17 Must Haves for Government Subcontracts

This guide addresses many important considerations in creating subcontracts for Government Prime Contractors. While not an all inclusive list and minds may differ, these are my prime considerations in reviewing subcontract terms and conditions.

1. What work are we subcontracting?

   A way to get into trouble from the start is to fail to describe with particularity the services to be provided by the subcontractor. Make sure these are clear.

2. Payment terms

   The old adage "Show me the money" is extremely important in any contract. The payment terms should include what type of contract we are using - is it cost reimbursable, fixed price, time and materials, etc? How to submit a proper invoice is also important. What constitutes a properly submitted invoice? Will you be wanting it to be based on milestones, percent complete, reimbursement for hours worked, or whatever manner reflects the prime contracts terms and conditions. Should it be pay when paid. Different states have various laws with regard to pay when paid provisions. Do you require retainage? When will you pay, 7 days after the Government or owner pays you, ... 10 days. 30 days? Be reasonable but do not create a circumstance for yourself that causes you to scramble when you get paid by the client or owner.

3. Access to the work area (site access)

   Many facilities these days have sensitive areas. The advent of industrial espionage is real. Competitors may try and acquire competitive advantages by obtaining access to your prime contractor's data. Be sure you understand the need for access and address it for either areas or personnel clearance. This includes business or work hours.

4. Confidentiality

   Are there issues of confidentiality that need to be addressed? Will the subcontractor be privy to pricing or other competitive information? What about the client's site layout? Is it a DOD or DOE facility where a TS or Q clearance may be required in your facility clearance? Verify if this needs to be covered.

5. Transfer of Ownership

   If there are materials to be purchased or supplied, make sure your contract covers transfer and ownership as well as responsibility for work materials.

6. Contract Modifications

   Be sure to include the mechanism for a subcontractor to address delays and changes in work conditions, or the addition or deletion of work.

7. Insurance and Bonding

   Check your insurance limits.Besides general and professional liability, will the sub have employees? Make sure they have worker's compensation automobile insurance. Bonding can be a sticky issue in construction. It increases the cost to require a subcontractor to bond the work the prime has probably already bonded but determine what procedure will be used to determine a dollar limit and any other considerations required to include bonding in a subcontract.

8. Risk Allocation

   This seems simple - put the risk on the sub. However, while any damage that occurs at the negligence of the sub is obvious to most, any additional risk allocation to the sub will likely have a price. The risk caused by negligence is usually managed in the indemnity clause as well. This risk is usually concerned with warranty, quality, who bears the burden with regard to liquidated damages, etc.

9. Warranty

   While a warranty might pretty much be boilerplate - subcontractor warrants its work to be of some quality and properly installed, etc., issues that arise under warranty are (1) defining when the warranty begins to run and (2) how long will the warranty run. Remember, work is done in phases so these items can be critical.

10. Indemnity Clause

    A must have. All that needs to be mentioned.

11. Limitations on Remedies

    Try and limit the avenues the sub has for redress, as well as consequential, incidental and prospective damages (such as loss of profit on changed or cancelled work)

12. Governing Laws and Forum Selection Clauses

    We always want disputes to be in our home court and under our state's laws.

13. Termination

    There are basically two types: (1) Termination for Convenience and (2) Termination for Default (Cause). A detailed explanation of what constitutes a default and what we will require under those circumstances and under what conditions can we terminate for convenience - T4C (flow down the Government's clause or provide ourselves more flexibility). What do we pay in a T4C?

14. Assignment

    Can the sub assign their responsibilities to another company or a creditor? This may be an indication of potential insolvency. It is usually a good idea to prohibit it or require any assignments be given notice and retain the right to disapprove an assignment for a reasonable basis.

15. Dispute Resolution

    Arbitrate, mediate or litigate. These are the choices. Who pays attorney's fees? Arbitration is just about as expensive as litigation so you might as well say litigate if you are going down this road. It might be a good idea to require mediation at the prime's election.

16. Notices

    While this may seem unimportant - you will probably see the sub daily, having an address at which you serve notices is critical to prevent disavowement of knowledge in the event a dispute arises.

17. FAR Flow-Downs

    Some are mandatory, some are not. Some can be tailored while some have to flow down verbatim. Get an expert to help with this.

18. Conclusion and Disclaimer

    The point s mentioned are thought provokers and are not intended to be a complete checklist of items to be covered in a subcontract. The prime contract and relationship with the sub will require more tailoring to the terms and conditions of any subcontract. Call your contracts specialist or attorney for more advice and assistance. Everyone is happy and worries not about these things until something goes wrong. It does not happen to a major degree that often ... but when it does ... it's too late. Plan ahead. do it right and prevent disagreements with a solid subcontract.