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contractor100

Subcontractor will not sign subcontract - what are risks to prime

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Subcontractor will sign a letter contract agreeing to provide the service to the government (not the prime) but will not agree even to commercial flowdowns, or any of the terms a prime would ordinarily enforce for its own protections, such as termination rights, changes clause.

Subcontractor has a very strong bargaining position. Sub offers an essential service, which was called out in RFP (brand name or better). Sub was named in RFP, and prime did not negotiate any advance agreement with subcontractor to sign a subcontract. Subcontractor has provided the service to previous primes for nine years, and has, or so it states, never had to sign a subcontract.

What are the compliance risks to the prime of allowing the subcontractor to provide the service without the flowdowns? Prime understands the business risks, but is wondering about audit risks, sanctions. The prime has recently grown out of its small business status, but is not a large company, and will not be worrying about a CPSR any time soon.

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Is the contract already awarded? If so (and if the prime contract really says "brand name or better"), can the prime contractor select a "better" source instead of the "brand name" source?

Can the Government solve your problem by contracting directly with the brand-name service provider?

If you want to remove a subcontract flowdown requirement from a FAR clause in a prime contract, the contracting officer will need to review the deviations process in FAR Subpart 1.4.

Compliance risk of ignoring the subcontract flowdown requirements? I might venture a dsicussion about risks for permissible practices, but I won't engage for impermissible practices. Your own attorney can give you better advice.

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It would seem that the Prime Contractor and Subcontractor have an unnecessarily adversarial relationship. Is that the Prime's fault or the SubK's fault? Is it the fault of the contracts folks who are engaging, or maybe Legal is too involved (on one or both sides)? Maybe the engineers or IPT leads are having back-channel discussions that are sabotaging the negotiations?

Who knows?

There is no way to tell what the situation is from the original post. Regardless, I would escalate and get different faces, and different personalities, involved. I would not accept the kind of relationship described. It is just asking for big trouble downstream ....

Hope this helps.

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The OP asked about the risks of not flowing down mandatory flow down clauses. The obvious risk to the prime is termination for default and all that it implies. There might also be a risk of being pursued for making false claims. I cannot say in this particular case whether the risk is very great, but the prime would be unwise to do business with such a sub, since the consequences might be severe if the government decided to pursue the matter. On the other hand, this has been going on for a while, apparently, and maybe the government doesn't care.

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This would be something both DCMA and SBA would downgrade for in a review, for what that is worth. Any waiver granted up front should be communicated to SBA as they review plan for advisory comments. I am not sure what authority one would cite for documenting this waiver.

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