Doing business as subcontractor on government prime
contracts can be profitable and a source of prompt payment. Many subcontract
opportunities are out there and if you have the right assistance in how these
deals are structured, they're a pretty risk free and profitable stream of
revenue.
The problem is the prime contractors will want to pass down
to the subcontractor every one of the government contract clauses in its prime
contract. Some of these clauses are not all that onerous but others can create
some high risks for the subcontractor. There are four clauses about which the
subcontractor should be wary and insist that they be modified or eliminated
altogether. Those clauses are Disputes, Changes, Termination for Convenience
and Sponsorship.
Disputes.
The prime contract contains a disputes clause which requires
the prime contractor to follow certain administrative procedures when a dispute
arises and requires continued performance pending the outcome of the dispute
process. The prime contractor most
likely will insert in your subcontract a clause which binds you as a
subcontractor to follow the federal procedure rather than avail yourself of
your remedies at law. Keep in mind your subcontract is a private commercial
contract subject to the common law of contracts and the Uniform Commercial Code
in the state in which you reside and do business. You have certain rights and
remedies under your state laws. Therefore, you will want to protect your
position as much as you can.
So, regarding the remedy for disputes, you want to avoid the
administrative process of the prime. Instead, you want to protect your right to
sue for breach of contract and the right to abandon performance considering the
breach. You want to have a clause in
your subcontract that clearly addresses this protection. And you do not want
the prime contractor’s disputes clause. If, because of your bargaining position,
you end up having to accept the result of the disputes clause requiring you to
be bound by proceeding according to the federal scheme then you should insist
on compensation for acceding to that provision and accepting that risk.
Changes.
The prime contractor has a changes clause whereby the
government can make changes and require the prime to continue performance. You
do not want this clause. You do not want the prime contractor to be able to
unilaterally change the work. If you must accept such a clause because the
prime says it's essential to pass down the flexibility required by the
government, you should insist on some kind of concession or compensation to
account for this additional risk. There is no such counterpart in your local
law contracts.
Termination for Convenience.
The prime contract contains a clause allowing the government
to terminate the contract at will. At the very least, you should insist that
the prime can only terminate your contract if in fact it is terminated by the
government and that termination includes your portion of the work. There
probably is nothing beyond that that you can do to protect yourself although it
would be smart to try to get rid of that clause altogether. Try to negotiate a
clause which contains a premium the prime must pay if it terminates for its
convenience. Under your local law, a termination absent a clause permitting it
is a breach of contract entitling you to direct and consequential damages.
Sponsorship Agreement.
You may in fact wish to pursue your claim against the
government rather than sue your prime contractor in your local courts. If so,
you should insist that the prime contractor agree to pay you compensation
pending the outcome of that action. You are giving up your right to litigate in
your jurisdiction and venue. The prime contractor should pay you for agreeing
to process your claim through the prime to the government. The sponsorship
agreement is written from the prime contractor’s point of view, and you need to
level the playing field. The best way to do that is to avoid that process
altogether but there might be good business reasons for not suing your prime
contractor and to join hands with it and process the claim against the
government.
No comments:
Post a Comment