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SubK

Privity of Contract

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Can the Government Customer direct the Prime contractor to fire a Subcontractor or remove them from the contract?

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Sure, if the contract between the Govenrment and the prime contractor has terms allowing such.

For example, if the contract requires all subcontractors to have a facility clearance, and the subcontractor's clearance is revoked, well, the subcontractor has to leave. But in this case, the prime contractor should order the subcontractor to leave as part of its own responsibilities as a prime contractor. See the contract clause at FAR 52.204-2, which may or may not be included in your contract.

For another example, in a construction contract, the contracting officer can require that the contractor remove any employee from the work, if the CO deems the employee "incompetent, careless, or otherwise objectionable." See the clause at FAR 52.236-5, which may or may not be included in your contract.

These are just examples. What does your contract say?

btw, this isn't a matter of privity betweemn the Government and the subcontractor -- this is a matter between the Government and the prime contractor.

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Can the Government Customer direct the Prime contractor to fire a Subcontractor or remove them from the contract?

While I agree with ji that this can be done if the terms of the contract allow it, I disagree that clause 52.236-5, Material and Workmanship, allows the Government to direct the replacement of a subcontractor. And if you are referring to a "customer" as an entity or person other than the contracting officer, that person or entity would likely have no direct contractual authority to remove anyone from the contract.

Back in the 90's, one of our ACO's directed the prime to remove a structural steel sub for repeated safety infractions, citing that clause. The prime submitted a claim for increased time and cost impact due to an unauthorized direction by the ACO. Our Office of Counsel advised the KO that the Material and Workmanship clause applies to individuals, not to an entire firm.

There may be case law that controverts that position - I don't know.

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Thanks, the issue that I am facing is actually Subcontract language with a Sub. They do not want to agree to any kind of termination for default clause that would allow us to terminate them for poor performance. They suggest that we insert language that says we can terminate them if the Government CO directs us to or if we ourselves are terminated. Well, its a no brainier if we are terminated. But the I am not sure about the CO directing us to fire the Sub. I had a previous issue with a Sub and the Customer had huge issues with the Subcontractors performers and the way they were moving employees off and on the contract, because of a poorly written and negotiated subcontract, there wasn't much we could do (very small business with a very large sub) but ask the CO to request removal, the CO would not. I want to make sure this doesn't happen again.

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Well most of the subcontracts that I have read contain some type of indemnification clause that requires the sub to indemnify the prime against any damages caused by negligent subcontractor performance. See, for instance, this article:

http://www.hppib.com/pdfs/Indemification_Clause_Feb09.pdf

I would advise that protection from damages caused by poor performance of a subcontractor is essential. You must not let a large sub coerce you into giving up those rights. I've dealt with a couple of huge defense contractors whose heavy handed, coercive bullying took its toll on my health but we perservered for the most part.

As Stephen R. Covey taught me, a principle for success is to "think win-win or no-deal" in your relations with others. In doing that, you can't allow them to bully you, either.

In addition, there are various degrees of breach of contract that allow the prime to sue for performance or to sue to collect damages or in the case of fundamental breach to terminate the contract and collect damages. You don't necessarily have to include a termination clause in order to prevail in a breach of contract situation.

The government's default clause does however, state that if the termination isn't justified (e.g., the sub was found not to be at fault for the performance problem) then the termination becomes one for convenience under the TFC clause - not a breach of contract. The TFC clause is an important protection for the government to avoid a breach of contract action if it terminates a contractor for its convenience or if the contractor could show that it was wrongfully terminated for cause. Actually, the termination clauses provide rights for both parties.

Honestly, Subk, you need the advice of a contracts attorney in writing and negotiating your subcontract.

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Thanks, the issue that I am facing is actually Subcontract language with a Sub. They do not want to agree to any kind of termination for default clause that would allow us to terminate them for poor performance. They suggest that we insert language that says we can terminate them if the Government CO directs us to or if we ourselves are terminated. Well, its a no brainier if we are terminated. But the I am not sure about the CO directing us to fire the Sub. I had a previous issue with a Sub and the Customer had huge issues with the Subcontractors performers and the way they were moving employees off and on the contract, because of a poorly written and negotiated subcontract, there wasn't much we could do (very small business with a very large sub) but ask the CO to request removal, the CO would not. I want to make sure this doesn't happen again.

Your contract with your sub is, presumably, a commercial contract. You do not need a default clause in a subcontract to get rid of a sub that has breached its contract. Under the common law of contracts, if you can prove that they have breached, you are no longer obligated to them and can tell them to get off the job. The idea that you have to have a default clause in a subcontract to get rid of a nonperforming sub is absurd. The idea that you cannot get rid of a nonperforming sub unless the government directs you to or decides to get rid of you is ridiculous. If you agree to those terms you are stupid, unless the sub has an iron hold on you.

Hire a lawyer.

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Your contract with your sub is, presumably, a commercial contract. You do not need a default clause in a subcontract to get rid of a sub that has breached its contract. Under the common law of contracts, if you can prove that they have breached, you are no longer obligated to them and can tell them to get off the job. The idea that you have to have a default clause in a subcontract to get rid of a nonperforming sub is absurd. The idea that you cannot get rid of a nonperforming sub unless the government directs you to or decides to get rid of you is ridiculous. If you agree to those terms you are stupid, unless the sub has an iron hold on you.

Hire a lawyer.

As I stated above, I agree. The prime does need to include some indemnification language in the subcontract covering damages due to poor performance or other acts (short of a breach), by the sub. If the sub performs to the extent that a termination isnt warranted but poor performance causes damage to the prime's interest, the prime should cover themselves under the contract.

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Please explain "poor performance.., (short of breach)...."

If it's not breach, then it's acceptable. So... what makes the performance "poor"? What kind of "damages" are you talking about?

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Please explain "poor performance.., (short of breach)...."

If it's not breach, then it's acceptable. So... what makes the performance "poor"? What kind of "damages" are you talking about?

If the sub falls behind schedule, even temporarily then makes up the schedule later, it could impact other work or schedules, possibly affecting overall schedule and/or costs or that would require rescheduling of work. If subs get into squabbles over working space, access within the construction site, etc., there are often impacts and loss of efficiency. Late material deliveries, defective material or equipment that the sub didn't cause. typical construction deficiencies that require rework, etc. could affect other work, efficiency or schedule. Even "substantial performance" or situations involving the "Economic Loss" Doctrine" may end up costing the prime contractor time or cost, litigation costs or defense against litigation. There are all sorts of situations where actions by subs may affect schedules or costs. How about a construction accident for example? There are all sorts of situations where the prime might incur legal costs or company costs to defend or resolve problems that subs may cause that would otherwise not be recoverable under breach claims or lawsuits.

Indemnification provisions often help protect the prime from huge legal expenses in defending problems involving subs. In addition, such provisions can provide remedies within the contract to hopefully avoid having to sue for breach of contract.

SubK said in her post #4 above:

I had a previous issue with a Sub and the Customer had huge issues with the Subcontractors performers and the way they were moving employees off and on the contract, because of a poorly written and negotiated subcontract, there wasn't much we could do (very small business with a very large sub) but ask the CO to request removal, the CO would not. I want to make sure this doesn't happen again.

In response to her post #4, I advised SubK to obtain the advice of a contracts attorney in writing and negotiating her subcontract. This would be especially importabnt if she wants to avoid being bullied by large subs.

Of course, we don't know what type of contract or work is involved - SubK didn't elaborate. My perspective is primarily from that of construction but I have also been involved with large Systems Contracts that involve all phases of a program from design through construction, systemization, pilot testing, operations, maintenance and closure. Subs had major influence on the success of those projects.

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Joel, at al.:

Does poor performance fall within a type of breach (major, minor, fundamental, anticipatory)? Any suggested reading on the subject is appreciated.

Recently, I was presented a similar question about approving/disapproving subcontractors. Basically, our government customer (end user) wants to review and approve all changes in subcontractors.

USACE has some standard language but the admin burden seems high for all parties, especially if we already have similar protections. I'm not sure what those protections are or could be.

I suggested that we shouldn't be concerned with the subs; and simply allow the primes to run their business and we hold them accountable for meeting the contract terms.

Any thoughts? Should the government be overly concerned in approving subs on routine low risk contracts? What is gained, in pragmatic terms, by doing so?

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Does poor performance fall within a type of breach (major, minor, fundamental, anticipatory)? Any suggested reading on the subject is appreciated.

When is "poor" performance a breach? Ah, the problem of predicate vagueness -- Sorites paradox.

Read this: "Sorites Paradox," at the Stanford Encyclopedia of Philosophy http://plato.stanford.edu/entries/sorites-paradox/,

and this: "Vagueness," http://plato.stanford.edu/entries/vagueness/,

and this: "Vagueness, Degrees, and Gradable Predicates," https://www.msu.edu/~morzycki/work/papers/chapter_scales.pdf.

If you want more legalistic stuff, read:

"Death of Paradox: "The Killer Logic Beneath the Standards of Proof," Notre Dame Law Review, February 2013;

"On Communication," Michigan Law Review, May 2008; and

"Ex Tempore Contracting," William and Mary Law Review, May 2014.

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Sorites Paradox - what a [Heap]...

I think the career field needs a required reading list.

Ex Tempore Contracting, in fact ex ante and ex post, is not something federal contracting teaches, but is clearly relevant to this profession. Little is taught about contract law and the emphasis seems to be placed on formulaic procedures.

Starting to think 1102 seats are really just procurement clerks masquerading as contract specialists and contracting officers - self included.

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