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.
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Many small businesses are looking to the Federal Government for either a solid first market or a market expansion for their business. I think the Federal Government is a good customer to have, as long as you understand the pros and cons of doing business with this customer (in other words, the risks).
On December 26, 2013 a new section of the Federal Acquisition Regulation (FAR) was made effective. This was an incorporation of the OMB Memoranda's (M-12-16 & M-13-15) dated July 11, 2012 and July 11, 2013. The OMB Memos will be incorporated into the FAR as clause FAR 52.232-40 and will appear in all solicitations and contracts issued after December 26, 2013. Simply put, it means that primes are required to pay their small business subcontractors in a prompt fashion. It is worth taking a quick look at the OMB Memos to understand the new regulation and what the intent is.
Topics: federal acquisition regulations
Most contracts with the Federal Government are governed by the regulations set forth in the Federal Acquisition Regulations (FAR). While most government contractors have heard of the FAR, and may have some familiarity with it, many do not know where these regulations came from and why they are important. The FAR was created following a statue from the Office of Federal Procurement Policy within the Office of Management and Budget in 1979. The purpose of this statute was to create and implement a uniform procurement system. The FAR became effective in 1984 (a mere 5 years later), again proving that most things take time, especially related to the government. The actual FAR regulation is contained in Title 48 of the Code of Federal Regulations, Parts 1 through 53. This regulation is used by all Federal Executive agencies in their acquisition of supplies and services using appropriated funds.