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Whynot

Subcontractor as a Sales Agrent to Prime - Applicable Flowdowns

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As a subcontractor, I will be performing exclusively as a sales agent of the prime (selling the prime's products and services to the customer). I will not be reselling, or providing any products or services being resold by the prime to the customer. How can one easily filter the prime contract clauses for those that applicable to a subcontractor sales agent?

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A few thoughts...not sure you are a subcontractor in the normal sense of the word that I am accustomed to. Your principal might want to issue a different type contract to you, other than a traditional subcontract, one that perhaps focuses on ensuring you abide by all ethics and work rules required of employees and the prime. If the principal insists on issuing a standard type subcontract to you with flowdowns from the prime contract, you may be able to accept many of them because they would be inoperative/inapplicable to the work you are to perform (and you are not providing any goods). I can not envision what "selling the prime's product and services to the customer" means. Usually, the sale is memorialized in a prime contract. There isn't anything more to sell after that.    .

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I don't see how you would be a subcontractor under the prime contract. Once a contract is awarded to the prime, what part of the contract work do you perform?

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I am a sales agent that gets paid commissions from the Prime when I bring in orders for products and services off of one their IDIQ schedule contracts – such as a GSA Schedule. Do flow downs from these schedule contracts apply to me? In a small business subcontracting plan would my commissions be included when reporting subcontracting dollars? Is a sales agent a personal services contract?

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13 hours ago, Whynot said:

I am a sales agent that gets paid commissions from the Prime when I bring in orders for products and services off of one their IDIQ schedule contracts – such as a GSA Schedule. Do flow downs from these schedule contracts apply to me? In a small business subcontracting plan would my commissions be included when reporting subcontracting dollars? Is a sales agent a personal services contract?

Sounds to me like the prime wants your commissions to be a direct cost of its contract; hence it names you subcontractor. I agree with the others that that designation does not necessarily make sense.

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Having contract battles in Government contracting is normal. If a contract is offered to you in writing, you can try take exception in writing to the clauses you think are inappropriate, indicating that you accept the contract without the objectionable clauses. In doing so, there is always a risk that your customer would just walk away from you and find someone else who will accept the clauses. I don't think anyone here can help your customer change its mind about whether you are a subcontractor that must be flowed certain clauses. Don't know what your goals are and what you think the solution is. Obviously, you can just walk away from the deal if you haven't signed the contract. 

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I was hoping for some support that a Commission Agreement did not meet the definition of a Subcontract - say per 19.701.

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How much should Whynot be concerned with the covenant against contingent fees? I'm not well-versed on the exceptions but flags go up when I read about arrangements like this.

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Subcontracting plans are not required from small businesses. Even if you were required to submit a subcontracting plan, since you apparently do not subcontract, it would be easy for you to fill one out with all zeros. Also, an argument can be made that a subcontracting plan is not required when there are no subcontract possibilities.

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1 hour ago, kevlar51 said:

How much should Whynot be concerned with the covenant against contingent fees? I'm not well-versed on the exceptions but flags go up when I read about arrangements like this.

See Darst, Sales Commissions & Contingent Fees In Government Contracts, 05-10 Briefing Papers 1 (September 2005).

The author provides a complete history and legal analysis of the covenant against contingent fees.

Quote

Five exceptions to the warranty allow a vendor to pay commissions or contingent fees on sales of goods and services to the U.S. Government without violating the “Covenant Against Contingent Fees.” Recognizing the circumstances under which a contingent fee may be paid is important because a violation of these statutory requirements may subject a vendor to criminal, civil, and administrative actions.

Quote

The key to understanding and complying with the various statutory, regulatory and policy limitations on the payment of contingent fees and sales commissions is to determine what the vendor's representative is being paid to accomplish and whether those activities are traditionally recognized as technical, professional, or administrative efforts or whether they are an improper attempt to influence the buyer's procurement officials. The principal purpose behind the “Covenant Against Contingent Fees” and FMS/FMF guidelines is to prevent improper and corrupting influence of Government procurement officials.

Courts, the statutes, and their implementing regulations have distinguished between normal marketing and sales efforts that may be common in the industry and efforts that may lead to the exertion of improper influence over Government officials. Today, there are several exceptions that permit the payment of contingent fees, including exceptions for bona fide employees and sales agents and commercial item transactions. Nevertheless, these exceptions are limited. What may be acceptable in the commercial marketplace may not always be appropriate in the U.S. Government procurement arena or in the context of foreign military sales. To avoid potential problems, Government contractors should make an effort to understand not only the laws and regulations governing these fees, but also the specific terms of their contingent fee agreements.

You can read the rest yourself.

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16 hours ago, Vern Edwards said:

See Darst, Sales Commissions & Contingent Fees In Government Contracts, 05-10 Briefing Papers 1 (September 2005).

The author provides a complete history and legal analysis of the covenant against contingent fees.

You can read the rest yourself.

Thanks very much for the cite, Vern. This has been informative--I've printed out the full article for some light reading later on. 

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