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Subcontracting and Flow Down Clauses: Understanding What the FAR Does - and Does Not - Require. Breakout Session #605 Name: Jeff H. Eckland, Eckland & Blando LLP Date: July 20, 2010 Time: 3:45 PM. 2. AGENDA. Flow Down Overview Subcontracts v. Supplier Agreements

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subcontracting and flow down clauses understanding what the far does and does not require
Subcontracting and Flow Down Clauses:Understanding What the FAR Does - and Does Not - Require

Breakout Session #605

Name: Jeff H. Eckland, Eckland & Blando LLP

Date: July 20, 2010

Time: 3:45 PM

2

agenda
AGENDA
  • Flow Down Overview
  • Subcontracts v. Supplier Agreements
  • Case Study: ARRA’s Unique Requirements
  • Compliance
1995 far part 1 rewrite core guiding principles
1995 FAR Part 1 Rewrite: “Core Guiding Principles”

FAR 1.102 Statement of Guiding Principles for the Federal Acquisition System

. . .

(d) The role of each member of the Acquisition Team is to exercise personalinitiative and sound business judgment in providing the best value product or service to meet the customer’s needs.

. . . .

1995 far part 1 rewrite antibureaucracy statement
1995 FAR Part 1 Rewrite: “Antibureaucracy Statement”

FAR 1.102 Statement of Guiding Principles for the Federal Acquisition System

. . .

(d) In exercising initiative, Government members of the Acquisition Team may assume if a specific strategy, practice, policy or procedure is in the best interests of the Government and is not addressed in the FAR, nor prohibited by [statute or case] law, Executive order or other regulation, that the strategy, practice, policy or procedure is . . . permissible . . . .

. . . .

1995 far part 1 rewrite cont
1995 FAR Part 1 Rewrite (cont.)

(b) The Federal Acquisition System will—

(1) Satisfy the customer in terms of cost, quality, and timeliness of the delivered product or service by, for example—

(i) Maximizing the use of commercial products and services;

(ii) Using contractors who have a track record of successful past performance or who demonstrate a current superior ability to perform; and

(iii) Promoting competition;

(2) Minimize administrative operating costs;

(3) Conduct business with integrity, fairness, and openness; and

(4) Fulfill public policy objectives.

. . . .

commercial item flow down clauses
Commercial Item Flow Down Clauses

52.212-5  Contract Terms and Conditions Required to Implement

Statutes or Executive Orders— Commercial Items.

(e)(1) . . . the Contractor is not required to flow down any FAR clause, other than

those in paragraphs (i) through (vii) of this paragraph in a subcontract for commercial items.

(i) 52.219-8,Utilization of Small Business Concerns

(ii) 52.222-26, Equal Opportunity

(iii) 52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the

Vietnam Era, and Other Eligible Veterans

(iv) 52.222-36, Affirmative Action for Workers with Disabilities

(v) 52.222-39, Notification of Employee Rights Concerning Payment of Union Dues

or Fees

(vi) 52.222-41, Service Contract Act of 1965, as Amended

(vii) 52.247-64, Preference for Privately Owned U.S.-Flag Commercial Vessels

flow downs to be included by commercial item subcontractors
Flow Downs to be included by CommercialItem Subcontractors

52.219-8, Utilization of Small Business Concerns (May 2004) (15 U.S.C. 637(d)(2) and (3))

. . . in all subcontracts that offer further subcontracting opportunities. If the subcontract(except subcontracts to small business concerns) exceeds $500,000 ($1,000,000 for construction of any public facility), the subcontractor must include 52.219-8 in lower tier subcontracts that offer subcontracting opportunities.

flow downs
Flow Downs
  • Clauses prescribed by the government that a prime contractor* incorporates into subcontracts
    • The definition of prime contractor varies and some clauses are required to be flowed down from first-tier subcontractors to second (and third . . .) – tier subcontractors
flow downs10
Flow Downs

Proscribe rights and responsibilities of the prime

contractor and subcontractor

  • Examples
    • FAR 52.215-12 – Requires contractors to obtain subcontractor’s cost or pricing data before awarding subcontract
    • FAR 52.222-36 – Requires contractors to take affirmative steps in employing individuals with disabilities
flow downs11
Flow Downs
  • Flow Down clauses are located in multiple sources: the Federal Acquisition Regulation (FAR); Defense DFARS, and FAR Supplements
  • The clauses are amended regularly; these changes are identified and made available for public opinion in the Federal Register

www.federalregister.com

flow downs12
Flow Downs
  • Two-step process for identifying Flow Downs
    • Part 1: The implementing clause
    • Part 2: The contract clause
  • Additional guidance may be found in the Code

of Federal Regulations (CFR)

flow down fundamentals
Flow Down Fundamentals
  • Part One – The Implementing Clause

22.810Solicitation provisions and contract clauses.

(a)When a contract is contemplated that will include the clause at 52.222-26, Equal Opportunity, the contracting officer shall insert—

(1) The clause at 52.222-21,Prohibition of Segregated Facilities, in the solicitation and contract.

flow down fundamentals14
Flow Down Fundamentals
  • Part Two – The Contract Clause

52.222-21  Prohibition of Segregated Facilities.

As prescribed in 22.810(a)(1),insert the following clause:

Prohibition of Segregated Facilities (Feb 1999)

  • “Segregated facilities,” as used in this clause, means any waiting rooms, work areas, rest rooms and

wash rooms, restaurants and other eating areas, time clocks, locker rooms and other storage or

dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation,

and housing facilities provided for employees, that are segregated by explicit directive or are in fact segregated on the basis of race, color, religion, sex, or national origin because of written or oral

policies or employee custom. The term does not include separate or single-user rest rooms or

necessary dressing or sleeping areas provided to assure privacy between the sexes.

(b) The Contractor agrees that it does not and will not maintain or provide for its employees any

segregated facilities at any of its establishments, and that it does not and will not permit its employees

to perform their services at any location under its control where segregated facilities are maintained.

The Contractor agrees that a breach of this clause is a violation of the Equal Opportunity clause in

this contract.

(c) The Contractor shall include this clause in every subcontract and purchase order that is subject

to the Equal Opportunity clause of this contract.

(End of clause)

flow down fundamentals15
Flow Down Fundamentals

When does a Subcontractor assume responsibility as a contractor for flowing down to its own lower-tier subs?

  • In some FAR clauses, the definition of contractor is written to include subcontractor

52.222-41  Service Contract Act of 1965.

. . .

  • Definitions. As used in this clause—

“Contractor,” when this clause is used in any subcontract, shall be deemed

to refer to the subcontractor, except in the term “Government Prime Contractor.”

. . .

(l) Subcontracts. The Contractor agrees to insert this clause in all subcontractssubject to the Act.

. . . .

categories of flow downs
Categories of Flow Downs

Mandatory clauses – those that must be flowed down

Essential clauses – not mandatory but must be included for business purposes

Optional clauses – included at the discretion of the contractor

mandatory clauses
Mandatory Clauses

Mandatory Clauses are prescribed by the FAR for different categories of subcontracts depending upon whether:

  • The contract involves a Small Business;
  • The contract exceeds a certain $ amount;
  • The contract is for the acquisition of commercial materials; or
  • The contract meets other FAR prerequisites.
mandatory clauses18
Mandatory Clauses

Generally, the clauses fall into one of two categories:

  • Clauses implementing socio-economic policies of the federal government (socio-economic); or
  • Clauses intended to provide oversight of the use of federal funds (oversight).
example
Example

52.222-26  Equal Opportunity – Category 1 (socio-economic)

The contracting officer shall insert the clause at 52.222-26, Equal Opportunity, in solicitations and contracts unless the contract is exempt from all of the requirements of E.O. 11246 (see FAR 22.807(a)). 

(10) The Contractor shall include the terms and conditions of this clause in every subcontract or purchase order that is not exempted by the rules, regulations, or orders of the Secretary of Labor issued under Executive Order 11246, as amended, so that these terms and conditions will be binding upon each subcontractor or vendor.

example20
Example

52.215-12 Subcontractor Cost or Pricing Data–

Category 2(oversight)

Subcontractor Cost or Pricing Data —Modifications (Oct 1997)

(a) The requirements of paragraphs (b) and (c) of this clause shall—

  • Become operative only for any modification to this contract involving a pricing adjustment

expected to exceed the threshold for submission of cost or pricing data at FAR 15.403-4; and

(2) Be limited to such modifications.

(b) Before awarding any subcontract expected to exceed the threshold for submission of cost or pricing data at FAR 15.403-4, on the date of agreement on price or the date of award, whichever is later; or before pricing any subcontract modification involving a pricing adjustment expected to exceed the threshold for submission of cost or pricing data at FAR 15.403-4, the Contractor shall require the subcontractor to submit cost or pricing data (actually or by specific identification in writing), unless an exception under FAR 15.403-1 applies.

(c) The Contractor shall require the subcontractor to certify in substantially the form prescribed in FAR 15.406-2 that, to the best of its knowledge and belief, the data submitted under paragraph

(b) of this clause were accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract modification.

(d) The Contractor shall insert the substance of this clause, including this paragraph (d), in each subcontract that exceeds the threshold for submission of cost or pricing data at FAR 15.403-4 on the date of agreement on price or the date of award, whichever is later.

example21
Example

52.203-13  Contractor Code of Business Ethics and Conduct-- Category 2(oversight)

. . .

(d) Subcontracts.

(1) 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.

. . . .

essential clauses
Essential Clauses

Essential, while not mandatory, flow down clauses contractors should include to protect their business interests.

While not mandated by the FAR or DFARS, failure to include these clauses in a subcontract puts the contractor at extreme risk.

example23
Example

Termination for Convenience – FAR Subpart 49.5

  • Permits the federal government to cancel a prime contract at any time
  • Failure of the prime contractor to include a similar clause in subcontracts can result in significant adverse consequences
    • Obligations remain under its subcontract but the prime contract has been terminated
example24
Example

Change Orders – FAR Subpart 43.2

  • Contracting officers may issue change order, permitting unilateral changes to the prime contract at any time.
  • Failure of the prime contractor to include a similar clause in its subcontracts can result in significant adverse consequences.
    • Obligations remain under its subcontract but the prime contractor’s needs have changed.
supplemental clauses
Supplemental Clauses

Broad Clauses – recommend incorporation

FAR 52.222-35  Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans.

. . .

(f) Noncompliance. If the Contractor does not comply with the requirements of this clause, the Government may take appropriate actions under the rules, regulations, and relevant orders of the Secretary of Labor issued pursuant to the Act.

(g) Subcontracts. The Contractor shall insert the terms of this clause in all subcontracts or purchase orders of $100,000 or more unless exempted by rules, regulations, or orders of the Secretary of Labor. The Contractor shall act as specified by the Deputy Assistant Secretary of Labor to enforce the terms, including action for noncompliance.

applicability of flow downs
Applicability of Flow Downs
  • Generally, the FAR creates flow down obligations based upon the relationships among the parties:

“The Contractor shall include the terms and conditions of this clause in every subcontract or purchase order that is not exempted by the rules, regulations, or orders of the Secretary of Labor issued under Executive Order 11246, as amended, so that these terms and conditions will be binding upon each subcontractor or vendor.”

FAR 52.222-26 Equal Opportunity

contractor relationships
Contractor Relationships

Prime Contractor

Supplier of specially contracted items

The Federal Government

Supplier

of raw Materials

web of relationships
Web of Relationships

Prime Contractor

SUBCONTRACT

Supplier of specially contracted items

The Federal Government

SUPPLIER AGREEMENT

Supplier

of raw Materials

determining the relationship
Determining the Relationship
  • Subcontract or Supplier Agreement?
  • Federal law and regulations distinguish between a subcontractor and a material supplier
distinction between suppliers and subcontractors
Distinction between Suppliers and Subcontractors
  • FAR:

“[i]n the event of such termination, the Contractor shall immediately stop all work hereunder and shall immediately cause any and all of its suppliers and subcontractors to cease work.”

FAR 52.212-4 Contract Terms and Conditions

distinction between suppliers and subcontractors31
Distinction between Suppliers and Subcontractors
  • Judiciary:

“[a subcontractor is] one who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract, thus excluding ordinary laborers and materialmen.”

Clifford F. MacEvoy Co. v. United States, 322 U.S. 102, 109 (1944)

distinction between suppliers and subcontractors32
Distinction between Suppliers and Subcontractors
  • Comptroller General Decisions

A string of decisions issued by the Comptroller General beginning seventy-five (75) years ago recognizes the functional interpretation of the term “subcontract” in a variety of government contract fact patters. See e.g.,Comptroller General Warren to the Federal Works Administrator, B-24602, 22 Comp. Gen. 14 (1942):

“subcontract” relates to performance of a particular portion of the prime contract work.

distinction between suppliers and subcontractors33
Distinction between Suppliers and Subcontractors
  • Comptroller General Decisions (Contd.)

John J. Kirlin, Inc., Comp. Gen. B-187458, Apr. 7, 1977, 77-1 CPD ¶ 242 (fan-coil manufacturer, properly classified as a supplier where standard off-the-shelf commercial items, i.e., fan- coil units, did not require substantial alteration and no performance of onsite work was required, did not need to be disclosed as a subcontractor pursuant to Solicitation terms.

distinction between suppliers and subcontractors34
Distinction between Suppliers and Subcontractors

John J. Kirlin, Inc. (Contd.)

The GAO’s Opinion Supports Three (3) Principles:

  • First, commercial items generally are procured pursuant to supplier agreements rather than subcontracts;
  • Second, in determining whether a commercial item has been procured under a subcontract, the issue is the extent to which the manufacturer must participate in the contract’s performance; and
distinction between suppliers and subcontractors35
Distinction between Suppliers and Subcontractors

John J. Kirlin, Inc. (Contd.)

  • Third, a purchase is properly characterized as made pursuant to a subcontract rather than a supplier agreement when the specially manufactured portion is “significant or critical” to the item and the manufacturer performs substantial on-site work. A “trivial” customization will not affect the proper classification of a purchase order as a supplier agreement. Moreover, multiple “trivial” customizations will not be combined by the GAO to create a “significant” or “critical” customization requiring that the purchase order be classified as a subcontract.
distinction between suppliers and subcontractors36
Distinction between Suppliers and Subcontractors
  • Independent Offices Appropriations Act of 1953 (“IOAA”)

The GAO was asked to interpret the term “subcontract” – undefined in the IOAA– by the Atomic Energy Commission.

Specifically, the Comptroller General addressed whether, in the context of access to books and records, the contractor or any of its subcontractors engaged in the performance of and involving transactions related to [specified prime] contracts, the term subcontractor includes contracts and purchase orders which the prime contractor may enter into for general inventory items that are not specifically identifiable with the work called for under the prime contractor.

Comptroller General Warren, B-112178, 32 Comp. Gen. 277 (1952).

distinction between suppliers and subcontractors37
Distinction between Suppliers and Subcontractors
  • Independent Offices Appropriations Act of 1953 (“IOAA”)

The GAO specifically rejected an interpretation of subcontract that would encompass general inventory items not specifically called for under the prime contract. In rejecting this definition, the GAO referred to the definition of subcontract found in the Renegotiation Act of 1951:

A subcontract is defined . . . as any purchase order or agreement to perform all or any part of the work or to make or furnish any materials required for the performanceof any contract with the United States.

distinction between suppliers and subcontractors38
Distinction between Suppliers and Subcontractors
  • Independent Offices Appropriations Act of 1953 (“IOAA”)

There are three material determinations in the Comptroller’s decision which impact the distinction between suppliers and subcontractors:

- First, if no definition of subcontract is found in a particular statute, it is appropriate to consider the meaning of the term as used in other statutes with similar purposes;

- Second, the similarity between the Renegotiation Act of 1951 and the IOAA was sufficient to justify the application of the former Act’s definition of subcontract to the later Act; and

- Third, for the purpose of defining the scope of GAO access to records and

audit rights, the term subcontract should exclude entities that provide “general

inventory items not specifically identifiable with . . . work under the prime

contract.”

distinction between suppliers and subcontractors39
Distinction between Suppliers and Subcontractors
  • DCAA Audit Manual
  • Differentiates between suppliers and subcontractors in the context of conducting an audit: requires that subcontractors, but notsuppliers, produce accurate cost or pricing data for audits.
  • Additionally, also in the context of the audit process, suppliers are not investigated for reimbursements, whereas subcontractors are investigated to determine whether they received refunds or credits.
the far s definitions of suppliers and subcontractors
The FAR’s Definitions ofSuppliers and Subcontractors

While the FAR does distinguish the term subcontractor from supplier, the FAR’s multiple definitions of subcontractor often are inconsistent with one another. Consequently, it is always necessary to read the FAR provision closely.

far definitions
FAR Definitions

FAR Part 2, which “defines words and terms that are frequently used in the FAR,” does not contain a general definition of subcontractor or supplier.

far definitions42
FAR Definitions

FAR Part 44 “Subcontracting Policies and Procedures”

44.101  Definitions

Any contract as defined in Subpart 2.1 enteredintoby

a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract.

It includes but is not limited to purchase orders, and changes and modifications to purchase orders.

subcontract or supplier agreement
Subcontract or Supplier Agreement?
  • Determine whether the procurement involves a specialized or non-specializedgood or service
    • i.e., a good or service procured “for performance of a prime contract” as opposed to a good or service procured regularly, or available in the commercial market.
specialized goods or services
Specialized Goods or Services
  • Specializedgoods and services are characteristic of a Subcontract:
    • End product specified in the government contract;
    • Custom-made product or service pursuant to statement of work;
    • Product procured solely for government contract;
    • Contractor is generally advised or required to know the identity of the final government customer;
    • Provides an end product purchased in a “non-competitive” environment;
    • Contract negotiated/awarded exclusively to fulfill government contract (but for the contract, the purchase would not have been made).
examples of specialized purchases
Examples of Specialized Purchases

An order for armored trucks.

An order for specialized bullet-proof vests.

An order for customized software.

non specialized goods or services
Non-Specialized Goodsor Services
  • Non-specializedgoods or services are characteristic of a Supplier Agreement:
    • Goods or services are produced within normal business operations;
    • Goods or services are provided to multiple purchasers without modification;
    • Goods or services are sold in a competitive environment;
    • Contractor is generally uninformed and has no reason to know identity of final government customer;
    • Contract for goods or services negotiated/awarded independently of FAR requirements for government contracts.
examples
Examples

An order for a fleet of trucks.

An order for commercially available night-vision goggles.

An order for off-the-shelf Windows 7 software.

indirect costs
Indirect Costs
  • The apportionment of costs is recognized as an additional indicator of whether an agreement is a subcontract agreement or a supplier agreement.
    • “Subcontract agreements” should not be interpreted to include general purpose items or services the cost of which is charged to intermediate or final indirect cost pools . . .
    • 32 Pub. Cont. L.J. 739 (2003)
    • Whether the cost of the agreement should be charged as a direct cost to the contract, as opposed to an indirect charge, may be considered in distinguishing between “subcontract agreements” and “supplier agreements.”
    • Int’l Gov. C., Vol. 5, No. 4 at ¶ 26 (April 2008).
difficulty in appropriately flowing down clauses
Difficulty in AppropriatelyFlowing Down Clauses
  • Ambiguity – it can be difficult to determine when a clause must be flowed down
    • For example, some flow downs are limited to subcontracts, yet the FAR contains numerous, conflicting definitions of subcontract, as noted above
consequences of failing to appropriately flow down
Consequences of Failing to Appropriately Flow Down

Noncompliance may:

  • Become part of Contractor’s past performance record under FAR Subpart 42.15;
  • Result in the government withholding payments for the period of noncompliance;
  • Result in a breach of the terms of the prime contract.
importance of appropriately flowing down clauses
Importance of Appropriately Flowing Down Clauses

Protect your business

Comply with federal requirements

Retain Opportunity to Participate in Government Contracts

failure to flow down
Failure to Flow Down
  • The Christian Doctrine

G.L. Christian & Associates v. The United States, 160 Ct. Cl. 1

- Depending upon the nature of the clause, the Government may be able to read it into the contract despite the fact that it is not included in the terms of the contract.

  • Because a termination for Convenience clause may be read into a prime contract via the Christian Doctrine, a prime contractor’s failure to flow down this clause even if not included in the prime contract can

result in substantial losses.

arra and flow downs
ARRA and Flow Downs

The American Recovery and Reinvestment Act (ARRA) is an important resource; however, it comes with strings attached. The obligations attached to ARRA funding can be daunting to a prime contractor but they need not be. Distinguishing between a prime’s suppliers and subcontractors is key to the success of a prime contractor operating under ARRA funded projects.

to whom do arra flow downs apply
To Whom Do ARRA Flow Downs Apply?
  • All suppliersandsubcontractorsof goods and services used in whole or in part for ARRA funded projects

OR

  • Subcontractorsthat provide goods and services funded directly by ARRA
example55
Example
  • Commercial company with a long-standing Supplier Agreementfor the purchase of chocolate chips
    • The company produces chocolate chip cookies
  • Chocolate chip Supplier
    • Sells chocolate chips in the commercial market to multiple customers
    • Sells chocolate chips at prices negotiated in a competitive environment
    • Contracts are negotiated independently of FAR requirements
example continued
Example continued
  • What flow down requirements exist for the Company if the Government decides to purchase chocolate chip cookies from the Company under an ARRA funded prime contract and the Government’s cookies are baked with the chocolate chips supplied under the existingSupplier Agreement?
      • Broad Interpretation of “Subcontract”
        • Flow Downs apply to Supplier Agreement
      • Functional Interpretation of “Subcontract”
        • Flow Downs do not apply to Supplier Agreement
slide57

Broad Interpretation:

  • This is a Subcontract
    • The goods are used in the performance of a specific prime contract that is funded by ARRA
    • Any amount of sales to the Government – e.g., 0.1% of the

total amount of chocolate chips supplied to the Company are allocated to the Government’s cookies, subjects the “subcontractor” to additional ARRA flow downs reserved for subcontracts

  • Prime Contractor must re-negotiate the Agreement to include the necessary flow down clauses
    • The value and duration of the contract will dictate which additional clauses reserved for subcontracts must be included
slide58
ARRA
  • A broad definition of “Subcontract”would defeat the stated objectives of ARRA:
    • Promotion of cost control
    • Minimizationof burdens
    • Enhanced efficiency
    • Speedy recovery
slide59

Functional Interpretation:

  • This is Supplier Agreement
    • The chocolate chips were not purchased expressly for the performance of the government contract
    • The chocolate chips are supplied to multiple contractors
    • The goods are non-specialized and were procured in a competitive environment
  • No additional flow downs reserved for subcontracts are necessary
functional interpretation
Functional Interpretation

The functional approach to defining the term “Subcontract” is supported by:

  • Purpose and intent of ARRA
  • Implementing FAR clauses
  • FFATA (Federal Funding Accountability and Transparency Act of 2006)
slide61
ARRA
  • Purpose: to provide speedy economic recovery through preferred use of existing competitive, firm, fixed-price contracts
  • OMB implementing guidance:
    • Optimize transparency
    • Impose a minimum burden on contracting parties
    • Control costsand performefficiently
arra implementing far clauses
ARRA: Implementing FAR Clauses

FAR 4.1501 Procedures

. . .

(b) To maximize transparency of Recovery Act funds that must be reported by the contractor, the contracting officer shall structure contract awards to allow for separately tracking Recovery Act funds. For example, the contracting officer may consider awarding dedicated separate contracts when using Recovery Act funds or establishingcontract line item number (CLIN) structures to mitigate comminglingof Recovery funds with other funds.

. . . .

arra and the ffata
ARRA and the FFATA
  • ARRA’s reporting requirements are the same as those imposed by the Federal Funding Accountability and Transparency Act (FFATA)

See FAR 4.1500

  • The FAR’s implementation of FFATA defines Subcontractoras:

any contract as defined in FAR Subpart  2.1 entered into by the Contractor to furnish supplies or services for performance of this contract. It includes, but is not limited to, purchase orders and changes and modifications to purchase orders, but does not include contracts that provide supplies or servicesbenefiting two or more contracts.

recent far interim regulations support a functional interpretation of subcontract agreement
Recent FAR Interim Regulations Support a Functional interpretation of “Subcontract Agreement”
  • First-Tier Subcontract means a subcontract awarded directly by a Contractor to furnish supplies or services (including construction) for performance of a prime contract, but excludes supplier agreements with vendors, such as long-term arrangements for materials or supplies that would normally be applied to a Contractor's general and administrative expenses or indirect cost. FAR 52.204-10 (July 8, 2010)
  • First-Tier Subcontract means a contract awarded directly by a Federal Government prime contractor whose contract is funded by the Recovery Act, to furnish supplies or services (including construction) for performance of a prime

contract, but excludes supplier agreements with vendors, such as long-term

arrangements for materials or supplies that would normally be applied to a

contractor's general and administrative expenses or indirect cost. FAR

52.204-11 (July 2, 2010)

obligations under arra
Obligations Under ARRA

Whistleblower Protections

Reporting Requirements

GAO/OIG Access

Buy American

whistleblower protections
Whistleblower Protections

Overview

  • prohibits covered employers from discharging, demoting or discriminating against employees when those employees disclose what they reasonable believe to be evidence of:
    • gross mismanagement or gross waste of ARRA funds;
    • a substantial danger to public health or safety relating to the use of ARRA funds; or
    • any violation of law, rule or regulation related to the ARRA funds.
whistleblower protections67
Whistleblower Protections

Bringing a Claim under Sec. 1553

Claims Against Employers based on violations of this provision:

  • May be brought at any time (there is no statute of limitations)

Civil Complaints Against Employers based on violations of this provision:

  • May be brought only after exhausting administrative

remedies (Office of the Inspector General)

whistleblower protections68
Whistleblower Protections

Administrative Exhaustion

. . .

(b) INVESTIGATION OF COMPLAINTS.—

(1) IN GENERAL.—A person who believes that the person has been subjected to a reprisal prohibited by subsection (a) may submit a complaint regarding the reprisal to the appropriate inspector general. Except as provided under paragraph (3), unless the inspector general determines that the complaint is frivolous, does not relate to covered funds, or another Federal or State judicial or administrative proceeding has previously been invoked to resolve such complaint, the inspector general shall investigate the complaint and, upon completion of such investigation, submit a report of the findings of the investigation to the person, the person’s employer, the head of the appropriate agency, and the Board.

. . . .

ARRA 1553

whistleblower protections69
Whistleblower Protections

To succeed in a claim, the employee must demonstrate:

  • the employee’s disclosure was a contributing factor in the reprisal;

(2) the official undertaking the reprisal knew of the employee’s disclosure; or

(3) the reprisal occurred within a period of time after the employee’s disclosure such that a reasonable person could conclude the disclosure was a contributing factor in the reprisal

whistleblower protections70
Whistleblower Protections

Who does this Provision Apply to?

(a) PROHIBITION OF REPRISALS.—An employee of any non-Federal employer receiving covered funds may not be discharged, demoted, or otherwise discriminated against as a reprisal for disclosing, including a disclosure made in the ordinary course of an employee’s duties,

. . .

(4) NON-FEDERAL EMPLOYER.—The term ‘‘non-Federal employer’’—

(A) means any employer—

(i) with respect to covered funds—

(I) the contractor, subcontractor, grantee, or recipient, as the case may be, if the contractor, subcontractor, grantee, or recipient is an employer; . . . .

ARRA Sec. 1553

whistleblower protections71
Whistleblower Protections

Who does this Provision Apply to?

“the contractor, subcontractor, grantee, or recipient”

  • Inclusion of Supplier would conflict with the purpose and intent of ARRA
  • Inclusion of Supplier inconsistent with FFATA and FAR 4.1501
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Whistleblower Protections

If you are a covered employer – what must you do?

FAR 52.203-15  WHISTLEBLOWER PROTECTIONS UNDER THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009.

As prescribed in 3.907-7, use the following clause:

Whistleblower Protections Under The American Recovery And Reinvestment Act

of 2009 (Mar 2009)

(a) The Contractor shall post notice of employees rights and remedies for whistleblower protections provided under section 1553 of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5).

(b) The Contractor shall include the substance of this clause including this paragraph (b) in all subcontracts.

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Whistleblower Protections

Distinguishing Characteristics of ARRA’s Whistleblower Provision:

  • Section 1553 claims may not be waived. ARRA prohibits covered employers and employees from waiving the whistleblower protections by agreement, policy, form or condition of employment. Sec. 1553(d)
  • Additionally, claims brought under this provision are not subject to any pre-dispute arbitration agreement, except as provided in a collective bargaining agreement.  Sec. 1553(d)
  • Unlike the False Claims Act, which facilitates whistleblowing, ARRA’s provision does not provide any financial incentives to whistleblowers.
reporting requirements
Reporting Requirements

Overview

  • Applies to all fully or partially ARRA-funded contracts
  • Applies to prime contractors as well as, in many instances, subcontractors
  • Reports are public and required to be made on a quarterly basis
  • Reports must:
    • Describe the overall purpose and expected outcome of the contract;
    • Assess the progress toward completing the purpose;
    • Describe the "employment impact”;
    • Disclose the names and total compensation of the five highest-compensated officers during the calendar year in which the contract is awarded,
  • Failure to comply will result in the exercise of “appropriate contractual remedies.”
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Reporting Requirements

Who Does this Provision Apply to?

  • Prime Contractors
    • “contracts funded in whole or in part with Recovery Act funds, except classified solicitations and contracts. [Including], Government wide Acquisition Contracts (GWACs), multi-agency contracts (MACs), Federal Supply Schedule (FSS) contracts, or agency indefinite-delivery/indefinite-quantity (ID/IQ) contracts that will be funded with Recovery Act funds” FAR 4.1502
  • First-tier Subcontractors
    • “First-tier subcontract” a subcontract awarded directly by a prime contractor whose contract is funded by the Recovery Act. FAR 52.204-11
      • Contracting officers may not use Recovery Act funds on existing contracts and orders if the clause at 52.204-11 is not incorporated FAR 4.1502
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Reporting Requirements

FAR 52.204-11 AMERICAN RECOVERY AND REINVESTMENT ACT REPORTING REQUIREMENTS.

. . .

“First-tier subcontract” means a subcontract awarded directly by a Federal Government prime contractor whose contract is funded by the Recovery Act.

. . .

(10) For any first-tier subcontract funded in whole or in part under the Recovery Act, that is over $25,000 and not subject to reporting under paragraph 9,the contractor shall require the subcontractor to provide the information described in (i), (ix), (x), and (xi) below to the contractor for the purposes of the quarterly report. The contractor shall advise the subcontractor that the information will be made available to the public as required by section 1512 of the Recovery Act. The contractor shall provide detailed information on these first-tier subcontracts as follows:

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Reporting Requirements

ARRA SEC. 1512. REPORTS ON USE OF FUNDS

c) RECIPIENT REPORTS.—Not later than 10 days after the end of each calendar quarter, each recipient that received recovery funds from a Federal agency shall submit a report to that agency that contains—

(1) the total amount of recovery funds received from that agency;

(2) the amount of recovery funds received that were expended or obligated to projects …;

(3) a detailed list of all projects or activities for which recovery funds were expended …, including—

  • the name of the project or activity;
  • (B) a description of the project or activity;

(C) an evaluation of the completion status of the project or activity;

(D) an estimate of the number of jobs created and the number of jobs retained . . .

(4) Detailed information on any subcontracts … awarded by the recipient to include the data elements required to comply with the Federal Funding Accountability and Transparency

Act of 2006.

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Reporting Requirements

Onerous Record Keeping

The Contractor must maintain records of the following data in order to fulfill the reporting requirements:

  • A list of all significant services performed or supplies delivered, including construction, for which the contractor invoiced in this calendar quarter.
  • Records of the employment impact that the work funded by the Recovery Act has had on the Contractor’s business. The records must be sufficient to provide a narrative for each calendar quarter and include, at a minimum
    • (i) the types of jobs created and jobs retained in the United States and outlying areas; and
    • (ii) the number of jobs created and jobs retained by the prime contractor, in the United States and outlying areas.
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Reporting Requirements

Significant Disclosures – Prime Contractor

(1) The Government contract and order number, as applicable;

(2) The amount of Recovery Act funds invoiced by the contractor for the reporting period.;

(3) A list of all significant services performed or supplies delivered;

(4) Program or project title, if any;

(5) A description of the overall purpose and expected outcomes or results of the contract;

(6) An assessment of the contractor’s progress towards the completion;

(7) A narrative description of the employment impact of work funded by the Recovery Act:

(i) description of the types of jobs created and jobs retained in the United States

(ii) the number of jobs created and jobs retained by the prime contractor,

(8) Names and total compensation of each of the five most highly compensated officers;

if (i) In the Contractor’s preceding fiscal year, the Contractor received—

(A) 80 percent or more of its annual gross revenues from Federal contracts…; and

(B) $25,000,000 or more in annual gross revenues from Federal contracts….

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Reporting Requirements

Significant Disclosures – Subcontractor

(i) Unique identifier (DUNS Number) for the subcontractor receiving the award and for the subcontractor’s parent company, if the subcontractor has a parent company.

. . .

(ix) Subcontractor’s physical address including street address, city, state, and country. Also include the nine-digit zip code and congressional district if applicable.

(x) Subcontract primary performance location including street address, city, state, and country. Also include the nine-digit zip code and congressional district if applicable.

(xi) Names and total compensation of each of the subcontractor’s five most highly compensated officers, for the calendar year in which the subcontract is awarded . . . .

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Reporting Requirements

Increased Liability – Prime and Subcontractors

  • Reporting requirements are likely to be subject to applicable fraud and false-claims statutes, which may increase potential risks to contractors and subcontractors
gao oig access
GAO/OIG Access

Overview

  • ARRA provides GAO and Agency IG’s with enhanced access to Prime Contractors and Subcontractors on ARRA projects:
    • GAO access to and the right to examine prime contractor and subcontractor records of ARRA-funded contracts.
    • GAO access to interview any current officer and employee regarding affected transactions.
    • IGs access to interview any current officer or employee regarding affected transactions, but only at the prime-contractor level.
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GAO/OIG Access

Implications for Prime Contractors and Subcontractors

  • Increased oversight by the GAO and IG.
  • Obligation to maintain records for audit by GAO.
  • Burden on Prime Contractor of Flowing provisions down to its subcontractors.
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GAO/OIG Access

ARRA SEC. 902. ACCESS OF GOVERNMENT ACCOUNTABILITY OFFICE.

  • ACCESS.—Each contract awarded using funds made available in this Act shall provide that the Comptroller General and his representatives are authorized—
    • to examine any records of the contractor or any of its subcontractors, or any State or local agency administering such contract, that directly pertain to, and involve transactions relating to, the contract or subcontract; and

(2) to interview any officer or employee of the contractor or any of its subcontractors, or of any State or local government agency administering the contract, regarding such transactions.

(b) RELATIONSHIP TO EXISTING AUTHORITY.—Nothing in this section shall be interpreted to limit or restrict in any way any existing authority of the Comptroller General.

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GAO/OIG Access

ARRA Sec. 1515. ACCESS OF OFFICES OF INSPECTOR GENERAL TO CERTAIN

RECORDS AND EMPLOYEES.

  • ACCESS.—With respect to each contract or grant awarded using covered funds, any representative of an appropriate inspector general appointed under section 3 or 8G of the Inspector General Act of 1978 (5 U.S.C. App.), is authorized—
    • to examine any records of the contractor or grantee, any of its subcontractors or subgrantees, or any State or local agency administering such contract, that pertain to, and involve transactions relating to, the contract, subcontract, grant, or subgrant; and

(2) to interview any officer or employee of the contractor, grantee, subgrantee, or agency regarding such transactions.

(b) RELATIONSHIP TO EXISTING AUTHORITY.—Nothing in this section shall be interpreted to limit or restrict in any way any existing authority of an inspector general.

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GAO/OIG Access

FAR 52.214-26 - Audit and Records— Sealed Bidding

(b) Cost or pricing data. If the Contractor has been required to submit cost or pricing data in connection with the pricing of any modification to this contract, the Contracting Officer. . .shall have the right to examine and audit all of the Contractor’s records related to— (1) The proposal for

the modification; (2) The discussions conducted on the proposal(s), including those related to negotiating; (3) Pricing of the modification; or (4) Performance of the modification.

(c) The Comptroller General … or an appropriate Inspector General … shall have access to and

the right to—

(1) Examine any of the Contractor’s or any subcontractors' records that pertain to, and involve transactions relating to, this contract or a subcontract hereunder; and

(2) Interview any officer or employee regarding such transactions.

(d) Availability. The Contractor shall make available at its office at all reasonable times the materials described in paragraph (b) of this clause, for examination, audit, or reproduction, until 3 years after final payment under this contract . . .

(e) (1) Except as provided in paragraph (e)(2), the Contractor shall insert a clause containing the provisions of this clause, including this paragraph (e), in all subcontracts.

(2) The authority of the Inspector General under paragraph (c)(2) of this clause does not flow down to subcontracts.

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GAO/OIG Access

FAR 52.215-2 - Audit and Records— Negotiation

. . .

(d) Comptroller General or Inspector General. (1) The Comptroller General of the United States, an appropriate Inspector General appointed under section 3 or 8G of the

Inspector General Act of 1978 (5 U.S.C. App.), or an authorized representative of either

of the foregoing officials, shall have access to and the right to—

(i) Examine any of the Contractor’s or any subcontractor’s records that pertain to and involve transactions relating to this contract or a subcontract hereunder; and

(ii) Interview any officer or employee regarding such transactions.

(g)(1) Except as provided in paragraph (g)(2) of this clause, the Contractor shall insert a

clause containing all the terms of this clause, including this paragraph (g), in all subcontracts under this contract.The clause may be altered only as necessary to identify properly the contracting parties and the Contracting Officer under the Government prime contract.

(2) The authority of the Inspector General under paragraph (d)(1)(ii) of this clause does

not flow down to subcontracts.

buy american act
Buy American Act

Overview

ARRA funds may only be used for "construction, alteration, maintenance, or repair" of public buildings or works if:

(a) the public building or work is in the United States;

(b) all steel, iron and "manufactured goods" used in the project are produced or manufactured in the United States;

(c) the manufacturing processes in the production of iron and steel occur in the United States; and

(d) all unmanufactured construction materials are of domestic origin.

FAR 25.602

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Buy American Act

Implications for Prime Contractors and Subcontractors

  • Potential to be forced to engage in contracts with new suppliers and/or subcontractors
  • Potential for increased costs if required to negotiate a new contract because contractor had previously contracted for foreign steel, iron or manufactured construction material
  • Potential for 25% markup on total contract price bid when foreign steel, iron or manufactured construction material is utilized in a bid
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Buy American Act

Differences between ARRA Buy American Act and Existing Buy American Requirements

  • The ARRA Buy American provisions do not specify a minimum requirement for the source of components or subcomponents of manufactured construction material; the existing Buy American provision requires a minimum of 50% of components or subcomponents to be manufactured in the US.
  • The ARRA Buy American provisions impose a 25-percent markup to the total price of a bid when foreign steel, iron or manufactured construction material is

utilized in the bid; the existing Buy American provision only imposes a 6%

markup.

compliance
Compliance

Determine the nature of the relationship

Determine the source of funding

Evaluate whether ARRA funding can be segregated

Apply the necessary flow down provisions.

arra flow downs
ARRA Flow Downs

ALL TRANSACTIONS

Specialized/

Non-specialized?

Supplier Agreement

Subcontract

Add Relevant Supplemental

Flow Downs

Add Relevant Supplemental

Flow Downs

ARRA Funding?

STOP

ARRA Funding Segregable?

Add ARRA Flow Downs to

Entire Contract

Add ARRA Flow Downs to

Segregable Portion

example universal flow downs
Example: Universal Flow Downs

52.222-26  Equal Opportunity.

As prescribed in 22.810(e), insert the following clause:

Equal Opportunity (Mar 2007)

. . .

(2) The Contractor shall take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex, or national origin. This shall include, but not be limited to—

(i) Employment;

(ii) Upgrading;

(iii) Demotion;

(iv) Transfer;

(v) Recruitment or recruitment advertising;

(vi) Layoff or termination;

(vii) Rates of pay or other forms of compensation; and

(viii) Selection for training, including apprenticeship.

(10) The Contractor shall include the terms and conditions of this clause in every

subcontract or purchase order that is not exempted by the rules, regulations, or orders of

the Secretary of Labor issued under Executive Order 11246 . . . .

addendum supplemental flow downs
Addendum – Supplemental Flow Downs
  • FAR 52.203-11 - Certification and Disclosure Regarding Payments to Influence Certain Federal Transactions
  • FAR 52.203-12 - Limitation on Payments to Influence Certain Federal Transactions
  • FAR 52.203-13 - Contractor Code of Business Ethics and Conduct
  • FAR 52.203-14 - Display of Hotline Poster(s)
  • FAR 52.212-5 - Contract Terms and Conditions Required to Implement Statutes or Executive Orders - Commercial Items
  • FAR 52.212-5 - Contract Terms and Conditions Required to Implement Statutes or Executive Orders - Commercial Items, Alternate II – ARRA GAO/IG Access
  • FAR 52.219-8 - Utilization of Small Business Concerns
  • FAR 52.222-6   - Davis-Bacon Act.
  • FAR 52.222-29 - Notification of Visa Denial
  • FAR 52.222-41 - Service Contract Act of 1965
  • FAR 52.222-51 - Exemption from Application of the Service Contract Act to Contracts for Maintenance, Calibration, or Repair of Certain Equipment--Requirements
  • FAR 52.222-53 - Exemption from Application of the Service Contract Act to Contracts for Certain Services--Requirements (Feb 2009) (41 U.S.C. 351, et seq.)
  • FAR 52.222-54 - Employment Eligibility Verification
  • FAR 52.225-8 - Duty Free Entry
  • FAR 52.225-21  - Required Use of American Iron, Steel, and Other Manufactured Goods – ARRA Buy

American Act – Construction Materials.

  • DFARS 252.225-7013 - Duty-Free Entry (DOD only)
  • DFARS 252.247-7023 - Transportation of Supplies by Sea
  • DFARS 252.247-7024 - Notification of Transportation of Supplies by Sea
example supplemental flow downs
Example: Supplemental Flow Downs

DFARS 252.247-7023  Transportation of Supplies by Sea

. . .

(5) “Subcontractor” means a supplier, materialman, distributor, or vendor at any level below the prime contractorwhose contractual obligation to perform results from, or is conditioned upon, award of the prime contractand who is performing any part of the work or other requirement of the prime contract. 

. . .

(h)  In the award of subcontracts for the types of supplies described in paragraph (b)(2) of this clause, the Contractor shall flow down the requirements of this clause as follows: 

 (1)  The Contractor shall insert the substance of this clause, including this paragraph (h), in subcontracts that exceed the simplified acquisition threshold in Part 2 of the Federal Acquisition Regulation.

 (2)  The Contractor shall insert the substance of paragraphs (a) through (e) of this clause, and this paragraph (h), in subcontracts that are at or below the simplified acquisition threshold in Part 2 of the Federal Acquisition Regulation.

addendum arra flow downs
Addendum – ARRA Flow Downs

FAR 52.203-15 - Whistleblower Protections Under the American Recovery and Reinvestment Act of 2009 (“ARRA”)

FAR 52.204-11 - ARRA Reporting Requirements

FAR 52.214-26 - Audit and Records—Sealed Bidding (IGO/GAO)

FAR 52.215-2   - Audit and Records—Negotiation (IGO/GAO)

FAR 52.225-21 - Buy American Act—Construction Materials

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Jeff Eckland – (612) 236-0161

Eckland & Blando LLP

1020 Lumber Exchange Building

10 South Fifth Street

Minneapolis, MN 55402

Questions?