Incorporating FAR Subcontractor Flowdown Terms in Government Contracts: Guidance for Primes and Subs

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Incorporating FAR Subcontractor Flowdown Terms in Government Contracts: Guidance for Primes and Subs THURSDAY, MARCH 1, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Cara A. Wulf, Esq., McCarter & English, Boston Micah T. Zomer, Special Counsel, Foley & Lardner, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 1.

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5 Key Considerations for Subcontract Flowdowns Micah Zomer

6 Agenda FAR Basics Definition of Subcontract Flowdowns Prime and Subcontractor Perspectives Mandatory Flowdowns Non-Mandatory Flowdowns Commercial Item Flowdowns Approaches to Drafting Flowdowns Identifying Applicable Version Defining Terms/Parties 6

7 FAR Basics Formation and administration of U.S. Government prime contracts is subject to and governed by the Federal Acquisition Regulation (FAR) and 20+ agency FAR supplements e.g., Department of Defense FAR Supplement (DFARS), Department of Energy Acquisition Regulation (DEAR), etc. FAR codified at Title 48, Chapter 1 of the Code of Federal Regulations (CFR); agency supplemental regulations are codified at subsequent chapters (e.g., DFARS codified at Title 48, Chapter 2) FAR and supplemental regulations can be accessed through various websites: 7

8 FAR Basics 8

9 FAR Basics FAR Subpart 52.2 (and DFARS Subpart 252.2) contains the text of the clauses that are included in government solicitations and contracts Prescription before each clause cites to the enabling provision, which dictates when the clause should be included in a solicitation or contract Application of clause depends on a number of factors, including: Contract type (e.g., fixed-price, cost reimbursement, commercial item, etc.) Type of work to be performed (e.g., sale of goods, provision of services, construction, architect-engineer, etc.) Total anticipated contract value (inclusive of all options) 9

10 FAR Basics Anti-Kickback Procedures. As prescribed in , insert the following clause: ANTI-KICKBACK PROCEDURES (MAY 2014) Contract clause. The contracting officer shall insert the clause at , Anti-Kickback Procedures, in solicitations and contracts exceeding the simplified acquisition threshold, other than those for commercial items (see Part 12). 10

11 Definition of Subcontract Flowdowns Subcontract flowdowns are the FAR 52.2 clauses that a prime contractor must or should flow down to its subcontractors Some flowdowns, as with standard terms and conditions, are a method of allocating risks between the parties Other flowdowns are required for a higher-tiered contractor (Prime) to comply with its prime contract / subcontract 11

12 Prime s Perspective There are some clauses in the prime contract that must be floweddown, or the Prime will be in breach But, not all provisions must be or even can be flowed-down EFT Payment Provisions through the System for Award Management (SAM) Disputes Clause Since the subcontract is likely only for a subset of the Prime s requirements, some provisions are likely not applicable There are other clauses which, while not mandatory, should be modified and flowed-down in order to protect the Prime s interests (e.g., Termination Clauses, Stop-Work Order, Changes) 12

13 Subcontractor s Perspective Subcontractor needs to accept the clauses the Prime must include to cover its legitimate risk (e.g., termination, warranty, etc.) Subcontractor needs to be able to identify the clauses that are not mandatory flowdowns, that do not cover a Prime s legitimate risk, or that cause a burden on the subcontractor Challenge for the subcontractor is to convince the Prime that these superfluous clauses add unnecessary costs, are overly burdensome to the subcontractor, or are just unfair Subcontractor needs to consider whether, once accepted, it will be able to flow down clauses to its own lower-tier subcontractors 13

14 Mandatory Flowdown Clauses Mandatory flowdown clauses are those that a Prime is required to include in subcontracts, as required by the clause Inclusion of these clauses is non-negotiable The flow down of mandatory clauses is often conditional based on: Contract type Type of work to be performed Total anticipated subcontract value (including all options) 14

15 Mandatory Flowdown Clauses Restrictions on Certain Foreign Purchases (c) The Contractor shall insert this clause, including this paragraph (c), in all subcontracts Service Contract Labor Standards (l) Subcontracts. The Contractor agrees to insert this clause in all subcontracts subject to the Service Contract Labor Standards statute Restriction on Acquisition of Ball and Roller Bearings (f) The Contractor shall insert the substance of this clause, including this paragraph (f), in all subcontracts, except those for (1) Commercial items; or (2) Items that do not contain ball or roller bearings. 15

16 Non-Mandatory Flowdown Clauses There are a number of clauses that, while not mandatory, should be modified and flowed-down in order to protect the Prime s interest Examples include: Changes Termination for Convenience Termination for Default Stop-Work Order DPAS 16

17 Non-Mandatory Flowdown Clauses Changes Clauses (FAR Fixed-Price) Prime s Perspective Prime needs to flow down the ability to make unilateral changes with its subcontractors in the event of a government unilateral change Prime should shorten the notice time period referenced at paragraph (c) of the clause from 30 days to 15 days Subcontractor s Perspective Subcontractor should draw a distinction between a governmentdirected change and a Prime-directed change 17

18 Non-Mandatory Flowdown Clauses Termination for Convenience (FAR Fixed-Price Supply and Service) Permits the Government to unilaterally terminate for convenience the prime contract at any time Prime s Perspective Should flow down this clause to all subcontractors Should shorten the 1-year termination settlement proposal period, so that the Prime can include any subcontractor proposals in the Prime s proposal to the government Subcontractor s Perspective Limit application so that the Prime may only terminate for convenience the subcontract only when the prime contract has been terminated for convenience by the government 18

19 Commercial Item Flowdowns The FAR limits the clauses a Prime may flow down to subcontracts for commercial items FAR (e)(1) and FAR (c)(1) list clauses that a Prime is required to include in its commercial item subcontracts; many of these required clauses only apply under certain conditions FAR (e)(2) and FAR (c)(2) both provide that, in addition to the listed clauses, a Prime may flowdown to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations. 19

20 Commercial Item Flowdowns The DFARS similarly limits the clauses a Prime may flow down to subcontracts for commercial items DFARS , Subcontracts for Commercial Items : (a) The Contractor is not required to flow down the terms of any Defense Federal Acquisition Regulation Supplement (DFARS) clause in subcontracts for commercial items at any tier under this contract, unless so specified in the particular clause. (b) While not required, the Contractor may flow down to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligation. 20

21 Commercial Item Flowdowns Additional limits on the clauses that may be flowed down to commercial item subcontracts FAR and DFARS : Lists laws that are not applicable to subcontracts at any tier for the acquisition of commercial items Exemptions for commercial item subcontracts are identified directly in some of the clauses themselves, for example: FAR , Display of Hotline Poster(s) FAR , Small Business Subcontracting Plan Given the limitations on flowdown clauses in commercial item subcontracts, it is important to for the Prime and Subcontractor to determine upfront whether the supplies/services at issue are commercial items as defined at FAR

22 Approaches to Drafting Flowdowns Incorporation by reference versus in full text FAR : Clauses should be incorporated by reference to the maximum practical extent, rather than being incorporated in full text 22

23 Approaches to Drafting Flowdowns The FAR contemplates that Primes develop flowdowns on a contract-by-contract basis Requires a great deal of time and resources; not feasible for most companies More common method is for the Prime to develop a document (or documents) that contains the FAR, DFARS, and supplemental acquisition regulation flowdowns from all of its prime contracts and then separate those clauses into various categories 23

24 Approaches to Drafting Flowdowns Categories of Clauses Based on Value The following clauses apply to subcontracts/orders with a value of $150,000 or more Based on Type of Work The following clauses apply to subcontracts/orders for services Based on Contract Type The following clauses apply to cost-reimbursement subcontracts/orders The following clauses apply to non-commercial item subcontracts/orders Hybrid The following clauses apply to non-commercial item subcontracts/orders with a values of $150,000 or more 24

25 Approaches to Drafting Flowdowns Include language next to clause identifying the conditions under which the clause applies These conditions, if any, are usually (but not always) set forth in the flowdown paragraph of the clause Identifying applicability conditions provides guidance to subcontractors as to which clauses apply to them, which helps streamline the negotiation process 25

26 Identifying Applicable Version Primes are required to flow down the version of the clause that is in the Prime s contract Important for parties to understand which version of clause applies Subcontractor s substantive compliance obligations may differ based on version of the clause e.g., March 2015 version of FAR , Combatting Trafficking in Persons, requires some contractors to develop compliance plan; no such requirement in earlier versions of the clause Flowdown obligations may differ based on the version of the clause, as flowdown thresholds change e.g., FAR , Contractor Code of Business Ethics and Conduct, flowdown threshold increased from $5M to $5.5M 26

27 Identifying Applicable Version Prime s Perspective Best practice is to specifically identify the date of the applicable version for each applicable prime contract Other option is to include the version of the clause that applies most broadly and provides the Prime with the most protection e.g., Should choose the version of the clause with lower dollar threshold Subcontractor s Perspective Subcontractor should ensure that it knows which version applies; do not assume it s the current version Earlier versions of FAR clauses can be accessed at the Archives tab of website 27

28 Identifying Applicable Version 28

29 Defining Terms/Parties FAR/DFARS clauses include terms which are geared to prime contracts When flowing down the clauses, the Prime should alter these terms to fit the subcontract Contract means Subcontract Contracting Officer means an authorized representative of Buyer Contractor means Seller Government means Buyer Disputes clause means the disputes clause of the subcontract 29

30 Defining Terms/Parties Substitution of parties is not appropriate for some clauses For the intellectual property clauses, the rights and responsibilities should be between the Subcontractor and the Government, not between the Subcontractor and the Prime 30

31 Takeaways Read the text of the clauses to determine whether the clauses are mandatory flowdowns and identify any conditions under which the flowdowns apply Flow down and modify those clauses necessary to mitigate and allocate legitimate risks (e.g., Changes and Termination clauses) Determine early on whether the supplies/services at issue are commercial items and identify those clauses inapplicable to commercial item subcontracts Identify the approach to drafting flowdowns appropriate for your company Clearly identify which version of the clause applies Include language defining the terms/parties so that the clauses make sense in the context of the subcontract 31

32 BOSTON HARTFORD STAMFORD NEW YORK NEWARK EAST BRUNSWICK PHILADELPHIA WILMINGTON WASHINGTON, DC Incorporating FAR Subcontractor Flowdown Terms in Government Contracts: Guidance for Primes and Subs Cara A. Wulf McCarter & English, LLP

33 Cara A. Wulf McCarter & English, LLP 265 Franklin St. Boston, MA (617)

34 Outline What is a Subcontractor? Common Types of Subcontracts The Christian Doctrine Representations and Certifications Subcontract Negotiation Techniques 34

35 Subcontract/or Defined Several definitions in the FAR importantly, FAR (the overall FAR definitional provision) does not define Subcontract or Subcontractor but it does define Contract : Contract means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see part

36 Subcontract/or Defined FAR , Subcontracting Policies and Procedures; Definitions Subcontract means any contract as defined in subpart 2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders. Subcontractor means any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor. 36

37 Subcontract/or Defined FAR , Small Business Subcontracting; Definitions 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. 37

38 Subcontract/or Defined FAR , Subcontractor Kickbacks Subcontract, means a contract or contractual action entered into by a prime contractor or subcontractor for the purpose of obtaining supplies, materials, equipment, or service of any kind under a prime contract. Subcontractor, (1) means any person, other than the prime contractor, who offers to furnish or furnishes any supplies, materials, equipment, or services of any kind under a prime contract or a subcontract entered into in connection with such prime contract, and (2) includes any person who offers to furnish or furnishes general supplies to the prime contractor or a higher tier subcontractor. 38

39 Subcontract/or Defined Some more references FAR , Commercial items; Definitions FAR , Contract Pricing; Definitions FAR , Equal Employment Opportunity; Definitions FAR , Reporting Executive Compensation and First-Tier Subcontract Awards 39

40 Does This Make You Feel.? 40

41 What Does It All Mean? Technically, a subcontractor is any vendor providing supplies or services that are ultimately used in performance of a Government prime contract. 41

42 Privity of Contract Only a person that has a contracting relationship with another person may claim rights to the relationship This means Government subcontractors lack a direct contractual relationship with the Government No direct access to BCAs/Court of Federal Claims No direct claim against Government In some cases, subcontractors cannot even talk directly to the Government 42

43 5 Typical Exceptions To The Doctrine Of Privity 1. Government rights under Intellectual Property clauses 2. Government audit rights 3. Rights granted by socioeconomic clauses 4. Suspension and debarment proceedings 5. Ethics and mandatory disclosures 43

44 Types of Subcontracts Firm-Fixed-Price Cost Reimbursement Incentive Contracts Indefinite Delivery Contracts Time and Materials Contracts 44

45 Firm-Fixed-Price FAR , Description A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. The contracting officer may use a firmfixed-price contract in conjunction with an award-fee incentive (see ) and performance or delivery incentives (see and ) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives. 45

46 Firm-Fixed-Price When is a Firm-Fixed-Price contract appropriate? The supplies or services have reasonably definite functional or detailed specifications; The contracting officer can establish fair and reasonable prices; Uncertainties can be identified and their costs reasonably estimated; and The contractor is willing to assume the risks involved 46

47 Firm-Fixed-Price Advantages Certainty Typically fewer administrative burdens Disadvantages Maximum risk Full responsibility for cost overruns 47

48 Cost Reimbursement FAR , Description Cost-reimbursement types of contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk) without the approval of the contracting officer. 48

49 Cost Reimbursement When is a cost reimbursement contract appropriate? Circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract; or Uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract. 49

50 Cost Reimbursement Advantages Typically less risk Flexible, allows for changes in specifications Allows for increased costs as necessary to meet performance requirements Disadvantages More administrative burden Limited certainty as to final cost 50

51 Incentive Contracts FAR (a), General Incentive contracts are appropriate when a firm-fixed-price contract is not appropriate and the required supplies or services can be acquired at lower costs and, in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under the contract to the contractor s performance. Incentive contracts are designed to obtain specific acquisition objectives by (1) Establishing reasonable and attainable targets that are clearly communicated to the contractor; and (2) Including appropriate incentive arrangements designed to (i) motivate contractor efforts that might not otherwise be emphasized; and (ii) discourage contractor inefficiency and waste. 51

52 Indefinite Delivery Contracts FAR , Definitions Delivery-order contract means a contract for supplies that does not procure or specify a firm quantity of supplies (other than a minimum or maximum quantity) and that provides for the issuance of orders for the delivery of supplies during the period of the contract. Task-order contract means a contract for services that does not procure or specify a firm quantity of services (other than a minimum or maximum quantity) and that provides for the issuance of orders for the performance of tasks during the period of the contract. FAR (a), General There are three types of indefinite-delivery contracts: definite-quantity contracts, requirements contracts, and indefinite-quantity contracts [also known as Indefinite Delivery, Indefinite Quantity or IDIQ ]. The appropriate type of indefinite-delivery contract may be used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award. 52

53 Time and Materials Contracts FAR , Time and Materials Contracts A time-and-materials contract provides for acquiring supplies or services on the basis of (1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and (2) Actual cost for materials (except as provided for in (e) and (f)). A time-and-materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence. 53

54 The Christian Doctrine G.L. Christian and Associates v. U.S., 312 F.2d 418 (Ct. Cl. 1963) Parties to a contract are deemed to have agreed to a contract term required by law to be included in the contract. 54

55 Representations and Certifications FAR Subpart 4.12 Prospective contractors are required to complete electronic annual representations and certifications at SAM accessed via as a part of required registration Prime contractors may require subcontractors to complete representations and certifications Representations and certifications are critical and they must be accurate 55

56 Representations and Certifications FAR Annual Representations and Certifications. (a)(1) The North American Industry Classification System (NAICS) code for this acquisition is [insert NAICS code]. (2) The small business size standard is [insert size standard]. (3) The small business size standard for a concern which submits an offer in its own name, other than on a construction or service contract, but which proposes to furnish a product which it did not itself manufacture, is 500 employees. (b)(1) If the provision at , System for Award Management, is included in this solicitation, paragraph (d) of this provision applies. (2) If the provision at is not included in this solicitation, and the offeror is currently registered in the System for Award Management (SAM), and has completed the Representations and Certifications section of SAM electronically, the offeror may choose to use paragraph (d) of this provision instead of completing the corresponding individual representations and certifications in the solicitation. The offeror shall indicate which option applies by checking one of the following boxes: (i) Paragraph (d) applies. (ii) Paragraph (d) does not apply and the offeror has completed the individual representations and certifications in the solicitation. 56

57 Representations and Certifications FAR (cont.) (c)(1) The following representations or certifications in SAM are applicable to this solicitation as indicated: (i) , Certificate of Independent Price Determination. This provision applies to solicitations when a firm-fixedprice contract or fixed-price contract with economic price adjustment is contemplated, unless (A) The acquisition is to be made under the simplified acquisition procedures in Part 13; (B) The solicitation is a request for technical proposals under two-step sealed bidding procedures; or (C) The solicitation is for utility services for which rates are set by law or regulation. (ii) , Certification and Disclosure Regarding Payments to Influence Certain Federal Transactions. This provision applies to solicitations expected to exceed $150,000. (iii) , Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements or Statements-Representation. This provision applies to all solicitations. (iv) , Taxpayer Identification. This provision applies to solicitations that do not include the provision at , System for Award Management. (v) , Women-Owned Business (Other Than Small Business). This provision applies to solicitations that (A) Are not set aside for small business concerns; (B) Exceed the simplified acquisition threshold; and (C) Are for contracts that will be performed in the United States or its outlying areas. (vi) , Prohibition on Contracting with Inverted Domestic Corporations Representation. (vii) , Certification Regarding Responsibility Matters. This provision applies to solicitations where the contract value is expected to exceed the simplified acquisition threshold. (viii) , Representation by Corporations Regarding Delinquent Tax Liability or a Felony Conviction under any Federal Law. This provision applies to all solicitations. (ix) , Place of Performance Sealed Bidding. This provision applies to invitations for bids except those in which the place of performance is specified by the Government. 57

58 Representations and Certifications FAR (cont.) (x) , Place of Performance. This provision applies to solicitations unless the place of performance is specified by the Government. (xi) , Small Business Program Representations (Basic & Alternate I). This provision applies to solicitations when the contract will be performed in the United States or its outlying areas. (A) The basic provision applies when the solicitations are issued by other than DoD, NASA, and the Coast Guard. (B) The provision with its Alternate I applies to solicitations issued by DoD, NASA, or the Coast Guard. (xii) , Equal Low Bids. This provision applies to solicitations when contracting by sealed bidding and the contract will be performed in the United States or its outlying areas. (xiii) , Previous Contracts and Compliance Reports. This provision applies to solicitations that include the clause at , Equal Opportunity. (xiv) , Affirmative Action Compliance. This provision applies to solicitations, other than those for construction, when the solicitation includes the clause at , Equal Opportunity. (xv) , Compliance with Veterans Employment Reporting Requirements. This provision applies to solicitations when it is anticipated the contract award will exceed the simplified acquisition threshold and the contract is not for acquisition of commercial items. (xvi) , Biobased Product Certification. This provision applies to solicitations that require the delivery or specify the use of USDA designated items; or include the clause at , Affirmative Procurement of Biobased Products Under Service and Construction Contracts. (xvii) , Recovered Material Certification. This provision applies to solicitations that are for, or specify the use of, EPA designated items. (xviii) , Public Disclosure of Greenhouse Gas Emissions and Reduction Goals Representation. This provision applies to solicitation that include the clause at (xix) , Buy American Certificate. This provision applies to solicitations containing the clause at

59 Representations and Certifications FAR (cont.) (xx) , Buy American Free Trade Agreements Israeli Trade Act Certificate. (Basic, Alternates I, II, and III.) This provision applies to solicitations containing the clause at (A) If the acquisition value is less than $25,000, the basic provision applies. (B) If the acquisition value is $25,000 or more but is less than $50,000, the provision with its Alternate I applies. (C) If the acquisition value is $50,000 or more but is less than $80,317, the provision with its Alternate II applies. (D) If the acquisition value is $80,317 or more but is less than $100,000, the provision with its Alternate III applies. (xxi) , Trade Agreements Certificate. This provision applies to solicitations containing the clause at (xxii) , Prohibition on Conducting Restricted Business Operations in Sudan Certification. This provision applies to all solicitations. (xxiii) , Prohibition on Contracting with Entities Engaging in Certain Activities or Transactions Relating to Iran- Representation and Certifications. This provision applies to all solicitations. (xxiv) , Historically Black College or University and Minority Institution Representation. This provision applies to solicitations for research, studies, supplies, or services of the type normally acquired from higher educational institutions. (2) The following representations or certifications are applicable as indicated by the Contracting Officer: [Contracting Officer check as appropriate.] (i) , Ownership or Control of Offeror. (ii) , Predecessor of Offeror. (iii) , Certification Regarding Knowledge of Child Labor for Listed End Products. (iv) , Exemption from Application of the Service Contract Labor Standards to Contracts for Maintenance, Calibration, or Repair of Certain Equipment- Certification. (v) , Exemption from Application of the Service Contract Labor Standards to Contracts for Certain Services-Certification. 59

60 Representations and Certifications FAR (cont.) (vi) , with its Alternate I, Estimate of Percentage of Recovered Material Content for EPA Designated Products (Alternate I only). (vii) , Royalty Information. (A) Basic. (B) Alternate I. (viii) , Representation of Limited Rights Data and Restricted Computer Software. (d) The offeror has completed the annual representations and certifications electronically via the SAM website accessed through After reviewing the SAM database information, the offeror verifies by submission of the offer that the representations and certifications currently posted electronically that apply to this solicitation as indicated in paragraph (c) of this provision have been entered or updated within the last 12 months, are current, accurate, complete, and applicable to this solicitation (including the business size standard applicable to the NAICS code referenced for this solicitation), as of the date of this offer and are incorporated in this offer by reference (see FAR ); except for the changes identified below [offeror to insert changes, identifying change by clause number, title, date]. These amended representation(s) and/or certification(s) are also incorporated in this offer and are current, accurate, and complete as of the date of this offer. FAR Clause # Title Date Change Any changes provided by the offeror are applicable to this solicitation only, and do not result in an update to the representations and certifications posted on SAM. 60

61 Representations and Certifications Consequences for False Statements 15 U.S.C. 645(d)(1)-(2) (1) Whoever misrepresents the status of any concern or person as a small business concern, a qualified HUBZone small business concern, a small business concern owned and controlled by socially and economically disadvantaged individuals, or a small business concern owned and controlled by women, in order to obtain for oneself or another any-- (A) prime contract to be awarded pursuant to section 638, 644, or 657a of this title; (B) subcontract to be awarded pursuant to section 637(a) of this title; (C) subcontract that is to be included as part or all of a goal contained in a subcontracting plan required pursuant to section 637(d) of this title; or (D) prime or subcontract to be awarded as a result, or in furtherance, of any other provision of Federal law that specifically references section 637(d) of this title for a definition of program eligibility, shall be subject to the penalties and remedies described in paragraph (2). (2) Any person who violates paragraph (1) shall-- (A) be punished by a fine of not more than $500,000 or by imprisonment for not more than 10 years, or both; (B) be subject to the administrative remedies prescribed by the Program Fraud Civil Remedies Act of 1986 (31 U.S.C ); (C) be subject to suspension and debarment as specified in subpart 9.4 of title 48, Code of Federal Regulations (or any successor regulation); and (D) be ineligible for participation in any program or activity conducted under the authority of this chapter or the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.) for a period not to exceed 3 years. 61

62 Representations and Certifications Consequences for False Statements 18 U.S.C. 1001(a) (a) Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully-- (1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both. If the matter relates to an offense under chapter 109A, 109B, 110, or 117, or section 1591, then the term of imprisonment imposed under this section shall be not more than 8 years. 62

63 Representations and Certifications Consequences for False Statements False Claims Act (31 U.S.C ) any person who-- (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C note; Public Law ), plus 3 times the amount of damages which the Government sustains because of the act of that person. 63

64 Subcontract Negotiation Techniques Keep written records of everything Understand who has the leverage Understand Mandatory vs. Necessary flowdowns Protect your intellectual property Be prepared to walk away Ensure that the negotiator doesn t have final approval authority (avoid spontaneous decisions) Only argue when it makes sense 64

65 Cara A. Wulf McCarter & English, LLP 265 Franklin St. Boston, MA (617)