Key Concepts in Federal Subcontracting

Okay. I think I'll go and get started. So good afternoon, everyone. Welcome to today's session on, key concepts in subcontracting, with Maria Panichali of MacArthur in English. My name is Archisha Meehan, and I'm the head of federal public sector at GovSpend. For those of you who know us, you know, our mission is to really provide accurate information in the world of, procurement contracts. Maria, if you could change the AI, on the next one, please. What so as you could see, our federal solution, those some of you might know it as AI, basically integrates eighteen datasets to AI, it you know, a AI view that allows you to take actionable actions, and our AI information actually provides relevant intelligence using, various, datasets that we get directly from thousands of state, local, and education age agencies. And we've actually introduced a super cool module called meeting intelligence, which actually uses AI to transcribe the various agency meetings to to deliver insights directly to your inbox. If you could go to the next slide and the next one. Our presenter today is, Maria Panicelli. She is AI in MacArthur and English LLC's government contracting group. Maria actually focuses a practice exclusively on federal government contracting and procurement and is and guides her clients through the entire life cycle of the federal contract. She AI, and I know this, she provides comprehensive legal counseling as she allows her clients to successfully navigate the complicated legal requirements related to federal contracting while fulfilling their own business goals. Her AI legal experience in corporate litigation and risk management counseling has given Maria a very unique perspective. Recognizing that a purse that a client must focus on what is best for business, her goal is to never unilaterally dictate strategy. She works to find a solution that not only solves a client's legal issues, but advances that client's business plan and is consistent with that client's mission. Maria, I thank you so much for being here, and we look forward to your presentation. Maria's contact information is here. Also, just as a couple of housekeeping, we will be sending, a link to the webinar after within twenty four hours, hopefully, this afternoon. And, also, please use the q and a box that you'll find to ask any questions, and we will try and get to all the questions by the after the presentation, I guess, or, maybe throughout. But I'll leave that to Maria. And, Maria, I'm gonna give the floor to you because I am really looking forward to this session on subcontracting. Thank you so much, and thanks to everyone for being here today. As you just heard and as I'm sure you know since you signed up, we're gonna be talking today about key concepts in federal subcontracting. As Articha said, my name is Maria Panicelli. I am a partner with McCarter and English, which is a full service law firm. We've got, about four hundred attorneys across twelve offices within the United States. But my clients are located all over the country as well as abroad. They include contractors who are primarily prime contractors, primarily or contractors who are primarily subcontractors, and some contractors who do both depending on the the size and the nature of the job and the set aside status, etcetera. As Arshisha said, you know, I focus exclusively, on federal procurement. So unlike some attorneys that are are out there who kind of dabble in government contracts because their clients work in certain industries where government contracts might be common, I do government contracts all day every day. I'm not limited to a specific industry, other than government contracts itself. My clients span a a wide breadth of industries and work with all different agencies. And my practice includes things like bid protest litigation, both on the protester and intervener side, REAs, which are request for equitable adjustment for those of you who aren't familiar, claims and contract disputes act claims litigation before the boards of contract appeals and the court of federal claims and the federal circuit. Lot of small business procurement issues, so certification, affiliation, teaming, mental protege, joint venture, size and status protests, and kind of a a grab bag of performance and compliance counseling, which can cover everything from false claims act to suspension and debarment to organizational conflicts of interest to cost principles to buy American. You name it. It's kind of, you know, any any, myriad of issues that come up by virtue of doing business with the federal government as I'm sure many of you know. And last but not least, my practice includes what we're gonna be talking about today, which is subcontracting. And, again, I've got clients who are on kind of both sides of that line or or straddling that line between prime and sub. So we're gonna talk a little bit today about things from from both parties' points of view. You know, when I help clients with this, I I help with things like drafting and negotiating the subcontract document themselves, dealing with any disputes that arise out of subcontracts, you know, making sure that subcontracts are far compliant and include all the relevant flow downs. And we're gonna talk about all of that today. So as you already heard, if you wanna pop questions as we go in the q and a box to the extent that I can kind of fit them in while we're going, I will do that. But we've got a lot of you on today, so I will also try to leave some room at the end. But if not, you can feel free to if we don't get to your question or if you have a question that you don't think of until after we're done, you can feel free to reach out to me. You're gonna be getting a copy of the the slides, and you're gonna also see this slide again at the end so that you can record my contact information. You can also connect with me on LinkedIn if you like where I post when I'm doing other webinars like this, client alerts, blogs, etcetera. I'm pretty frequent speaker and an author on these topics. Alright. So with that, let's get into the agenda for today. We're gonna start off talking kind of about the the attitude and the mental framework you have to, or I would recommend you use going into a subcontracting relationship. We're then gonna talk about slowdown clauses, and kind of risk shifting provisions. We're gonna spend a a decent amount of time on that, and then we're gonna wrap up talking about different types of claims. First, pass through claims where subs and primes are cooperating, to go after the government for additional time or money based on something that happened during the performance of the contract. And then also the the flip side where there are disputes between primes and subs themselves, and it doesn't really necessarily involve the government. Alright. So in terms of the the theme of, you know, the the mental framework that you should be kind of approaching things with or the, you know, the overall way you should be thinking about this, Subcontracting is like any other business or even interpersonal relationship. You wanna work with someone who you respect, who you trust, who you feel is a partner, and is gonna pull their share, who's gonna help you solve problems and not, you know, assign blame or or be, draconian about things, that's gonna be a responsible party who's gonna allow you to succeed, and you're gonna allow them to succeed. So you're really looking for and I know, obviously, you don't necessarily have, especially if you're a subcontractor, the opportunity to choose where your contracting opportunities are coming from. And sometimes you do, and this is a theme we're gonna see throughout the the presentation today. Sometimes you do have less leverage to, you know, pick and choose your opportunities or to negotiate the the terms that you want. But the key is to understand, and we're gonna talk about this a lot more as we we go through the presentation today, to understand where you do have wiggle room and where you can say no and walk away and when you should. Because sometimes I know that an opportunity is tempting, but if you're not gonna be working with a good partner, there's any number of things that can go wrong. All manner of sins can can occur, and that doesn't set you up for long term success and can cause you some serious, you know, bet the company type problems. So you're looking for a partner that's got integrity. You're You're looking for a partner that exhibits a willingness to work. You know, you don't wanna be and I I use this example every time when I do this presentation because I think everyone's got someone they think of. We all had a person in high school or college or law school or med school or whatever the case may be that, you know, there was a group project and someone didn't pull their weight. It doesn't feel good to be the person who thinks you know, who knows you're not pulling your weight. It doesn't feel good to be the person who's pulling the weight because someone else won't be pulling their own weight. You need to find people, and you need to be someone who's willing to kinda take ownership, do the work, and do it cooperatively. Again, no no blame or or finger pointing. The next three bullet points, I think, go together. Communication is really, really key. Honesty in that communication and transparency. And one of the big things to keep in mind here is that, you know, we're gonna see as we move forward how important communication between the prime and the the government can be. And when you're dealing with subcontract on a federal project, you, you know, the the prime and the sub need to be communicating sufficiently so that the prime can be communicating what they need to communicate upstream to the government. If you're not doing that, there's gonna be all sorts of problems that can arise, all sorts of benefits you're cutting yourself off from, all sorts of rights to money and time you're not preserving. So it's really, really important to keep the channels of communication between the prime and the sub open, and it's also really important to be open and transparent even about the problems. Now I absolutely just said you wanna work with someone who's willing to work, who's not gonna point fingers, who's not gonna, you know, be negative Neli and always talking about the problems. That is true. But you need to discuss the problems, albeit, in a solutions oriented mindset. You can't just hide the problems. And I've seen subcontractors who are trying to do the right thing. We're like, alright, man. This problem came up. We're gonna take this this, you know, these steps to remedy it. And then when it's all fixed, we're gonna give the prime a heads up. Like, hey. Just so you know, man, we ran into this problem, but it's all fixed now. In some ways, in a common sense way, that makes absolute sense. You take ownership. You solve the problem, and you don't really bother anybody about it until it's already solved. And you can say, look. We already dealt with it. I'm I'm a responsible, responsive, proactive, you know, diligent contractor, and I already fixed this. In the world of common sense, that's great. Unfortunately, sometimes common sense and law are at odds, and the problem with that is if the prime doesn't know until after that certain actions were taken or certain remedies were were were were remedied, I guess, for lack of a better term, they're not gonna be able to communicate with the government effectively. So you need to be talking about problems upfront when they arise, albeit with the idea of how are we gonna solve this. We already have a plan to solve it, but, you know, nonetheless, not hiding the ball. Finally, and this is probably jaw droppingly surprising for some of you to hear a lawyer say, but I think a really important subcontracting is also empathy and understanding. First of all, because, again, this is like any business or interpersonal relationship. There are humans involved. And if you can understand where the other side is coming from, you're always gonna be in a better position than if you're just taking a hard line and being stubborn. But from a strategic point of view, this is where you're probably saying, AI. I knew she was a lawyer. It's also easier for you to negotiate on your behalf if you understand where the other side is coming from. And you're gonna see examples of that as we go through today. If you think that the prime if you're a sub and you think the prime is being difficult in demanding a, b, or c, if you can educate yourself and you understand that they really have the prime really has, very little choice but to demand a, b, and c of you, you'll know that, okay, they can demand a and b, but only half of c. So I can at least push back on that piece and probably get some traction. If you understand the confines that the other party is working within, you're gonna know where you do and do not have wiggle room. You're gonna know where there's room to push back and where it's a nonstarter, which then will allow you to figure out if the nonstarters or the, you know, the areas that you're pushing back are deal breakers for you and will give you the power to walk away. And, again, you can always walk away, and there are some times that you should. But, hopefully, what you'll get out of today is understanding where the other side is working from and then understanding the areas that you can push back. Because the way that we're gonna go through things today, like I said, there's gonna be some parts of this presentation that are more geared towards the prime contractors. There's gonna be parts of this presentation that are more geared to the subcontractors. But I don't want you, if you're usually a prime, to be tuning out the subcontractor stuff, and I don't want you, if you're usually a sub, to be tuning out the prime contractor stuff. Because the more you understand about what the other side wants and what the other side's primary concerns are and what the other side's, you know, fears are and what their needs are and where they're coming from and why they're asking for what they're asking for, the more you're gonna understand how you can try to reach a middle ground and find some sort of compromise. It's, you know, it it it's the nice kumbaya approach, but it's also the strategic smart approach. You're gonna have a lot more success in your subcontracting relationship if you understand each other. Quick note about lingo and terminology, and this is another thing that lawyers are are famous for. But the vocabulary in terms of contractor relationships is important. And more and more, I see that there is a lot of misunderstanding and misconception and conflation of terms amongst contractors. I think there's a lot of, you know, lunch and learns and webinars out there that don't do a great job of kind of drawing the the lines or delineating between the differences between some of these terms. The first one is that teaming is not subcontracting. A teaming agreement is not a subcontract. A subcontract is not a teaming agreement. They are not interchangeable. They are not the same thing. Teaming is a way that two contractors who are going to enter into a subcontract kind of make an agreement to cooperate on a bid or a proposal or a quote, you know, cooperate on the response to some sort of solicitation. And the point is that they're kind of laying out the the ways in which they're gonna cooperate to try to go after contract opportunities. And the the added benefit is that they're letting the government know that, hey. You know, we're both gonna be working on this. And that's, you know, the AI, at least the the goal, is that that gives them a competitive edge. If the government knows that it's not just the prime, but, hey. Look who I've got on my team. Look who I'm gonna subcontract to. Look at all their capabilities. Look at all their qualifications, that it's gonna kinda make you a more competitive competitor in terms of getting the award. And, again, then you're gonna have some sort of division of labor in terms of who's who's writing what sections of the proposal and and whatnot. The idea in a teaming agreement is that you will then enter into a subcontract at a later point if your efforts to get the proposal or to respond to the proposal and get the contract are successful. So it's kind of a preamble or precursor to a subcontract. But the idea is you enter into a teaming agreement, and then if you get the award that's the subject of the teaming agreement or awards, or, you know, the the the IDIQ or whatever, then you enter into a subcontract. You don't have to have a teaming agreement. Lots of people just go straight to the subcontracting step, but understand they are not the same thing. And just because you have a teaming agreement doesn't mean you have a subcontract. Just because you have a subcontract, don't refer to it as a teaming agreement. Two separate agreements, two separate steps. And if you got a teaming agreement, there should be a subcontract that follows it if you get the award. Also, you know, kind of in the same realm, there's CTAs, which are contract teaming arrangements, that are under GSA multiple award schedule contracts, they are not the same as either subcontracting or teaming. They're kind of a a very unique beast. And if you've GovSpend deal with those, you should, you know, be be talking to your lawyer about that. Joint ventures are something completely different. They're another way of partnering, but it it they're a way of partnering where two companies come together and kind of form a joint venture, and then that joint venture is going to be the prime contractor going after contracts. There's not necessarily a prime sub relationship. And the reason that mentor protege programs are often talked about in the the same conversations as all of those other things we just talked about in terms of CTAs and JVs and teaming agreements is because if you're trying to make your your joint venture eligible for certain small business contracts, depending on who the parties to the joint venture are, you might need to go through the mentor protege process and get approved first. So that's all outside the scope of what we're talking about today, but I want to make sure that, you know, before we dive into subcontracts, you understand what subcontracts are and what they are not. They are not a teaming agreement. They are not a joint venture. They are not a CTA. They have little to do with mentor protege, although a mentor and a protege can enter into a subcontract. But a subcontract is when, you know, I, the prime contractor, have a prime contract with the government, you know, whatever agency that might be, and I am now subcontracting the scope of my work to a subcontractor. That's a subcontract agreement. It's not you know, a teaming agreement is it it comes before that, a joint venture, or something completely different. Do not use these terms interchangeably. They are not interchangeable. Alright. So now let's get into the heart of things. Let's start talking about flow down clauses and risk shifting provisions. So what are flow down clauses? This is one of those terms, like a lot of things in government contracts, where there is a kind of broad scope, that people or a broad range of concepts that that people kind of incorrectly use the term to refer to because it's kind of the the meaning has colloquially broadened, and then there is the narrow scope that the term actually means. So strictly speaking, what flow down clauses are are far clauses, federal acquisition regulation clauses. Those are the clauses that are in prime contracts that are included in a a prime's contract that the prime is required to or AI chooses to flow down to their subcontractors. In other words, you know, I have this clause that says a, b, and c in my prime contract. I'm gonna turn around and cut and paste that and maybe tweak the word government to prime contractor and tweak the word prime contractor to subcontractor or something like that and put it in my subcontract. And we're gonna talk as we go forward today that there are mandatory, they are recommended, and then there are things that, you know, don't strictly speak AI, I'm sorry, don't strictly fit under the definition of quote, unquote, flow down clauses. Because a lot of times, like I said, people colloquially use flow down clauses not only to refer to the types of things I just mentioned, but also just to refer to other risk shifting provisions, other things that the prime kind of thinks about and says, I'm not gonna necessarily take this clause and and, quote, unquote, flow it down verbatim. But if I've got these obligations and I need to figure out a way to make my subcontractor obligated to me in connection with the same concept, that is not strictly speaking a quote, unquote, slowdown clause, but it AI goes into the whole same analysis that a prime needs to do when they're sitting, you know, in front of a blank sheet of paper and saying, what needs to go into my subcontract here? What do I need to do to protect myself? Or, you know, more realistically, what they're telling their lawyer to put in or what their lawyer is telling them they have to put in. So you've got the flow down clauses and you've got the the risk shifting provisions. We're gonna get into more detail with those in just a little bit. A lot of the stuff that I've been talking about so far, you know, the AI idea that the prime contractor, you know, is kind of in the middle and needs to make sure that they are, you know, pleasing the the the federal government. There's there's a common thread that runs through, you know, nongovernment contracts as well or even state or local government contracts. You're always, as the prime contractor or the general contractor, gonna be somewhat in the middle, right, trying to make sure that your subcontractor's performance and your own performance satisfies the customer. That's true even outside of the realm of federal government contracting. But what makes federal government contracting different or or a little bit unique or a little bit more challenging, especially from a prime contractor's point of view, is that federal government contractor, perhaps the most regulated contracts in in the world. They have a a whole host of laws, obviously, the federal acquisition regulation, the FAR, but also agency supplemental regulations, small business regulations, you know, CECA, the the procured procurement integrity act, APA. You know, there's a a whole host of different laws that need to be followed when you are dealing with the federal government and that are gonna be incorporated into your prime contract if you are a prime contractor. The other thing that makes it different is for those of you who have ever gone through any sort of disputes process, with a commercial contractor, even with state or local, you're probably used to going to the appropriate state trial court or the the local federal district court, which is the the federal trial court level. So, you you know, United States court for the the Northern District of New York or the Eastern District of Pennsylvania or the District of Delaware or or what have you. And, usually, it's geographically based either on, you know, who you are, who the other party is, or where the work is taking place. And you're usually dealing with a breach of contract action. That's not the way it works if a prime contractor and a subcontractor have claims, and we're gonna talk more about this when we get to pass through claims, but against the the federal government. You have to go through a specific administrative process, and only after you've gone through that administrative process can you even dream about going to court and litigating. And even then, it's special courts, and it's special procedures, and it's special causes of action. It's not in special causes of your theories of recovery and then legal basis for claims. It's a different world, which means that the prime contractor has a lot less wiggle room. And there's a lot more riding on them making sure that the subcontractor delivers to them what they need to meet and satisfy all of those complex criteria. And it also means that given that complex dispute structure, they need to make sure that the subcontractor is on board with that so that the subcontractor doesn't get impatient and kinda start causing disputes between the prime and the sub while they're trying to cooperate and go upstream through that long, drawn out, complicated, unique disputes process against the federal government. The government doesn't bend or negotiate. The far clauses are what they are. There's not a lot of back and forth. Whatever's in the solicitation and whatever you bid on, that's what's going in your contract. That means the prime contractor does not have a lot of wiggle room, which means the prime contractors can be reluctant to negotiate with their subs unless, of course, again, you are a subcontractor and you understand where the prime is coming from and you know the areas where you do have wiggle room, where the regs only require a, b, and c. So why are you asking me to do a, b, c, d, e, f? I can at least push back on the next piece or the the last piece. So to that end, you know, trying to understand each other, and we're gonna see these themes AI going throughout the the rest of the presentation today, the biggest things that are gonna be on a prime's mind, you know, are one, successful performance of the job, and how can they ensure that what their subcontractor is doing helps them successfully perform or on the flip side doesn't prevent them from successfully performing and keeping the the con the the client, the the customer, the government happy. Obviously, they want a good CPARS. They wanna be able to do future work with the government. They can't have their sub put them in a position where they, you know, they do deficient work or or late work or, you know, cause any sort of failure or default or hurt the relationship with the customer or result in a bad performance evaluation. The other thing that's gonna be kind of, you know, on the forefront of prime contractors' minds are are two things that are claims related that, you know, hey. I know that if we've got some sort of issue that the government is at fault for and we need to seek additional time or additional money from the government, I know we've gotta go through this difficult and complex, you know, disputes resolution process. The sub needs to understand that, and they can't start trying to sue me while we're trying to go after the the federal government for the money that they owe us both. And also along the same lines, and we're gonna talk about this a little bit more when we get to the pass through claims piece, When you've got a pass through claim that the prime has to certify the pass through claim, and they would be on the hook for any fraudulent stuff that the subcontractor does. So those are gonna be kind of the the broad brush stroke things that the prime is most concerned with. The sub's gonna be thinking, hey. I might be less familiar with the FAR, especially if I haven't done a lot of federal government contracts. And even if I'm not less familiar with the FAR, I don't know what's in the the prime contractor's prime contract unless they tell me or unless they get really specific. I need to know what I am responsible for doing. I need to understand what the legal obligations are under this complex federal regulatory framework. I need to be on notice of what I need to do to keep my prime and then, you know, in turn, the government happy. Second, I need to protect myself. I need access to remedies, and I need access to money if something goes wrong. And I'm not gonna lie to you AI. These last two bullet points, you know, the idea that the sub might not want to be on the hook while they the the prime is going through that long drawn out process, with the the the disputes clause against the government. That's gonna be intention. The prime is always gonna wanna kinda, you know, Heisman arm, hold off the the the sub from being able to, you know, AI nip at their heels while they're going after the government. The sub's always gonna say, AI, but I can't hold on indefinitely. I need some sort of way to to get my money even if the government hasn't gotten back to you yet. And where you land on on who wins that negotiation and how you resolve that that tension is gonna depend on who the parties are, what's a deal breaker, you know, who's got the most leverage. Unfortunately, there's no one size fits all cookie cutter answer for you guys there. That's a subject for negotiation. And, again, it's gonna help you though if you each understand why the other party is coming from that position. And we'll talk about that a little bit more in more detail when we get to the the pass through claims piece. Alright. So in terms of and this is gonna be the piece that's a little bit more from the the prime contractor's point of view. When you're looking at a subcontract and you're a prime contractor and you're trying to think, alright. What do I need to include in my subcontract? And a lot of times, these are gonna be either industry specific or or type of contract specific. You know, if it's a firm fixed price construction contract, your subcontract is going to look significantly different than a, you know, a a time and materials, BPA for for staffing services or or something like that. But you're you're gonna AI follow the same analysis or the same steps of analysis, the same analytical steps. The first is, AI. What are my mandatory flow downs? You know, what does the FAR tell me I have to flow down? Then what should I flow down, and then what other risks or considerations do I have? So taking those in order, first one, mandatory flowdown clause. How can you tell which ones are mandatory? Oftentimes, the FAR itself or whatever the source of the the law is, sometimes it's an executive order, for example, is going to tell you whether or not you, the prime, need to flow something down. It's going to say, you know, and and this needs to be included in all of your subcontract and sometimes even that you need to ensure that your subcontractors are including it in all of their subcontracts or supplier agreements. But you're gonna look to the source of the the clause itself to figure out if it's a slowdown clause. Now be really careful, and don't make the mistake that I see a lot of contractors kind of inexplicably make, which is to think that mandatory is a synonym for automatic. It's it's not. They're they're kind of exact opposites in in this context. It doesn't you know, if something's mandatory, it doesn't mean that even if you forget to do it, don't worry. It happened anyway in the background. It's automatic. No. Quite the opposite. You have affirmative obligations to flow down this clause and to cut and paste it and put it in your subcontract. You know, sometimes it's hard to keep track of of which are the mandatory flow down clauses, and, frankly, it can be a little bit of a tedious exercise. There's not always an an easy way to do it. Sometimes you have to go clause by clause by clause and figure out what needs to be flowed down. You know, one of the things that we help clients with sometimes is a compliance matrix where it says here are all the clauses in your contract, you know, for a prime contractor. You know, here's what you need to do to be compliant with them, and, like, you know, we've xed off. We make a little grid. We've x'd off the ones that need to be slowed down. But, obviously, that's something you you might be able to do in house depending on how much time you have and and how much patience for tedium you have, or that might be something that you wanna work with an attorney to to do. Obviously, I would always recommend that you have a legal professional assist at least in the outset so that you make sure you know that you're doing everything correctly. In terms of you know, once you get past the the mandatory clauses and you're just looking at what else should I flow down and and, you know, what should I, you know, not necessarily, quote, unquote, flow down, but what other types of clauses should I include? How do I protect my interests? In order to figure out how to answer those questions, again, you gotta go back to the the the fundamental underlying concepts that a prime is is aiming for. Right? You're ultimately responsible for the completion of the contract. What do you need from your sub to make sure that you can successfully complete the contract? What do you need from your sub to make sure that you get a good performance review and that the customer is happy and that you're not delayed and that there's not deficient work? And what do you need to do to make sure that, you know, the there's no problem with the subcontractor? Or if there is, that you can kick them off the the the site lickety split and replace them before there's a hiccup that, you know, angers the government. You you don't wanna be in a position where you're pointing the the finger at the your subcontractor from, you know, the government's point of view. You're the prime. If you hired the sub, it's your responsibility to to be looking over them. If you don't do that, that's on you. It's not gonna be like the government's AI, oh, no worries. I know it's that you hired a really bad sub. They're gonna say, yeah. You hired a really bad sub. Replace them. Fix it. I don't wanna hear it. So on the prime to get the work done, period. Don't wanna leave it so that the subcontractor can force a default or or result in deficient work or cause a notice failure or cause a delay. You need to be vigilant. So, you know, think about that when you're talking about what clauses, you know, that aren't mandatory or what clauses you want to put in your subcontract. And also think about everything that the government could do to you. And I don't mean that necessarily, like, in a bad way. Like, they could do it to you. But I mean, like, think about every right that the con the the government has under the contract and what position that would put you in and, therefore, what you need to do to protect yourself or or to figure out a way that you're gonna be covered if that situation occurs. So here's an example of where AI didn't do that, unfortunately. This was a contractor that did not use us to draft the subcontract, but came to us afterwards. And what had happened is that they had been terminated for convenience. For those of you who aren't aware, you know, federal government contracts give the the federal government the right to terminate your contract for convenience, which means that it's not that anyone did anything wrong. It's not that there's a default. It's not that anyone's at fault. No one did anything. You know, there's no wrongdoing or misconduct. It's just the government determined, Yeah. We don't actually need this anymore. We're gonna terminate this because it's in the best government, you know, interest. It's not worth the money. We don't really have a need for these products anymore. You know, maybe it's that there was a construction going on in the country that we pulled out of, or maybe it was that, you know, we no longer need to order seven bazillion face masks because COVID has slowed down. You know, it's it's all different reasons that a contract can be terminated for convenience, but the clause is pretty much, you know, always in there. So what happened in this case is that the prime contractor got terminated for convenience, but nothing in the subcontract addressed termination for convenience. They had the ability to terminate the, the sub for default, but the subcontractor hadn't defaulted. They hadn't done anything wrong. So now you've got a situation where the sub goes, alright. Well, fine. It, you know, stinks for you that you've been terminated and that there's no more money coming in from the federal government, but you don't have the right to breach this card, you know, to break off this contract. There is no termination for convenience clause. So if you just break off paying me, you know, that's a breach of our subcontract, and I want the rest of the money that you would have owed me for the rest of the subcontract. You obviously don't wanna be in that scenario if you're a prime. You don't wanna be stuck in the middle where, okay, you've been terminated for convenience, but you can't terminate your subs. Now, ultimately, we were able to get a settlement here, but it's not a situation you wanna be in. Takeaway lessons in terms of, you know, if you're a prime contractor, you always wanna avoid battling on two fronts or being stuck in the middle, and that has a lot to do with the disputes clause and what we're gonna talk about when we get to pass through claims. But it's also got a lot to do with clauses like this, like the terminations clause. What could the government do? What are all the the various contingencies that could come into play based on the clauses in your contract? And how do you make sure that, like, you're not then in a weird, you know, between a rock and a hard place situation AI the the contractor in this example? You you wanna carefully study your contract and know everything that could happen, know all the possible scenarios, make sure that, you know, you understand what your rights and and obligations are, and make sure you understand what the government has the ability to do and kind of what that what position that would put you in and what you would want to be able to do if you are put in that situation. Be very, very careful. I mean, just don't do it, but, you know, be very careful, using templates you AI on the Internet. They're never government contract templates. And if they are, they're probably out of date, and they might not be for your industry or your type of contract or this method of procurement. There's all sorts of problems that can, you know, happen if you use stuff off the the Internet. You wanna make sure you protect yourself. If you've got an obligation that the you know, in order for you to perform successfully, the sub has to perform successfully, flow that down. And I mean that in the broader sense. Account for it in your subcontract. Make sure that the subcontractor is accountable to you to the same extent you are accountable to the government. You want the subcontractor's obligations to you to mirror your obligations to the government, and you want your subcontract, you know, to allow you to do all the things that the government can do to you under your prime contract. You AI want there to be a a mirror. Again, remember your primary objectives. You don't want the sub to to mess up your performance and get you in trouble upstream, and you don't wanna get stuck in the middle either in terms of disputes or in terms of, you know, performance obstacles AI the the termination for convenience. So make sure that you've got that mirrored obligations going on. And as we're gonna talk about a little bit later, carefully craft your dispute resolution provisions. Now let's take off our prime contractor hat, switch over to our subcontractor hat, talk a little bit about how subcontractors need to be thinking about these things. The biggest mistake or the biggest, you know, global mistake I see subcontractors make is agreeing to a nonspecific catch all flow down clause. And I'm not gonna read these because your eyes will glaze over, but you've got some examples here, and you can see that they're very, very vague. Basically, just the idea that the subcontractor is assuming all obligations to the contractor that the contractor has towards the owner. Now at this point, you might be scratching your head and saying, Maria, didn't you literally say on the last slide that that's exactly what the prime should be pushing for? Yes. I did. And the prime should be pushing for that. And it's not that the objection is the objection is not to the concept that the subcontractor's obligations to the prime need to mirror the prime's obligation to the government. That is conceptually exactly what the prime contractor wants and probably conceptually as a subcontractor in a large way what you want to, but the problem is the specificity there. If I'm a subcontractor and I say, sure, man. Sure. I'll hold up a mirror to whatever your obligations are. If the mirror is all foggy, do you have any idea what you just agreed to? If you don't know what the contractor's obligations to the government are and you just said, well, my obligations to you are the exact same as your obligations to the government, do you have any idea what your obligations actually are then? You just agreed to basically say, yep. My obligations are are are equal to a b c. But you don't know what a b c are. So how do you know what you are obligated to do? How do you know what your rights are? How do you know what your performance metrics are? How do you know what a dispute should look like? How do you know what notice you need to give? You don't know any of that. You can't have that or that vague of a clause. If you do, you're not gonna understand your specific obligations. And especially if you are newer, you know, to the the federal government sphere or you're not familiar with the FAR or even if you're not familiar with doing business with a specific agency because they have specific, you know, agency supplemental acquisition regulations, you can get in a lot of trouble here, not because you're doing anything wrong, but because you don't know what you don't know. So vague catch all clauses do not put subcontractors on notice of their obligations. That is a big problem if you are a subcontractor. It's also a problem if you're a prime. And I don't know why, but I've seen primes who, for some reason, are like, yeah. I kept it really vague. You know, the subcontractors got very limited information, and they feel like that's a win. Like, I hid the ball from my subcontractor. How is that a win? If they don't know what they're supposed to be doing and they mess up, it's on you, bud. So there's no benefit from the prime contractor's point of view to keeping things really vague either. The more your subcontractor knows, the more specific their knowledge is, the better the chances that they're gonna knock it out of the park with their performance. The less they know, it's a pretty good chance they're gonna mess something up, and that's gonna mess something up for them and for you and, you know, cause a problem for the government that's not gonna be super happy with you. So an example of this of this you know you know, making sure that you keep your subcontractor in the dark and and making them ignorant is is not bliss. A lot of cases in federal government contracting, and you might know this, you know, depending on on how often you've been in this this industry or how long you've been in this industry or how many contracts you've had. A lot of various clauses require, especially if you want your contract to be adjusted in terms of price or duration later, require you to give notice. So, for example, you know, construction project, there's a change or there's a different site condition, and it's gonna cost you more money and it's gonna take you more AI. And you're aware that the far clause says that if it takes you more time or costs you more money, you have a right to seek an equitable adjustment of the contract and get more time or more money to basically compensate you for the the the extra time or the extra money that that differing AI condition or that change or that defective spec or that delay caused you. Great. Most of the time, though, you are only able to seek that money or that additional time if you gave appropriate notice. So if you fail to give appropriate notice, you are out of luck. You you know, the government at the the very least is gonna throw up a big defense, and you're gonna have to litigate for a long time to get that money. Whereas if you just gave the proper notice, you know, it's it's a much better chance that you're just gonna get the equitable adjustment to your contract. So in this case, the prime, again, we did not help with the the subcontract on this one. The prime had, before they came to us, before they had a problem, used vague catch all, flow down clause. It was actually a template they found on the Internet. They were working with a sophisticated sub in the realm of commercial contracts, but wildly inexperienced in terms of federal government contracts. They had no idea how the FAR worked. They had no AI, you know, and they were AI going back to what I said at the very beginning of the the presentation, they were trying to be proactive and solve a problem before they talked to their prime about it. But because of that, they didn't give the prime notice. The prime didn't give the government notice. And when they went to try to seek additional time or additional money through an REA or request for equitable adjustment later, the the the government said, no. You didn't give appropriate notice, so we don't owe you anything. That ultimately was, you know, again, negotiated and settled. There was some money provided, but it cost a lot more on lawyer's fees. It took a lot more AI. Obviously soured the relationship between the the prime and the sub and and also caused problems with the government. So this poor general drafting hurt both the sub and the prime. So from a subcontractor's point of view, you wanna make sure you understand what your obligations are. You understand what contractual procedures you have to comply with in terms of notice, in terms of disputes, in terms of prosecution of the work pending a dispute. All of that, you don't wanna agree to a vague catch all flow down clause. And, again, the more specific the the prime gets with you, the more you're gonna be able to carve out those pieces that are trying to put too much liability on you or kind of expand what the far requires of the the prime. Because if you and, again, if you understand where the prime is coming from and you understand why they're asking for for a, b, or c, you're gonna be able to push back against d and e, and you're gonna only be able to do that if it's you know, the the contract is specific enough about what they're they're including. Going back to the the termination for convenience example and, again, kinda hitting that point of if you understand where the other side is coming from, you know where to push back. You're never gonna find a sophisticated or knowledgeable or especially if they have a lawyer involved. You're never gonna find a prime that says, no. AI, you know, I'll agree to take the termination for convenience clause out because no prime is ever gonna wanna end up in the situation that I talked about where the the government terminates them and they can't terminate their subs. But what you can say is, alright, man. I understand you can't be in a situation where you get terminated for convenience and you can't terminate me. But you have this set up that you can terminate me for your convenience. I want it set up that you can terminate me for convenience if you get terminated for convenience. So that will assuage your fear, your prime's fear of being stuck in the middle. If you get terminated, sure, you can terminate me, but you can't just terminate me willy nilly whenever you feel like it for your convenience. And, again, it's a narrowing. It's something that you you understand, but there's certain places where the government, you know, they the the prime can't really bend because what the government can do to them, but they can bend on, you know, having the ability to fire you or or terminate you even if they haven't been terminated. So, again, another one of those, if you understand where the other side is coming from, it it helps you out. But going back to the the ignorance is bliss and the, you know, takeaway lessons for subs here, Don't agree to a vague catch all, slowdown clause if you can help it. Make sure you understand your obligations and responsibilities. And the way to push back on that is not to say, like, no. I'm not signing this. It's to say, hey. Look. This is really vague. I wanna make sure I'm doing exactly what you need me to do. I wanna make sure I'm giving you what you need me to give you. You know, you need to be a little bit more specific so I can understand how to do that. If there's a reference to the prime contract documents, get them. If you can't because the prime contractor won't give them to you or because they're classified or protected, then tell the prime contractor to rework the language so that it's not just incorporating a document that you can't look at. And and, again, from the prime contractor's point of view, it's in your benefit to make sure that the the subs understand all of this stuff too. In terms of, you know, everything you wanna think about, this is obviously not an exhaustive list, but these are, you know, some of the critical considerations that go into drafting your subcontract. You know, what are the mandatory flow down clauses? What happens if there's a change? What happens if there's a dispute about if the change is possible or, you know, appropriate or if they should get paid more money for the change? You know, it the prime contractor in that scenario has to keep working, you know, and kinda deal with the the extra money or the extra time on the back end. So they're gonna want the subcontractor to agree to the same thing, to agree to the prosecution of the work. We're gonna talk about this more in just a little bit, but the dispute resolutions clause, obviously, the notice provisions that I just talked about. And if you're a prime and you're trying to flow down notice provisions, think critically. If you've gotta give notice within ten days, you probably want that period of time in your subcontract to be a little bit less. Right? They've gotta give you notice in seven days so that then you've got a day to, you know, do some internal stuff and then turn it around. If you're a sub and they're pushing for notice in three days, but, again, if you understand where they're coming from and understand that it's fourteen days, you can say, hey. Look. I get that it can't be fourteen days because yours is fourteen days, but three is excessive. How about ten? Understand where you've got wiggle room. Terminations, both for convenience and default, delays and liquidated damages, especially if you're in construction, suspensions, cost and AI, and this is one of those things, vet in advance, especially if you're doing a teaming agreement prior. Make sure you're on the same page in terms of the costs and the prices and the unit prices and the labor rates and all of that stuff. Don't lock yourself into a teaming agreement and then get to the point where you're negotiating a subcontract and realize that you're on completely different pages about, you know, who's getting paid what. Figure out, you know, if if, you know, if this is a AI contract that involves options, is this a subcontract that lasts throughout all the options? Is it a subcontract where you've gotta redo it every year? Is it a subcontract where one person has the right of first refusal to renew, etcetera? Also, keep in mind that a lot of the the stuff that might have to go into a subcontract is not necessarily performance related. Yes. You're obviously gonna have clauses about the scope of work and about the disputes and about the changes to the work and if the work is terminated. But there might be other things, especially when you're talking about mandatory slowdown clauses AI labor and employment issues or ethics requirements or, you know, during COVID, the vaccination concerns, IP issues. All of these things kinda need to be taken and and looked at in a holistic way. The other thing you're gonna wanna make sure you're doing is keeping up to date and working with lawyers who are keeping up to date on kind of the latest developments in the the government contracts world and just in the commercial world. Very, very common now that there are scams and phishing attacks and all sorts of horrible things that can attack you through your inbox. You know, emails can be spoofed. People can try to lie about who they are. And the thing that we're seeing more and more of is that, you know, some party, some outside party, some often offshore or international party somehow gets access to, you know, an email chain, somehow gets access to some sort of automated billing system, and starts messing around with the the accounts and payments, especially if you're a AI, your payments to your sub somehow go astray. They get diverted to a fraudulent account. There would be no reason for a lot of parties to suspect that this is going to happen or to think about it because for how many years have you been making electronic payments to whatever bank account you guys specify at the beginning of, you know, the the project? And you don't necessarily think twice if the bank account has to change or the the email address for the person who's taking the payments change, especially if it's a big organization. But in today's world, unfortunately, this is something you need to guard against. So this is just an example of new developments just in the world that you need to start thinking critically about. It's really important now to address in your subcontract, you know, what's the banking account that the payments are gonna be made to? Let's set it up now. And if that account needs to be changed, here are the three people that need to be contacted, not just via email, but here are the three people that need to give their permission via phone. And if that process doesn't happen, then we're not changing the bank account. You know? And if that process does happen, then we are changing the bank account, and we're not liable for the payments that get diverted. Those types of things. Other, you know, developments that are are big right now, things in terms of protected information, cybersecurity, CMMC, CUI, you need to keep abreast of developments. You know, the all sorts of new stuff in in government contracting comes down at any given time, executive orders, you know, new deviations to certain bar clauses, new SBA regs, and you need to make sure that your your templates or your your subcontract efforts are being updated accordingly. Alright. So with our last ten ish minutes, I wanna move over and and talk about the claims. First, against the government with pass through claims and then claims between primes and subs. Subcontractor pass through claims are a big source of of tension or or can be a big source of tension because this is really where the fears or the the big concerns of the two parties butt up against each other. And, again, like I said, I'll be honest with you, there's not one size fits all. There's not one easy answer to this. It's gonna be a negotiation. It's gonna depend on the relative power of the parties. But subcontractors' biggest fear is that without the prime support, they're gonna be left without a recourse. If something goes wrong on the job and it's the government's fault, there's a government caused delay, there's a change, there's a defective spec, there's a different site condition, there's, you know, a suspension that the government causes, something where it's the government impacted performance negatively and cost the prime and or the sub money and you're going after the government, there is a concept called sovereign immunity, which means, generally, you can't sue the federal government. There are exceptions to that, one of which is in the Tucker Act and and also in the Contract Disputes Act, which is sure. If you have a contract with the government, you can sue them. Because if they didn't have that, nobody would ever enter into a contract with the government. Right? Because, basically, that would mean you could never ever get any money back if something went wrong. So the idea is if you're a prime contractor, you've got privity of contract. You've got a direct contract relationship with the United States. So you could get around sovereign immunity. You've got that exception from the Tucker Act and the Contract Disputes Act. But if you're a sub, you don't. You don't have a direct contract relationship with the government. You have a direct contract relationship with the prime, and they have a direct contract relationship with the government. So you, as a sub, cannot sue the federal government directly even if it's they who caused your damages in relation to this project. You have to rely on your prime to pass through or sponsor, but usually the the terminology is called pass through claim to the government. When you do that, then we go into that stuff I talked about upfront where it's a long complicated process under the contract disputes act, you have to exhaust administrative remedies by submitting a claim to the government first. You might even do an REA, but you don't have to before that. Only if you are denied or if the government fails to answer after a reasonable time, that claim can you then proceed to litigation? And even then, you have to go to certain courts. You have to AI set up your claim in a or your your your case in a certain way. And the idea is that the prime litigates and the sub supports. Now all of this, like I said, can be a huge source of of tension because the prime is really scared of that second piece we've been talking about all along, that two fronted battle. The fact that, you know, they're trying to cooperate with their sub and go through this long, complicated process that they have no choice but to go through because that's what the FAR and the contract dispute act require them to do, but that the sub's gonna get impatient and start saying, well, I'm just gonna sue you for the money. I can't wait. And they're also gonna be scared of certifying a claim, based on, you know, fraudulent information that the the the subcontractor gave them. Subcontractors are gonna be scared of sure, but if you don't help me and pass through this claim, I'm out of luck. There's nothing else I can do except pursue you. And okay. Fine. I understand that you're a larger contractor. You're a AI, and maybe you can self finance while we go through this long complicated process of, you know, disputes against the government. But I can't. The delay in recovery really hurts my bottom line. I don't have enough cash flow. So you're gonna wanna craft your subcontract to address all these concerns. Again, it's gonna be a function of negotiation. The the prime are gonna want to, as much as possible, eliminate or delay the subs' abilities to go after the prime. The subs are going to want some sort of, you know, backdoor way to start going after the prime if stuff's taking too long or going wrong vis a vis the government. But you need to work these things out. It's gonna be a creature of negotiation. And AI I said, there's no magic wand that that reaches an accord on this. It's gonna depend on, you know, I I when I'm advising primes on this, I push for very different clauses than when I'm devising subs. So it's gonna be about trying to negotiate the best case for you. Again, understanding where the other parties are coming from and and trying to figure out where you got wiggle room. Here is an example clause. I'm not gonna read it for you. And this is very, very typical language, but, unfortunately, this is actually not best practices. There's a couple things missing here. It doesn't deal with, you know, how you're gonna determine if something is a prime con or, I'm sorry, a dispute against the government versus a dispute between the parties. And there's other things in here that are not specific enough, and from a prime contractor's point of view, at least, give the sub much too much leeway to go after the prime while stuff is is pending. From a subcontractor's point of view, this is probably not specific enough to let them go after the prime without, you know, having to deal with motions to dismiss and having a lot of of monetary, you know, expense trying to to figure out how to go after the prime. So neither subs or AI should agree to a clause like this. There's different ways. I would, you know, I would mark this up with red lines differently depending on if I'm a prime or a sub or, you know, if my client is a prime or a sub. But be, again, very careful of using templates even when people said, like, oh, I've used this template sixteen times. I can't tell you how many times I've gotten templates from very sophisticated contractors using very sophisticated lawyers, and it's very clear that this is an amalgamation of a bunch of different edits that have gone through, you know, however many rounds, and they're like Frankenstein's monster. And they're not necessarily good for anyone. So just be aware. Best contract, you know, you know, best practices, flow down the disputes clause in full. You wanna make sure from a prime contractor point of view, you're requiring that prosecution of work, the continuation of work to continue while you're figuring out, you know, if you're in a fight or not. You don't want the work to stop because you, as a prime contractor, can't stop the work from the federal government's point of view. You're gonna wanna make sure you have a a disputes clause that kind of bifurcates claims against the government versus claims between the prime and sub, and you're gonna wanna make sure you deal with who gets to decide which things go in which bucket. You're gonna wanna set forth specifically the the party's agreement about whether or not the the, you know, the the disputes clause stuff needs to be exhausted before AI I'm sorry. The the the the the complicated upstream government, disputes process has to be exhausted before the sub can go after the government. You're gonna wanna address the certification issue. Maybe the subcontractor needs to certify the information when they pass it on to the prime so that the prime can feel a little bit more comfortable when they certify. Maybe they need to indemnify the prime for any damages that come for a fraudulent certification, etcetera. Another thing you might wanna think about, there's another type of agreement that parties can enter into called a liquidating agreement. This is, you know, an oh, you know, not a teaming agreement, not a subcontracting agreement, but an agreement that comes later that specifically addresses how you're going to deal with litigation of a pass through claim, and can get pretty granular in terms of the detail, but it it makes sense, causes a a or, you know, eliminates a lot of confusion that can come up. Alright. And I know we're almost out of AI, but I'm gonna go through this this pretty quick mostly because these are the types of disputes that you're probably more familiar with. When you're dealing with prime and sub disputes that are literally just between the prime and the sub, they don't involve upstream versus the government types of things. These are gonna be the ones that are are usually breach of contract actions brought in local state trial courts or in the appropriate United States district court, which is the the federal trial court level. You're gonna see if the the sub is suing. It's gonna be usually that the prime refuses to honor the subcontract. You know, they they might be alleging that they they didn't help them with the pass through claims. Again, that's gonna be about how you negotiate your terms. It might be that it's set up for arbitration. And if you're in construction, there might also be a prime or I'm sorry. The subcontractor might also AI to do a Miller Act case, a claim against your your surety, which is another claim, and that is always gonna go to federal court. If the subcontractor breaches the contract, the AI, similarly, can can sue them for breach. And, again, that's when it has nothing to do with the government. That might be, you know, a breach contract action again in the local state court or the local district court, and, again, could be proceeding to arbitration instead of court if that was the the process that you talked about in the disputes clause that you agreed on. You're gonna wanna deal with ADR issues. You know, is there mandatory mediation first? If you're doing arbitration, is it binding arbitration? If you're doing mediation or arbitration, where are you doing it? How are you splitting up attorney's fees? Is it a prevailing party situation? Are the parties splitting the costs, you know, evenly? Is the party who brings the claim responsible for a bigger share of the costs? These are all things that seem really nitpicky. But in reality, what happens is that it becomes a leverage tool later to try to settle. It's not necessarily that it's so important where you're having the the mediation or the arbitration, but it's that you start looking at, well, alright. It's gonna cost me this much money to fly myself and my attorney and, you know, whoever much, like, whoever else out to wherever this location is for this many days. I might as well just settle for an extra ten thousand dollars. It really becomes, you know so you wanna set yourself up in a way that, you know, arbitration remediation is gonna cost you as little as possible so that you then have the leverage to be like, well, we might as well try it. Like, I'll go to mediation. I'll go to arbitration. It's gonna cost you more than it's gonna cost me. So either offer me more money to settle, or we're going to arbitration or litigation, or, you know, mediation depending on the case. So other issues, and these, a lot of times, can be kind of related to the jurisdiction or venue. One of the things you're always gonna wanna think about when you're doing a subcontract is the venue that the disputes are gonna be decided in and the choice of law that you're using. Because depending on where you know, what state laws controlling your case, there are gonna be certain clauses that may or may not be enforceable. And, again, this is especially true in construction, in terms of damages for delay, pay if paid, pay when paid, other sorts of of things like that. So, you know, choice of law is always gonna be important. Venue is always gonna be important. What impact those two things have on enforceability of other clauses, and, therefore, you know, if you should do a check to make sure if you even should include those clauses, based on where you're doing choice of law, All different sorts of things that you need to address in the subcontract with an eye towards some versus prime litigation. And with that, I know we are out of time, and I apologize for going over. But as you can tell, this is an area with so many different pieces of information, and it's important to look at it from from both points of view. But if you've got any questions, I'll stick around for a couple more minutes. You can pop them in the q and a box. Otherwise, you can feel free to reach out to me directly. You've got my contact information on the screen, and you will be getting these slides. You can feel free to give me a call, send me an email, or connect on LinkedIn. And, Artisha, I don't know seeing any questions in my q and a. I'm not sure if you are. No. I'm not seeing any questions. I think you've covered so much of really, really, really good information. Like Maria said, everyone, feel free to reach out to her if you have any questions directly. We truly appreciate your, joining us today, Maria, and thank you so much for everything that you do and just in terms of educating all of us. It's always interesting to learn new things from you. Always a pleasure working with you. Yep. And I think one thing that you and I also talked about before is that it's so important for people to have a good attorney to make sure that they are protected and they're doing the right thing for them for the business. So you again. Yes. Well, thank you very much. Have a nice day, everybody. Take care. Bye bye.