Essential Elements of a Subcontract in Government Contracts

Introduction

• Delegating tasks to another business is common in government contracts.
• Essential to understand the elements of a subcontract to thrive as a government contractor.

What is Subcontracting?

• Prime Contractor: The main company holding the government contract.
• Subcontractor: The company hired by the prime contractor to perform specific tasks.
• Subcontract: The written agreement between the prime contractor and the subcontractor.

Essential Elements of a Subcontract

Payment Terms

• Ensure subcontract payment terms align with the government contract.
• Require regular invoicing (e.g., monthly) and specify submission schedule.
• Include required documentation (e.g., time cards, receipts) in the invoicing process.
• Set payment timelines (e.g., “pay when paid” clause).

Defining Work Details

• Base tasks and deliverables on the government contract's statement of work (SOW) or performance work statement (PWS).
• Be specific about tasks, due dates, and quality standards.
• Ensure clarity on responsibilities between prime contractor and subcontractor.
• Include right to review and replace subcontractor employees.
  • Specify qualifications for subcontractor employees (years of experience, education).
  • Set procedures for reviewing and replacing non-performing individuals.

Deliverables and Reporting

• Define deliverables, their due dates, and reporting requirements.
• Ensure detailed reporting and documentation (progress reports, quality control, compliance certifications).
• Pass down reporting and record-keeping requirements to subcontractors.

Security and Confidentiality

• Include security requirements (e.g., background checks, badging) from the government contract.
• Add non-disclosure agreements and confidentiality clauses to protect sensitive information.

Insurance Requirements

• Reflect insurance requirements from the government contract onto subcontractors.

Critical Clauses

• Changes Clause: Address how changes in the contract will be handled.
• Dispute Resolution Clause: Outline procedures for resolving disputes.
• Termination Clause: Include termination for convenience to cover potential government contract termination.

Mandatory Flow Down Clauses

• Pass down rules, terms, and conditions from the government contract to the subcontractor.
• Common flow down clauses:
  • Contract cost and accounting (e.g., audit clause).
  • Labor clauses (e.g., Equal Employment Opportunity clause).
  • Ethics clauses (e.g., contractor code of business ethics).
  • Data rights clauses.
• Generally listed by clause number and incorporated by reference.

Other Considerations

• Be aware of and comply with any subcontracting requirements in the government contract (e.g., obtaining written consent before issuing a subcontract).

Conclusion

• Understanding and implementing these elements can demystify subcontracting.
• Ensures confidence and clarity in teaming with partners for government contract bids.