ESSENTIALS OF COMPLIANT SUBCONTRACTING

Transcription

1 ESSENTIALS OF COMPLIANT SUBCONTRACTING Reducing Risk & Meeting Requirements as a Prime Contractor

2 AGENDA ointroduction othe Process othe Solicitation othe Agreement oconsent opolicy and Procedure odocumentation and Accountability

3 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

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 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

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 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

10 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.

11 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

12 THE PROCESS

13 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

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

15 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?

16 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)

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18 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)

19 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

20 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.

21 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

22 THE SOLICITATION

23 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

24 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.

25 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

26 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).

27 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

28 THE AGREEMENT

29 WHAT TYPE OF DOCUMENT? Subcontract Purchase Order Blanket Purchase Agreement Letter Contract

30 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

31 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

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

33 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

34 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

35 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.

36 CONSENT

37 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.

38 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

39 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)).

40 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.

41 POLICY AND PROCEDURE

42 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.

43 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

44 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.

45 DCAA CAM Audit of Purchasing System and Internal Controls Administrative Controls Purchasing File Data (see worksheet)

46 DOCUMENTATION & ACCOUNTABILITY Administration

47 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

48 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).

49 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.

50 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

51 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 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.

52 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

53 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.

54 QUESTIONS?

55 THANK YOU! Stephanie Amend Arrowhead Solutions, LLC