PMI Washington,DC FairLakesChapter

ManagingSubcontracts:
LessonsLearnedandBestPractices
March2,2010

By:
GregoryA.Garrett,CPCM,C.P.M.,PMP
ManagingDirector
ManagingSubcontracts

KeyTopicsofDiscussion
TheWorldWeLiveIn
FundamentalsofSubcontractingintheU.S.FederalMarketplace
U.S.FederalGovernmentsSupplyChains
LessonsLearned
BestPractices
GovernmentPrimeContractorsSupplyChains
LessonsLearned
BestPractices
Q&A

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TheWorldWeLiveIn

From:ManagingSubcontracts, byGregoryA.Garrett,ThomsonWest,2009.

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IncreasingFederalGovernment
Spending&Transactions(FY00 09)

*DoesnotincludeARRAStimulus fundingandtransactions.

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FundamentalsofSubcontractinginthe
U.S.FederalMarketplace

FAR44.101definesSubcontract as:
Anycontract...enteredintobyasubcontractortofurnish
suppliesorservicesforperformanceofaprimecontractora
subcontract

Includingbutisnotlimitedto:
PurchaseOrders
Changes
ModificationstoPurchaseOrders

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DefiningSubcontractor
UnderFederalLaw

FAR44.101sdefinitionofSubcontractor
Suppliers;
Distributors;
Vendors;or
Firms

furnishing
Supplies;or
Services

toorfor
Aprimecontractor;or
Anothersubcontractor

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DefiningContract
UnderFederalLaw

FAR2.101definesContract as:
Mutuallybindinglegalrelationshipobligatingthesellerto
furnishthesuppliesorservices(includingconstruction)and
thebuyertopayforthem

Contractsdonotincludegrantsandcooperativeagreements

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IntraCorporateTransfers
AreTheySubcontractsUnderFederalLaw?

IntraCorporateTransfers Notnormallyconsideredsubcontracts,but
areonlybudgettransfers
Subjecttothesameterms&conditionsoftheprimecontract
MustbeaccountedforunderapplicablecostprinciplesandCASrules
FARPart12 CommercialItemAcquisitions Subcontract
includes,butisnotlimitedto,transfersofcommercialitemsbetween:
Divisions,
Subsidiaries,or
Affiliates
Bookedatpriceforaccountingpurposes

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WhatLawsGovernAward/Performance
ofFederalSubcontracts?

U.S.GovernmentProcurementLaws?
OtherFederalLaws?
StateLaws?
Statutes/Regulations?
CourtCases?
LocalLaws/Ordinances?

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WhatLawsGovernsAward/Performanceof
FederalSubcontracts?

U.S.Courtssometimesapplyfederal
commonlaw tosubcontractsto
displaceoraddtoStatecontractlaw:
Classifiedcontractsorcontracts
involvingNationalSecurity
Wherestatelawwouldinterferewith
someimportantU.S.Government
purpose
Applicationoffederalcommonlaw to
primecontractor/subcontractor
relationshipsisNOTcommon

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WhatLawsGovernAward/Performanceof
FederalSubcontracts?

AsbetweentheprimecontractorandtheGovernment,theFAR
andapplicableFARSupplementsgoverntheparties rightsand
obligationsregardingtheaward/administrationofsubcontracts
Asbetweentheprimecontractorandsubcontractor,generally,
subcontractsaregovernedbyStatecontractlaw
TheUniformCommercialCode(UCC)
StateCommonLawCourtDecisions
OtherStateStatutes&Regulations
OnlyafewU.S.EqualEmployment&AffirmativeAction
clausesautomaticallyapplytosubcontractsperformedinthe
U.S.anditsterritories

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AComplicatingFactor
ConflictofLawPrinciples

Whenpartiesarelocatedorperformanceoccursinmorethan
onejurisdiction,unlessotherwisespecified,courtsmust
determinewhichjurisdictionssubstantivelawsgovern&apply
itindecidingcontroversies
DisputesInvolvingContractFormation
DisputesInvolvingContractPerformance
TheProblemofDeterminingWheretheEventLeadinguptothe
DisputeOccurred
AdditionalComplications TheUNConventiononContractsfor
theInternationalSaleofGoods(UNCISG)

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ResponsibilityforSubcontractors
TheGeneralRule FAR15.4072(a)

Primecontractorsresponsiblefor
managingsubcontractperformance,
including:
Planning
Placing
AdministeringSubcontracts
Asnecessarytoensure:
Thelowestoverallcosttothe
Government
Lowestoveralltechnicalrisktothe
Government

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PrivityofContract

Directcontractualrelationshipbetweenthetwocontracting
parties
Breachofcontractactioncanonlybemaintainedifprivityexists
SubcontractorscannotusuallysuetheGovernmentdirectly
Lowertiersubcontractorscannotsuetheprimecontractor
directly

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PrivityofContract
U.S.GovernmentInvolvement

MakeorBuyPlanReviews/Approvals(FAR15.4072)
TruthinNegotiationActSubmittals(FAR15.4043)
CompetitioninSubcontractingRequirements(FAR52.244.5)
AdvanceNotification&ConsenttoSubcontracts(FARPart44)
ContractorPurchasingSystemReviews(CPSR)
SmallBusinessSubcontractingPlans&OtherSocioEconomic
Requirements(FAR19.702)
MandatoryFAR&FARSupplementFlowDownProvisions
TechnicalDesignReviews
SourceInspections
Audits Costs,LaborRelations/Pay&Equal
Opportunity/AffirmativeAction

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U.S.FederalGovernmentSupplyChain
LessonsLearned

TheU.S.governmentisnotabusiness
Themissionofthegovernmentisseriousandcomplex
TheFederalAcquisitionprocessisoverlyregulated,expensive,
andslow
FederalGovernmentContractorsareincreasingtheir
subcontracting
TheFederalAcquisitionWorkforceisunderstaffedandneeds
training

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U.S.FederalGovernmentSupplyChain
RecommendationsforImprovement(Contd)

Simplify&StreamlinetheFederalAcquisitionProcess
WebBased
ProcessDiagrams
Tools
Templates/Forms
BestPractices
Implementastandardizedgovernmenteprocurementsoftware
application,requiredforusebyallfederalgovernmentagencies
Mandatetheuseofcommercialitemacquisitiontothefullest
extentpractical

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U.S.FederalGovernmentSupplyChain
RecommendationsforImprovement(Contd)

ReducethemandatoryFARflowdownclausestosubcontractors
MandatetheuseofAlternativeDisputeResolution(ADR)
methodstoresolveclaimsgovernmentwide
Implementgovernmentwidestrategicsourcingforall
commoditiesandcommercialofftheshelfproductsandservices
throughtheGeneralServicesAdministration(GSA)
EliminatetheFederalBidProtestprocess
Implementperformancebasedsupplychainmanagement

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U.S.FederalGovernmentSupplyChain
RecommendationsforImprovement(Contd)

EnhancetheAcquisitionWorkforce,including:
Recruiting
Hiring&InternPrograms
Training&CrossTraining
Retention
Createaneffectivebalanceofgovernmentsurveillanceand
oversight

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GovernmentPrimeContractorsSupplyChain
LessonsLearned(TopTenList)

10. DemandingU.S.Governmentsmallbusinesssubcontractinggoals
9. Inadequatecompetitioninsupplierselectionbysomeprimecontractors
8. IncreasedcostreductiondemandsbyU.S.Governmentagencies
7. Lackofleverageofsuppliersbysomeprimecontractors
6. Insufficientcontractingandsupplychainmanagementteam
competenciesbymanyprimecontractors
5. ExcessivemandatoryflowdownofU.S.Governmenttermsand
conditions
4. Financialpressuresduetoglobaleconomiccrisis
3. ExcessivelydetailedU.S.Governmentrequirements
2. PoorU.S.Governmentrequirementsdetermination
1. IncreasedU.S.Governmentoversight

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IndustryPerspective:
ChiefProcurementOfficers(CPO)Say

Inwhatwayshaveyourfunctions objectives/prioritiesbeenaffected?

From:ForProcurementManagers:ABitofPayBackTime, CPOAgenda,,SupplyChain
Digest,January27,2009.
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IndustryPerspective:
ChiefProcurementOfficers(CPO)Say

Haveyoupursuedanyofthefollowinginrelationtoyoursuppliersinthecurrentquarter?

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GovernmentPrimeContractorsSupplyChain
BestPractices(TopTenList)

10. Benchmarksupplychainmanagementprocessesandkeyperformance
indicators
9. Expanduseofperformancebasedcontractswithsuppliers
8. Implementpricebenchmarkingclauseswithsuppliers
7. Enhancemarketresearchforsuppliersourcing
6. Expandtheuseofcommercialitemacquisitions
5. Implementsupplierrelationshipimprovementprogram
4. Conductstrategicsourcingandspendanalysis
3. Implementasupplychainmanagementprofessionaldevelopment
program
2. Understandcustomerneedsandprimecontractrequirements
1. Enhancecashflowandfinancialmanagementofsuppliers
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ManagingSubcontracts
Training&References

Training: FederalContractsTrainingCenter
ManagingSubcontracts:2DaySeminar
www.fctcenter.com

References: ManagingSubcontracts(Book)
ByGregoryA.Garrett
ThomsonWest,2009

MandatoryFlowDownContractClauses
Matrix,2009
www.ndia.org

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Questions?Comments?

ThankYou!
By:
GregoryA.Garrett,CPCM,C.P.M.,PMP
ManagingDirector&PracticeLeader
GovernmentContractorServices
NavigantConsulting,Inc.
[email protected]
7037345953

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