Federal contracting is commonly discussed, but subcontracting is sometimes overlooked. Up to half (or more) of federal procurement dollars are spent on subcontracts. Knowing how to go about a prime-sub contracting agreement is extremely important to reduce risk and ensure a beneficial relationship between both organizations. Here are some steps to follow when starting a prime-sub contracting agreement.

Step 1: Decide if subcontracting is right for you.

When you come across a Request for Proposal or a Request for Quotation, examine the requirements to determine if your company can provide a total solution. If not, you would probably benefit from a subcontracting agreement, whether it be as a prime or a subcontractor. You can find out exactly what the government is looking for in the Statement of Work. We all know that the contract solicitation to award cycle is not quick or cheap. When you are considering partnering with another company, make sure you are able to cover the costs of the proposal and meet the scheduled timeframe. You could end up wasting time and money if you do not do your research and consider all of the technicalities of the teaming and contract award processes.  

Step 2: Once you decide that subcontracting is right for your business, research potential partners.

Whether you are a prime or a subcontractor, look at the potential partner’s special capabilities and performance history. Check their website and conduct market research to learn what contracts this business has already won. Chances are, if the business does not have a decent past performance history, they will not be able to help you provide a complete and cost-effective solution to the Government. If you are a mid to large size company, small business partnerships can be beneficial because government agencies try to meet socioeconomic requirements.

Step 3: Understand the legalities.

Realize that when you are a subcontractor, you do not have a direct relationship with the Government. Your relationship is with the prime contractor. The prime has the direct relationship with the Government. So, if you are a sub, under most circumstances you will not have the right to a bid protest. It is the prime contractor’s responsibility to manage their subcontractors. Realize that if you want to submit a claim, the prime must sponsor it.

Step 4: Adequately assess risk, terms and conditions.

Note that state law governs a sub-contract, not federal law. If the prime contractor wants to apply state laws from a state other than their own, there must be a reason for it. Research and ask questions as to why the prime wants this certain state law applied. Also, understand the terms and conditions of the agreement. There are some mandatory flow-down clauses from the prime contract, but there are other clauses that can be disputed if they are not favorable to your company. As a subcontractor, you should dispute clauses only for good reasons. Do your research to ensure that you are not disputing a mandatory clause. Prime contractors attempt to share as much risk with the subcontractor as possible, so the sub should try to avoid as many of the non-mandatory clauses as possible. Read and assess every single clause, rule, and regulation set forth in the agreement, to avoid putting your business in a negative situation. Chances are there is at least one thing in the agreement that you will object to.         

Step 5: Negotiate

Once you have studied the teaming agreement, negotiate what you want for your business. Make sure you are sending a strong negotiator that will not bind the company to an unfavorable contract. As mentioned above, it is good to challenge a concerning clause, as long as it is not mandatory. Remember, that if your potential partner refuses to negotiate a clause that your business cannot comply with, avoid the agreement. It is a waste of time and money to continue negotiations with a company that will not bend. Lastly, remember to keep everything in writing and make thoughtful, researched decisions.     

Need further explanation? Take our free course on federal procurement subcontracting to learn more!

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