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Federal Government Flow Down Requirements on Federal Contracts

Posted by Mike Anderson on Mon, Jul 28, 2014 @ 06:01 AM

Many times a small business may be working on a government contract and they may not realize they are working on a government contract since they are not contracting directly with the government.  This situation is called a second tier government contract, or a case where the company is a subcontractor (or sometimes a supplier) to a Prime contractor.  In this situation, the company is not completely relieved of all the government’s rules and regulations.  Almost all government contracts have what is called “Flow-Down” requirements.  This is a case where the Federal Government gives mandatory flow down clauses in their contract to the prime and then requires that the Prime contractor pass this requirement along to all of their subcontractors (& sometimes to suppliers) and many times these must be passed on down the chain.

There are even mandatory Flow Down requirements for Prime contractors when purchasing commercial items, as described in FAR Part 52.212-5(e)(1).  These Flow Downs include items such as:

  • Contractor Code of Business Ethics and Conduct (FAR 52.203-13)

  • Utilization of Small Business Concerns (FAR 52.219-8)

    • Note: This applies if the subcontract is ≥ $650,000 ($1.5M for construction)

  • Equal Opportunity (FAR 52.222-26)

    • Requires posting of the clause publicly and in advertisements

    • Requires compliance with Executive Order 11246

  • Employment Eligibility Verification (FAR 52.222-54)

There are other Flow Downs in this part of the FAR but you get the idea.  These requirements are not specifically hard to comply with but for the unaware it could be a problem and a violation, and this is just for the procurement of commercial items.  If you are a subcontractor to a Prime on a non-commercial item, there will be other FAR clauses flowed down to you.  One of the most onerous is FAR 52.215-12 which requires the subcontractor to submit cost and or pricing data to verify pricing to the government.  This is one that many small businesses have a bit of problem with.  You are being asked to open up your financial books on how you determined the price on your subcontract to the Prime contractor.  Sometimes this may be a little sensitive, especially if this could affect future contracts and business dealings with this company.  It also could also possibly hamper your competitive position in the future with this customer.  As a contractor you have the right to respectfully request that your prime not review your cost and pricing data but that they request the government to send in an auditor to review the cost and pricing data.  Usually this means the DCAA would come in and review your data. 

Other clauses that appear on many subcontracts include:

  • Prohibition of Segregated Facilities FAR 52.222-21

  • Affirmative Action for Workers with Disabilities FAR 52.222-36

  • Certification and Disclosure Regarding Payments to Influence Certain Federal Transactions FAR 52.203-11

  • Display of Hotline Posters FAR 52.203-14

  • Davis-Bacon Act FAR 52.222-6

  • Required Use of American Iron, Steel and Other Manufactured Goods – ARRA Buy Ame rican Act FAR 52.225-21

There obviously can be others, depending on the type of subcontract obtained from a Prime.  The point here is that you may want to have an expert review the Flow-Downs to analyze what the impact is to your company prior to signing the subcontract.  ReliAscent provides this service to our clients.

Topics: FAR, federal acquisition regulations, Federal Contract