As you all know, I am all about figuring out simple solutions to blanket problems that affect all of us, contractors and grantees, and more specifically, make our Contracts and Grants people’s lives miserable. So, I decided to write a post about the best contracting practices on a small budget, which will hopefully help some of our fellow smaller businesses and NGOs, who cannot afford the lawyers and also help larger businesses, who often do not follow what their lawyers say, because they cannot understand how to apply it practically in Papa New Guinea…
I mentioned before in my previous blogs, that my biggest annoyance is a poorly written “boiler plate” subcontract and that annoyance is more than esthetic… I am always surprised to receive such subcontracts, because not only do they look like dog’s dinner, with contradictory terms and conditions, they are also very often a glaring example of disregard by the drafting party of the risks that they are committing themselves to, the risks that are so huge that I almost feel the moral obligation to warn them about…. I do mean "almost", because most of the time, those risks that they are undertaking afford more protection for me, the receiving party….
Christian Doctrine is the principle that states that defaulting contractors will be fed to the lions… :-)No, not really. Christian Doctrine is the principle that tells us when a clause, having been omitted from the contract, might be “read into” the contract by operation of law – often to the great surprise of the prime contractor…
So now, USAID terminates you for convenience and you need to terminate your subcontractors, who do not have the T4C clause in their subcontracts, since all they have is your original flown down “Section I”. Your contract with your subs is a commercial contract, it is not subject to the “Christian Doctrine”, so, your subcontractor can potentially sue you for the entire contract value, which you will not be able to recover from USAID under the T4C clause. Voila! You are broke.
Here is another one, which, if flown down as part of the “Section I boiler plate”, commits your company (“in lieu of US Government, read Prime Contractor”) to accept any third party liability law suits for any damage your program caused, even if it was due to program design by USAID – FAR 52.228-7 Liability to Third Persons…
2. Do not flow down only the clauses, which say they must be flown down to subs in the clause language
Here is why. Some clauses are not a mandatory flow down. For example: 52.203-3 Gratuities (or 52.249-4 Termination for Convenience of the Government, for that matter). Although, it is not a mandatory flow down, if your subcontractor is discovered to have offered a bribe to a Government official to receive a contract, you would be held liable and your company could be fined, suspended and debarred….. If you do not want to flow down verbatim, write a clause in your subcontract which can at least inform your subcontractor that they should not do it or, else, suffer consequences like non-payment and/or debarment.
You should pay particular attention to AIDAR clauses. Most of them do not specifically say that they should be flown down to subs, but instead use language like this in 752.7032 International travel approval and notification, "Prior written approval by the Contracting Officer is required for all international travel directly and identifiably funded by USAID under this contract" (emphasis added). This means all travel funded through your subs, which can be traced to USAID funding.
3. Do not flow down clauses simply by FAR number reference with no tailoring. Do not use, ”in lieu of US Government, read “Prime Contractor””, at least not for all clauses
Let’s say you include 52.216-7 Allowable Cost and Payment as a reference with “in lieu” language above. You are now committing your company to allow small businesses to bill you every week or even more often than that and to allow your other subs to bill you every two weeks. You are also committing to paying your subcontractors on the 30th day of receipt of their proper invoices and not necessarily within 30 days after you submit your invoice to the Government, which is what that clause allows you to do in your prime contract.
Worse, when you also flow down 52-232.25 Prompt Payment /Alternative I clause and commit your company to paying interest on invoices not paid within 30 days….
4. Modify the FAR clauses to read as part of your subcontract and include them in text
This is important, especially for foreign subcontractors. It is fundamentally unfair to local subcontractors, who will sign anything you put in front of them, to commit them to some obscure FAR references, which they are not likely to read or understand. Not only it is unfair, it defeats the purpose of why you are flowing down these clauses in first place – to ultimately protect your company in cases where your subs violate a clause for which you are responsible to the Government.
Let’s take Combating Trafficking in Persons – 52.222-50 or 52.222-19 Child Labor or Terrorist Financing. We all work in some areas where these things happen. If the subcontractors do not understand the gravity of the violation of these clauses, they may not report nor even think of these as an impediment to providing services or products under your subcontracts. The penalty for you is debarment. The penalty for them is non-payment and also possible debarment. Flowing down those clauses in text will not prevent this from happening – as with any other flown down clauses. However, making an effort to write those clauses out in a simple understandable way and possibly conducting training to explain to local subcontractors what those clauses mean and the remedies that they afford to you and US Government, may mitigate the action that USAID will take in case your subs fail to comply and you are found responsible.
In this same group - FAR Disputes Clause 52.233-1, which makes NO SENSE, if it is flown down as a reference with “in lieu..” language. It commits you to allowing your subs to file claims under the Disputes Act against you or USAID, which they won’t be able to do. In fact, any subcontract awarded by a prime contractor, which includes any clauses allowing the subcontractor to file direct claims against USAID, will never recieve consent since it is expressly prohibited by FAR Subpart 44.203 (c) Consent Limitations….
5. Do not flow down if not applicable to the type of Subcontract or Subcontract Value
Commercial Items subcontracts must carry commercial item clauses in 52.244-6 plus a hand full of additional clauses which you need to protect yourself (Terrorist Financing, better Termination Terms). Some clauses only apply to US contractors or for work performed only in the US (Equal Opportunity, Affirmative Action, and Employment Eligibility Verification). Some clauses only apply to contracts over a certain threshold (Contractor Code of Business Ethics and Conduct – applicable to subcontracts of $5MIL or more and longer than 120 days).
6. Do not have conflicting terms or have an order of precedence
If your general company template has a "disputes", "termination" or "changes" clause, then do not use the FAR clauses as well, unless there is an order of precedence which shows the subcontractor which ones prevail. Better yet, use one or the other – you can modify them any way you like to include things that are important to you in addition to what FAR provides.
There are of course, many more fun facts and principles, which involve reading and rejecting certain conditions that prime contractors often “flow down”, but we will leave that for the next time….