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Commercial Subcontracting Requirements


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#1 cthewades

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Posted 07 November 2011 - 04:47 PM

When buying a commercial item of greater than $15M, how do I determine what we need to flow-down to a subcontractor of commercial items? If the subcontractor is an affiliated company, does this change anything?

If I read the FAR correctly, we would flow-down the clauses in Part 12 and those clauses superceded anything in other Parts of the FAR. What is not clear is what requirements would need to be flowed-down. For example, in subcontracts over $700k, small business reporting is required. Part 12 is silent and I am told that we do not have to flow this down to subs. What about the other mandatory flow-downs that would be difficult for the commercial supplier to comply?

#2 here_2_help

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Posted 07 November 2011 - 11:58 PM

When buying a commercial item of greater than $15M, how do I determine what we need to flow-down to a subcontractor of commercial items? If the subcontractor is an affiliated company, does this change anything?

If I read the FAR correctly, we would flow-down the clauses in Part 12 and those clauses superceded anything in other Parts of the FAR. What is not clear is what requirements would need to be flowed-down. For example, in subcontracts over $700k, small business reporting is required. Part 12 is silent and I am told that we do not have to flow this down to subs. What about the other mandatory flow-downs that would be difficult for the commercial supplier to comply?


FYI, a sale between two affiliated entities under common control is not a subcontract (as least as defined for flow down of clauses). It's an Inter-Organizational Transfer. See 31.205-26(e). As others have pointed out before, it's a "make" not a "buy".

Hope this helps.

#3 cthewades

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Posted 08 November 2011 - 10:46 AM

FYI, a sale between two affiliated entities under common control is not a subcontract (as least as defined for flow down of clauses). It's an Inter-Organizational Transfer. See 31.205-26(e). As others have pointed out before, it's a "make" not a "buy".

Hope this helps.


This does help but the section states, "affiliates of the contractor under a common control shall be on the basis of cost incurred..." I am not sure what is meant by "under a common control". We are owned by a foreign entity with completely separate reporting structure. Our commonality is that we both report to the same holding company. We are covered by FOCI whereas they are not since they are commercial. Do we still fall within the parameters of "common control"?

#4 Retreadfed

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Posted 08 November 2011 - 12:46 PM

This does help but the section states, "affiliates of the contractor under a common control shall be on the basis of cost incurred..." I am not sure what is meant by "under a common control". We are owned by a foreign entity with completely separate reporting structure. Our commonality is that we both report to the same holding company. We are covered by FOCI whereas they are not since they are commercial. Do we still fall within the parameters of "common control"?


"Common control" as used in the FAR is a procurement concept that is not to be confused with the accounting concept of a related party transaction. Except for Part 19, you will not find a discussion of what constitutes common control. I suggest you contact a knowledgeable procurement attorney to get an opinion on whether common control exsits in your situation. However, you should note that 31.205-26 should not apply to contracts or subcontracts for commercial items.




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