Government prime contracts nearly always contain pre-determined terms and conditions from the Federal Acquisition Regulations (FAR) and agency-specific FAR Supplements. There is little opportunity to negotiate these terms. During the proposal stage, contractors can take exception to these terms, but must be very judicious in doing so, as their proposals may be non-compliant if the exceptions are not acceptable to the government.
Unlike prime contracts, there is much greater opportunity to negotiate terms in subcontracts. There are certain mandatory FAR flow down clauses that are required to be in subcontracts. Those are not going to be negotiable, unless exceptions were identified in the prime’s proposal.
Prime contractors will often just include all the FAR clauses from their prime contract into subcontract templates. This is the lazy way of making sure they have covered everything and places the burden on subcontractors to carefully review all the FAR clauses, separate the mandatory from non-mandatory flow down clauses, and initiate negotiations on those that are not mandatory. A wise subcontractor will take the time to do this paying particular attention to terms regarding invoicing and payments. Terms that are acceptable to a large-business prime may be too onerous for a small business subcontractor.
Other terms to review include provisions that allocate performance risk among the parties. A prime contractor will want to minimize its own risk by shifting the responsibility to the subcontractor, but the subcontractor does not have the same control or ability to manage the risk. Subcontract negotiations should seek to fairly balance the risk against the reward.
The timing of negotiating terms and conditions for subcontracts is important. If the prime provides a subcontract template during the proposal phase, a careful review should be conducted prior to the subcontractor investing significant effort into the proposal effort. If there is a Teaming Agreement and it addresses the subcontract terms, care should be taken to identify any deal-breakers as early as possible. A review by a contract professional, either in-house or on a consulting basis, can go a long way toward preventing issues in subsequent subcontract negotiations or in performance.