NCMA - BOSTON CHAPTER
49TH ANNUAL MARCH WORKSHOP
THE ART OF DRAFTING AND
NEGOTIATING THE FEDERAL SUBCONTRACT
March 10, 2010
Panel:
Gary Campbell - McCarter & English, LLP
Dan Kelly – McCarter & English, LLP
Maridee Kirwin – SAIC
Agenda
 Overview of key concepts
 Hypothetical
 Discussion of key terms/sample clauses
– Audience Participation!
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Overview
 Do your homework
– Due Diligence on subcontractor (and prime)
 Understand contract framework
– Cost plus or fixed price?
– Products or services?
– Commercial item?
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Hypothetical Subcontract
 U.S. Navy Contract to Missiles “R” Us
– Development of Next Generation Missile Scoring System
 Missiles ‘R” Us wants to utilize Radar, Inc.’s existing
radar technology
 This technology is at the core of, and modified, for all of
Radar’s products, but never before used in a missile
scoring system
 Missiles “R” Us awards a $1.5 Million Fixed-Price
Subcontract to Radar, Inc.
 Radar is to deliver a prototype and source code
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Key Subcontract Terms
Let’s look at our
proposed subcontract!
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Key Subcontract Consideration
 PO must address:
– Who?
• Buyer and Seller
– What?
• What is to be
delivered?
– Where?
• Where performed?
Where delivered?
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– When?
• When is delivery?
Time of the
essence?
– How Much?
• Payment Terms
clear?
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Incorporation/Order of Precedence
 Importance of clarity in language
– Many layers add ambiguity and confusion
– Subcontract language has no safety net
 Need to make incorporation and OOP
clause a priority
 FAR Flowdown OOP clause not adequate
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Inspection/Acceptance – ¶ 2
 Should state the who, what, where and
when of any inspection or acceptance
requirements.
 Failure to have definitive terms may lead
to a revenue recognition issue.
 May also effect triggering of warranty
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period.
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Changes - ¶ 4
 Should be in body of subcontract, not a
flowdown
 Modify to reflect risk allocation
 Bilateral or unilateral
 If unilateral, what are the restrictions on
filing an equitable adjustment?
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Termination – ¶ 5
 Should be in body of subcontract, not FAR
clause
 Modify as appropriate to reflect risk
allocation
 Recovery in event of T for C needs to
reflect contract framework
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IP Rights - ¶ 6
 Primes need to obtain sufficient rights for the
Government
 Prohibited from obtaining greater rights
 Application of incorporation language and
flowdowns results in prime gaining licenses and
other rights
Linerights
1 language non-negotiable
 Title
Patent
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IP Rights – ¶ 6
Technical Data Rights
 Subcontractor Considerations:
–
–
–
–
Competition with the prime
Protection of technical data
Lack of access to the Government
Limiting and negotiating rights given to USG in IP
delivered to the USG
– What are deliverables?
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Need to consider products as well as SDRLs
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Warranty - ¶ 7
 FAR 52.246-17, 52.246-18, 52.212-4(o)
– FAR Pt. 12 term incorporates implied warranties
 No required FAR warranty
 Time period
– Sub’s warranty may begin on delivery to prime and
expire before even delivered to the Government
 Commercial Item Contracts may include the
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contractor’s commercial warranty (FAR 12.404)
2 obvious disclaimer of implied warranties
 Line
Need
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Limit of Liability - ¶ 8
 Disclaimer of Consequential Damages
– Commercial practice, but prime needs to protect itself
with Government
 Monetary cap on direct damages
– Prime contract is unlikely to contain such a provision
– Do the parties agree to allocate the risk in such a
manner?
 Title
Prime
liable
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1 to the Government for excess
reprocurement costs
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– Many commercial limitations limit recovery to as
provided for in contract
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Disputes - ¶ 11
 FAR 52.233-1
 Prime should seek to address actions resulting
from Government action through “sponsoring”
sub’s claim
 Negotiated disputes clause for other actions
 Do not recommend agreeing to jurisdiction
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Indemnification ¶ 15
 Typically, no indemnification to or from the
Government (other than patent indemnity)
 Common commercial term
 Can be used to address defective pricing,
disallowed costs, other reductions in prime’s
contract price
 Title
Should
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FARS and DFARS Flowdowns
 “Kitchen Sink” Approach disfavored
 Mandatory & Necessary
– Depends on type and value of subcontract
– Subs should request copy of prime contract
 Christian Doctrine
 Incorporation Language
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2 to reconcile flowdowns with body of
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Need
– Introductory language replacing “Government” with
‘Prime” generally not appropriate
subcontract to avoid confusion and contradiction
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Ethics Flowdowns
 52.203-7, Anti-Kickback Procedures
– Required in all subcontracts over $100,000
 52.209-6, Protecting the Government’s Interest when
Subcontracting With Contractor’s Debarred, Suspended
or Proposed for Debarment
– Not required but reasonable expectation to include in subcontracts
over $30,000
 252.203-7001, Prohibition on Persons Convicted of
Fraud or Other Defense Contract Related Felonies
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– Required in all non-commercial item subcontracts over SAT
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Socioeconomic flowdowns
 52.219-8, Utilization of Small Business Concerns
– Required in all subcontracts with further subcontracting
opportunties
 52.219-9, Small Business Subcontracting Plan
– Required in all subcontracts over $550,000
 52.222-26, Equal Opportunity
– Required in all subcontracts over $10,000
 52.222-35, Equal Opportunity for Special Disabled Veterans,
Veterans of the Vietnam Era, and Other Eligible Veterans
– Required in all subcontracts over $100,000
 52.222-36, Affirmative Action for Workers with Disabilities
– Required in all subcontracts over $10,000
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IP clauses
 52.227-1, Authorization and Consent
– Required in all subcontracts over SAT
 252.227-7013, Rights in Technical Data –
Noncommercial
 252.227-7014, Rights in Noncommercial
Computer Software
– Needs
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negotiate license rights
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General flowdowns
 52.204-2, Security Requirements
– Required in all subcontracts with access to
classified information
 52.211-15, Defense Priority and Allocation
Requirements
– Not a required flowdown, but it applies anyway
 52.223-6, Drug-Free Workplace
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– Not
a required
flowdown
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Commercial Item Subcontract Flowdowns – FAR
52.244-6
 52.203-13, Contractor Code of Business Ethics and Conduct;
 52.203-15, Whistleblower Protections Under the American
Recovery and Reinvestment Act of 2009;
 52.219-8, Utilization of Small Business Concerns;
 52.222-26, Equal Opportunity;
 52.222-35, Equal Opportunity for Special Disabled Veterans,
Veterans of the Vietnam Era, and Other Eligible Veterans;
 52.222-36, Affirmative Action for Workers with Disabilities;
 52.222-50, Combating Trafficking in Persons ;
 52.247-64, Preference for Privately Owned U.S.-Flag
Commercial Vessels.
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Q&A
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Panel Members
Gary Campbell
McCarter & English, LLP
265 Franklin Street
Boston, MA 02110
617.449.6558
gcampbell@mccarter.com
Dan Kelly
McCarter & English, LLP
265 Franklin Street
Boston, MA 02110
617.449.6526
dkelly@mccarter.com
Maridee Kirwin
SAIC
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7 Wells Avenue
Newton Centre, MA 02159
617.618.4630
mkirwin@saic.com
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