Federal procurement contracts can be a lucrative line of revenue for many businesses. But deals between private entities and the government are intensely regulated and raise myriad issues not found in traditional commercial settings. Importantly, these unique challenges are not limited to prime contractors. Subcontractors, too, are bound by some of the legal and contractual obligations that govern these procurements. The result is that private parties working on government projects end up with commercial agreements that include elements of public contract law. Such a scenario creates uncommon dilemmas and potential hazards for a practitioner unfamiliar with government contracting. This article aims to help by discussing some key considerations when reviewing and negotiating a subcontract agreement on a federal project.
Flow-Down Clauses
When an entity is awarded a government contract, certain provisions appearing in the prime contract invariably must be imposed on subcontractors. Other provisions are not required, but best practices dictate they should also be inserted as term against the sub. These are known as flow-down clauses. And, as alluded to, flow-downs can be mandatory or discretionary. How they are classified meaningfully impacts subcontract negotiations.
Flow-down clauses derive from the Federal Acquisition Regulations as well as any applicable supplemental agency-specific procurement regulations. In some instances, the regulations mandate the clause be flowed...
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