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Subcontracts - Code of Business Ethics 52.203-13

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Hi,

The Contractor Code of Business Ethics FAR 52.203-13 requires that contractor flowdown the clause to subcontractors who furnish supplies in excess of $5M with a period of performance of greater than 120 days. My question is what if a company issues a subcontract to a supplier of a commodity for $10M. The commodity that is purchased from the subcontractor is used across many contracts across the company, both on commercial and government contracts. Would the contractor still be required to flowdown this clause? The end items that are furnished to the government in the case are COTS if that makes any difference.

Thank you,

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Hi,

The Contractor Code of Business Ethics FAR 52.203-13 requires that contractor flowdown the clause to subcontractors who furnish supplies in excess of $5M with a period of performance of greater than 120 days. My question is what if a company issues a subcontract to a supplier of a commodity for $10M. The commodity that is purchased from the subcontractor is used across many contracts across the company, both on commercial and government contracts. Would the contractor still be required to flowdown this clause? The end items that are furnished to the government in the case are COTS if that makes any difference.

Thank you,

I'm unclear regarding how your company is acquiring its "COTS commodity". You say that you are issuing a $10 million subcontract for the commodity that is "used across many contracts across the company." If you have multiple contracts using the commodity, don't you have multiple sets of flow-down clauses? Why does this one clause, in particular, cause you concern -- I would be concerned about dozens of different clauses, if your acquisition vehicle was truly a "subcontract." How is your acquisition vehicle a subcontract?

I'm guessing that it is NOT a subcontract. I'm guessing that it is some kind of enterprise-wide, long-term, supplier agreement in which the commodity is acquired for company inventory purposes, and then subsequently released from inventory to contracts as needed. Am I close?

If I'm right, that does not meet the definition of a "subcontract" as I understand the term. If I'm right, or even close to being right, then the answer to your question is NO.

If I've totally missed the mark, then please provide details regarding the acquisition vehicle being used. Is it FAR-based? If so, was it placed via FAR Part 12? If you are acquiring a COTS commodity, then Part 12 could be appropriate.

Hope this helps.

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The clause is applicable to subcontracts for commercial items. See FAR 44.402( B) and 52.244-6?(1)(i).

Here are two pertinent definitiions from the clause:

"Subcontract" means any contract entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract.

"Subcontractor" means any supplier, distributor, vendor, or firm that furnished supplies or services to or for a prime contractor or another subcontractor.

Here is what the clause says about flowdown:

The Contractor shall include the substance of this clause, including this paragraph (d), in subcontracts that have a value in excess of $5,000,000 and a performance period of more than 120 days.

Emphasis added. Now, let's think it through. It strikes me that the subcontract in question has a value in excess of $5,000,000. It's value is $10,000,000. If the subcontract has a performance period of more than 120 days, then the clause goes in, don't you think? The clause does not say that it must be flowed down only if the subcontractor will provide $5,000,000 or more worth of supplies for use under the prime contract in question.

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Yes, the commodity is exactly what you are saying. The commodity is stored in inventory and released to contracts as needed (including being released to manufacture this end item for the government contract.) My question is, how does one tell the difference between a subcontract and a supplier agreement. When I look at the definition of subcontract in the FAR it states that "Subcontract means any contract as defined in subpart 2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders." It seems as if agreements / contracts for supplies would fall under the definition of subcontract. Is there anything in the FAR that distinguishes the two?

Thank you for all of your help.

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Yes, the commodity is exactly what you are saying. The commodity is stored in inventory and released to contracts as needed (including being released to manufacture this end item for the government contract.) My question is, how does one tell the difference between a subcontract and a supplier agreement. When I look at the definition of subcontract in the FAR it states that "Subcontract means any contract as defined in subpart 2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders." It seems as if agreements / contracts for supplies would fall under the definition of subcontract. Is there anything in the FAR that distinguishes the two?

Thank you for all of your help.

You're reading the wrong definition of subcontract. The one you quoted is from FAR Part 44. The one that counts is the one in FAR 3.1001 and in 52.244-6.

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You're reading the wrong definition of subcontract. The one you quoted is from FAR Part 44. The one that counts is the one in FAR 3.1001 and in 52.244-6.

My point was, simply, that the subcontract needs to be directly related to the prime contract, so that the clause in the prime contract can be flowed-down to the supplier. In your case, my position would be that your supply contract is no more related to the prime contract than your agreement with your local utility company to supply electricity to the production area. You're not planning to flow the clause to your local utility company, are you? If not, why not?

But what is going to control here is not what I say or what I say that the FAR says. What's going to control here is your company's policies and procedures, how they define and treat various agreements from purchase orders to consulting agreements to long-term agreements to major subcontracts. Policies and procedures, when they contain clear definitions and are consistently followed, have great weight.

Hope this helps.

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My point was, simply, that the subcontract needs to be directly related to the prime contract, so that the clause in the prime contract can be flowed-down to the supplier.

I don't agree that the subcontract needs to be "directly related" to the prime contract, if by that you mean that the subcontract price must be directly charged to the prime contract. In my opinion, the $10 million contract in question should contain the clause.

According to the clause, if "any supplier, distributor, vendor, or firm that furnished supplies or services to or for a prime contractor" for "performance of a prime contract or a subcontract," then the clause must be flowed down. I cannot that the clause need not be flowed down to a utility. That is not at all clear to me from the language of the clause. Nor, in my opinion, can it be clear to you. You must be applying some kind of "common sense" rule to the interpretation of the clause. That approach is notoriously unreliable in government contracting.

I believe that if a prime contractor enters into a contract with another firm for supplies or services and any of part of those supplies or services end up being used in the performance of the prime contract, then the contract with that firm must receive the clause. If you think I'm wrong, prove it from the language in the clause.

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I don't agree that the subcontract needs to be "directly related" to the prime contract, if by that you mean that the subcontract price must be directly charged to the prime contract. In my opinion, the $10 million contract in question should contain the clause.

According to the clause, if "any supplier, distributor, vendor, or firm that furnished supplies or services to or for a prime contractor" for "performance of a prime contract or a subcontract," then the clause must be flowed down. I cannot that the clause need not be flowed down to a utility. That is not at all clear to me from the language of the clause. Nor, in my opinion, can it be clear to you. You must be applying some kind of "common sense" rule to the interpretation of the clause. That approach is notoriously unreliable in government contracting.

I believe that if a prime contractor enters into a contract with another firm for supplies or services and any of part of those supplies or services end up being used in the performance of the prime contract, then the contract with that firm must receive the clause. If you think I'm wrong, prove it from the language in the clause.

Vern, as you are well aware this topic of "what is a subcontract" has been debated to death in this forum. Let's not rehash it again, please. If my posts were helpful to contractadmin, then I'm happy with my position, which I would assert is not based on a "common sense" interpretation. If your posts were helpful to contractadmin, then I'm happy for you (and for contractadmin, too).

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You're reading the wrong definition of subcontract. The one you quoted is from FAR Part 44. The one that counts is the one in FAR 3.1001 and in 52.244-6.

Vern, I need some clarification of your position in regard to what is the appropriate defintiion of a subcontract in this instance. FAR 52.203-13 contains one defintion of a subcontract. On the other hand, 52.244-6 simply says the term subcontract includes transfers of commercial items between related entities. Because 52.244-6 is a clause required by Part 44, would not the defintion of subcontract in Part 44 supplement the definition of subcontract in the clause? In that case wouldn't the definition from Part 44 and what is in 52.244-6 determine when 52.203-13 is to be included in a subcontract for a commercial item? To me, although the two defintions are quite similar, 52.244-6 would require 52.203-13 to be included in a broader category of subcontracts than 52.203-13 because 244-6 does not contain any limitations on the size or duration of contracts in which the clause is to be inserted.

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Because 52.244-6 is a clause required by Part 44, would not the defintion of subcontract in Part 44 supplement the definition of subcontract in the clause? In that case wouldn't the definition from Part 44 and what is in 52.244-6 determine when 52.203-13 is to be included in a subcontract for a commercial item?

Actually, it may be that the definition of subcontract in FAR 44.101 is narrower than the one in 52.203-13, because it includes the words "as defined in Subpart 2.1." In any case, I doubt that we can argue that the definition in FAR 44.101 and the clause at FAR 52.244-6 require flowdown of the clause to a larger set of subcontractors than the clause at FAR 52.203-13, since that clause requires flowdown only to subcontracts that exceed the thresholds, and we must harmonize seemingly conflicting terms. It is clear that the FAR councils did not intend to apply the policy more broadly.

This is a nice demonstration of the goofiness of the FAR definitions.

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Actually, it may be that the definition of subcontract in FAR 44.101 is narrower than the one in 52.203-13, because it includes the words "as defined in Subpart 2.1." In any case, I doubt that we can argue that the definition in FAR 44.101 and the clause at FAR 52.244-6 require flowdown of the clause to a larger set of subcontractors than the clause at FAR 52.203-13, since that clause requires flowdown only to subcontracts that exceed the thresholds, and we must harmonize seemingly conflicting terms. It is clear that the FAR councils did not intend to apply the policy more broadly.

This is a nice demonstration of the goofiness of the FAR definitions.

Or another example of when the councils did not think things through when they promulgated a regulation.

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