Embarking on the journey of Federal contracting can be overwhelming. FOMO (Fear of Missing Out) can push you into going after prime contract opportunities before your business may be ready for the litany of reporting and other administrative contractual requirements that must be completed during performance of the work. Being a subcontractor does not sound glamorous but, in the Federal marketplace, it can be a lucrative role without all the headaches and hassles of being a prime. Understanding the roles of prime contractors and subcontractors is essential for success in the complex Federal acquisition process.
Prime Contractor: The Responsible Company
When a federal agency contracts with a business to provide products and/or perform services to the Government, that entity is known as the “prime contractor” (or “Prime,” for short). Primes are the party ultimately responsible for the performance of all work under contract and management of the project budget, regardless of what entity (prime, subcontractor, or supplier) performs work as part of the Prime’s team. Being a prime contractor establishes direct privity of contract with the Government (FAR 9.104-1). This legal relationship distinguishes prime contractors in their direct engagement with federal agencies. Primes direct and control all engagements and communications with the Government client. This level of responsibility and control also results in:
Increased Government scrutiny during performance.
Increased administrative burden due to
communications timelines,
timely and accurate reporting requirements, and
general compliance procedures for Federal contracts found in the Prime contract from the Federal Acquisition Regulation (FAR) and the agency’s FAR supplement (as applicable).
Oversight responsibility and the requirement to flow down these same contract provisions and clauses to subcontractors and suppliers for compliance, when applicable.
Subcontracting reporting (applicable to large businesses only).
Part of the reporting and compliance required by a Prime is covered by the Representations and Certifications your business completed as part of its System for Award Management (SAM.gov) registration. These would be (among others):
Representation of business size by NAICS, and
Executive Compensation.
Other reporting and compliance required by the Prime is dictated by clauses found in the contract. These would be (among others):
Submissions of invoices.
Whistleblower protections.
Government property.
Prohibitions on–
Contracting for hardware, software, and services developed or provided by Kaspersky Lab and other covered entities,
Contracting for certain telecommunications and video surveillance services or equipment,
Certain internal confidentiality agreements or statements,
Contracting with inverted domestic corporations,
Use of ByteDance covered applications during performance (aka “No Tik Tok”),
Segregated facilities,
Banning text messaging while driving, and
Certain foreign purchases.
Reporting on first-tier subcontract awards, employment of veterans, and service employees.
Limitations on subcontracting (applicable to small business primes).
Making accelerated payments to small business subcontractors.
Equal opportunity, to include veterans, workers with disabilities, and employee notification of rights.
Employment eligibility verification.
Minimum wage and Department of Labor wage requirements (e.g., Service Contract Labor Standards (SCLS) or Davis-Bacon and other Related Acts (DBRA) prevailing wages).
Privacy training.
Subcontractor: The Team Player
Primes routinely collaborate with other entities and suppliers to enhance project capabilities. The Prime contracts with these entities, called “Subcontractors,” to provide a portion of the product and/or service required by the Government under the Prime’s contract. Subcontractors must remember that in this role they:
Have no privity of contract with the Government under this relationship; only with the Prime. Prime contractors communicate and negotiate with the Government, while subcontractors communicate and negotiate with Primes.
Should not directly engage the Government in any manner and all requests from the subcontractor should go through the Prime for review and discussion.
Take their sole direction from the Prime, not the Government (Contracting Officer (CO or KO) or Contracting Officer’s Representative (COR)).
While Subcontractors may have reporting requirements that flow down to them under Federal contracts, that reporting is most often to the Prime contractor with few exceptions where reporting is done as part of the Subcontractor’s System for Award Management (SAM.gov) registration (i.e., Executive Compensation).
Being a subcontractor on a federal contract has definite benefits:
Less reporting requirements (though compliance may still be required).
Learning about the Federal contracting process through the Prime’s actions (i.e., client needs, communications with the Government, modifications and change order process, etc.).
Gaining valuable project and past performance experience on a federal contract that you can use on future opportunities when you decide to quote or propose as a Prime yourself.
Gaining valuable name recognition and earning capital to expand business opportunities in both the Federal and private sectors.
Primes and Subcontractors During the Proposal Process. It is crucial that Primes create and communicate a clear and streamlined proposal process to their subcontractors and suppliers to ensure the development of a viable and timely quote or offer meeting the Government’s performance requirements, price, and schedule needs. The Prime should clearly delineate roles in this process and establish a timeline for subcontractors and suppliers to provide personnel and price information early.
!!!A Word of Caution on “bait and switch” tactics!!!
What is it? When a Prime includes a desirable Subcontractor (or personnel) in a proposal for the purpose of winning the quote or offer then after winning the award, the Prime changes out Subcontractors (or personnel) for a different company (or individual). That's "bait and switch". The Government is getting wise to these tactics and has been adding language to classify Subcontractors as “Key Subcontractors” or their personnel as “Key Personnel” which requires the Prime to replace the subcontractors or personnel with companies or employees with equal or better experience, education, performance history, and skills. Put simply, don't do it (or you'll be remembered, and not in a good way).
Prime / Subcontractor Agreements.
Written agreements between the Prime and any subcontractors are important to ensure not only the Prime’s terms and conditions are met, but the required flowdown provisions and clauses from the Government are met by subcontractors at all tiers (or as indicated) under a federal contract. The requirement to comply for subcontractors is usually based on statute, type of work, types of employees, or dollar threshold of the subcontract agreement.
The Prime is typically responsible for drafting the agreement between the Prime and Subcontractor and it should contain, as a minimum,
Identification of the Prime’s Federal contract, by number, order number (as applicable), and Federal agency.
Scope of work or services that clearly defines the Subcontractor's role and scope of work on the contract.
Terms related to deliverables, timelines, and compensation.
Flow down provisions and clauses from the Federal contract.
Compliance with prime contract requirements and how compliance is assured.
Clear lines of communication between the parties to include the Prime’s communication of project needs and expectations to the Subcontractor.
Define the roles and responsibilities of both parties during performance.
Recordkeeping requirements and document control.
Modifications and change order processes and pricing of the same.
Resolution of disagreements, use of Alternative Dispute Resolution (ADR), and legal authority for disagreements.
FAR and agency provisions and clauses typically state at the end of the provision or clause language when the compliance or reporting requirement flows down to subcontractors, at what tier, and any instructions for the Prime for wording or language to be used or substituted in the flowdown.
Subcontractors must further flow down any Federal contract provision or clause that requires applicable at lower subcontract tiers. Agreements between first tier and lower-tier subcontractors are the responsibility of the parties in question, not the Prime. The first-tier subcontractor may also be responsible for upwards reporting and ensuring compliance of lower-tier subcontractors. This adds an administrative burden to the Subcontractor, but not near that required of the Prime.
Know Your Readiness.
Before diving in to win a Prime contract, be real and ask yourself–
Is my company financially stable enough and has enough available capital that it can wait 30 or 60 days, or more, to get paid? Waiting for payments is not uncommon, unfortunately.
Do you have the breadth of experience needed to perform successfully?
Are you known or proven in your industry, particularly under the NAICS code that classifies the products and/or services you wish to sell to the Government?
Do you have knowledge of the Federal marketplace for your industry or NAICS?
Do you have existing relationships with agency personnel (i.e., buyers, program personnel, small business specialists, etc.)?
What is the extent of our experience and successful performance on Federal contracts as a subcontractor?
Does the company have the internal administrative infrastructure (i.e., resources, time, management, and operations structure) such that the offer, compliance, and reporting requirements of a Prime can be met timely?
Can we meet any bonding requirements?
Can we self-perform, or do we need a team, and what will that team look like?
For bid/proposal preparation?
For performance?
For any specialized requirements?
For administrative support?
Has the Prime and its team performed together?
If you answer any of these questions in the negative, consider if proposing as a Prime on a Federal contract is the best avenue to participate in the opportunity. These questions merely expose gaps your business may have that need filled in order to participate as a Prime. Get those gaps filled before you propose!
Navigating Federal contracting, whether a prime or a subcontractor, is a business decision. Know before you jump in the deep end; starting in the shallow end is always a safe bet and, before long, you will be swimming with the big fishes. It is a time-consuming and complex business to report and comply with all the Federal Government’s requirements and that complexity grows every day (aka, look at the new cybersecurity rules forthcoming). Better understanding the roles of Primes and Subcontractors is a crucial first step to growing a lucrative and successful relationship with the Federal Government. Being realistic about the role that best fits your business now and as it grows is key for a successful Federal contracting journey.