information Technology System Internal

9 PRIVITY Definition - The relationship which subsists between two contracting parties. Exceptions where the govt relationship bleeds into the subcontractor relationship Data and Patent Rights Small Business Subcontracting Plan Flowdowns Contract Disputes Act claims sponsored by Prime However, in general - the Government does not have privity of contract with subcontractors Therefore, prime contractors are responsible for subcontractors and to fulfill all contracting responsibilities.

10 THE PROCESS

11 THE ACQUISITION TEAM Purchasing/Subcontracts Manager Business Development Accounting Technical Management (as needed)

12 PRIME PRE-AWARD PROCESS Identify Need NDA s and TA s Make or Buy decisions Purchase Requisitions and approvals Solicitation preparation Market research and due diligence Determination of qualification and non-exclusion Promoting competition

13 CRADLE TO GRAVE Plan Close Solicit Admin Evaluate Award Consent?

14 NDAS AND TAS Non-Disclosure Agreements (NDAs) First document to be executed to protect each party s proprietary info Ensure purpose is specific to the proposal If subs need to coordinate with each other, make it multi-party Teaming Agreements (TAs) Once decided who are key service or product suppliers Ensure high level SOW or item list included Commits so that not left hanging without a sub at award Ensure purpose is for proposal and NDA is incorporated by reference Exclusivity (or not) depends on other options and opportunities Clearly states each party s proposal responsibilities

15 QUALIFICATION What a Prime needs to look for in a sub. Technical Validate technical capabilities with past performance assessment Either during build of bidders list or as a solicitation evaluation requirement. Debar (non-exclusion) Ensure company (nor individual) is excluded Check debarred and suspended parties on Financial Bonding capabilities D&B DCAA Assist Audit (indirect rates) Other financial capability/standing Refer to FAR Part 9

16 PROPOSAL PHASE

17 SOLICITATION REVIEWS Try to only accept a clear SOW, SOO, specs, etc. Ask questions! Are there any red flags in the solicitation? Something that looks like it is geared for another party? Boilerplate language that doesn t match the effort? Too short of a timeline to turn a proposal?

18 SUBCONTRACT TYPE Anticipated subcontract type should be stated in solicitation if it isn t ask. A prime determines subcontract type based upon risk, scope of work, and ability to provide adequate pricing. If the potential sub does NOT have an approved accounting system, a prime should not award a cost type subcontract. May be able to change subcontractor type with prime if situation allows. Reference FAR Part 16

19 THE SOLICITATION PACKAGE Desired Instructions Basic subcontractor info form Representations and Certifications SOW, SOO, or specs document Evaluation methodology Prime contract flow downs Company terms and conditions Even Better Solicitation Letter Templates Subcontractor qualification forms Draft subcontract

20 SUBCONTRACT PRICING Subcontract Pricing Considerations. (a) The contracting officer is responsible for the determination of a fair and reasonable price for the prime contract, including subcontracting costs. The contracting officer should consider whether a contractor or subcontractor has an approved purchasing system, has performed cost or price analysis of proposed subcontractor prices, or has negotiated the subcontract prices before negotiation of the prime contract, in determining the reasonableness of the prime contract price. This does not relieve the contracting officer from the responsibility to analyze the contractor s submission, including subcontractor s cost or pricing data. (b) The prime contractor or subcontractor shall -- (1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices; (2) Include the results of these analyses in the price proposal; and (3) When required by paragraph (c) of this subsection, submit subcontractor certified cost or pricing data to the Government as part of its own certified cost or pricing data.. (3) Subcontractor certified cost or pricing data shall be submitted in the format provided in Table 15-2 of or the alternate format specified in the solicitation.

21 COST & PRICE ANALYSIS FAR Requiring Certified Cost or Pricing Data (10 U.S.C. 2306a and 41 U.S.C. Chapter 35) (b) When certified cost or pricing data are required, the contracting officer shall require the contractor or prospective contractor to submit to the contracting officer (and to have any subcontractor or prospective subcontractor submit to the prime contractor or appropriate subcontractor tier) the following in support of any proposal: (1) The certified cost or pricing data and data other than certified cost or pricing data required by the contracting officer to determine that the price is fair and reasonable. (2) A Certificate of Current Cost or Pricing Data, in the format specified in , certifying that to the best of its knowledge and belief, the cost or pricing data were accurate, complete, and current as of the date of agreement on price or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price.

22 SUBCONTRACTOR INFORMATION Company information Address, website, CAGE, DUNS, Tax ID, etc. Business size and designation POCs Remit info NAICS Past Performance info (if not part of the proposal package) D&B Report (if necessary) Other info as necessary to determine capabilities

23 NEGOTIATIONS

24 WHAT TYPE OF AGREEMENT? Subcontract Purchase Order Blanket Purchase Agreement / IDIQ Letter Contract To be definitized later

25 NEGOTIATION OF TS AND CS Essential Terms/Conditions That Will Likely Need to be Negotiated Changes Payment Intellectual property and patents Inspection and acceptance Terminations Warranties Disputes Indemnification and Limitations of Liability

26 PRIME CONTRACTOR TERMS A Prime-Sub relationship is a business to business agreement. A prime should have its own corporate or general terms and conditions that guide the arrangement between the parties. They should not conflict with the flowdowns, SOW, or other attachments. Beware of boilerplate terms and Kitchen Sink flowdowns. Clauses typical of corporate terms not covered by a flowdown: * Invoicing/Payment * Force Majeure * Governing Law/Venue * Assignment

27 HIERARCHY OF TERMS Precedence General Terms and Conditions Prime Contract FAR Supplement Flowdowns Prime Contract FAR Flowdowns Special Contract Terms Special Program Terms Special Company Terms Ensure there is an order of precedence clause in Ts and Cs

28 FLOWDOWNS Primes are required to ensure that all applicable purchase orders and subcontracts contain all flowdown clauses, including terms and conditions and any other clauses needed to carry out the requirements of the prime contract Mandatory and Non-Mandatory Mandatory labor, CAS, Audit and Intellectual Property Non-Mandatory termination, changes, risk mitigation Prime can also utilize clauses to pass other areas of risk down to the sub

29 FLOWDOWN CONSIDERATIONS Ensure preface includes language replacing terms such as Government with Prime Contractor and Contractor with Subcontractor so that the prime doesn t use its position as the prime to gain more authority than allowed. Understand the difference between general or standard provisions/clauses and those which are special (use only when warranted) Mandatory, Optional and Desired? Reference or full text? Custom or modified? Type of Prime Contract? Type of Subcontract? Method of Award Subject Matter Dollar Value

30 MODIFICATION Default (Fixed-Price Construction). (Apr 1984) (a) If the SubContractor refuses or fails to prosecute the work or any separable part, with the diligence that will insure its completion within the time specified in this contract including any extension, or fails to complete the work within this time, the Government Prime may, by written notice to the SubContractor, terminate the right to proceed with the work (b) The SubContractor s right to proceed shall not be terminated nor the SubContractor charged with damages under this clause, if --.. (2) The SubContractor, within 10 days from the beginning of any delay (unless extended by the SubContracting Officer Manager), notifies the SubContracting Officer Manager in writing of the causes of delay. The SubContracting Officer Manager shall ascertain the facts and the extent of delay. If, in the judgment of the SubContracting Officer Manager, the findings of fact warrant such action, the time for completing the work shall may be extended. The findings of the Contracting Officer shall be final and conclusive on the parties, but subject to appeal under the Disputes clause.

31 RISKY FLOWDOWNS Disputes Payment Intellectual Property Government Property Labor Laws Termination Purchasing

32 EXAMPLE - FLOWDOWNS A prime contractor s contract includes the following clauses. Which are mandatory flowdowns and which are not? Service Contract Labor Standards (l) Subcontracts. The Contractor agrees to insert this clause in all subcontracts subject to the Service Contract Labor Standards statute Rights in Data General (h) Subcontracting. The Contractor shall obtain from its subcontractors all data and rights therein necessary to fulfill the Contractor s obligations to the Government under this contract. If a subcontractor refuses to accept terms affording the Government such rights, the Contractor shall promptly notify the Contracting Officer of the refusal and shall not proceed with the subcontract award without authorization in writing from the Contracting Officer Drug-Free Workplace (d) In addition to other remedies available to the Government, the Contractor s failure to comply with the requirements of paragraph (b) or (c) of this clause may, pursuant to FAR , render the Contractor subject to suspension of contract payments, termination of the contract or default, and suspension or debarment Contractor Code of Business Ethics and Conduct (d) Subcontracts. (1) The Contractor shall include the substance of this clause, including this paragraph (d), in subcontracts that have a value in excess of $5.5 million and a performance period of more than 120 days.

33 COMMERCIAL SUBCONTRACTS Subcontracts for Commercial Items. To the maximum extent practicable, the Contractor shall incorporate, and require its subcontractors at all tiers to incorporate, commercial items or nondevelopmental items as components of items to be supplied under this contract. The Contractor shall insert the following clauses in subcontracts for commercial items: , Contractor Code of Business Ethics and Conduct (Apr 2010) (Pub. L , Title VI, Chapter 1 (41 U.S.C. 251 note)), if the subcontract exceeds $5,000,000 and has a performance period of more than 120 days. In altering this clause to identify the appropriate parties, all disclosures of violation of the civil False Claims Act or of Federal criminal law shall be directed to the agency Office of the Inspector General, with a copy to the Contracting Officer , Whistleblower Protections Under the American Recovery and Reinvestment Act of 2009 (Jun 2010) (Section 1553 of Pub. L ), if the subcontract is funded under the Recovery Act , Utilization of Small Business Concerns (Dec 2010) (15 U.S.C. 637(d)(2) and (3)), if the subcontract offers further subcontracting opportunities. If the subcontract (except subcontracts to small business concerns) exceeds $650,000 ($1.5 million for construction of any public facility), the subcontractor must include in lower tier subcontracts that offer subcontracting opportunities , Equal Opportunity (Mar 2007) (E.O ) , Equal Opportunity for Veterans (Sep 2010) (38 U.S.C. 4212(a)); , Affirmative Action for Workers with Disabilities (Oct 2010) (29 U.S.C. 793) , Notification of Employee Rights Under the National Labor Relations Act (Dec 2010) (E.O ), if flow down is required in accordance with paragraph (f) of FAR clause , Combating Trafficking in Persons (Feb 2009) (22 U.S.C. 7104(g)) , Preference for Privately Owned U.S.-Flag Commercial Vessels (Feb 2006) (46 U.S.C. App and 10 U.S.C. 2631), if flow down is required in accordance with paragraph (d) of FAR clause (2) While not required, the Contractor may flow down to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations. (d) The Contractor shall include the terms of this clause, including this paragraph (d), in subcontracts awarded under this contract.

34 CONSENT OF PROPOSED SUBS The designation of a specific subcontractor during contract negotiations does not in itself satisfy the requirement of consent. However, if in the opinion of the CO, the consent requirement was satisfied for certain subcontracts, the CO will have identified those subcontractors in the Subcontracts clause of the contract.

35 COMPLIANCE & ACCOUNTABILITY

36 REPS AND CERTS Section K of a prime contract built for a sub FAR Part SAM.gov includes a company s reps and certs Best practice to build a company version of reps and certs, but can use SAM.gov instead This Company's evidence of the sub certifying to critical items such as: Not being debarred Paying taxes Socioeconomic certification Etc.

37 ADMINISTRATION Some form of register or control is maintained to "flag" delivery due dates Procedures are in effect to expedite delivery of subcontract material. Evaluate the delivery schedules when engineering changes have been introduced. Adequate action taken when change orders or modification notices affect cost. Emphasis on production and financial controls, which ensure that physical progress of production is commensurate with reimbursement; Timeliness and adequacy of the repricing actions

38 REPORTING Certain reporting must be done as a sub and flowed up to prime or transmitted direct to govt. Ex) DD882/Reporting of Patentable Inventions Manpower Reporting Veteran employment E-Verify

39 REPORTING OF SUBS Primes must report the existence of subcontracts to a federal database. First Tier subcontract awards Reporting Executive Compensation and First-Tier Subcontract Awards. If clause is in contract, then unless otherwise directed by the contracting officer, by the end of the month following the month of award of a first-tier subcontract with a value of $30,000 or more, (and any modifications to these subcontracts that change previously reported data), the Contractor shall report the following information at for each first-tier subcontract.

40 AUDITING Property Costs/Accounting Quality Records Cybersecurity

41 CLOSEOUT RESPONSIBILITIES Ensure all items delivered and services completed All invoices have been submitted and paid Vendor is no longer needed to support the prime contract Obtain written authorization to close the subcontract by technical POCs Submit liability and release of claims form to prime Receive signed closeout letter from prime Identify files as closed and archive May not be able to officially close for years under Cost Type prime contracts

42 RELATED ADMINISTRATION Property Management Standards of Business Conduct Intellectual Property Rights Accounting System Compliance Cybersecurity Export Compliance Small Business Subcontracting Goals Subcontract Administration It all ties back to the prime government contract

43 SPECIAL TOPICS

44 QUALITY/ACCEPTANCE Quality and acceptance requirements, surveillance and procedures should have been in solicitation Ensure the subcontract is clear on Quality and Acceptance General Terms and Conditions would dictate warranty and payment upon acceptance UNLESS the prime contract dictates something specific Or Subcontract acceptance is tied to prime contract acceptance

45 CHANGES If proper flowdowns are included, then sub will handle changes IAW the subcontract and FAR Prime contract changes can trigger subcontract changes

46 WARRANTIES Warranty terms should mirror the prime contract. Watch commencement of coverage Coverage will cover through prime contract Avoid implied warranties Be clear in the solicitation what warranty terms are expected Avoid collision of requirements in prime contract

47 TERMINATION/BREACH Although privity of contract is between Prime and subcontractor, actions of sub reflect on Prime. Understand your rights to terminate usually a sub cannot terminate a prime Avoid a prime terminating for convenience without the prime contract being terminated for convenience by the govt.

48 QUESTIONS?

49 THANK YOU! Stephanie Amend Arrowhead Solutions, LLC