PMI Washington, DC Fair Lakes Chapter. Managing Subcontracts: Lessons Learned and Best Practices March 2, 2010

Transcription

1 PMI Washington, DC Fair Lakes Chapter Managing Subcontracts: Lessons Learned and Best Practices March 2, 2010 By: Gregory A. Garrett, CPCM, C.P.M., PMP Managing Director

2 Managing Subcontracts Key Topics of Discussion The World We Live In Fundamentals of Subcontracting in the U.S. Federal Marketplace U.S. Federal Government s Supply Chains Lessons Learned Best Practices Government Prime Contractor s Supply Chains Lessons Learned Best Practices Q&A Page 2

3 The World We Live In Page 3 From: Managing Subcontracts, by Gregory A. Garrett, Thomson West, 2009.

4 Increasing Federal Government Spending & Transactions (FY 00 09) *Does not include ARRA Stimulus funding and transactions. Page 4

5 Fundamentals of Subcontracting in the U.S. Federal Marketplace FAR defines Subcontract as: Any contract... entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract Including but is not limited to: Purchase Orders Changes Modifications to Purchase Orders Page 5

6 Defining Subcontractor Under Federal Law FAR s definition of Subcontractor Suppliers; Distributors; Vendors; or Firms furnishing Supplies; or Services to or for A prime contractor; or Another subcontractor Page 6

7 Defining Contract Under Federal Law FAR defines Contract as: Mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them Contracts do not include grants and cooperative agreements Page 7

8 Intra Corporate Transfers Are They Subcontracts Under Federal Law? Intra Corporate Transfers Not normally considered subcontracts, but are only budget transfers Subject to the same terms & conditions of the prime contract Must be accounted for under applicable cost principles and CAS rules FAR Part 12 Commercial Item Acquisitions Subcontract includes, but is not limited to, transfers of commercial items between: Divisions, Subsidiaries, or Affiliates Booked at price for accounting purposes Page 8

9 What Laws Govern Award/Performance of Federal Subcontracts? U.S. Government Procurement Laws? Other Federal Laws? State Laws? Statutes/Regulations? Court Cases? Local Laws/Ordinances? Page 9

10 What Laws Governs Award/Performance of Federal Subcontracts? U.S. Courts sometimes apply federal common law to subcontracts to displace or add to State contract law: Classified contracts or contracts involving National Security Where state law would interfere with some important U.S. Government purpose Application of federal common law to prime contractor/subcontractor relationships is NOT common Page 10

11 What Laws Govern Award/Performance of Federal Subcontracts? As between the prime contractor and the Government, the FAR and applicable FAR Supplements govern the parties rights and obligations regarding the award/administration of subcontracts As between the prime contractor and subcontractor, generally, subcontracts are governed by State contract law The Uniform Commercial Code ( UCC ) State Common Law Court Decisions Other State Statutes & Regulations Only a few U.S. Equal Employment & Affirmative Action clauses automatically apply to subcontracts performed in the U.S. and its territories Page 11

12 A Complicating Factor Conflict of Law Principles When parties are located or performance occurs in more than one jurisdiction, unless otherwise specified, courts must determine which jurisdiction s substantive laws govern & apply it in deciding controversies Disputes Involving Contract Formation Disputes Involving Contract Performance The Problem of Determining Where the Event Leading up to the Dispute Occurred Additional Complications The UN Convention on Contracts for the International Sale of Goods (UNCISG) Page 12

13 Responsibility for Subcontractors The General Rule FAR (a) Prime contractors responsible for managing subcontract performance, including: Planning Placing Administering Subcontracts As necessary to ensure: The lowest overall cost to the Government Lowest overall technical risk to the Government Page 13

14 Privity of Contract Direct contractual relationship between the two contracting parties Breach of contract action can only be maintained if privity exists Subcontractors cannot usually sue the Government directly Lower tier subcontractors cannot sue the prime contractor directly Page 14

15 Privity of Contract U.S. Government Involvement Make or Buy Plan Reviews/Approvals (FAR ) Truth in Negotiation Act Submittals (FAR ) Competition in Subcontracting Requirements (FAR ) Advance Notification & Consent to Subcontracts (FAR Part 44) Contractor Purchasing System Reviews (CPSR) Small Business Subcontracting Plans & Other Socio Economic Requirements (FAR ) Mandatory FAR & FAR Supplement Flow Down Provisions Technical Design Reviews Source Inspections Audits Costs, Labor Relations/Pay & Equal Opportunity/Affirmative Action Page 15

16 U.S. Federal Government Supply Chain Lessons Learned The U.S. government is not a business The mission of the government is serious and complex The Federal Acquisition process is overly regulated, expensive, and slow Federal Government Contractors are increasing their subcontracting The Federal Acquisition Workforce is understaffed and needs training Page 16

17 U.S. Federal Government Supply Chain Recommendations for Improvement (Cont d) Simplify & Streamline the Federal Acquisition Process Web Based Process Diagrams Tools Templates/Forms Best Practices Implement a standardized government e procurement software application, required for use by all federal government agencies Mandate the use of commercial item acquisition to the fullest extent practical Page 17

18 U.S. Federal Government Supply Chain Recommendations for Improvement (Cont d) Reduce the mandatory FAR flowdown clauses to subcontractors Mandate the use of Alternative Dispute Resolution (ADR) methods to resolve claims government wide Implement government wide strategic sourcing for all commodities and commercial off the shelf products and services through the General Services Administration (GSA) Eliminate the Federal Bid Protest process Implement performance based supply chain management Page 18

19 U.S. Federal Government Supply Chain Recommendations for Improvement (Cont d) Enhance the Acquisition Workforce, including: Recruiting Hiring & Intern Programs Training & Cross Training Retention Create an effective balance of government surveillance and oversight Page 19

20 Government Prime Contractors Supply Chain Lessons Learned (Top Ten List) 10. Demanding U.S. Government small business subcontracting goals 9. Inadequate competition in supplier selection by some prime contractors 8. Increased cost reduction demands by U.S. Government agencies 7. Lack of leverage of suppliers by some prime contractors 6. Insufficient contracting and supply chain management team competencies by many prime contractors 5. Excessive mandatory flowdown of U.S. Government terms and conditions 4. Financial pressures due to global economic crisis 3. Excessively detailed U.S. Government requirements 2. Poor U.S. Government requirements determination 1. Increased U.S. Government oversight Page 20

21 Industry Perspective: Chief Procurement Officers (CPO) Say In what ways have your functions objectives/priorities been affected? From: For Procurement Managers: A Bit of Pay Back Time, CPO Agenda,, Supply Chain Digest, January 27, Page 21

22 Industry Perspective: Chief Procurement Officers (CPO) Say Have you pursued any of the following in relation to your suppliers in the current quarter? Page 22

23 Government Prime Contractors Supply Chain Best Practices (Top Ten List) 10. Benchmark supply chain management processes and key performance indicators 9. Expand use of performance based contracts with suppliers 8. Implement price benchmarking clauses with suppliers 7. Enhance market research for supplier sourcing 6. Expand the use of commercial item acquisitions 5. Implement supplier relationship improvement program 4. Conduct strategic sourcing and spend analysis 3. Implement a supply chain management professional development program 2. Understand customer needs and prime contract requirements 1. Enhance cash flow and financial management of suppliers Page 23

24 Managing Subcontracts Training & References Training: Federal Contracts Training Center Managing Subcontracts: 2 Day Seminar References: Managing Subcontracts (Book) By Gregory A. Garrett Thomson West, 2009 Mandatory Flow Down Contract Clauses Matrix, Page 24

25 Questions? Comments? Thank You! By: Gregory A. Garrett, CPCM, C.P.M., PMP Managing Director & Practice Leader Government Contractor Services Navigant Consulting, Inc Page 25