Breakout Session #803 Laurie Sandel, Compliance & Support Melisa Reyna, Procurement & Subcontracts Penny L. Whit

2. Analyzing Prime Contract Terms and Conditions Breakout Session #803 Laurie Sandel, Compliance & SupportMelisa Reyna, Procurement & SubcontractsPenny L. White, Procurement Process Management United Space Alliance, LLC April 10, 2006 2:45 – 3:45 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

3. Who is USA? United Space Alliance builds on its unrivaled experience with the Space Shuttle and International Space Station to provide innovative solutions for current and future space exploration. USA’s capabilities include systems processing; space operations training; mission planning and analysis; mission operations; systems engineering and integration; technology management for space operations; and human factors. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

4. DISCLAIMERThis briefing is based upon the 30+ years of the authors’ experience and is for general informational/discussion/education purposes only This material should not be relied upon in the course of representation or in the forming of decisions in legal matters - independent counsel should be obtained. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

5. Agenda • Unique Prime Contractor/Subcontractor Relationship • Overview of FAR • Types of Flowdowns • Analyzing Clauses • Alterations • Available Tools NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

6. Unique Prime Contractor/Subcontractor Relationship • Prime Contractor/Subcontractor Relationship • FAR is not applicable in its entirety • Subcontract falls under the U.C.C., parties are bound by U.C.C. requirements • FAR clauses included in subcontract are applicable to the extent they are agreed to by the parties • Failure to agree on mandatory flowdowns • May result in no subcontract being issued • Deviations can be requested from ACO, within their authority • Failure for Prime to include mandatory flowdowns • Responsibility rests with prime • Government seeks restitution with prime only • Prime carries the risk NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

7. FAR Overview • Federal Acquisition Regulation (FAR) definition • Government regulations encapsulating codification of U.S. statutes, laws, and executive orders • Government agencies have FAR Supplements NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

8. FAR Overview cont. • Availability • Paper Version published every January and July http://business.cch.com/govContracts/default.asp • On-line Versions: • http://farsite.hill.af.mil • http://www.arnet.gov/far/ • Outdated clauses • Version included in your prime contract is version you are to follow, unless specifically superseded • Older versions can be found in the archive sections NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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11. FAR Overview, Continued • Part 52 – Contract Clauses • Section specific to the clauses that are to be included in a solicitation and/or government contract • Section 1-49 instructions to the government agencies on operations • They are applicable to prime contractors only to the extent specified in prime contract NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

12. FAR Overview, Continued • Prescriptives • Each FAR clause, prior to the language of the clause itself, references a prescriptive clause • Calls out when the clause is applicable • The CO should include a clause in a government prime contract • Flow down requirements may be hidden in prescriptives NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

13. FAR Overview, Continued For example: 52.245-5, Government Property (Cost-Reimbursement, Time-and-Material, or Labor-Hour Contracts) “As prescribed in 45.106(f)(1), insert the following…..” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

14. FAR Overview, Continued • Executive Orders, Laws, and Statutes • Flow down of executive orders, laws, and statutes are more difficult to determine applicability. • Language may or may not be explicit regarding first-tier or lower subcontracts • May be implied or assumed to flow down (i.e., Greening the Government) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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19. Types of Flowdowns • Government Mandatory • Includes language in clause itself, or in FAR prescriptive • Thresholds • Applicability Statements • What is being purchased • Contract type NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. Types of Flowdowns • Government Mandatory example 52.244-6, Subcontracts for Commercial Items “(d) The Contractor shall include the terms of this clause, including this paragraph (d), in subcontracts awarded under this contract.” No threshold, as written NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Types of Flowdowns • Government Mandatory example 52.203-6, Restrictions on Subcontractor Sales to the Government “(c) The Contractor agrees to incorporate the substance of this clause, including this paragraph (c), in all subcontracts under this contract which exceed $100,000.” Dollar threshold, substantially same NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

22. Types of Flowdowns, Continued • Contract Mandatory • Included in your prime contract • Specific to the prime contract due to nature of the work or special requirements • Usually found in Section G or H of the prime contract NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

23. Types of Flowdowns, Continued • Contract Mandatory, example “Government-Provided Russian Language and Logistics Services (RLLS) The Seller is authorized use of the following RLLS in performance of this contract or any subcontract entered into…..This provision, including this flowdown requirement, shall be inserted in all subcontracts where it is anticipated that RLLS may be necessary for contract performance.” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

24. Types of Flowdowns, Continued • Business Recommended • Can prime contractor meet its obligations? • Reporting roll-ups • Turn around times • Reduce prime contract liability NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

25. Types of Flowdowns, Continued • Business Recommended example • 52.243-1, Changes - Fixed Price • Not a mandatory flow-down • Prime contractor needs to be able to modify a subcontract affected by a government change directed to the prime NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

26. Types of Flowdowns, Continued • Business recommended example • Where prime should replace the clause with alternate language specifically addressing relationship because the Government has more rights than the Prime Contract • 52.203-3, Gratuities “(d) The rights and remedies of the Government provided in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

27. Do we really have to read EVERYTHING? • Locating and maintaining outdated FAR clauses • Collecting information NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

28. Analyzing Clauses • What do I look for? • Rights the government has by law • Language providing the Seller with rights above and beyond commercial practices • Who in my organization should be involved? • Subject Matter Experts (SME) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

29. Alterations • Changes to reflect relationship of the Parties • Government • Prime Contractor • Contractor • Subcontractor • Lower-tier subcontractor NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

30. Alterations • Changes to reflect relationship of the parties example • FAR 52.211-5, Material Requirements “Contracting Officer” means Buyer and “Government” means Buyer in the last sentence.” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

31. Alterations • Changes to protect the Government’s rights • FAR 52.245-5, Government Property (Cost-Reimbursement, Time-and-Material, or Labor Hour Contracts) “(g) Limited risk of loss (1) The Contractor shall not be liable for loss or destruction of, or damage to, the Government property provided under this contract or for expenses incidental to such loss, destruction, or damage, except as provided in subparagraphs (2) and (3) below….” • Paragraph (g) cannot be included in a subcontract except with Contracting Officer approval NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

32. Alterations • Changes to limit the Seller’s rights • FAR 52.232-25, Prompt Payment “(4) Interest penalty. The designated payment office will pay an interest penalty automatically, without request from the Contractor, if payment is not made by the due date and the conditions listed in paragraphs (a)(4)(i) through (a)(4)(iii) of this clause are met, if applicable…..” • Commercial entities usually allow standard commercial business practices to prevail, but may negotiate a number of ways to resolve a late payment NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

33. Alterations • Changes to allow for turnaround time • FAR 52.225-8, Duty-Free Entry “In paragraph (c)(2), change “10 days” to “20 days” • This allow the prime contractor to then submit the request to the Contracting Officer in compliance with the clause NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

34. Alterations, Continued • Methods of Alterations • Definitions • Full Text • Each clause individually • Notes as alterations • Applicability statements NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

35. Alterations, Continued • Definitions • “As used in this Order: • “Buyer” means [prime contractor] • “Contracting Officer” the Contractor-authorized Procurement Agent and procurement management personnel; • “Lower-tier Subcontractor” means any party entering into an agreement with the Subcontractor or any other party who has entered into a contract with the Subcontractor, for the furnishing of supplies or services required for the performance of this Order • “Subcontractor” and “Seller” means the business entity contracted to provide the materials, supplies, or services covered by this Order”……. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

36. Alteration, Continued • Full text “FAR 52.211-5 Material Requirements, as modified ….(d) A proposal to provide used, reconditioned, or remanufactured supplies shall include a detailed description of such supplies and shall be submitted to the Buyer for approval.” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

37. Alteration, Continued • Each clause individually “FAR 52.211-5 Material Requirements In paragraph (d) replace “Contracting Officer” with “Buyer’ NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

38. Alteration, Continued • Notes • FAR 52.211-5 Material Requirements “See note 3.” Note 2 - Insert “and Buyer” after Government” throughout this clause. Note 3 - Substitute “Buyer” for “Government” or “United States” as applicable throughout this clause. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

39. Alteration, Continued • Applicability statement • FAR 52.227-37, Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans “Applicable to Order that exceed $25,000 or more unless exempted by rules, regulations, or orders of the Secretary of Labor” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

40. Waivers/Alterations to Mandatory Clauses • Require Contracting Officer Consent • Prime Contractor must request on behalf of the subcontractor, if agreeable NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

41. Waivers/Alterations Continued • Recommend including the following in requests • Subcontractor information (location, business classification, place of performance, etc.) • Prime Contract Number • Purpose/commodity of subcontract • Subcontract Type • Dollar Value of Subcontract • Identify name and number of Prime Contract clause for which waiver is requested • Identify differences between Prime contract clause and alterations requested • Explain waiver rationale/justification in detail, including cost impact, if any • Identify any consideration the prime contractor is obtaining from the subcontractor for waivers, if any NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

42. Available Tools • WIFCON – Vern Edwards Article • Mandatory clauses only • Excellent source for finding where mandatory language is included in a specific clause http://www.wifcon.com/analysis2004.htm#vernflowdown NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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44. Available Tools • Agency applicability matrices • FAR • NASA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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47. Available Tools • Major Prime contractor supplier websites • Won’t address what they didn’t flowdown • Usually geared to their primary customer (NASA, DoD, etc.) • Many are business decisions • Website Locations • “Doing Business” • “Supplier Net” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

48. Available Tools • Excel Spreadsheets • Sample of format • Agency Flowdown matrices NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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