ESSENTIALS OF COMPLIANT SUBCONTRACTING AGENDA COMMON ACRONYMS 10/18/2016

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1 ESSENTIALS OF COMPLIANT SUBCONTRACTING Reducing Risk & Meeting Requirements as a Prime Contractor AGENDA ointroduction othe Process othe Solicitation othe Agreement oconsent opolicy and Procedure odocumentation and Accountability COMMON ACRONYMS ACO Administrative Contracting Officer CO Contracting Officer FAR Federal Acquisition Regulation PoP Period of Performance SOW Statement of Work Subk Subcontract CAS Cost Accounting Standards DCAA CAM Defense Contract Audit Agency Contract Audit Manual Ts and Cs Terms and Conditions 1

2 INTRODUCTION 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 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. 2

3 WHY IS GOVERNMENT PROCUREMENT DIFFERENT? Commercial Preferred vendors Discounts, deals and handshakes Simple competition Documentation IAW company policy (sometimes) Government Competition unless justified sole source Market research and due diligence Approvals Adequate solicitation Adequate evaluation Determination of adequate pricing Documentation IAW compliant Procurement Policy WHY COMMERCIAL PRACTICES DON T ALWAYS APPLY Contractors are entrusted to use tax payer money to complete contracts Therefore, you must follow the same procurement rules as a government contracting activity Government has the right to review and approve/disapprove purchasing system Government has the right to review Procurement Policy to ensure proper accounting of subcontractors Government may require approval of purchases 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 3

4 FAR SUBCONTRACTS (1) The contracting officer shall insert the clause at , Subcontracts in solicitations and contracts when contemplating-- (i) A cost-reimbursement contract; (ii) A letter contract that exceeds the simplified acquisition threshold; (iii) A fixed-price contract that exceeds the simplified acquisition threshold under which unpriced contract actions (including unpriced modifications or unpriced delivery orders) are anticipated; (iv) A time-and-materials contract that exceeds the simplified acquisition threshold; or (v) A labor-hour contract that exceeds the simplified acquisition threshold PRIVITY Definition - The relation which subsists between two contracting parties. Exceptions Payment Small Business Subcontracting Plan Flowdowns Contract Disputes Act claims sponsored by Prime New labor reporting requirements The Government does not have privity of contract with subcontractors Therefore, prime contractors are responsible for subcontractors and to fulfill all contracting responsibilities. IMPORTANCE OF PROPER SUBCONTRACTING Contractor Purchasing System Reviews (CPSR) DCAA Pre Award Systems Survey Questions DFARS Business Systems Rules Reduces Risk Transfer of liability Avoid breach of contract Eases reporting burdens Perception of responsible government contractor 4

5 CONTRACTOR PURCHASING SYSTEM REVIEW Objective. The objective of a contractor purchasing system review (CPSR) is to evaluate the efficiency and effectiveness with which the contractor spends Government funds and complies with Government policy when subcontracting. The review provides the ACO a basis for granting, withholding, or withdrawing approval of the contractor s purchasing system. CPSR THRESHOLD Requirements. (a) The ACO shall determine the need for a CPSR based on, but not limited to, 1) the past performance of the contractor, and the volume, complexity and dollar value of the subcontracts. 2) If a contractor s sales to the Government (excluding competitively awarded firm-fixed-price and competitively awarded fixed-price with economic price adjustment contracts and sales of commercial items pursuant to Part 12) are expected to exceed $25 million during the next 12 months Sales include those represented by prime contracts, subcontracts under Government prime contracts, and modifications. (b) Once an initial determination has been made, at least every three years, the ACO shall determine whether a purchasing system review is necessary. THE PROCESS 5

6 THE ACQUISITION TEAM Contracts Manager Purchasing/Subcontracts Manager Business Development Accounting Technical Management (as needed) PROCUREMENT PLANNING RESPONSIBILITIES 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 ORGANIZATION FOR EFFECTIVE SUBK MGMT The purchasing department should have an organizational plan which establishes clear lines of authority and responsibility. Items to consider include: (1) The purchasing department is independent of other departments and is responsible for procuring all materials, supplies, services, and equipment. (2) The receiving function is performed by personnel independent of the buying function. (3) All purchasing department personnel should understand their assigned responsibilities, authority, and limitations. (4) There should be procedures delegating who has the authority to make commitments and to question quality and quantity of material requisitioned or received 6

7 CRADLE TO GRAVE Plan Close Solicit Admin Evaluate Award Consent? IDENTIFY NEED Proposal Review SOW Company's responsibilities (Make or Buy)? What aspects will required subcontracted services? What supplies/items/products will need to be bought to support the SOW? May be directed by government to work with a particular company managed the same Post Award Why was the need not identified during the proposal? What is required and why? How will the process of subcontracting delay schedule? NDAS AND TAS Non-Disclosure Agreements (NDAs) First document to be executed with key subs who may participate in proposal Ensure purpose is specific to the proposal If subs need to coordinate with them, 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 Exclusivity (or not) 7

8 MAKE OR BUY Apply a consistent make-or-buy policy that is in the best interest of the Government (from the DFARS) FAR Make-or-buy program means that part of a contractor's written plan for a contract identifying those major items to be produced or work efforts to be performed in the prime contractor's facilities and those to be subcontracted. Pertains mainly to manufacturing, but can pertain to services. MAKE OR BUY PROGRAM FAR Make item, means an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions. Part of contractor s written plan for a contract identifying those major items to be produced or work efforts to be performed by the prime and those to be subcontracted. Contracting officers may require prospective contractors to submit make-or-buy program plans for negotiated acquisitions requiring certified cost or pricing data whose estimated value is $12.5 million or more, except when the proposed contract is for research or development and, if prototypes or hardware are involved, no significant follow-on production is anticipated. The requirement will be called out in a solicitation and program will be included in proposal MARKET RESEARCH Identify capable and qualified subcontractors For recurring needs build and maintain a bidders list of potential vendors. Maintain on a current basis to ensure maximum usefulness. For rare or project-specific situations Utilize a method similar to govt with industry days, draft SOWs, and publication of notices (sources sought) 8

9 QUALIFICATION 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 (rate) Refer to FAR Part 9 PROMOTING COMPETITION Competition in Subcontracting. As prescribed in (c), insert the following clause: Competition in Subcontracting (Dec 1996) (a) The Contractor shall select subcontractors (including suppliers) on a competitive basis to the maximum practical extent consistent with the objectives and requirements of the contract. (b) If the Contractor is an approved mentor under the Department of Defense Pilot Mentor-Protégé Program (Pub. L , section 831 as amended), the Contractor may award subcontracts under this contract on a noncompetitive basis to its protégés. SOLE SOURCE JUSTIFICATION Exception to competition documentation See FAR Must prepare a document similar to a Justification and Approval (J&A) Includes story of reason and rationale for sole source and how it will benefit the government and project And how it fits within the FAR rules Keep in file in case it must be provided to government 9

10 PURCHASE REQUISITIONS AND APPROVALS Purchase Requisition (PR) - Used to ensure nothing is bought outside company practice, that there is funding available, and to fulfill regulations Per DCAA CAM purchases must be based on authorized requisitions PR should be the evidence of need Even if requirement included in proposal, the PR is the tool to get the acquisition started PR should be pre-numbered and have Contract for which it supports, description, quantity, independent estimate or ROM, potential suppliers, PoP Approval signature PR PROCESS Technical PR Built PR Reviewed Contracts Accounting PR Approved Solicitation Entire Team THE SOLICITATION 10

11 PRE-AWARD VS. POST-AWARD Pre-Award Identify need to procure Solicit Don t promise LOI s (if necessary) Evaluate and decide Incorporate into proposal Release orders upon win Post-Award Identify need to procure Identify ability to procure Allowed? Budget? Solicit Don t Promise Evaluate and decide Request consent Release orders upon consent SOLICITATION RESPONSIBILITIES Plan the solicitation with key players Provide clear SOW, SOO, specs, etc. Date the SOW! Build appropriate proposal/quote prep instructions and evaluation factors Ensure prime contract clauses are flowed down From prime solicitation From prime contract If competitive ensure adequate competition Go for 3+ Best to follow methods of appropriate FAR sections depending on dollar value FORMULATE SPECS Identify what will be needed for a sub to provide a good quote. Take into consideration how narrow the SOW or specs should be. For services: Scope, Background, Objective, Tasks, Period of Performance, Deliverables, and misc areas (Access, Travel, Milestones, etc) For supplies Part number or detailed description (can use brand name), unit of issue, # units, delivery date, etc. 11

12 CHOOSING SUBCONTRACT TYPE Need to identify up front in solicitation what type of solicitation is contemplated If the potential sub does NOT have an approved accounting system, do not award a cost type subcontract. Determine type based upon risk, scope of work, and ability to provide adequate pricing. Reference FAR Part 16 THE SOLICITATION PACKAGE Required Instructions Basic subcontractor info form Representations and Certifications SOW, SOO, or specs document Evaluation methodology Prime contract flow downs Company terms and conditions As Needed Solicitation Letter Templates Subcontractor qualification forms Draft subcontract COST & PRICE ANALYSIS CAM Cost/Price Analysis and Technical Evaluation a. The contractor should perform cost/price analysis and technical evaluation of its subcontractor's and supplier's proposals/quotations. The scope and conclusions of the analysis should be documented and included in the purchase order file. The contractor should obtain a certificate of current cost and pricing data when applicable. b. Buyers should document the purchase order file to explain price increases (over previous buys or over bill of material estimates) and lack of decreases in price when circumstances indicate that the price should be lower (when quantity is increased over a previous buy or vendor quote, or when learning or other factors indicate lesser costs than in a previous buy). 12

13 SELECT Build Apparent Successful Offeror letter Build No Award letter Be prepared for debrief request If company that was not on a bidder s list made a good showing, remember to add them to bidder s list THE AGREEMENT WHAT TYPE OF DOCUMENT? Subcontract Purchase Order Blanket Purchase Agreement Letter Contract 13

14 FLOWDOWNS DCAA CAM All applicable purchase orders and subcontracts contain all flowdown clauses, including terms and conditions DFARS 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 Utilize the prime contract, FAR (and supplements), FAR Matrix Mandatory and Non-Mandatory Mandatory labor, CAS, Audit and Intellectual Property Non-Mandatory termination, changes, risk mitigation Also can utilize clauses to pass other areas of risk down to the sub FLOWDOWN CONSIDERATIONS Ensure preface includes language replacing terms such as Government with Contractor and similar replacements 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 RISKY FLOWDOWNS Disputes Payment Intellectual Property Government Property Labor Laws Termination Purchasing 14

15 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. EXAMPLE - FLOWDOWNS A prime contractor s contract includes the following clauses: Service Contract Act Rights in Data General Prompt Payment Drug-Free Workplace Changes Fixed Price Contractor Code of Business Ethics and Conduct Which are mandatory flowdowns and which are not? 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 15

16 SOLICIT Pull the entire solicitation package together Publicize and/or send out to bidders list Allow adequate time for response Issue amendments as needed Make sure publicized the same way as original solicitation Allow Q&A Publicize Q&A the same way as solicitation DISCUSSIONS & CLARIFICATIONS Discussions Occur with all bidders Bring in each potential subcontractor and ask same set of questions to each Beneficial to get a personal impression Allows you to hear explanation of their proposal Clarifications Use with a potential sub as needed Only to clarify a part of a proposal. Not meant to be a opportunity to materially change proposal or promote. 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 16

17 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 Include an order of precedence clause in Ts and Cs EVALUATION AND NEGOTIATION RESPONSIBILITIES Competitive Evaluate responses in accordance with solicitation Determine if there is a competitive range and/or clarifications need to be conducted Document process and decision Identify successful subcontractor Sole Source Review offer Build negotiation position Negotiate (if necessary) Document decision Provide notice of completion of negotiations EVALUATE Evaluate price, quality, delivery, technical capabilities, and financial capabilities of competing vendors to ensure fair and reasonable prices. Conduct cost or price analysis to further determine reasonableness Include PR originator and accounting in review at minimum Record evaluation Price Negotiation Memorandum Price Competition Memorandum Establish and maintain adequate documentation to provide a complete and accurate history of purchase transactions to support vendors selected and prices paid. 17

18 COMMERCIAL SUBCONTRACTS Subcontracts for Commercial Items. To themaximumextent practicable, thecontractorshallincorporate, and requireits subcontractorsat alltiersto incorporate, commercialitems or nondevelopmentalitems as components of items tobesuppliedunderthis 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. 251note)), if thesubcontractexceeds $5,000,000and has a performanceperiodof morethan120days. In alteringthis clauseto identifytheappropriateparties, alldisclosuresof violationof thecivil FalseClaims 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 ($1.5millionfor constructionof anypublicfacility), thesubcontractormust include inlower tier subcontractsthatoffer subcontractingopportunities , 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 Contractormay flowdown tosubcontractsfor commercialitems a minimal number of additionalclauses necessarytosatisfyits contractualobligations. (d) The Contractor shall include the terms of this clause, including this paragraph (d), in subcontracts awarded under this contract. CONSENT CONSENT Look for FAR Subcontracts By obtaining consent to subcontract, the Government is afforded the opportunity to verify that the purchase is IAW with the contract and regulations, as well as the application of sound business judgment. (b) If the contractor does not have an approved purchasing system, consent to subcontract is required for cost-reimbursement, time-and-materials, labor-hour, or letter contracts, and also for unpriced actions (including unpriced modifications and unpriced delivery orders) under fixed-price contracts that exceed the simplified acquisition threshold, for-- (1) Cost-reimbursement, time-and-materials, or labor-hour subcontracts; and (2) Fixed-price subcontracts that exceed (i) For the Department of Defense, the Coast Guard, and the National Aeronautics and Space Administration, the greater of the simplified acquisition threshold or 5 percent of the total estimated cost of the contract; or (ii) For civilian agencies other than the Coast Guard and the National Aeronautics and space Administration, either the simplified acquisition threshold or 5 percent of the total estimated cost of the contract. 18

19 WHAT IS CONSENT MADE OF? (i) A description of the supplies or services to be subcontracted. (ii) Identification of the type of subcontract to be used. (iii) Identification of the proposed subcontractor. (iv) The proposed subcontract price. (v) The subcontractor s current, complete, and accurate certified cost or pricing data and Certificate of Current Cost or Pricing Data If over $750,000 (vi) The subcontractor s Disclosure Statement or Certificate relating to CAS If sub is subject to CAS (vii) A Negotiation Memorandum per the FAR MEMO FOR CONSENT (vii) A negotiation memorandum reflecting - (A) The principal elements of price negotiations; (B) The most significant considerations controlling establishment of initial or revised prices; (C) The reason certified cost or pricing data were or were not required; (D) The extent, if any, to which the Contractor did not rely on the subcontractor s certified cost or pricing data in determining the price objective and in negotiating the final price; (E) The extent to which it was recognized in the negotiation that the subcontractor s certified cost or pricing data were not accurate, complete, or current; the action taken by the Contractor and the subcontractor; and the effect of any such defective data on the total price negotiated; (F) The reasons for any significant difference between the Contractor s price objective and the price negotiated; and (G) A complete explanation of the incentive fee or profit plan when incentives are used. 19

20 NO CONSENT Contracting officers shall not consent to -- (1) Cost-reimbursement subcontracts if the fee exceeds the fee limitations of (c)(4)(i); (2) Subcontracts providing for payment on a cost-plus-a-percentage-ofcost basis; (3) Subcontracts obligating the contracting officer to deal directly with the subcontractor; (4) Subcontracts that make the results of arbitration, judicial determination, or voluntary settlement between the prime contractor and subcontractor binding on the Government; or (5) Repetitive or unduly protracted use of cost-reimbursement, time-andmaterials, or labor-hour subcontracts (contracting officers should follow the principles of (c)). 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. EXAMPLE A prime contractor holds a Time & Materials contract for warehousing that is valued at $750,000. The prime does not have an approved purchasing system. The prime realized during the proposal phase that they would need to subcontract the logistics services and purchasing shelving. The prime competed both needs before the proposal was submitted and selected a company for each need to include in the prime contract proposal. The CO accepted the proposal. FAR is included in the prime contract, unedited. The logistics services will be a T&M subcontract valued at $70,000. The shelving will be an FFP order valued at $152,000. Does either purchase require consent? Why? 20

21 POLICY AND PROCEDURE POLICY Policy is the high level instruction for government subcontracting Dictates who has authority to make commitments Approved by an appropriate level of management to signify the delegation of authority to effectively convey management s commitment to adhere to the policy and procedure, FAR, DFARS, etc. PROCEDURE Use the FAR and DCAA CAM Modify (within reason) to fit Company's business Actual practices should be consistent with established procedures Ensure Consistency Based on authorized requirements Communication and training All major duties and responsibilities are addressed 21

22 DETERMINING INTERNAL THRESHOLDS Advisable to utilize the Government thresholds Less than $3,000 is micropurchase Can use credit cards Greater than or equal to $3,000 but under $150,000 Use Purchase Orders Greater than $150,000 Use Subcontracts For long term, broad scope of various dollars amounts Use BPA or IDIQ with orders under Task or purchase DFARS CLAUSE Contractor Purchasing System Administration (May 2011) a) Definitions. As used in this clause Acceptable purchasing system means a purchasing system that complies with the system criteria in paragraph (c) of this clause. Purchasing system means the Contractor s system or systems for purchasing and subcontracting, including make-or-buy decisions, the selection of vendors, analysis of quoted prices, negotiation of prices with vendors, placing and administering of orders, and expediting delivery of materials. Significant deficiency means a shortcoming in the system that materially affects the ability of officials of the Department of Defense to rely upon information produced by the system that is needed for management purposes. (b) General. The Contractor shall establish and maintain an acceptable purchasing system. Failure to maintain an acceptable purchasing system, as defined in this clause, may result in disapproval of the system by the Contracting Officer and/or withholding of payments. DCAA CAM Audit of Purchasing System and Internal Controls Administrative Controls Purchasing File Data (see worksheet) 22

23 DOCUMENTATION & ACCOUNTABILITY Administration DOCUMENTATION Subcontract Files Subcontract File Checklist Subcontract Summaries similar to contract briefs Subcontract Database Internal numbering system Tie all purchasing to a prime contract IN ADDITION to anything tied in QuickBooks ADMINISTRATION Some form of register or control is maintained to "flag" delivery due dates Procedures are in effect to expedite delivery of subcontract material. Corrective action is taken when the supplier is delinquent in delivery schedules Evaluate the delivery schedules when engineering changes have been introduced. Timely notification from to subcontractors when modifications are 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 Propriety of the costs generated by the subcontractor Audit of progress payments (refer to billing system audit of subcontractor progress payments). 23

24 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. REPORTING Ensure that any reporting required under the prime contract, but subject to subcontract input, is delivered with enough time to review an incorporate Identify in prime contract any reporting requirements for subs Ex) DD882/Reporting of Patentable Inventions REPORTING OF SUBS 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 themonthof awardof a first-tiersubcontractwitha value of $30,000or more, (andany modificationstothesesubcontractsthat changepreviouslyreporteddata), thecontractorshallreportthe following informationat each first-tiersubcontract. 24

25 AUDITING Property Costs/Accounting Quality Records TYING PURCHASING TO PRIME CONTRACTS All subcontracts or purchase orders must reference the prime contract number Ensure subcontractor invoices reference the subcontract number - accounting should have an internal numbering system that allows a subcontract # to tie to a prime contract number Ensure subcontract payment terms are no less restrictive than prime contract payment terms COMMERCIAL DEFENSE SUBCONTRACTS SUBPART SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL COMPONENTS Policy requirements. (a) Contractors shall determine whether a particular subcontract item meets the definition of a commercial item. Contractors are expected to exercise reasonable business judgment in making such determinations, consistent with the guidelines for conducting market research in FAR Part

26 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 vendor for signature Submit signed closeout letter to vendor Identify files as closed and archive May not be able to officially close for years under Cost Type prime contracts RELATED ADMINISTRATION Property Management Standards of Business Conduct Intellectual Property Rights Accounting System Compliance Export Compliance Small Business Subcontracting Goals Contract Administration It all ties back to the government contract BEST PRACTICES Written, compliant policy and procedure (P&P) FOLLOW the P&P Training Testing System against P&P Look to the FAR and CAM Tie procurements to contracts Via contract briefs and internal coding Watch costs Document, Document, Document Purchasing files, checklists, memos, etc. 26

27 SPECIAL TOPICS 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 CHANGES If proper flowdowns are included, then sub will handle changes (hopefully) IAW the subcontract and FAR Follow FAR principles in issuing and managing modifications to subcontracts/orders Maintain modification templates Review mods to prime contract to ensure no changes trigger a mod to the subcontract/order 27

28 WARRANTIES Warranty terms should mirror the prime contract. Watch commencement of coverage Ensure 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 TERMINATION/BREACH Remember to keep the Govt CO in the loop on any subcontractor issues Although privity of contract is between Company and subcontractor, actions of sub reflect on Company. Understand your rights to terminate Understand how it will impact the prime contract Avoid terminations by Picking the right subs Managing and monitoring constantly and consistently Keeping lines of communication open QUESTIONS? 28

29 THANK YOU! Stephanie Amend Arrowhead Solutions, LLC THE UCC The Federal Common Law, as embodied in the FAR, controls the creation, administration and interpretation of federal prime contracts Commercial contracts (prime/sub) are governed by the laws of various states embodied in the UCC as adopted by the state. The body of law governing the prime contract is different than that governs a subcontract Some of this difference can be addressed through flowdowns THE UCC CONT. Under the UCC, parties can agree to do most anything they choose. If they are silent on certain matters, then the UCC will fill in the blanks. Mandatory flow down clauses protect the government Some key clauses that protect the prime are not mandatory, but should be flowed down and modified Ex) Terminations 29

30 EXERCISE - PRIMES AND SUBS What will the prime and sub each want in the following areas? Changes Payments Inspection and Acceptance Terminations Warranties Indemnification and Limitation on Liability 30