Navigating the Maze: Mastering Subcontractor Administration in Government Contracting

HOST: BRENDAN HALLORAN: Hello, and welcome to Cherry Bekaert's GovCon podcast, where we discuss current government contracting trends, compliance matters, and best practices to guide federal contractors forward.

HOST: BRENDAN HALLORAN: I'm Brendan Halloran, a director of Cherry Bekaert Advisory, and with me today is Lynnette Leidwinger, a director in Cherry Bekaert's Government Contractor Services Group.

HOST: BRENDAN HALLORAN: As part of our podcast series on GovCon topics, today we're going to talk about subcontractor flowdowns, teaming arrangements, and compliance considerations.

HOST: BRENDAN HALLORAN: Thanks for joining us today, Lynnette.


LYNNETTE LEIDWINGER: I'm happy to be here and excited to talk about the topics.


HOST: BRENDAN HALLORAN: Great. Before we dive in, we'll frame the conversation and put some context around what a subcontractor is and their role with a prime contractor.

HOST: BRENDAN HALLORAN: The prime contractor is the entity that has a direct contract with the federal government to perform services or provide products. The subcontractor agreement is with the prime contractor, not the federal government.

HOST: BRENDAN HALLORAN: There is significant coordination to meet the overall program objective or statement of work, but there is differentiation between those relationships.

HOST: BRENDAN HALLORAN: Lynnette, we get lots of questions about flowdowns and requirements. Can you expand on what flowdowns are and what's involved?


LYNNETTE LEIDWINGER: Because the subcontractor does not have privity of contract with the federal government, the government will push FAR clauses to the prime contractor. Some of those FAR clauses will be required flowdowns to the subcontractor, while others may not be.

LYNNETTE LEIDWINGER: It's important for the subcontractor to understand what a flowdown is, what the requirements are, and whether they should be receiving that FAR clause in their contract.


HOST: BRENDAN HALLORAN: Many clients are being pushed many clauses into the subcontract and need help understanding what is required, what they should accept, and where they can push back. This also applies to prime contractors, who need a clear understanding of their obligations.


LYNNETTE LEIDWINGER: Sometimes a prime contractor will copy and paste everything into the subcontractor agreement because it seems easy. Even as a prime contractor, you do not want to do that because you might be giving benefits to the subcontractor that you do not want to, or there might be timeframes you're required to report to the government and you won't have enough time to get the information from the subcontractor.

LYNNETTE LEIDWINGER: You should review any clause you plan to flow down and make sure you are not imposing unnecessary obligations on the subcontractor. Similarly, subcontractors should ensure they are not picking up requirements that are not needed.

LYNNETTE LEIDWINGER: One way to assess this is to look at the prescribed portion of the FAR clause. The prescribed section often indicates whether the clause is a required flowdown.


HOST: BRENDAN HALLORAN: I think a useful practice is to maintain or build a clause matrix. There are tools available as a starting point, and spending time to understand what's applicable, what must be flowed down, and what the requirements are is valuable.

HOST: BRENDAN HALLORAN: In some cases a clause may exist without triggering action, but in other cases it may require a policy, training, or other steps. If you're not tracking those, you can overlook them.


LYNNETTE LEIDWINGER: A FAR clause can reference another clause, which can reference another clause with additional requirements. A FAR clause matrix gives you a heads-up as to what should flow down and what is prescribed, and it helps you stay focused.


HOST: BRENDAN HALLORAN: Based on the nature of the work and the customer, there may be special requirements that take investigation to understand. Agency-specific clauses can be more stringent than a FAR clause, so review them carefully to avoid surprises during performance.

HOST: BRENDAN HALLORAN: Smaller companies entering into subcontracts may hesitate to push back because they lack a clear understanding, and they may accept provisions they should not. It is okay to ask questions; FAR clauses are not easy to navigate and often require interpretation.

HOST: BRENDAN HALLORAN: Another area to discuss is teaming arrangements. They are used extensively and provide benefits such as leveraging past performance, customer relationships, access to contracts, and technical capabilities.

HOST: BRENDAN HALLORAN: What are your thoughts on teaming arrangements and key considerations?


LYNNETTE LEIDWINGER: Teaming arrangements are a great opportunity for a subcontractor to partner with a prime and join a larger program. A prime may have more than one teaming partner, so ensure your agreement is clear about responsibilities.

LYNNETTE LEIDWINGER: Often the terms of the teaming agreement will flow into the subcontractor agreement. Do not agree to terms in a teaming agreement without reviewing whether you are comfortable with those terms appearing in your subcontract.

LYNNETTE LEIDWINGER: It is acceptable to push back if necessary. Be clear about what you bring to the team and raise concerns openly. Good partners up front make good partners during the contract period of performance if you win.


HOST: BRENDAN HALLORAN: Evaluate how the teaming arrangement will operate and consider tradeoffs. Subcontracting is a good way for companies new to the federal environment to learn about working with the government. It places more of the risk on the prime but helps you navigate the process.


LYNNETTE LEIDWINGER: If you have a good prime, they will guide you and you will gain valuable experience. Many commercial companies use subcontracting to bridge into government contracts and test whether working with the federal government is a good fit.

LYNNETTE LEIDWINGER: Working with the federal government involves cost and compliance requirements. As a subcontractor, it's a way to test the waters and assess whether you want to pursue prime work in the future.


HOST: BRENDAN HALLORAN: Some companies strategically choose to remain subcontractors and do not pursue prime status, and that is a valid business decision based on strategy and goals.

HOST: BRENDAN HALLORAN: Regarding compliance considerations, whether as a prime or subcontractor, basic items include SAM registration and maintaining accurate information for any updates to the organization. There are also representations and certifications associated with SAM.

HOST: BRENDAN HALLORAN: If you're a contractor with multiple subs or many vendors, consider maintaining your own reps and certs as part of an annual program.


LYNNETTE LEIDWINGER: Reps and certs can be concerning for subcontractors because they may feel like they are signing their life away. Keep them updated, especially if you're small, because SAM has a small business portion that contracting officers will review.

LYNNETTE LEIDWINGER: A prime contractor may flow down reps and certs specific to a program, which can be overwhelming, but keeping them current is part of doing business and remaining compliant.


HOST: BRENDAN HALLORAN: Where do these items get reviewed? One area is purchasing systems. If you have an approved or adequate purchasing system, a government review will dig deeply into your flowdowns, whether reps and certs are current, and your monitoring program for subcontractors and vendors.

HOST: BRENDAN HALLORAN: These reviews are intensive and require documentation and implementation. Having everything in order and doing it consistently is a good practice to avoid findings.


LYNNETTE LEIDWINGER: The best approach is to have processes and procedures, and ensure vested parties understand why you do things a certain way. Project managers and others sometimes find compliance frustrating, but if you're doing business with the government you must be compliant.

LYNNETTE LEIDWINGER: Validate your processes on occasion to ensure you are following them. If you say you will do something, follow through. Explaining a process is insufficient if you are not actually executing it.


HOST: BRENDAN HALLORAN: It is better not to document a procedure you will not follow. Do not over-document or under-document. Over-documenting a process you never follow can create more problems than not documenting it.


LYNNETTE LEIDWINGER: Not following documented procedures leads to findings and issues.


HOST: BRENDAN HALLORAN: We covered a fair amount of territory. Any final thoughts, Lynnette?


LYNNETTE LEIDWINGER: Subcontracting is a great way to enter the federal government arena. Educate yourself, review the information, and ask questions when you do not understand. Everyone encounters things they do not understand when working with the federal government, so you are not alone.


HOST: BRENDAN HALLORAN: With that, we'll wrap up today's podcast.

HOST: BRENDAN HALLORAN: If you have questions, email Lynnette at lynnette.leidwinger@cbh.com or me at brendan.halloran@cbh.com.

HOST: BRENDAN HALLORAN: Please join us again for our next podcast.


LYNNETTE LEIDWINGER: Thank you.


HOST: BRENDAN HALLORAN: Thank you.