Panel:Gary Campbell - McCarter & English, LLPDan Kelly – McCarter & English, LLPMaridee Kirwin – SAIC

THE ART OF DRAFTING ANDNEGOTIATING THE FEDERAL SUBCONTRACT

NCMA - BOSTON CHAPTER49TH ANNUAL MARCH WORKSHOP

March 10, 2010

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Agenda

Overview of key concepts Hypothetical Discussion of key terms/sample clauses

– Audience Participation!

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Overview

Do your homework– Due Diligence on subcontractor (and prime)

Understand contract framework– Cost plus or fixed price?– Products or services?– Commercial item?

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Hypothetical Subcontract

U.S. Navy Contract to Missiles “R” Us– Development of Next Generation Missile Scoring System

Missiles ‘R” Us wants to utilize Radar, Inc.’s existing radar technology

This technology is at the core of, and modified, for all of Radar’s products, but never before used in a missile scoring system

Missiles “R” Us awards a $1.5 Million Fixed-Price Subcontract to Radar, Inc.

Radar is to deliver a prototype and source code

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Key Subcontract Terms

Let’s look at our

proposed subcontract!

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Key Subcontract Consideration

PO must address:– Who?

• Buyer and Seller– What?

• What is to be delivered?

– Where?• Where performed?

Where delivered?

– When?• When is delivery?

Time of the essence?

– How Much?• Payment Terms

clear?

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Incorporation/Order of Precedence Importance of clarity in language

– Many layers add ambiguity and confusion– Subcontract language has no safety net

Need to make incorporation and OOP clause a priority

FAR Flowdown OOP clause not adequate

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Inspection/Acceptance – ¶ 2

Should state the who, what, where and when of any inspection or acceptance requirements.

Failure to have definitive terms may lead to a revenue recognition issue.

May also effect triggering of warranty period.

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Changes - ¶ 4

Should be in body of subcontract, not a flowdown

Modify to reflect risk allocation Bilateral or unilateral If unilateral, what are the restrictions on

filing an equitable adjustment?

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Termination – ¶ 5

Should be in body of subcontract, not FAR clause

Modify as appropriate to reflect risk allocation

Recovery in event of T for C needs to reflect contract framework

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IP Rights - ¶ 6

Primes need to obtain sufficient rights for the Government

Prohibited from obtaining greater rights Application of incorporation language and

flowdowns results in prime gaining licenses and other rights

Patent rights language non-negotiable

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IP Rights – ¶ 6Technical Data Rights

Subcontractor Considerations:– Competition with the prime– Protection of technical data– Lack of access to the Government– Limiting and negotiating rights given to USG in IP

delivered to the USG– What are deliverables?

• Need to consider products as well as SDRLs• Prime cannot obtain IP if no requirement to deliver

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Warranty - ¶ 7

FAR 52.246-17, 52.246-18, 52.212-4(o)– FAR Pt. 12 term incorporates implied warranties

No required FAR warranty Time period

– Sub’s warranty may begin on delivery to prime and expire before even delivered to the Government

Commercial Item Contracts may include the contractor’s commercial warranty (FAR 12.404)

Need obvious disclaimer of implied warranties

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Limit of Liability - ¶ 8 Disclaimer of Consequential Damages

– Commercial practice, but prime needs to protect itself with Government

Monetary cap on direct damages– Prime contract is unlikely to contain such a provision

– Do the parties agree to allocate the risk in such a manner?

Prime liable to the Government for excess reprocurement costs– Many commercial limitations limit recovery to as provided

for in contract

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Disputes - ¶ 11

FAR 52.233-1 Prime should seek to address actions resulting

from Government action through “sponsoring” sub’s claim

Negotiated disputes clause for other actions Do not recommend agreeing to jurisdiction

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Indemnification ¶ 15

Typically, no indemnification to or from the Government (other than patent indemnity)

Common commercial term Can be used to address defective pricing,

disallowed costs, other reductions in prime’s contract price

Should be tied to Seller’s negligence

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FARS and DFARS Flowdowns

“Kitchen Sink” Approach disfavored Mandatory & Necessary

– Depends on type and value of subcontract– Subs should request copy of prime contract

Christian Doctrine Incorporation Language

– Introductory language replacing “Government” with ‘Prime” generally not appropriate

Need to reconcile flowdowns with body of subcontract to avoid confusion and contradiction

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Ethics Flowdowns

52.203-7, Anti-Kickback Procedures– Required in all subcontracts over $100,000

52.209-6, Protecting the Government’s Interest when Subcontracting With Contractor’s Debarred, Suspended or Proposed for Debarment– Not required but reasonable expectation to include in subcontracts

over $30,000

252.203-7001, Prohibition on Persons Convicted of Fraud or Other Defense Contract Related Felonies– Required in all non-commercial item subcontracts over SAT

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Socioeconomic flowdowns

52.219-8, Utilization of Small Business Concerns– Required in all subcontracts with further subcontracting

opportunties 52.219-9, Small Business Subcontracting Plan

– Required in all subcontracts over $550,000 52.222-26, Equal Opportunity

– Required in all subcontracts over $10,000 52.222-35, Equal Opportunity for Special Disabled Veterans,

Veterans of the Vietnam Era, and Other Eligible Veterans– Required in all subcontracts over $100,000

52.222-36, Affirmative Action for Workers with Disabilities– Required in all subcontracts over $10,000

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IP clauses

52.227-1, Authorization and Consent– Required in all subcontracts over SAT

252.227-7013, Rights in Technical Data – Noncommercial

252.227-7014, Rights in Noncommercial Computer Software– Needs to be in body of Subcontract when

negotiate license rights

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General flowdowns

52.204-2, Security Requirements– Required in all subcontracts with access to

classified information

52.211-15, Defense Priority and Allocation Requirements– Not a required flowdown, but it applies anyway

52.223-6, Drug-Free Workplace– Not a required flowdown

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Commercial Item Subcontract Flowdowns – FAR 52.244-6 52.203-13, Contractor Code of Business Ethics and Conduct; 52.203-15, Whistleblower Protections Under the American

Recovery and Reinvestment Act of 2009; 52.219-8, Utilization of Small Business Concerns; 52.222-26, Equal Opportunity; 52.222-35, Equal Opportunity for Special Disabled Veterans,

Veterans of the Vietnam Era, and Other Eligible Veterans; 52.222-36, Affirmative Action for Workers with Disabilities; 52.222-50, Combating Trafficking in Persons ; 52.247-64, Preference for Privately Owned U.S.-Flag

Commercial Vessels.

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Q & A

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Panel Members

Gary CampbellMcCarter & English, LLP265 Franklin StreetBoston, MA 02110617.449.6558gcampbell@mccarter.com

Maridee KirwinSAIC7 Wells AvenueNewton Centre, MA 02159617.618.4630mkirwin@saic.com

Dan KellyMcCarter & English, LLP265 Franklin StreetBoston, MA 02110617.449.6526dkelly@mccarter.com