Subcontracts - Prime Contractor Responsibility
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Prime Contractor Responsibility
There are various FAR requirements requiring that the prime contractor develop and maintain a subcontractor management plan. The Government's position is that the prime is responsible for the performance and compliance of the subcontractors under its control.
[1] Basic Responsibilities
The responsibility of the prime contractor for managing its subcontracts is stated in FAR 42.202(e)(2). The prime contractor is primarily responsible for subcontract award, technical and financial performance monitoring, ensuring that indirect rate proposals and annual rate adjustments are submitted on a timely basis, and payment to the subcontractor for the work accomplished under subcontract terms. To accomplish this responsibility, the prime contractor should have adequate internal controls to identify and notify the Government of auditable type subcontracts and intracompany orders under auditable type Government contracts, and to assure that subcontract/intracompany costs are allowable, allocable, and reasonable.
Contract Administration Office (CAO) Responsibility
The Contract Administration Office's (CAO) review of subcontracts is normally limited to evaluating the prime contractor’s management of the subcontracts (see Part 44). Prime contractors have the responsibility to manage their subcontracts.[2]
Therefore, supporting contract administration [US Govt] shall not be used for subcontracts unless:
- (i) The Government otherwise would incur undue cost;
- (ii) Successful completion of the prime contract is threatened; or
- (iii) It is authorized under paragraph 42.202(f)(Special Surveillance) of this section or elsewhere in this regulation[3].
FAR [4]requires prospective prime contractors to assess the responsibility of their prospective subcontractors, prior to awarding a subcontract. Responsibility includes many factors listed in FAR 9.104-1, one of which is the requirement to have accounting and operational controls. Although FAR 9.105-1(c) makes it clear that an audited accounting system is not required to make this determination, many contractors mistakenly believe that an audited system is required. However, FAR 9.105 allows alternate information to be considered in the absence of an audited system.
FAR 42-202(e)(2) notes that the prime contractor is responsible for managing its subcontractor’s costs, once the subcontract is awarded. To accomplish this responsibility, the prime contractor should have adequate internal controls to identify and notify the Government of auditable type subcontracts and inter-company orders under auditable type Government contracts, and to assure that subcontract/intracompany costs are allowable, allocable, and reasonable.
