Growing Pains The Art of Subcontract Management for Small Businesses

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2 Growing Pains The Art of Subcontract Management for Small Businesses Breakout Session # D13 Jeffery A. White President and CEO J.A. White & Associates, Inc. July 29, :15 am 12:30 pm

3 Subcontrating s New World Order! Fact: There is an increasing number of Small Businesses who are becoming prime contractors. Fact: You may be a subcontractor to a Large Business today, and that Large Business could also be one of your subcontractors. Fact: Compliance rules regarding audit and oversight of the subcontracting function apply to Small Businesses in the same way they apply to Large Businesses. Fact: Some Large Business prime contractors have decided to educate their Small Business team mates on how to be compliant with the regulations when the roles are reversed. Fact: Many Small Businesses will be acquired by Large Businesses who are interested in the adequacy of their Contractor Business Systems 2

4 Non-Disclosure Agreement (NDA) Is a Non-Disclosure Agreement important? Absolutely! As a legally binding agreement under which potential Parties exchange or disclose proprietary information, an NDA is extremely important and used to protect opportunity-specific sensitive or proprietary company information of both Parties. When is the correct timing to establish an NDA? An NDA should be established and executed prior to discussions with another company where it may be necessary to submit or exchange Proprietary information, technical data, cost or pricing data, technical data or other information designated as proprietary. Obtaining an agreement between the two prospective Parties ensures proper handling of the data and prohibits public disclosure or use of proprietary information. Reference 18 U.S.C. 1905, Trade Secrets Act FAR Part , Limited Use of Data FAR (e), Restriction on disclosure and use of data *Established NDA s shall not violate the antitrust statues as set forth in 18 U.S.C. 1905, Trade Secrets Act or limit the Government s rights in FAR Part Key elements of NDA negotiation *Limits on Disclosure *Warranty *Governing law *Third Parties inclusion *Assignment of Personnel clauses *Export language *IP Rights *Residuals clauses *No limitation of liability *Term of Protection *Limitation of Liability *Assignment/Transfer 3

5 Teaming Agreement (TA) Teaming Agreement (TA) A TA can be one of the most beneficial documents at pre-award but its true value is often underutilized. A TA is a formal written agreement, where a potential prime contractor and partner cooperatively pursue a single business opportunity for a competitive edge. A TA specifies the responsibilities of both Parties during the proposal period and prior to award of a subcontract. It also may indicate the type of work that will be awarded in the event a prime contract is awarded. In addition, many small business partners do not want to make waves or be viewed as the problem partner with larger companies. Therefore, many small partners do not ask for certain terms to be inserted into the final TA. Some of these terms are critical small business advantages that would flow down to the actual awarded subcontract agreement. In negotiation of a teaming agreement, some key elements are: Obligations of the Parties Party obligations should not be vaguely written but clearly stated. Agreement language should address exclusivity, prevention of OCIs and violations of the Procurement Integrity Act. Award of a Subcontract to Teammate Understanding the difference between shall and may during negotiations. These are small words, yet they carry significant weight. Although the TA is not the appropriate agreement for subcontract terms negotiation, there are a few that will benefit a partner if flowed down from the TA to the subcontract agreement. 4

6 Request for Proposal (RFP) Written solicitations must address: Statement of Work: Containing all subcontractor requirements. Cost Proposal: Labor Categories, Labor rates, Travel, Material and ODC s Technical Proposal/Summary/Resumes (T&M task): Brief description of how a company will accomplish the SOW. Draft Subcontract: To include prime contract Flow Downs and Corporate Terms and Conditions. OCI: When applicable, conflict of interest certification. Representations and Certifications New awards and annual submission. Insurance Certificate New awards and annual submission. Why this requirement should never be waived. Certificate of Cost and Pricing Data: Wage Determination (if applicable) If Prime Contract stipulates, this requirement must be flowed to the subcontractor. Company Data Documentation New awards and per internal policy. Used to update records or set up as a new subcontractor. 5

7 Statement of Work (SOW) Why is a good Statement of Work Important to a Subcontractor? A solid written SOW can establish task terms and conditions, layout the scope, requirements and deliverables. It also can minimize possible dilemmas that may come up during the life of the task. Based on a well written SOW, a subcontractor should be able to respond with a defined cost and technical summary on how their company will accomplish the Prime written and subcontractor specific SOW. Security/ DD 254 Deliverables / Reports Government Furnished Equipment (GFE) Milestones Progress Reports Period of Performance SOW Travel Material ODC Performance Location Contract Type (FFP, T&M, CPFF) Subcontractor Scope/ Requirements Background/ Purpose 6

8 Source Justification, Sole Source and Competition Competitive Procurement: A procurement for which proposals were solicited from at least 2 offerors. Single-Source Procurement: A procurement for which competition may be available but that is awarded to a seller without competition because of limiting circumstances. In a single-source scenario, award is made to one-of-several or one-of-many potential, qualified offerors. Sole-Source Procurement: A procurement that can be awarded to only one seller, based on the fact that the person or company owns the process, subject matter expert, proprietary information, etc. In a sole-source scenario, award is made to one-of-one qualified offerors. Evaluation factors could include, but are not limited to: Past performance Customer service Quality systems Management approach Experience Cost or price Technical capability Financial stability 7

9 Price Analysis! Price Analysis: The process of examining and evaluating a price with evaluating its separate cost elements. Cost Analysis: The review and evaluation of each specific proposal element to prove the reasonableness of the costs offered. I. A written price analysis shall be performed on any procurement greater than $3,000 regardless of the procurement s purpose or type of order. II. The analyses shall summarize the documentation acquired in establishing price reasonableness. The extent of documentation of the analysis should be commensurate with the particular method used and the procurement s dollar value. III. Price and/or cost analyses shall be performed for the initial procurement and change orders or modifications that meet the dollar value necessitating an analysis. GovSol AB Solutions HighTech by $ with AB Solutions by % with HighTech by $ with AB Solutions by % with HighTech Labor Category Senior Software Engineer Senior Software Engineer Senior Software Engineer Hourly Rate $ $ $ $ % -$ % I. Written price analyses for procurements of $3,000 or less shall be performed only when one of the following occurs: The SCA suspects or has information (i.e., comparison to previous prices paid or personal knowledge of the item involved) to indicate that the price may not be reasonable. An item is purchased for which no comparable pricing information is readily available (e.g., an item that is not the same as, or is not similar to, other items that have been recently purchased on a competitive basis). 8

10 Subcontractor Cost and Technical Summary! COST PROPOSAL Buyer reviews a cost proposal for all subcontract requirements. Labor Categories, Hours and Labor Rates Resumes applicable if a T&M effort Government or Subcontractor Site Fee (if applicable) Travel OCONUS and CONUS Per Diem Allowable and Unallowable Other Direct Cost (ODC s) Allowable and Unallowable TECHNICAL SUMMARY Buyer Reviews for Assumptions or IP/Data Rights taken by the Subcontractor. Program Manager reviews for soundness and effectiveness of technical approach.. Written price analysis shall be performed on any award greater than $3,000 regardless of the purpose. SCA must show fair and reasonable documentation via a price analysis. Myth: If the Government client directs a sub to travel, it is automatically approved for the task order 9 Myth: If the Government accepts a prime s proposal, all of the team mates pricing proposals are considered fair and reasonable.

11 Debarment, Suspension, and Ineligibility of Seller SAM at your fingertips. This procedure applies to all solicitations and procurements awarded under Government prime contracts or subcontracts. Per a company s internal Procurement policy, an SCA shall not award procurements against a Government contract/subcontract to a seller that has been debarred, suspended, or proposed for debarment unless there are compelling reasons to do so. (Written Senior Management and company Legal approval required). REFERENCE FAR Subpart 9.4, Debarment, Suspension, and Ineligibility FAR Clause , Protecting the U.S. Government s Interest When Subcontracting with Subcontractors Debarred, Suspended, or Proposed for Debarment GSA Publication, List of Parties Excluded from Federal Procurement or Non-Procurement Programs Internet Address: 10

12 Subcontract Negotiations Key Elements in Negotiations -Price/cost -Payment terms -Delivery -Terms and Conditions -Flowdowns -Scope of Work -Subcontract Type (FFP, T&M or CPFF) -Key Personnel -Term and Option(s) -Travel and Other Direct Costs (ODC s) -Reporting and Milestones (if applicable) -Invoicing and Payment -Disclosure -Indemnity Insurance -Limitation of Liability -Disputes -Termination -Prime Contract Flow Downs -Export Control -Close Out -Governing Law -Order of Precedence -Warranty Privity of Contract with Client Inspection and Acceptance Non-Solicitation of Employees Supplemental Provisions 11

13 When is a Modification Required? When is a modification required? To reflect a change to an existing Subcontract or Task Order. Modify the scope of work. To Terminate a Subcontract or Task Order. Change the Period of Performance (POP). Change the task ceiling value or funding value (requires revised cost). De-obligate funding of the task. Labor category replacement different than one originally bid/proposed. Close out a Subcontract or Task Order. The government changes a requirement and a flow down is required. 12

14 Payment: Playing by Large Business Rules The payment terms to a supplier or subcontractor, are negotiated at the time of solicitation or negotiation of subcontract. A small business does not automatically guarantee Net 30. Payment terms can be cash discounts, rebates, refunds, COD, Net 10 1%, Net 0 Days, Net 30 Days, or Net 45 Days. In today s business, Net 45 is most often the company standard. Any other desired terms must receive senior management approval prior to changing the subcontract agreement. REFERENCE FAR Part (a), Allowable Cost and Payment Clause Requirements FAR Clause , Allowable Cost and Payment 13

15 File Documentation Requirements Procurement and Subcontracts File Checklist SCA Name Subcontractor Name Subcontractor Business Size Subcontract/ PO Number Project Number Prime Contract Number Prime Contract Type Subcontract/ PO Award Type Total Subcontract Ceiling Amount Total Funded Amount Period of Performance (options if applicable) Date Executed Management Signature (required if ceiling above $500,000) 14

16 File Documentation Requirements Procurement Summary Subcontractor Name, Business Size, POC and Contact Information Subcontract Number, Net Terms, Contract Type and Program Project/ Charge Number Prime Name, Contract Type and Contract Number Total Subcontract Ceiling Amount and Total Funded Amount Period of Performance (options if applicable) Solicitation / Request for Proposal Information Description of Procurement Listing of Offerors Solicited Source Selection Summary and Non-Competitive Summary Business Size Consideration for Award Non-Standard Terms and Conditions Summary Award Type Summary Negotiation Summary and Price Analysis Summary Debarment Status (date SAM obtained at RFP and at award of subcontract/task order) Offeror Representations and Certifications Expiration date ACO Notification and Consent (Date Notification submitted and date Consent received) Date Subcontract or Task Order executed Management Signature (required if ceiling above $500,000 or company internal policy) SCA Conclusion and Recommendations 15

17 Close-Out and Record Retention Rules for FFP close-outs vs Flexibly Price (Cost Plus, T&M, etc.) are quite different. Establish a close-out procedure and follow it. Procedure must address, but must not be limited to: Quick Close-out Final Payments Release of Liability Project Close-out Property (to include IP) Rate Adjustments Establish a Record Retention procedure. REFERENCE FAR Part 4.7 FAR Part 4.8 Contractors shall make available records, which includes books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or in any other form, and other supporting evidence to satisfy contract negotiation, administration, and audit requirements of the contracting agencies and the Comptroller General for (1) 3 years after final payment or, for certain records; (2) The period specified in through , whichever of these periods expires first. Types of records include, but are not limited to: Financial and Cost Accounting Pay Administration Acquisition and Supply 16

18 Audits and Subcontract Management Internal Audits DCAA Audits Purchasing System Accounting System Estimating System Internal Control Operational Audits Inspector General Audits Agency Audits Contractors Purchasing System Reviews Property System Reviews 17

19 Questions & Answers 18

20 For Additional Information Jeffery A. White, C.P.M., President/CEO J. A. White & Associates, Inc Garner Lane, Ste. 104 Columbia, SC (fax) Jeff Rankin, Vice President - Operations J. A. White & Associates, Inc Wisconsin Ave. N.W. Suite 440 Washington, DC (office DC) (office MD) (mobile) jrrankin@jawhite.com 19