In the world of Government Contracting there are a lot of players trying to get a piece of the pie. Contractors and subcontractors alike are all trying to use their expertise to win a bid. Though, with the Government’s intricate standards on awards, expertise isn’t enough. Primes and subcontractors need to adhere to a strict set of requirements to qualify and avoid deficiencies. Sometimes these guidelines can be easy to miss and things can get really confusing when you try to read through the entire FAR (Federal Acquisition Regulation). So, for these reasons we have broken down a simple guideline to consider when using or acting as a subcontractor in Government awarded contracts.

The Prime

The Subcontractor

Selection

As a prime, you don’t have the ability to just hire any subcontractor. The government requires you to first obtain consent to subcontract from your contracting officer and provide the following:

  • A description of the supplies and/or services to be subcontracted
  • Identification of the type of subcontract to be used
  • Identification of the proposed subcontractor
  • The proposed subcontract price

When a prime submits a request for subcontractor approval they must include the review package accomplished by the prime contractor and/or by the higher-tier subcontractor involved, including any cost and/or price analysis if available. The request must also include the subcontractor’s proposal to the prime or higher-tier contractor. It is also a best practice to select subcontractors on a competitive basis.

As a subcontractor it is your responsibility to gain a complete understanding of your contract. Be sure that you are aware of flow down requirements and contract clauses.

  • Termination for convenience of prime
    • Under what circumstances?
  • Blanket flow down of all prime contract clauses
  • Inconsistencies among documents
    • Which will take precedence?
  • What is the close out process?
    • Requirements?

It is the prime’s responsibility to ensure that their subcontractor has the appropriate technical, financial, and overall ability to complete the work under the subcontract terms, but it is the subcontractor’s responsibility to accurately disclose their capabilities. This starts with the submission of a proposal to your prime or higher-tier contractor, including proposal cover sheet if FAR 15.408, Table 15-2 is used, and related cost or pricing data.

Monitoring

As a prime, you are responsible for your subcontractors. That means monitoring their technical and financial performance and payment for all work accomplished under subcontract terms. To effectively do this, it is suggested that you require:

  • Government or contractor access to the subcontractor’s books and records
  • Billings to only include allowable costs
  • The subcontractor to submit annual incurred cost proposals

When keeping track of your subcontractors and complying with FAR’s Allowable Cost and Payment Clause (FAR 52.216-7), be sure to include:

  • List of subcontracts you have awarded to companies
  • Prime and subcontract numbers
  • Subcontract value and award type
  • Amount claimed during the fiscal year
  • Subcontractor name, address, and point of contract information

Also, within this clause it is important to note that the prime is responsible if the subcontractor overbills or bills for unallowable cost, so it is important to monitor your subcontractors closely.

As a subcontractor, it is your responsibility to be open and compliant with your prime or higher-tier contractor. This means following the appropriate procedures outlined in your subcontract and using the correct tools for the job. For example, if you have a subcontract award that is Cost type, you have to:

  • Verify that you have an adequate accounting system
    • More on this later…
  • Submit an ICP (Incurred Cost Proposal)
  • Monitor your rates and adjust in accordance with FAR

Your prime should verify that you are doing all of these things, but it is a best practice for you to be prepared to give them information and documents that they require. The best way to do this, and another best practice, is to know what is required of the prime. This will ensure that information is passed smoothly, communication is effective, and compliance is maintained.

Avoiding Deficiencies

This is a team effort. While the prime and subcontractor share many overlapping responsibilities, compliance is one where both parties must equally pull their weight.

1. Make sure the paperwork is correct

The first way to ensure compliance is to double check that your forms and clauses are correct. This may seem simple, but it is everyone’s responsibility to practice thoroughness when it comes to the forms and contracts they sign.

2. Be transparent

Being open and transparent with your partners and the Government is essential when it comes to staying compliant. Primes should be open about the access they expect from their subcontractors and subcontractors should give access willingly if their contract requires it.

3. Make sure your accounting procedures and systems are adequate

The Government requires certain standards when it comes to contract accounting. Both the prime and subcontractor are required to adhere to these standards. The best way to ensure you have an adequate accounting system is to use one that has been time-tested and built compliant from the ground up. Deltek has been providing accounting software for Government Contractors for over 30 years. They have used best practices and ever-changing government standards to fine-tune their software into the most effective and reliable accounting software for Government Contractors available today. To take the worry out of compliance it is essential to operate on a system that was build for government accounting.