presents presents FAR Subcontractor Flowdown Requirements Negotiation Strategies for Primes and Subs Negotiation Strategies for Primes and Subs Involved in Government Contracts A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Stephen B. Shapiro, Partner, Holland & Knight , Washington, D.C. Holly A. Roth, Partner, Manatt Phelps & Phillips, Washington, D.C. J. Catherine Kunz, Partner, Crowell & Moring , Washington, D.C. J Catherine Kunz Partner Crowell & Moring Washington D C Tuesday, June 29, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations.
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Subcontractor Flowdown Requirements in Government R i t i G t Contracts June 29, 2010 J. Catherine Kunz Holly Roth Stephen Shapiro H ll R th E Holly Roth, Esq. J C th i J. Catherine Kunz, Esq. K E S Stephen B. Shapiro, Esq. h B Sh i E Partner Crowell & Moring LP Holland & Knight LLP Government & Regulatory Policy 1001 Pennsylvania Ave., N.W. 2099 Pennsylvania Avenue, N.W. Manatt Phelps & Phillips, LLP Washington, DC 20004 Suite 100 700 12th Street, N.W. Washington, DC 20006 Suite 1100 Phone: (202) 624-2957 Washington, DC 20005 g , Fax: (202) 628-5116 ( ) Phone: (202) 457-7032 o e: ( ) 7 7 ckunz@crowell.com Fax: (202) 955-5564 Phone: (202) 585-6558 New York: (212) 513-3451 Fax: (202) 637-1528 stephen.shapiro@hklaw.com HRoth@manatt.com 4
Government Subcontracts Government Subcontracts - Overview Overview Stephen B. Shapiro Partner Holland & Knight LLP g 2099 Pennsylvania Avenue, N.W. Suite 100 Washington, DC 20006 Phone: (202) 457-7032 Fax: (202) 955-5564 New York: (212) 513 3451 New York: (212) 513-3451 stephen.shapiro@hklaw.com 5
Overview I. What is a Flowdown Provision? II. Types of Subcontracts yp – Considerations when deciding which type of contract to enter III. The Christian Doctrine 6
What is a Flowdown Provision? What is a Flowdown Provision? Clauses from a Prime Contractor’s contract with the Government which are included in the subcontract. – Included either by reference or in-text Methods of incorporation: FAR 52.102 h d f – Clauses requiring verbatim incorporation – Clauses that must be incorporated in substance Cl th t t b i t d i b t – Clauses that are silent on incorporation 7
Types of Contracts Types of Contracts Fixed Price Cost Reimbursement Cost-Plus-Fixed-Fee Time & Materials e & ate a s Commercial Item GSA Schedule GSA Schedule 8
Fixed Price Contracts Fixed Price Contracts – FAR 16.202 FAR 16 202 Contract provides a firm price for the goods or services to be delivered. Price will not be adjusted except in the case of certain events anticipated by contract. – i.e. change in the scope of work to be performed Typically used for tasks with a great deal of cost certainty, because contingencies must t t i t b ti i t be included in bid. 9
Fixed Price Contracts: Considerations Considerations for the Prime Contractor: – Provides cost certainty – Helps limit risk – Allows for price competition – Requires a well-defined scope of work ll d f d f k – Limits flexibility 10
Fixed Price Contracts: Considerations Considerations for the Subcontractor: – Requires accurate cost estimate – No profit ceiling; subcontractor keeps all profit beyond the cost of performance – Fewer administrative costs Fewer administrative costs – May not require disclosure of cost figures to the Prime or Government – Subcontractor assumes all unexpected costs 11
Cost Reimbursement Contracts – FAR 16.301 Subcontractor is reimbursed for all allowable costs, as defined by contract. Includes a total cost estimate and ceiling figure. Typically used for contracts where specifications are incomplete or the scope of the work cannot be easily defined. th k t b il d fi d – i.e. Research & Development Contracts 12
Cost Reimbursement Contracts: Considerations Considerations for the Prime Contractor: – Provides flexibility and mitigates transaction costs in contracts where frequent changes are anticipated contracts where frequent changes are anticipated – May be difficult to determine potential costs – Subcontractor bears risk of exceeding the cost ceiling Considerations for the Subcontractor: – Less risk in connection with cost overruns – Increased accounting requirements Increased accounting requirements – Added compliance issues 13
Cost-Plus-Fixed-Fee Contracts – FAR 16.306 A variant of a Cost Reimbursement Contract. Contract provides for the payment of cost of performance, plus a pre-determined profit. – Profit will not be reduced even if the actual cost of performance is less than anticipated Often used for contracts where the level of Often used for contracts where the level of effort required is not yet known. – Contracts for research or preliminary exploration Contracts for research or preliminary exploration 14
Cost-Plus-Fixed-Fee Contracts: Considerations Considerations for the Prime Contractor: – Fee certainty; will not swell with cost of performance – More efficiency incentive than cost reimbursement contract, but still must supervise sub Considerations for the Subcontractor: Considerations for the Subcontractor: – Typically low profit, but guaranteed; little risk of loss – High administrative costs – Heightened audit risk 15
Time & Materials Contract – FAR 16.601 Labor paid at fixed hourly rates – Reflecting wages, overhead and administrative costs, and sometimes profit Materials reimbursed at actual cost. Typically used when anticipating the time or extent of work required is difficult to quantify quantify. – Allows work to begin immediately with reassessment at a later point reassessment at a later point 16
Time & Materials Contract: Considerations Considerations for the Prime Contractor: – Most of the performance risk is on the Prime – Must obligate Sub to extensive compliance requirements – Allows work of an uncertain duration or nature to begin quickly Considerations for the Subcontractor: – Prime contractor has most of the performance risk – Guaranteed profit included in rate G t d fit i l d d i t – Potentially high administration costs 17
Commercial I tem Contract – FAR Part 12; FAR 44.400 A contract to purchase an item which is commonly used by non-governmental agencies. – “item” includes the installation, repair, and support of a commercial item support of a commercial item 18
Commercial I tem Contract: Considerations Considerations for the Prime Contractor: – Fewer administrative costs – Requires more detailed consideration before including non-required clauses Considerations for the Subcontractor: Considerations for the Subcontractor: – Simplified acquisition process Many flowdown provisions are dispensed with – Slim profit margin Sli fit i – Other helpful procurement provisions removed i.e. the notice and cure period for a Termination for Default 19
GSA Schedule Contract GSA Schedule Contract Typically, an un-funded long-term contract listing the price the Government will pay for certain commercial items or services. i i l i i – An order does not occur until an agency signs it Can be renewed up to 3 times for a 20-year Can be renewed up to 3 times, for a 20-year total. Involves a long negotiation process. Once o a o g go a o p o O approved, a supplier is placed on a list from which an agency may choose to order items or services. i 20
GSA Schedule Contract: Considerations Considerations for the Prime Contractor: – Large contract and profit potential – Fewer transactional costs than several individual contracts Considerations for the Subcontractor: – Extensive application and negotiation process Extensive application and negotiation process – Uncertainty Will an agency order? How much will the agency order? – Need to flow down pricing obligations 21
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