Subcontract/Supplier Contract Clause Flow-Downs
Contents |
Definitions
Subcontract - Binding agreement between two corporations or parties to perform specific task for a specific price.
Subcontract Flow-Down Clauses
Most prime contractors insist that all contract clauses must be flowed down to subcontractors. This is not true. Subcontracts are commercial contracts, not US Federal contracts, and the subcontract must reference the Choice of Law as Federal Common Law of Contracts, for mandatory FAR flow down provisions to apply. If the choice of law is state law, then state law applies, or the Uniform Commercial Code, and mandatory clauses applicable via the Christian Doctrine would only apply to the extent that the state law requires a certain clause as a matter of law. Examples of clauses that are believed to be mandatory clauses, but are not are:
- 1. Disputes, changes and termination for convenience clauses,
- 2. Default clauses
However, having said this, it is general practice to understand that contract clauses applicable to the Prime Contractor will be flowed down to the Subcontractor. For example, if the Prime Contractor has a Truth in Negotiations (TINA) contract clause, and it is flowing a $5M subcontract down, and it is sole source (and not a commercial item) , it is prudent to expect and accept the TINA clause in the subcontract.
Flowing Down Contract Clauses
2 Common Methods
Master Flowdown Schedule
Large contractors have a "Subcontract Clause Master Flowdown Schedule." The Contract Administrator tells the subcontract/supplier individual what type of subcontract they are seeking, and requires the individual to procure within those parameters, and to follow the prescriptive Flowdown Schedule. That schedule breaks down subcontract/supplier flowdowns into the following categories:
- All Contracts
- Sole Source Contracts Under the TINA threshold
- TINA Contracts
- Competitive Contracts
- Commercial Contracts
Individual/Contract Specific Flowdowns
This method is when a contract administrator tells Subcontract Procurement precisely what contract clauses to flow down.
Receiving Contract Clauses
When receiving Contract Clauses, the Contract Administrator must understand both the Prime or Upper Level Procurement and the Subcontract that the Prime or Upper Level Contractor is requesting. For instance, if it is sole source (over $5M) and the Prime has a TINA contract, then they should expect TINA contract clauses to be flowed down. However, if the Prime contract is competitive, and although the subcontract is sole source, the Subcontract Administrator should not expect the TINA clause to be flowed down.
