Legal Protections for Subcontractors on Federal Prime Contracts

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The contracting officer shall insert the clause at Agency personnel shall report suspected violations of the Gratuities clause to the contracting officer or other designated official in accordance with agency procedures. The agency reporting procedures shall be published as an implementation of this section 3.

The procedures should be as informal as practicable, consistent with principles of fundamental fairness. Examples of anticompetitive practices are collusive bidding, follow-the-leader pricing, rotated low bids, collusive price estimating systems, and sharing of the business. Agency personnel shall report, in accordance with agency regulations, evidence of suspected antitrust violations in acquisitions for possible referral to-. Any agreement or mutual understanding among competing firms that restrains the natural operation of market forces is suspect.

Paragraph c of this section identifies behavior patterns that are often associated with antitrust violations. Activities meeting the descriptions in paragraph c are not necessarily improper, but they are sufficiently questionable to warrant notifying the appropriate authorities, in accordance with agency procedures. This subpart prescribes policies and procedures that restrict contingent fee arrangements for soliciting or obtaining Government contracts to those permitted by 10 U. In 10 U. These statutes-. This subpart applies to all contracts. Statutory requirements for negotiated contracts are, as a matter of policy, extended to sealed bid contracts.

For enforcement purposes, agencies shall preserve any specific evidence of one or more of the violations in 3. Contracting offices shall not retire or destroy these records until it is certain that they are no longer needed for enforcement purposes. If the original record is maintained in a central file, a copy must be retained in the contract file. The contracting officer must take appropriate action to ensure buying-in losses are not recovered by the contractor through the pricing of-. The Anti-Kickback Act of now codified at 41 U.

The Kickbacks statute-. However, this does not preclude contractors from asserting rights that are otherwise authorized by law or regulation. For the acquisition of commercial items, the contracting officer shall use the clause with its Alternate I. The agency head, or a designee not below the level of the head of the contracting activity, may authorize an exception to the policy in 3. The facts concerning any final conviction for any violation of 18 U. The agency head or designee shall promptly notify the Civil Division, Department of Justice, that the action is being considered under this subpart.

Following an assessment of the facts, the agency head or designee may declare void and rescind contracts with respect to which a final conviction has been entered, and recover the amounts expended and the property transferred by the agency under the terms of the contracts involved. Agency procedures governing the voiding and rescinding decision-making process shall be as informal as practicable, consistent with the principles of fundamental fairness.

As a minimum, however, agencies shall provide the following:. However, no inquiry shall be made regarding the validity of a conviction. The notice of proposed action, as a minimum shall-. The final agency decision shall be based on the information available to the agency head or designee, including any pertinent information submitted or, if a hearing was held, presented at the hearing.

If the agency decision declares void and rescinds the contract, the final decision shall specify the amounts due and property to be returned to the agency, and reflect consideration of the fair value of any tangible benefits received and retained by the agency.

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Notice of the decision shall be sent promptly by certified mail, return receipt requested. Rescission of contracts under the authority of the Act and demand for recovery of the amounts expended and property transferred therefor, is not a claim within the meaning of 41 U. Therefore, the procedures required by the statute and the FAR for the issuance of a final contracting officer decision are not applicable to final agency decisions under this subpart, and shall not be followed.

This subpart prescribes policies and procedures implementing 31 U. This term excludes an Indian tribe, tribal organization, or any other Indian organization eligible to receive Federal contracts, grants, cooperative agreements, or loans from an agency, but only with respect to expenditures by such tribe or organization that are made for purposes specified in paragraph 3.

An officer or employee who is employed by such person for less than working days within 1 year immediately preceding the date of the submission that initiates agency consideration of such person shall be considered to be regularly employed as soon as he or she is employed by such person for working days. These requirements are contained in the provision at For purposes of this paragraph, providing any information specifically requested by an agency or Congress is permitted at any time. Persons other than officers or employees of a person requesting or receiving a covered Federal action include consultants and trade associations.

For example, drafting of a legal document accompanying a bid or proposal by a lawyer is allowable. Similarly, technical advice provided by an engineer on the performance or operational capability of a piece of equipment rendered directly in the negotiation of a contract is allowable. However, communications with the intent to influence made by a professional or a technical person are not allowable under this section unless they provide advice and analysis directly applying their professional or technical expertise and unless the advice or analysis is rendered directly and solely in the preparation, submission or negotiation of a covered Federal action.

Similarly, communications with the intent to influence made by an engineer providing an engineering analysis prior to the preparation or submission of a bid or proposal are not allowable under this section since the engineer is providing technical services but not directly in the preparation, submission or negotiation of a covered Federal action. The contracting officer shall obtain certifications and disclosures as required by the provision at The Secretary of Defense may exempt, on a case-by-case basis, a covered Federal action from the prohibitions of this subpart whenever the Secretary determines, in writing, that such an exemption is in the national interest.

The Secretary shall transmit a copy of the exemption to Congress immediately after making the determination. The contracting officer shall report suspected violations of the requirements of 31 U. Agencies shall impose and collect civil penalties pursuant to the provisions of the Program Fraud and Civil Remedies Act, 31 U. This subpart implements various statutory whistleblower programs. Multiple respondents commented on the definitions included in the proposed rule. Response: The two definitions included in the rule are not used substantially throughout the FAR and have only an indirect connection to FAR part Response: The statutorily-mandated standards set forth in FAR One respondent stated that the SBA rule made this abundantly clear, that the prime contractor should be required to report only those events that arise when the small business subcontractor is otherwise entitled to full and prompt payment as assessed by the prime contractor , but the prime contractor is unable or unwilling to make such payments.

Still, another respondent believed that the proposed rule should contain additional clarification that a payment should not be considered past due if the payment is delayed by the late performance of the subcontractor. According to the respondent, contractors often accept late performance of subcontracts and then accordingly pay later according to the payment terms of the subcontract, but do not necessarily modify the subcontract to reflect the later performance date.

For example, the rule should clarify the impact of systems errors, third-party errors, or administrative errors. No additional language is necessary in the definition; however, the final rule at FAR Due to privity of contract it is generally not the contracting officer's responsibility to determine if a material breach of a subcontract has occurred.

Comment: One respondent stated that existing statutory and regulatory requirements governing prime contractor and subcontractor payments already satisfy the intent of this regulation. Response: In accordance with section of the Small Business Jobs Act of , the rule offers additional protections for the small business community in regard to payments from prime contractors and is required by statute.

Accordingly, there is no reasonable basis for withdrawing the rule. Multiple respondents commented on the reporting requirements of the proposed rule. Comment: One respondent asked if there was guidance on the time period for the prime contractor to report a late or reduced payment to the contracting officer. Response: The final rule requires the prime contractor to report within 14 days any occurrences of untimely or reduced payments to their small business subcontractors.

Inside New FAR Rule On Untimely Payments To Subcontractors

Comment: Several respondents stated that a different methodology should be used to determine the number of occurrences of late or reduced payments that are reportable in the FAPIIS system. For example, one prime contractor makes 10, payments a year, but another makes Response: The final rule is consistent with SBA's final rule published on July Start Printed Page 16, , which defines a history of unjustified untimely or reduced payments as three incidents within a month period.

This final rule clarifies at FAR Comment: One respondent commented the small business subcontracting plan threshold cited in the analysis for application of the rule was inconsistent e. Comment: One respondent asked if the proposed rule applied to subcontractor payments at all tiers. Response: The rule applies to prime contractor payments made to first-tier small business subcontractors. Several respondents commented on the additional contracting officer responsibilities and offered alternate procedures.

Comment: Two respondents requested that the agency counsel and not the contracting officer determine whether a late or reduced payment conforms to the terms and conditions of the contract.

Subcontracting Defined

Response: It is the contracting officer's responsibility to ensure compliance with the terms of the contract; however, per FAR 1. Comment: Two respondents stated the rule should provide more guidance to contracting officers in regards to issues that may arise when dealing with the reduced or late payments situation in contracts. Response: This type of additional guidance would largely be non-regulatory, falling under agency procedures and training, which are outside the scope of this rule. As stated previously, per FAR 1.

Comment: One respondent commented that adding additional responsibilities to the contracting officer while the Government is focused on ensuring the timely submittal of past performance evaluations will only lead to lesser quality evaluations. Response: There is no basis for concluding that the requirements of this rule will impact the timely submittal of past performance evaluations. Comment: One respondent requested language to note situations in which the Government causes delays in subcontractor payments by changing the scope of the contract, by making late payments to the prime contractor, etc.

Response: The FAR already contains adequate policy on Government-caused delays and changes to contract terms and conditions. In addition, as stated previously, the final rule includes the specific examples of payment and nonpayment situations that are not considered to be unjustified. Comment: One respondent asked what penalties prime contractors will face for failing to self-report instances of non-compliance.

Subcontractor Rights Against a Government Contract for Nonpayment | Your Business

Response: Government penalties are beyond the scope of this rule. However, the requirements of this rule in addition to other Government rights and remedies permit the contracting officer to issue an adverse past performance assessment for noncompliance with FAR Comment: One respondent commented that prime contractors should be incentivized to make reduced payments to small business subcontractors, rather than withhold payments when a dispute arises between the prime contractor and small business subcontractor.

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Unlike a late payment, the proposed rule does not expressly grant a day window in which to resolve a reduced payment that may arise for a legitimate reason i. According to the respondent, because the rule does not address when a prime contractor must report a reduced payment to the contracting officer, one might interpret the rule to require an immediate report by the prime contractor to the contracting officer upon making a reduced payment.

What do I need to know about Prompt Payment?

However, requiring the prime contractor to report a reduced payment immediately creates a disincentive for prime contractors to make a reduced rather than late payment, as the obligation to report a late payment does not arise for a minimum of 90 days past the original due date. This day reporting timeline was added to the rule as a result of public comments. Moreover, the rule does not prohibit prime contractors from making reduced payments to their small business subcontractors.

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  8. Commercial items and commercially available off-the-shelf items. These commercial plans apply to the contractor's entire commercial organization, which in many cases, includes only a minimal amount of sales to the Federal Government. These commercial plans apply to virtually every subcontractor or supplier from which a contractor purchases supplies or services, whether or not those supplies or services are used in the performance of government contracts.

    Another respondent commented that over the last decade, the procurement community has seen the erosion of commercial item contracting in accordance with 41 U.

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    Another respondent stated that applying the rule to commercial and COTS item providers would not be in the best interests of the Government, and would run contrary to ongoing attempts by Government policy makers to streamline the acquisition process for the acquisition of commercial and COTS items to reduce the number of unique government rules applicable to large and small businesses providing commercial and COTS supplies and services, and to introduce more commercial innovation and Start Printed Page technology into the federal business market.

    See section III of this preamble. Comment: One respondent commented that FAR clause Response: The final rule adds FAR clause Comment: Two respondents stated that the Councils had underestimated the public burden in regards to the proposed rule. The other respondent believed that the estimate of reporting time of only two hours per respondent is grossly underestimated. This negligible amount of time assumes that all contractors can easily identify from their payment systems which subcontractors are small businesses. The respondent believed that this is often not the case, and that the small business size status of a subcontractor may be unknown to the contractor's other accounting systems.

    The other respondent commented that since the Small Business Jobs Act of does not specifically require that the subcontractor payment clause apply to commercial contracts, the respondent recommended that the FAR Council seek additional information about the burden on contractors before a determination is made to apply the payment of subcontractor requirements to commercial item acquisitions.

    The respondent did not find that the availability of limited information indicated that the burden may not be significant, as described in the proposed rule.