Name: Dos and Don’ts of Federal Subcontracts: Identifying and Avoiding Common Prime/Sub Mistakes
Uploaded: 2026-03-14T07:56:05.673Z
Duration: 1 h 12 s
Description: Dos and Don’ts of Federal Subcontracts: Identifying and Avoiding Common Prime/Sub Mistakes

Transcript for "Dos and Don’ts of Federal Subcontracts: Identifying and Avoiding Common Prime/Sub Mistakes": Hello, everyone, and thank you for joining us for today's presentation, Do's and Don'ts of Identifying and Avoiding Common Crime Submistakes. Before we begin, a few administrative items to note. For best webinar experience, please use Google Chrome or Firefox. If you do have a question throughout today's presentation, please go ahead and type it into the Q and A box at any time during the presentation. We're going to address as many questions as many questions, excuse me, as we can at the conclusion of the webinar and then any questions that are left unanswered, we will address individually offline following today's presentation. Resources, including the presentation slides that you're going to be seeing today, are available for you to download. They can be found in the resources panel of your screen. That's typically found in the upper right hand corner so you can go ahead and download and save the excuse me, the slides from today's presentation. All of the widgets that you do see can be resized to fit your computer screen as well. You'll also be receiving the on demand recording of today's webinar via email within twenty four hours after the webinar ends so that you can go back and reference it at your convenience. And also just a reminder that today's presentation is part of our quarterly compliance webinar series, so please look for future events on zaeltec.com as we'll be bringing you updated events each quarter throughout 2024. And with that, I'd like to introduce today's presenter who we are thrilled to join us today. Today we have joining us Maria Panacelli, partner at McArthur and English. Maria? Thank you so much for that introduction and thanks to everybody for joining us today. As you heard, my name is Maria Panacelli. I am a partner at the law firm of McArthur in English. McArthur is a full service law firm. We've been around, close to two hundred years, got about 400 attorneys, and our services kinda run the gamut from, you know, employment law to tax to, you know, product liability. But my group focuses exclusively on federal procurement and global trade, and I am on the federal procurement side of things. So my day to day practice involves helping contractors who do business with the federal government, both as primes and as subs, through kind of every stage of the procurement process. That includes things like bid protests, claims litigation, general compliance concerns, all the small business programs, and, of course, what we're gonna be talking about today, a lot of subcontracting issues and how they can kind of dovetail with compliance and with dispute resolution and claims work. So that's what we're gonna be talking about today. We're gonna be talking about subcontracting. We're gonna be looking at things from both a prime and a sub point of view. And we're gonna be looking at it through the lens of the biggest mistakes I see contractors make that hopefully if you know that there are mistakes from the webinar, you will know how to avoid them and then not make these mistakes. So the first thing is you don't wanna go into things with the wrong attitude and similarly, you don't wanna partner with someone who's got the wrong attitude. You wanna make sure you're teaming up with someone who's got their their heads on straight, they've got the right values, the right goals, and same things for you. And in terms of what that means, you know, what what do I mean by the right values and the right goals? Obviously, the goal of any government contract, any contract really, is to successfully perform it. Right? You wanna team up with other folks in a subcontract situation and you want to be able to successfully perform the job, hopefully get some good CPARs, you know, good good performance reviews out of it, get the money, and then be able to use the experience and the past performance and the CPARS to leverage that into new work. Maybe you're a sub looking to, you know, ultimately become a prime. Maybe you're a prime just looking to expand who you've done business with or the the scope that you're able to do. No matter what, the the ultimate goal is successful performance. So the only way you're gonna get there is working together in a cooperative way and with, you know, all of the parties, making sure that they they're working in a cooperative spirit and kind of being proactive and taking the most positive route possible. So what do I mean by that? What do I mean in terms of a little more detail? You wanna make sure that you're acting with integrity and that you're choosing a partner that's got integrity and that there's a willingness to work there, a diligence, a proactivity. You know, everybody, whenever I talk about this this topic in in webinars and and other things, you know, I I always use the example. Most of us probably remember some projects that we did in in college or in high in high school or, you know, even before that where you had a a group project and someone just wasn't pulling their weight. You don't wanna be that person and you don't wanna team up with someone who's gonna be that way. It's problematic. You wanna make sure that there's a cooperation, you know, that if something goes wrong, it's okay. Let's be solutions, you know, problem solving oriented, not blame oriented and pointing fingers. You want people to say, alright, I got this. Let's take it. Let's let's move it across the finish line. Let's figure out how to get this done. Let's not complain. Let's not point fingers. Let's just get it fixed. And then, you know, we'll deal with how how to make sure it doesn't happen in the future and then a portion of blame or liability if necessary on the back end. Similarly or or or relatedly, I guess I should say, you want communication, honesty, transparency, and you want there to be kind of consistent and frequent communication. So remember I just said you wanna be working with someone who's gonna take ownership and, you know, kind of help you attack the problem. That's very true. But one thing you don't want and you have to be careful about is teaming up with someone who, you know, wants to basically just take the problem and then solve it without talking about it at all first. Because upstream, there's all sorts of things that can go wrong with the government ultimately. So you need to make sure that you're talking about everything, even the problems, albeit in like a solutions oriented mindset. And finally, might sound strange coming from a lawyer, it's the stereotypes of what we're like, but empathy and understanding for the other side. Partially because you're gonna work better with people if you're kind and you're trying to understand where they're coming from and they're trying to understand where you're coming from. It's gonna allow you to work together just in a on a more productive way. But also, frankly, this is where the the lawyer need to expect in, I guess, from a strategic point of view, if you understand where the other side is coming from and they understand where you're coming from, you're going to be able to get to, okay, where are the areas that we agree, where are the areas that we disagree, you know, where are the narrow things that we need to try to work through to a resolution a lot quicker than if you're, you know, you're not doing that. It's also gonna give you an idea, especially if you're a subcontractor, if you understand the limitations that the prime is working under, it's gonna make you understand where you do and do not have wiggle room. And even when you don't have wiggle room, it's gonna give you a clearer sense earlier of what might be a deal breaker such that you wanna walk away and not waste your time. Alright. So similarly to what I just said, you don't want to ignore other points of view. You want to be making sure that you kind of are looking at things from the other side, learning the rules and regs. If you're a sub in particular, you wanna be understanding. Alright. Well, why is the prime trying to to push this down on me? Or why what is the prime scared of that makes them not wanna get rid of this clause in the subcontract? And if you're able then to go back to say, hey. I understand that you're trying to protect yourself. You know, I'm a sub. You're a prime. You're trying to protect yourself from a, b, and c. Okay. So this clause protects you from a, b, and c, but it goes too far and it also does, you know, the f t h I j k. I I I will agree to a, and c, but I'm I'm pushing back on the rest of the stuff. It allows you to figure out those areas. It's like almost like a black light. If we see those areas where there is a gap, where there is wiggle room, and allows you to push back more effectively instead of just saying I don't like that clause, it allows you to start carving up clauses. So looking at things from the other side is important. Alright. This is one that kinda seems silly and again, go back to the warrior stereotypes. We do like our word games and then we are, you know, a fan of semantics. But when you are talking about legal concepts and relationships and types of agreements, lingo matters. So one of the things that happens a lot in the subcontracting arena is that people mix up concepts or types of relationships. The biggest one I see is that people think that teaming and subcontracting are the same thing. They are not. A teaming agreement is not a subcontract agreement. A subcontract agreement is not a teaming agreement. They both involve a prime sub relationship but at different stages in the process. If you are a prime contractor and you're gonna subcontract to someone, the idea is you've got a scope of work that the government gave you. Now you're going to subcontract the scope of that work to someone else. That is a subcontract arrangement. You're talking about payment. You're talking about scope of work. Teaming comes earlier and it you don't necessarily have to team with the leader subcontract. Some people just start with the subcontract phase. Teaming comes earlier and it's an idea or the idea is you come together to cooperate and kind of mutually work on a proposal or bid or quote that's gonna be going to the government to try to get a a contract, to try to get an award. And if you do get that award, then you work together and you enter into a subcontract. So, you know, your job's not done once you have a teaming agreement. You submit your proposal, you submit your quote or your bid. And then if there's an award made, then you enter into a subcontract. Now you have to be thinking ahead at the teaming stage in terms of a lot of things you're gonna wanna put in your subcontract later. You're gonna wanna make sure you're laying out certain, you know, shares to work and and scope and the the term and the termination, but they are not the same thing, one comes before the other. Subcontracting is also not JVs or or mentor protege. It's also not GSA, CTAs. You know, GSA, CTAs, they're they're kind of similar to teaming agreements, regular teaming agreements, but they're a little bit different. They're they're kind of a hybrid form of prime sub versus joint venture. Joint ventures are when two companies come together to form a new entity and that entity is itself performing a contract, a prime contractor. It might then subcontract to its joint venture partners, but it's not the same thing. So, you know, if you're a subcontractor to someone, you're not in a JV together. You know, just because you're working together doesn't mean that you're a joint venture. You're working jointly towards a purpose, but that's not the same thing. And similarly, Mentor Protege is, you know, a relationship that you can enter into and get approved by the SBA usually with the aim of being able to form a small business joint venture, but that is not the same thing and should not be confused with subcontracting. Alright. Number four, don't underestimate the uniqueness of federal government contracting. So a lot of the things we're gonna talk about today, you know, in terms of, you know, prime sub relationships are universal. There are things and and some of the things I've already said are are universal. Anytime you're in a contract with someone, there's gonna be a certain hierarchy, you know, the owner to the prime or the general contractor to the subcontractor to the lower tier subcontractors or suppliers or or what have you. So some of what we're talking about is universal and it applies to state or local contracts or it applies to commercial or private contracts as well. But some of what we're gonna be talking about is unique and some of the concerns when you are involved in subcontracting on government projects are unique. One of the biggest things is just how heavily regulated the government contract world is when you're dealing with the federal government, which means that, you know, that the prime doesn't have a lot of negotiation room. They get a solicitation with the clauses that are gonna be in the contract and they submit a proposal or a bid or a quote, whatever the case may be, and they get the contract. They don't go back and say, no. I'm gonna change the dispute clause. I'm gonna change the changes clause. You know, I don't really like this differing psych initial clause and I wanna add a no damages for delay. No. There are clauses. They're there. They're not going anywhere. That's the way the FAR works. So you've got, you know, a a very strict set of kind of the the confines that the prime needs to operate under, which means they're working with less wiggle room, which means they're necessarily gonna force their subs to be a little bit, excuse me, less flexible. The other big piece of things is that the dispute process in federal government contract is completely different than outside of the federal government contract realm. Whereas you are and this is where, you know, subcontract piece kind of dovetails with the claims piece, and we are gonna talk about both of those things in conjunction just a little bit later. When you are dealing with a private job, commercial job, or even a state or local job, most likely, if there's a dispute, you're gonna end up with a breach of contract case in a state court or or, you know, a certain geography jurisdiction, you know, the US district court. You've gotta go through an administrative process here when you have a claim against the government. You then have to ask or you submit a claim, wait for a response, Then and only then can you go to a court, but there's special courts and there's special court, you know, special ways you have to do it and there's special timing and there's special ways to frame your complaint. And it's a it's a long process. It's different. It's unusual. It's not something a lot of people who are outside of, you know, used to doing business outside the federal realm have, you know, have done or are familiar with. And that can cause a lot of confusion, for subs who, you know, are are waiting for some sort of resolution. And, you know, the prime is like, look, I'm working on it, but this is a long process to go upstream. And we're gonna talk a little bit more later on about, you know, how that that has to kinda come into play when you're crafting your dispute clauses and things like that in your subcontract. But you're dealing with a completely different set of dispute resolution kind of mechanisms, forums, calls of action, timing, you know, administrative remedies that you have to do first, etcetera. So those two things combined, kind of the the heavily regulated nature of what goes into the contract and the disputes process even without anything else would would make this process unique and would make it, you know, kind of specialized with regard to what you need to think about when you're dealing with subcontracts. Kind of part and parcel of that, the the slowdown, and we're gonna talk about the slowdown in just a second, are going to be a little bit more important because the government doesn't bend or negotiate. The prime has less legal room and the prime therefore is gonna be less willing to negotiate with subs on certain things. There's gonna be more go, no go, deal breaker, nonstarter, you know, type situations when you're talking about pushing back or or trying to negotiate a subcontract just because they have certain things that they need to protect themselves from because, you know, they don't have any recourse against the government otherwise. The big caveat to that goes back to what I said before. We're gonna see some examples of this as we go forward through the presentation today. If you, especially as a sub, understand where the prime is coming from and you understand, alright, the government's not gonna give the prime any wiggle room on a, b, or c. So this clause, they're never gonna move if I try to push back on the protections for a, b, and c. But this clause is over broad. It covers more than a, b, and c and I am, you know, I am dang sure we're gonna push back on the rest of it. So the idea is you want to understand where the other party is coming from, understand their hopes, their concerns, that sounds very to my or, you know, all our channel, but it's not. It's strategic as well. It's going to allow you to be a more effective negotiator. And even if they don't really know, you know, they're using a template that they found online and they they don't want to, you know, stray from that language, if you can explain to them, you know, what the purpose of the clause is and and why they need to change it and how they'll still be protected, you're you're more likely to get a a positive result. So, you know, all of that is is good. Alright. So that being said, we're gonna dive now into kind of some more actual granular detail, what goes into a subcontract, what are the most important considerations, etcetera. But I've said a couple times now, it's gonna be a theme running throughout this. If you're a prime, don't just tune in to the parts where I'm talking about what you have to think about. If you're a sub, don't tune out when I'm talking about the prime. Don't just listen to the stuff that I'm talking about with regard to subs. If you're a prime, listen to the parts that are talking about what a sub is gonna be worried about, what they're trying to, you know, protect themselves from. If you're a sub, listen to that same stuff with regard to a crime. It's going to make you a more effective and more knowledgeable negotiator, and you're going to be more able to effectively carve out pieces and reach a mutually acceptable solution instead of it just being a hundred percent one way or the other, you know, try to find some middle ground. Alright. So this this next section is gonna be mostly aimed at at prime in terms of, you know, okay. Look at your prime contract and what needs to go into the subcontract. But, again, subcontractors, this is where you learn how to push back because you're learning, you know, what the prime wants to flow down and why and, you know, what you might be able to push back on and what you might not be able to push back on. First things first, for those of you who don't know the lingo, again, kind of important government contract. There's there's a lot of terms with alphabet soup. There's a lot of stuff, you know, terminology not used elsewhere. What is the slowdown cost? Well, there's two answers to that question. There's the the technical, like, what does it really mean if you start splitting hairs? And then there's how do people use it? You know, how is it colloquially used? You know, how is it commonly used by people in the industry? So technically speaking, far well, I'm sorry. Yeah. Well, I'm clauses are far clauses, federal acquisition regulation clauses that are included in a prime contractor's prime contract, which, know, it's with the government, the prime contract, which the prime has to or, you know, just it's advisable to slow down. So they literally just take the clause and they insert it or maybe they tweak the owner to say contractor and contractor to say subcontractor. But basically, they they take the language verbatim or or close to verbatim and take it from the contractor, cut and date, the prime contract, cut and paste and put it in the subcontract. That's the, you know, I mean, not technical, but that's the, you know, being splitting hairs being precise definition. But what a lot of people use the term for is basically just anything that a contractor is trying to throw in there. Anything that a prime contractor is trying to do to protect themselves and to, you know, kind of account for things that are going on in the the prime contract. So people sometimes use it kind of much broader than just the clauses that are in the prime contract that are being cut and paste and maybe tweaked or maybe kept verbatim. But the idea being that there's some of these things are not necessarily coming straight from the contract or they're being altered pretty heavily. And you'll hear sometimes people kinda lump that all in on their flow that cause technically that's a little bit too broad. In terms of the prime's mindset, what they're trying to do. Again, remember the goals here. You're trying to successfully complete this project. So you need to do two things. In terms of performance itself, you need to make sure that you're requiring of the sub what you need to get the job done correctly. And also, you know, have some recourse against them if they don't get the job done correctly, if they get you in trouble, you know, delays, default, deficient uses in work, etcetera. You know, what obligations are you gonna put on them? And then what recourse do you have if they blow those obligations? You know, money or, you know, immediate termination or and replacement of another contractor, you know, what? And the second piece is, alright, let's say something goes wrong. I as a prime don't wanna be stuck in the middle. I don't wanna be fighting the government upstream and the sub at the same time. I don't wanna be fighting the government upstream, you know, together with the sub but it takes too long until the sub starts nipping at my heels while I'm trying to fight the bigger battle with the with the ultimate customer, the owner. So these are kind of the the main broad brush stroke things that you need to look at as a prime and say, how do I protect myself from the sub getting me in trouble? How do I if it's, you know, if the sub gets me in trouble anyway, what recourse do I have? How how can I set this up so that I can fix it as soon as possible and, you know, kind of mitigate the damage and then successfully perform? How do I, if something goes wrong, protect myself from being stuck in the middle? You overall are gonna wanna try to make the obligations of the subcontractor nearer your obligations to the government. So if you gotta do a, b, and c with regard to, you know, your scope of work and, you know, including the scope of work you're subcontracting to the subcontractor, then you're gonna wanna make sure subcontractor has to do a, b, and c for you. It's really important to make sure that they understand themselves understand they are bound by the same procedures that you are, the same notice provision, you know, the same different things that you're gonna have to be bound by because, you know, that's what your prime contract does. In in terms of, you know, breaking that down a little bit more, you gotta be thinking, alright. I can't have my subcontractor put me in a position that endangers my relationship with the client. I can't have them, you know, delay the project. I can't have them doing deficient work. I can't have them doing anything that could risk a termination for default in particular. I can't be stuck in the middle in litigation. And this is just a little bit of a preview. We're gonna talk about this when we get to the claim stage. I can't be you know, if we've got a claim and we are cooperating, I can't be responsible for their fraudulent certification. Meanwhile, a sub, especially one who's newer to the industry or it's only does smaller jobs or, you know, hasn't done as much with the federal government in particular, they're gonna be less familiar with the FAR and a little shakier. They're gonna want a little bit more guidance, but they're not gonna want heavy handed guidance. They're gonna want mentorship and they're gonna want protection. And we're gonna talk about moving through claim stage. They're gonna need access to remedies and they're gonna wanna try to build in some protections in terms of not waiting for that whole long process to to drag out. That being said, I'm standing here today talking to you about this and I'm gonna be fully transparent that these things are not always reconcilable. What the prime wants is not always going to be, you know, completely acceptable to the sub and vice versa. You are going to be able to compromise on a lot of things a lot of times, but these things are intention with each other. I am pushing for different clauses when I represent a subcontractor than I am when I represent a prime. And like everything else, I guess it's a, you know, for for better or worse, an unfortunate reality of the the world that we live in is that you've got, you know, a situation where it's really down to who's got the most power and who's got the most leverage. It's not going to be a situation where, you know, there's one size fits all answer that works for everyone. It's gonna be a question of, you know, making sure that you you try to reach the most mutually acceptable path forward as possible, but sometimes there is going to be tension between what a sub wants and and what a prime wants, and you're just gonna have to try to work through it. Like I said, I advise my clients differently depending on what side they're on. And I have clients that, you know, do mostly prime, clients clients who are mostly sub, and clients who, you know, depending on the size of the job, do one or the other. A prime that kinda goes through the the the following checklist. Alright. What do I wanna slow down? What do I wanna include? You know, based on those concerns that I was just talking about, what needs to go into my contract? The first thing is the mandatory slowdown clauses. That's a no brainer. We're gonna talk about each one of these things in turn as we go forward on the slide. Then you gotta think about, alright, like, maybe it's not mandatory, but what's some good idea to slow down? And then you're gonna expand out from the slow down, you know, technical definition to that that larger definition of slow down that we talked about and just say, what are some other risks? What are other considerations? What else could happen that I need to account for in the subcontract? So going through those things one by one, on the first one, the mandatory slowdown clauses, the FAR itself, the federal acquisition regulation is going to tell the prime whether a clause has to be slowed down. And it might not be the fart, it might be, you know, an executive order or something like that. You know, for example, when the COVID stuff came out a couple years ago, there was a requirement that, you know, contractors do or private contractors do certain things with regard to ensuring vaccination of their employees and providing information about COVID and, you know, etcetera, etcetera. And they had to put that in their subcontracts and they had to require their subcontractors to put it in their subcontract. So you're gonna wanna look at the FAR, you're gonna look at the clause itself wherever the clause came from. Usually the FAR but possibly supplemental acquisition regulations or possibly executive orders depending. You're gonna, again, have questions about that, talk to an attorney. And you're gonna wanna slow it down if you have to slow it down. Really, really, really be careful. This is a mistake that I do not understand but many, many contractors make it. They think mandatory means the same thing as automatic. It doesn't in this context, in the application to to these facts, it means the exact opposite. So when you're talking about something being mandatory, that means you have to take action. You have to slow these down. It doesn't mean like, oh, if I don't have to paste them, they're already in there because it's automatic. Opposite concepts here, vital distinction, critical difference, very important. Mandatory means mandatory means must, shall, have to and it means you need to do it. Alright. Then you gotta ask yourself, you know, other than the ones the FAR or the other laws tell you need to be slowed down, what other causes should I slow down? What other issues should I address? And this again goes back to what I was talking about. What are your main concerns with the Pride? What's your purpose here? Ultimately, successful performance and ultimately trying to be able to resolve the dispute in the most efficient way possible. You're ultimately responsible for the completion of the contract. That means that if your subcontractor messes up, you are the one responsible for that. As a manager, you know, you're not doing the work underneath anymore. Your work is to supervise the person doing the work underneath. So if they mess up, that means you're doing a bad job too. The federal government doesn't mess around. They don't like finger pointing. They're not gonna take it well. So, like, well, what was the new? It was my sub. They're gonna go great. You were responsible for watching your sub. You were responsible for supervising your sub. You're the one that chose your sub. Not our problem. It's yours. So you wanna make sure that you've got protections built in so the subcontractor can't force a default, can't cause a delay or if they are if they do cause a delay, they're kind of responsible to you or liable to you for whatever damages stemmed from that. You don't want them to cause it notice failure. We're gonna talk about that in just a little bit. You need to be vigilant and that's what you need to be thinking about. Here's an example. And we're gonna have a couple of examples as we go forward the second half of our presentation today. This particular example and the other examples I'm gonna use are from cases I've worked on or my colleagues have worked on in my many, years practicing this this type of law. This example, there was a prime contract that, like all prime contracts, with the federal government, had a termination for convenience clause, which basically means, for those of you who aren't familiar, that the contract is terminated. The government pulled the plug on it. Not because anyone did anything wrong, not because the prime messed up, not because there's any negative consequences, but because they just don't need whatever they contracted for anymore. You know, COVID over, they don't need copious amounts of PPE or we pulled out of Afghanistan, so it probably doesn't make sense for you to renovate that building anymore on that army base. You know, whatever the case may be, they don't need whatever was contracted for anymore. It's not a black mark. You get paid for what you've done. But the problem is you don't get paid for the money you're anticipating for the future years of the contract and you don't always get paid for everything. But that's a presentation for another day. But in this case, prime contractor was terminated for convenience. They had termination clauses in their subcontracts but only for default. So they were able to terminate their subcontractors for default if the subcontractors did something wrong. They terminated them for cause but they haven't done anything wrong. So you're in a situation, you're a prime, you've just been terminated by the government, there's not gonna be any more money coming in and your sub would go, well, great that we don't have any more work to do, but our subcontract requires you to pay us. We're not the one defaulting on the work or saying we're not gonna do the work. You still owe us the full value of the contract. We were able ultimately to work something out there, but, obviously, you wanna be in a situation where if, you know, the government pulls the plug on your contract, you can turn around and pull the plug on your subs even if there's no cause, there's no default. So the takeaway lessons for prime, you know, the the global is study your prime contract, know all the possible scenarios, know everything that could go wrong, know everything the government could do that could impact you and impact your bottom line. Plan around that. Slow it down. Slow down the termination for convenience clause. Protect yourself. You wanna avoid battling on two fronts. Don't wanna be fighting a subcontractor while you're trying to get your money for the two proceeds from the government. You need to just make sure that you're kind of, you know, accounting for all of these types of things in your subcontract. And remember, here's where I say, you know, these lessons apply both ways. This is predominantly a lesson, this one for prime, but the let's take away lessons for subs. Remember I said if you understand what the, you know, the other side, the other party is trying to protect themselves against, you'll understand where you have wiggle room. Perfect example of that. I represent a sub. I get a draft, you know, subcontract and it says, you know, the prime can terminate the sub for convenience at any time. I don't want that clause in there. I don't want my subcontractor being able to be terminated, you know, willy nilly just because, like, I don't like your shoes today. Now there's no prime in their right mind that's gonna agree to eliminate the termination for convenience cause completely. Right? For the reasons I just said, if they get terminated, they're gonna be stuck in the middle. That's, you know, one of the main things prime to try to protect themselves against. But you can go back and say, hey. Look. I understand you have to be able to terminate me for convenience if you get terminated for convenience and that I will agree to. But you can't terminate me for convenience just any old time. If you are terminated for convenience and you need to protect yourself from that situation, sure. You can terminate me for convenience. You are terminated for convenience. And that's the only time you can terminate me for convenience, period. That is a much more effective way and much more likely to succeed. Not guaranteed. They might not agree to that either, but, that's a much more effective pushback than just I want the termination for convenience clause removed. No one's ever gonna agree to that if they know what they're doing. Alright. We're gonna switch it up now. We're gonna change over to the subcontract point of view and talk about one of the most common mistakes that I see subcontractors make which is, you know, don't agree to the ambiguous catch alls. What do I mean by that? Some contractors, you know, their main goals are really having a clear understanding of their scope of work, but also, especially if they're new to the federal space, they're not familiar with the FAR, they're not really used to dealing with the agencies, they need to have a very clear idea, you as well, need to have a very clear idea of what your obligations are, what contracts or procedures you need to be working under, what the disputes clauses say. You have to have a clear idea of how long you might be waiting for the prime to get money from the government before you see any recovery so that you can plan and say, you know what? Maybe this federal contracting thing isn't for me. I'm not in a position to self finance a half million dollars worth of work and get it two years later. That can happen. And even worse than that can happen. So you really need to make sure you understand not just, okay, what am I doing? Where's the SOW? Where's the scope of work? How do I know what I'm performing? But you need to understand the contractual mechanisms and how federal contracts work and what contractual procedures you are bound by. It's not just I do this work, I get paid. There's a whole lot of, you know, peripheral stuff that you need to keep in mind. You also wanna make sure that the sub, the arms, and the prime is not going overboard. You know, like I said, if you understand where they're coming from, you're gonna understand the things they're trying to protect themselves from. You're also gonna understand where they're overreaching and just trying to make terms that are really, really beneficial for them and there's not necessarily a specific danger to them if they do it differently, and those are the areas where you're gonna wanna push back. So keeping those things in mind, one of the biggest mistakes subcontractors make is agreeing to a really vague catch all slowdown clause. So, for example, the subcontractor shall assume to the contractor all obligations set forth in the prime contract. The subcontractor shall assume to the contractor all the obligations and responsibilities that the contractor has assumed towards the owner. Now if you've been listening carefully, you might say, wait a minute, Maria. Didn't you just say a couple of slides ago that, like, the prime's whole goal is to say, hey, my subcontract you know, your subcontractor, your obligations to me mirror my obligations to the government. That's exactly what that clause says. It is. But a, I was talking about primes and now you're a sub. But b, it's not specific enough. Broad brush strokes conceptually, yes. The the prime's gonna want your obligations to the sub, you know, your obligations to them to mirror their obligations to the government. But they've gotta give you more details than that. If they just say, you're responsible to me to the same extent I'm responsible under the prime contract. Do you know what that means? Have you seen the prime contract? Do you know what they have to do? Do you know what procedures they need to follow? Do you know how much notice they have to give or when or to who? You just agreed to hold a mirror up to fog. There's nothing on the other side of the mirror that you can see. That's not a helpful set of instructions for you to have. You need to understand your specific obligations, your specific responsibilities, your specific scopes of work. You need to understand compliance requirements, notice requirements, documentation requirements. Otherwise, you are risking default, notice failures, termination, you know, payment disputes, all of the things you're hoping to avoid in the first place. These types of catch all vague overly broad, you know, like, I don't know. It's like kind of like whatever we have to do. That's not helpful. And the thing is it's not helpful to prime either. So using another example from, you know, my experience in the, you know, cases over the years, prime contractor had and and and both these samples to be clear, we didn't have a subcontract. They came to us afterwards because they had badly drafted subcontracts and that's you know, they had problems later. That's what they didn't desire of. Prime contractor had really vague catch all slowdown clauses. There was a sub not super familiar with the FAR, didn't know what kind of notice you had to give when there were different site conditions and changes on the job. So subcontractor tried to do a great job, tried to say, you know what? I'm not even gonna bother the prime. I'm just gonna take care of this and then tell them on the back end, hey. We ran into a problem, but we fixed it. $200,000 or whatever. Let's go after the government. You know, I understand it's gonna be, like, the I understand the dispute process. But what they didn't understand was the notice requirements. And they basically failed to give the appropriate notice, which meant that the government had a leg to stand on when they denied the claim for the money. Ultimately, again, we were able to settle something, but rather than just getting into the REA or claim stage, we actually had to go to litigation, much longer time period, much, you know, much more money spent on someone like me when you don't necessarily need to do that if you're just kinda all on the same page to the beginning in the beginning. Excuse me. So takeaway lessons for sub, do not agree. Don't sign these types of vague clauses. Make sure you understand your obligations and responsibilities in specific and not vague terms. If they're referring to or incorporating prime contract documents, look at them. If you can't because they won't share them or they they can't share them, they're classified, they're they're CUI. Okay, then say, well, then you're gonna have to break it down for me. I can't incorporate a document I've never looked at. And the bonus lesson here, again, the theme being, you know, a lesson for one is a lesson for all even if you're on the opposite side of the aisle. The bonus lesson here is it doesn't benefit prime either. I've I've talked to some prime contractors and they're like, yeah. It's really vague so we can, like, get them on the back end later. And, like, yeah, that's not, like, that's not a winning strategy. Like, pulling the wool over your subcontractors eyes just means they're gonna mess something up. Government contracts are too heavily regulated. If you're letting them be ignorant, they're gonna they're they're gonna make a mistake. They're gonna, like, reflect badly on you. It's in your best interest to be specific in terms of what you're obligating the subcontractor to do too. Alright. So next mistake, this is one that applies to both times and subs. Don't be an ostrich. And by that, I mean, do not stick your head in the sand either in terms of, you know, pretending that bad possibilities don't exist, you know, something negative can never happen to me. But also don't stick your head in the sand and not be aware of the changes in the world around you. So some examples of of that are, you know, a lot of things changing in cybersecurity, CMMC, CUI, protected information, and a lot of developments recently. I'm sure, you know, those of you who have gotten as many spam emails as I do. I mean, phishing attempts and that kind of stuff is getting insane. The level of sophistication is crazy. You know, I had a client recently suffer, you know, an incident where someone hacked into their emails, basically inserted themselves into an email chain between, you know, a prime and a sub directed payments to be made to another account. There's no reason that either party, you know, like, should should assume that that's going to happen when they're drafting a subcontract. But you have to sometimes be creative and that's where sometimes it's helpful to talk to an attorney who said, you know, I've seen a bunch of completely crazy unique circumstances but I know enough now that I build them into every subcontract template I do for my contractors. You know, it's not something that we would have thought of or put in templates. It's not something that the contractors should have thought of when they entered into the subcontractor originally. But now it's something that comes up in our world. So, you know, a good example of this is how do you how do you protect against that? You can't protect yourself necessarily from the third party scammers other than having your IT set up great protections. Right? But with regards to the contract, you can have very specific terms about who's allowed to make it first of all, you wanna set, like, in the subcontract, this is the account the payments are going to be made to and you're gonna wanna, you know, make sure that you you have the right account. And then you're gonna set up very strict procedures for who can change the account, when they can change the account, what approvals need to be done, if they have to do it over the phone or in person or via email or via, you know, three different people have to confirm it, set something up so that you can't be scammed. And again, that's one example. There's any number of new developments that are happening, you know, TikTok or, like, whatever new program comes out or whatever new news story comes out or whatever new person is in office, all sorts of things can happen. You need to try to plan ahead and think creatively about what could go wrong. Not because you wanna be a doomsdayer, but because you wanna plan accordingly to figure out, alright, how do I avoid? If we can't avoid, how do we mitigate damages? If we can't, you know, avoid or mitigate all damages, how are we gonna apportion liability or how are we gonna make sure that we act responsibly such that if the other party isn't acting responsibly, we can push it back on them and then how do we resolve it? Alright. Last thing or not last thing. Next thing, guess, I should say. You wanna be really inclusive, you know, so don't skimp on terms. You wanna think about everything that might need to go into a subcontract. That's gonna include some of the other things we talked about, you know, already. The mandatory throw down causes, but then moving from that to what should I slow down. Thinking about the term and the scope of your subcontract. You know, if if you have a standalone prime contract, that's one thing. But what if it's a BPA under, you know, GSA schedule? What if it's a a task order? You know, what if it's an IDIQ? Are you gonna subcontract for every task order? Or are you gonna subcontract for all these task orders that involve certain scopes of work or certain, you know, cleanse or certain labor categories or certain geographic areas. You know, what are their options? What are you gonna do about that? We we need to think about the the term, you know, how long are you agreeing to work together and, you know, what's the scope of work? Cost and pricing and just, you know, going back to my my my stuff about teaming before, work that out at the teaming stage if you're going to be teaming, you know, don't enter into a teaming agreement that agrees to cost and pricing that you can't then agree on at your subcontract level. Kinda tied into that also payment. I wanna make sure that you're also thinking about the the notice clauses. To the extent that you need to give notice as a prime to the government within a certain amount of time, You need to make sure that, you know, the sub gives you notice within a certain amount of time and maybe that shouldn't be the same amount of time. You know, if you have to give notice within fourteen days, probably make theirs shorter. You have some time to get their notice before your deadline comes up. Delays, if you're in construction in particular, LDs, elevated damages, suspensions, terminations, default. Again, this is not an exclusive list of everything you need to think of, but it's, you know, kind of hitting the highlights. Two of the biggest ones, and we're gonna talk about them in much more detail in the last two pieces here, are, you know, what happens when there are changes? What happens when, you know, the scope changes? What happens when there's scope creep? What happens when the government specifically orders a change? What happens when the government orders something that they don't call a change? But it is a change and it costs you more money. And part and parcel of that, you know, what happens with disputes and dispute resolution. And, again, we're gonna talk about those two things a lot more in just a second. But, also, keep in mind, you know, I said before, it's not just about the scope of work and the payment. Right? There's all the contractual procedural mechanisms, but then there's also stuff that's tangential. There are compliance issues like ethics requirements or labor and employment, wage and hours termination requirements, or IP issues, or executive compensation reporting requirements. It's not just about compliance with the scope of work. There are a number of things that the government requires of the people who do business with it that do not necessarily relate to the performance of the work itself. You know, there are human trafficking certifications and, you know, where you, you know, Buy America to Buy America and Domestic Preference Act, know, requirements. There are all sorts of things that you need to be as a prime contractor concerned about your own compliance, and you might need to be slowing those things down as well. And those are definitely gonna be the things that your subcontractor is not necessarily gonna have information on if you're just being vague. So you're gonna wanna make sure you're hitting all of those as well. Again, this is where having an attorney who's specifically, you know, well versed in government contract law can can help you out. Alright. Now getting into one of the biggest chunks of, you know, what you need to think about when you're talking about, subcontract, and I saved the best for last, is don't disregard the disputes process. You know, what's gonna happen if we have some sort of thing some something go wrong, some sort of issue arise during performance of this contract. From a subcontractors point of view, we're gonna hit that first and then kinda circle back around to a prime contractor's point of view. From a subcontractor's point of view, what they need to be aware of right off of that is that they don't have a right to sue the federal government. So if you're on a job, there's some like, you know, the subcontractor could do something wrong and that's gonna be a dispute between the sub and the prime. Right? And it might also be, you know, cause a problem between the prime and the government. But with regard to the subcontractor relationship, it's gonna be sub versus prime or prime versus sub. But you can also have and this is what we're gonna talk about first. The government does something wrong. The the government delays the job or the government gave you faulty specs or the government, you know, suspends the job while they wait for funding or whatever. The government action, the government does something or or fails to do something that either causes delay or causes the parties to incur additional fees. That's gonna be a time where you're trying to cooperate and go after the government, right, for for that money. And a lot of times, it's gonna be that it affected the sub and the prime or affected the the sub only and the prime's got markup on it, but you're gonna be cooperating. The subcontractors cannot go after the government directly. There's something called sovereign immunity which means you can't sue the federal government. The exception to that that allows prime contractors to sue the federal government is because they have something called privity of contract. They have contracts with the government. Some don't. Some have contracts with the prime who then in turn have their own contracts with the government. But the subcontractor has no direct contracting relationship with the government which means they are not subject to the Tucker Act exception to sovereign immunity which means the general rule of sovereign immunity applies, you cannot sue the federal government. Which means that if something goes wrong on the job that if if that's the government's fault, that affects the subscope of work and causes them to incur additional cost or, you know, take additional time, they have to rely on their prime contractor to sponsor or pass through. That's why you usually hear those are these referred to as pass through claims. They have to sponsor or pass through the claim. These are the claims that I was talking about before. Those those, you know, they're ruled by the contract disputes act. You can't just say, well, I'm I'm fine with the breach of contract act in in, you know, my local court. That's not the way it works. You've got to, as a prime contractor, file a claim with the agency first. And you might even before that file a request for equitable adjustment, but that's a topic for another one. Then you've gotta wait for the agency to give you a contracting officer's final decision or a COFD. Or you have to wait for them to fail to give you one within a reasonable time, then you can start your litigation at a court. But you might already at that point be a year in, six months in, and court cases take years. Now, you might be able to settle somewhere along that line, but it's a long process. And remember, you gotta go to the special courts, you're using special causes of action, you know, you're against, you know, different government attorneys. It's a long and unique process. The prime is gonna be the one litigating because they're the one in in privity. The sub's gonna support it. But this can be a really huge source of conflict between our attention between primes and subs because they have concerns that are in tension with each other. And again, this goes back to the idea that there's not a one size fits all answer. You're gonna be pushing for different things. It's gonna be partially a situation where it's about who's got more leverage. The prime is scared of that two fronted battle thing. They don't wanna be like, alright, I'm working with my sub. You know, the government caused a six month delay and that cost me a half million dollars, it cost my sub a half million dollars and it was six months of delay. So, you know, we were active for six months on the contract and we're asking for a million dollars, you know, like plus whatever lockup. You know, and and right now we're in it together. We're going after the government. But now it's been six months and we haven't gotten an answer to our claim. We're we're getting ready to file a complaint in the court of federal claims, but, you know, it's gonna be two years until we get any recovery. And in the meantime, we have to keep working. What the prime does not want to have happened in that situation is the sub goes, you know what? I'm not waiting. And they sue the prime. So what they're gonna be pushing back on or what they're gonna be trying to put in their dispute clause is something that limits what the sub can do while you await the owner's response. The other thing they're gonna be worried about is remember that they're sponsoring or passing through a subcontractor claim. They have to certify it. So if there's anything funky in there, anything that's wrong or inaccurate or false or misrepresentation, they are the ones that are on the line. So they're gonna be nervous about, hey, I don't think you really put these numbers together right. I'm not certifying that. The subcontractor on the other side is gonna be like, well, hey, man. If you won't pass this through, if you won't certify it, I ain't got no options. I can't go against the government myself. I need you to sponsor or pass through or I don't have any remedy. And of course, they're gonna be worried about that delay in recovery. And this is where there is no, you know, simple reconciliation. The prime is gonna say, I don't want the subcontractor to have any options while we wait for the government to answer. And the sub is gonna go, yeah, I'm a small business. I can't do that. I can't just wait indefinitely for you to pay me. I'm hemorrhaging money. I don't I'm not that liquid. We we can't do that. So you're gonna have to work it out on the back end. Some ways to try to bridge the gap are to have a dispute clause that that first and foremost splits it up into disputes against owner and how you're gonna deal with those and disputes between the prime and the sub. The idea being like, alright. Now with the disputes on owner, you know, the prime's gonna pass it through as long as you jump through these hoops. That'll take care of, you know, your concerns about not having any remedies, then it'll take care of the prime's concerns about, you know, potential liabilities for passing through a fraudulent claim, etcetera. You're going to, again, wanna, you know, refer to the CDA remedies and process and really work out something that both parties understand in terms of the the timing and if you gotta wait for the government or if the sub's gonna have any options in the meantime. And you're gonna wanna have, you know, in terms of that false claim back piece, an issue talking about, you know, fraudulent certifications and then if the sub is responsible for that, what's gonna happen. Arbitration should also be addressed because if you, you know, ultimately say, hey, the way that we're gonna deal with these disputes is not to go to court but to go to arbitration. There are different rules that govern that as compared to a court case. So you have to be careful about that. This is an example of the type of clause you might see, the clause that you might see in terms of, you know, what's what's in some sample contract. But there are two problems with this. The first is that you are not kind of making it clear who's going to decide if it's a dispute against the owner or if it's a dispute against the prime and the sub. You know, that's great if you've got a dispute clause and says, well, if we're going against the owner, we do this. Then if we're going against each other, we do this. But the whole point with, you know, a a prime is gonna be scared if some goes, okay, great. I think this is a dispute against you. And the prime goes, no. It's not. It's it's a dispute it's a dispute against the owner. That's why we have to wait. That kind of just brings you back to the original problem. So you need to make sure there's some mechanism for deciding, you know, who says which bucket something goes into. The other piece here, and this is more specific to construction contracts and Miller Act and and things like that, But this doesn't provide a mechanism I'm sorry. It doesn't adequately incorporate the disputes procedure from the prime contract for Miller Act purposes, which means that if a sub was to sue the the surety, they wouldn't be limited in doing that and that might be, you know, something that you wanna think about. Alright. So best practices, mostly from a prime's point of view, you're gonna wanna slow down the disputes clause in full text verbatim from the contract. You're going to want to require the subcontractor to proceed with work during the pendency of that litigation because you're required on the dispute clause to keep working. So the last thing you want is for your subcontractor to go, yeah. It's all well and good that we're we're waiting six months for the government to get us that mod, but I'm not doing anything until they agree to give it to us. You can't do that. You need to make sure your subcontractor can't. And subcontractors, if prime pushes back and says, yeah, there's no way we're removing that clause, you know, if that's a deal breaker for you, then know to walk away because that's gonna be a a go no go nonstarter for a lot of of contractors. You should set forth a method to determine if the sub disclaim is against the government, you know, if they're cooperating with the the prime together to go after the government or if it's a dispute between the prime and the sub or some combination thereof. You wanna talk specifically about the dispute resolution procedures that need to be exhausted and that's including exhausted before you demand arbitration. You wanna account for that certification issue. So remember that every claim on a project needs to be it's not just federal construction. I'm sorry. That's just a federal project. Needs to be certified to the the government. So the subcontractors should have to if they want something passed through to the prime, you know, from the prime to the government rather. They should have to certify to the prime and they maybe they should indemnify the prime for any damages for a false certification, things like that. The other thing you might wanna think about if you actually get this is a little bit outside the scope of our what we're talking about today, but just so you're aware of it. If you actually end up in a situation where the the prime is passing through a claim for the sub, there might be an additional agreement. They call the liquidate liquidating agreement. It's not a subcontract, but it's an agreement between the prime and the sub specifically covering how you're gonna litigate the the claim. Who's gonna pay for lawyer fees? Who has the ability to settle? If you settle for less than, you know, a 100% on the dollar, which, you know, if you're settling, you you are gonna get less than, you know, a 100¢ on the dollar. You know, how you're gonna apportion that, you know, who's going to deal with, you know, decisions on appeal, things like that. It's a secondary agreement that you enter into that's a good idea to have if you're litigating a pass through claim. Moving from kind of the the top level stuff you gotta do to dispute clause, you know, put things in different buckets. What if you are just in the bucket of alright, yeah, this is just a straight prime sub dispute. Usually, those are gonna be more like the the typical litigation you might see out there. It's gonna be a, you know, breach of contract action that one of the parties brings against the other either in, like, state court or in United States district court, which is federal trial court. It might be that you go to arbitration if the the contract says that. Again, that's something you wanna think about. Would you rather go to arbitration? Would you rather go to binding arbitration or arbitration that if you don't like the result, one of the parties can say, alright. Well, if we tried that, now we're going to court. You know, you need to think about all of those things in terms of, you know, how do you want dispute. Let's take the ownership part out of it. Let's take that complicated long process that you have to go through with the, you know, issue that the government caused out of it. What if it's just between us? How do we wanna resolve disputes? Where do we wanna resolve disputes? You know, how fast do we want to resolve disputes? And this is another thing that you wanna think about when drafting other sections of your contract, you know, especially depending on what is and this is where state law becomes important. It becomes important to have an attorney who's familiar with government contract law but also understands the laws of the states that you are working in because there are different states that hold different clauses unenforceable or in some cases unenforceable. So you're gonna wanna be thinking about damages for delay, pay if paid versus pay when paid, that exhaustion of the administrative remedies piece, and jurisdiction. One of the things you need to be clear on is, you know, hey. Are we saying that Virginia law applies, but now we're saying that, like, you know, have this clause in there and there's a bunch of case law where Virginia says, yeah, we don't recognize those clauses. We think they're illegal or we're not gonna hold them to be enforceable. And then, again, so on subprime disputes, you wanna think about all the ADR issues. If you do say there's gonna be mediation or arbitration, but specifically mediation, you know, is it gonna be mandatory? Is it gonna be binding? Where is it gonna be? How are you gonna deal with who picks the arbitrator? All of these things, you know, the more granular you don't wanna, you know, go so far into the weeds that, like, your your subcontract is 400 pages and you kind of, like, over analyze things, which, you know, coming from a lawyer is a pretty high bar to to over analyze things. But you also wanna make sure you're covering enough details that, you know, you're not like, well, we didn't think about this when you get to that stage. Again, plan for contingencies. So with that, I know it has been a ton of information. This is a complicated area and it's a complicated area because it dovetails with so many other areas in law in terms of government contract. So the the biggest mistake, you know, the final mistake I see is that contractors don't ask questions when they should and they don't get help when they should. If you have questions about this, it doesn't make you stupid. It means that you're you're properly recognizing that, like, this is a complicated area. And even those of us who practice this all the time, you need to constantly reevaluate your thinking and following new developments and and whatnot. So with that, you know, we've there are a lot of you on the line. I I tried to kind of work in answers to the extent that I could as we went along. But if we've got questions that I didn't get to, you can feel free to reach out to