1. Subcontracting and Contract Flow Downs
The New Mexico Procurement Technical Assistance Center (NMPTAC) is funded in part through a cooperative agreement with the Defense Logistics Agency. The NMPTAC is also funded by the State of New Mexico.

2. Who is the “Contractor”
The Prime contractor has a contract with the government, (or owner), and has the full responsibility for its completion.
The prime contractor is legally responsible for the performance of the contract, and may employ (and mange) one or more subcontractors to carry out specific parts of the contract.
Subcontractors are under contract to the Prime Contractor to perform some defined portion of the work.

3. Government Subcontracts
Subcontracts with a government prime contractor are NOT “Government contracts.
Subcontracts are a hybrid of commercial contracts with certain government requirements or clauses included as required by the Prime’s contract with the government.
Subcontractors have no direct relationship with the government or “Privity of contract” and must go thru the Prime contractor in almost every case to talk to the Government Contracting Officer.

4. What is a Subcontract?
“Subcontract” means any contract6 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, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor.

5. Subcontracting Subcontracting can be profitable for small firms.
Performing as a subcontractor can prepare a firm to be a prime contractor in the future.
Prime contractors receiving contracts greater than the simplified acquisition threshold must agree to provide small business with the maximum practical opportunity to participate as subcontractors.

6. Subcontracting What should a contractor know about Subcontracting?
Prime contractor responsibilities
(FAR )
Subcontract Selection Requirements
Subcontracting Requirements
 Subcontractor responsibility.
      (a) Generally, prospective prime contractors are responsible for determining the responsibility of their prospective subcontractors (but see 9.405 and   regarding debarred, ineligible, or suspended firms). Determinations of prospective subcontractor responsibility may affect the Government's determination of the prospective prime contractor's responsibility. A prospective contractor may be required to provide written evidence of a proposed subcontractor's responsibility.
      (b) When it is in the Government’s interest to do so, the contracting officer may directly determine a prospective subcontractor’s responsibility (e.g.,when the prospective contract involves medical supplies, urgent requirements, or substantial subcontracting). In this case, the same standards used to determine a prime contractor’s responsibility shall be used by the Government to determine subcontractor responsibility.

7. Subcontract Information
The prime contractor is responsible for managing it subcontractors (FAR (e)(2)).
The prime contractor must ask for approval for using a specific subcontractor (this is not automatic).
Higher-tier subcontractors must also manage their subcontracts, even if they are not the prime contractor.

8. Consent to Subcontract
The Contractor must notify the Contracting Officer reasonably in advance of placing any subcontract or modification thereof for which consent is required including the following information:
A description of the supplies or services to be subcontracted
Identification of the type of subcontract to be used
Identification of the proposed subcontractor
The proposed subcontract price
A negotiation memorandum

9. Contractor Responsibilities
The prime contractor is responsible for managing its subcontracts per FAR (e)(2).
The prime contractor is primarily responsible for subcontract award, technical and financial performance, monitoring, and payment to the subcontractor for the work accomplished under subcontract terms.
 (2) The prime contractor is responsible for managing its subcontracts. The CAO’s review of subcontracts is normally limited to evaluating the prime contractor’s management of the subcontracts (see part  44). 

10. Subcontractor Selection
FAR Competition in Subcontracting
If possible, the selection of a subcontractor (including suppliers) should be on a competitive basis.
Notify the Government upon award of the subcontract and report subcontract costs as part of the prime contractor’s annual incurred cost proposal (if applicable).
 Competition in Subcontracting.
As prescribed in 44.204(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 , section831 as amended), the Contractor may award subcontracts under this contract on a noncompetitive basis to its protégés.
(End of clause)

11. Monitoring Subcontracts
The contractor’s internal control system over subcontracts and intercompany work orders should provide for the inclusion of the contract appropriate flow-down clauses into the subcontract/intercompany order including those that require:
Government of contractor access to the subcontractor’s books and records
Billings only include allowable costs
Appropriate labor laws
Special instructions concerning facility access or conduct on the government’s facility

12. Subcontracting Best Practices
Know contract requirements regarding subcontracting clauses.
Do not assume that you can subcontract
If you are a subcontractor know what is required of the prime (while this is probably a good idea it’s not binding … it’s what’s in the subcontract that matters).

13. Subcontractor
Having your business processes and policies in place ready to move forward when you receive a contract to perform.
Management Policies
Safety Policies
Quality Assurance Policies
System Security Policies
Property Management Policies
Estimating Policies
Note: this list is not all inclusive.

14. Accounting System Can your system do the following?
Segregate direct costs from indirect costs.
Accumulate and segregate direct costs by contract and contract line item.
Provide General Ledger control.
Allow for accurate timekeeping.
Segregate unallowable costs from allowable.

15. Flow Down Clauses
Flow Down = Clauses in Government contracts that the contractor (prime or sub) is required to pass down to their lower tier subcontracts.
The FAR clause itself usually states if the clause flows down.
Flow down can be mandatory, suggested, or to be considered.
May need to flow down the entire clause or the substance of the clause.

16. How do you know what Clauses Flow Down?
There are almost 1600 possible clauses and alternates in the FAR/DFARS
Generate a file, either paper or electronic of the full text of all clauses listed in the contract. See also DEAR-Provision-and-Clause-Matrix
Look up each clause (and if need be) the “prescribing” FAR/DFARS section to determine if it is necessary to flow it down to the subcontractor.
Identify MANATORY flow down clauses .
Evaluate other clauses to determine if they should be “Optionally” flowed down.
Verify if any thresholds (e.g., dollar values) apply.
Prepare contracts with subcontractors including all flow-down clauses.

17. FAR Clauses
Use Excel to set up a list of all clauses, include effective date of the clause and if an alternate was included.
Indicate if reports are required.
If you have multiple government contracts, maintain a master list of all clauses.

18. Common Flow Down Requirements
Contractor Code of Business Ethics and Conduct
Whistleblower Protections under the American Recovery and Reinvestment Act of 2009
Utilization of Small Business Concerns
Prohibition of Segregated Facilities
Equal Opportunity

19. Common Flow Down Requirements
Equal Opportunity for Veterans
Equal Opportunity for Workers with Disabilities
Employment Reports on Veterans
Notification of Employee Rights Under the National Labor Relations Act
Combating Trafficking in Persons
Establishing a Minimum Wage for Contractors

20. Common Flow Down Requirements
Contractors Performing Private Security Functions Outside the United States
Providing Accelerated Payments to Small Business Subcontractors
Preference for Privately Owned U.S. Flag Commercial Vessels

21. 52.225-13 Restriction on Certain Foreign Purchases
Transactions involving designated countries are prohibited into the U.S. or its outlying areas.
References Office of Foreign Assets Control (OFAC) list of entities and individuals subject to economic sanctions.
(c) The Contractor shall insert this clause, including paragraph (c) in all subcontracts.

22. 52.225-9 Buy American Construction Materials
b) Domestic preference.
The Contractor shall use only domestic construction material in performing this contract, except as provided (below)
This requirement does not apply to information technology that is a commercial item or to the construction materials or components listed by the Government as follows: __________________________
The Contracting Officer may add other foreign construction material to the list in paragraph (b)(2) of this clause 
The component test of the Buy American statute is waived for construction material that is a COTS item. (See FAR 12.505(a)(2)).

23. 52.225-11 Buy American Act – Construction Material under Trade Agreements
Defines Designated Country Construction Material.
Defines Domestic Construction Material.
Exception (b)(1), (b)(3) and (b)(4).
Request for determination of inapplicability.

24. Construction Contract Flow Downs
FAR The Contractor shall insert in any subcontracts for construction, alterations and repairs within the United States the clauses entitled-
Construction Wage Rate Requirements;
Contract Work Hours and Safety Standards-Overtime
Apprentices and Trainees;
Payrolls and Basic Records;
Compliance with Copeland Act Requirements;
Withholding of Funds;
Subcontracts (Labor Standards);
Contract Termination-Debarment;
Disputes Concerning Labor Standards;
Compliance with Construction Wage Rate Requirements and Related Regulations; and
Certification of Eligibility.

25. Construction Contract Flow Downs
FAR Termination for convenience – Not required but HIGHLY recommended.

26. The Christian Doctrine
A mandatory contract clause that expresses a significant tenant of public procurement policy is considered to be include in the contract by operation of law. G.L. Christian & Assoc. v. United States, 312 F.2d 418 (Ct. CL 1963).
Only clauses that are both mandatory and speak to public procurement policy are covered by the doctrine.

27. The Christian Doctrine and Subcontracts: Consideration
Do not assume that a mandatory provision will flow down automatically.
The Christian Doctrine does not apply to subcontracts.

28. References DOE Chapter 10 – Subcontract Management
Defense Contract Audit Agency (DCAA)
Federal Acquisition Regulations (FAR)
Subcontract Management from A to Z (NCMA) Jim Kirlin
Contract Management Body of Knowledge (5th edition)
Don Shannon – The Contract Coach
Elythia McAnarney – PTAC Advisor