When prime contractors award subcontracts to other firms to complete portions of the required work, a primary consideration (after price, schedule and quality factors) is the type and number of FAR clauses that get “flowed down” from the prime to the subcontractor. In other words, how much of the FAR requirements flow through the prime down to the subcontractor? And then, how much discretion does the subcontractor have in taking exception to these flow-down requirements?
The answer, as in most contracting situations, is “it depends.” There are some mandatory flow downs, which are non-negotiable, so subcontractors should not even try to take exception to them. But basically, subcontractor flow-down requirements depend on the type and value of the subcontract, as well as the government agency awarding the prime contract, and the prime contractor themselves. In general, the prime contractor will desire to flow down as much as possible to the subcontractors, as part of their Risk Management strategy. Therefore, the subcontractors need to understand the prime contractor’s intentions to the maximum extent possible. Most primes will have templates of flow-down clauses that are tailored to the specific subcontract, so subs are encouraged to thoroughly review the proposed flow-down matrix prior to committing to the contract.
When it comes to flow-down requirements to the subcontractors, certain clauses are mandatory above the Simplified Acquisition Threshold (currently $150,000), while others are not. Also, if the goods or services have been determined to be commercial in nature, then there are some mandatory flow-down clauses, but most of the typical requirements do not apply. The attached matrix is a good starting point to begin your research and analysis. Note that this tool is a suggestion and should not be taken as official policy. Each agency and the prime contractor may negotiate specific terms and conditions that vary from this guide. We here at Skyway encourage the subcontractor to consult their legal counsel and raise any questions with the prime contractor. Also note that clauses are constantly being changed, updated, or deleted, so legal counsel would be a great help in ensuring that the most current matrix is being used.
One final point – remember that technically, the US Government (the Contracting Officer) does not have privity, or any formal business relationship, with the subcontractors. Instead, the business relationship exists solely between the Government and the prime contractor. So keep that in mind as you deal with the prime, and if and when you ever interact or communicate with Government representatives. This factor is especially important in the context of government surveillance of contractor performance. Per the FAR, the government’s relationship is with the prime, so what recourse does the government have when work is performed by the subcontractor, at a subcontractor facility. Technically, the subcontractor does not have to grant access to government Quality Assurance inspectors, at least until the FAR requirements have been flowed down. Many times, government contracting officers overlook including the key clauses in FAR Part 46 and DFARS 246, causing headaches for the government Administrative Contracting Officer, the prime contractor, and the government customer. Another area of concern between subcontractors and government is the issue of proprietary information, such as cost and pricing data, or technical specifications. Unless the subcontractor releases that information to the prime, the government must be very careful in how it handles that information, so as to avoid compromising the subcontractor’s competitive advantage.
So, to summarize – subcontractors will have to negotiate and determine the type and number of FAR requirements that the prime contractor will “flow down” to them. Some are mandatory and some are optional – the key will be to focus on those that have significant impact on the subcontractor’s cost, schedule and performance, and strive to achieve the best deal they can within the overall framework of the contract and the FAR.