Flowdown Clause: What Rolls Downhill to the Subcontractor?

Federal Acquisition Regulations (FAR) clauses are incorporated in the contract issued by the federal government to the prime contractor.  The prime contractor is required in many instances to “flow down” some of those clauses to its subcontractor (hence the term “flowdown clause”).  The reason is to transfer to or share with the subcontractor certain contractual obligations.  Determining what flowdowns apply to subcontractors can be confusing and very time-consuming, especially if you don’t know what to look for.  SpendLogic has put together this guide, including some free resources, to help you through the FAR flowdown process.

SpendLogic has seen companies attach Section I from the prime contract to the subcontract and call it a day.  We have seen others who go one step further and “Search and Replace” Government with Contractor and Contractor with Subcontractor.  Neither of these methods is good business practice and could result in a finding during a CPSR audit in addition to creating a higher price being proposed by the subcontractor and prolonged negotiations.

Additionally, many have heard from contracting professionals that clauses which do not apply are “self-deleting.”  The FAR does not define “self-deleting” which means that there is no such thing in government contracting.  Prime contractors and subcontractors should review all clauses and include only mandatory and applicable discretionary flowdown clauses.

9 Steps to Navigating the FAR Flowdown Process

SpendLogic has put together the following guide to help you navigate the FAR flowdown process.

Step 1: Review the government RFP or prime contract award to determine the specific clauses that apply to the prime contract.  Generate a list of all the clauses.

Step 2:  Identify the clauses which are “mandatory” flowdowns.  Mandatory flowdown clauses ensure certain terms and conditions are passed on to subcontractors.   Each clause in the prime contract states whether and what is to be flowed down.  There are generally three types:

• Copy & Paste: There are few FAR clauses that require the entirety of a clause be flowed down.  In these cases, the clause will read like, “The Contractor shall include this clause in every subcontract…”
• Requirements: Some FAR clauses require the Contractor to include the requirements of a clause in subcontracts such as FAR 52.209-6, Protecting the Government’s Interest When Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment.  FAR 52.209-6(e) states in part that the Contractor shall include the requirements of this clause, including this paragraph (e) (appropriately modified for the identification of the parties), in each subcontract that—…
• Substance:  Some FAR clauses require the Contractor incorporate the “substance” of a clause in a subcontract.  For example, FAR 52.203-7(c)(5) Anti-Kickback Procedures states, The Contractor agrees to incorporate the substance of this clause, including this paragraph (c)(5) but excepting paragraph (c)(1) of this clause, in all subcontracts under this contract that exceed the threshold specified in Federal Acquisition Regulation 3.502-2(i) on the date of subcontract award.

Step 3:  Categorize FAR requirements for flowdown.  There are different types of clauses such as those based on dollar value, contract type (FFP, CR, T&M, etc.), quality, pricing, commerciality, and reporting.  Organizing the clauses according to their nature will facilitate a more efficient review process.

Step 4:  Determine who is affected by each clause.  “Who” could be a subcontractor, a vendor, or a consultant.   It is important to understand what each subcontractor/vendor/consultant is providing in support of your prime contract when determining the applicability of certain flowdowns.  Also, you need to be aware of certain clauses applying only to specific tiers of subcontractors.  Clauses may apply only to first-tier subcontractors and others may flow down to subcontractors at any tier.

Step 5: Develop clear and concise flowdown language for each mandatory flowdown as well as for clauses that are flowed down at the discretion of the prime contractor.  These clauses are not required to be flowed down but are “recommended” or “discretionary.”  For example, FAR 52.242-15, Stop-Work Order, is not a required flowdown clause but it is in the prime contractor’s interest to include it in any subcontract with the appropriate modifications including altering response times from the subcontractor.

Step 6:  Be sure to integrate your flowdowns and flowdown language into your subcontract agreements and/or purchase orders in order to create a legally binding requirement.

Step 7: Document Subcontractor’s Compliance with Flowdowns.  Pursuant to FAR 42.202(e)(2), [t]he prime contractor is responsible for managing its subcontracts.  Therefore, it is incumbent on prime contractor to flow down, at a minimum, the mandatory clauses and to document subcontractor’s compliance with those requirements.  This is accomplished by maintaining the requisite acknowledgments, certifications, or other documentation in the procurement file.  Check out SpendLogic’s SpendFile to see how it helps manage those documentation requirements.

Step 8:  Stay informed about any changes, modifications, and/or revisions to FAR clauses.  Prime contracts are regularly modified to add new clauses or modify existing clauses and often these prime contract modifications are not communicated to those responsible for subcontract management.  SpendLogic encourages a good working relationship and communication with the company contract administrator responsible for managing the prime contract.  When there are changes to clauses at the prime level, the changes should be reviewed for applicability at the subcontract level.

Step 9:  Seek legal advice or expert assistance if you have questions or concerns about an interpretation or implementation of a FAR clause.

Resources

The following are a few free resources to assist with determining what clauses should, and to whom, flow down:

• FAR | Acquisition.GOV
• DAU Provision and Clause Matrix | www.dau.edu
• Federal Acquisition Regulation (FAR) Clause – Defense Federal Acquisition Regulation Supplement (DFARS) Clauses (farclause.com)
  (*You can look up FAR clauses without a subscription.)

A critical element of government contracting is the examination of FAR flowdown requirements.  By following these steps, combined with using SpendLogic for maintaining requisite procurement documentation, you can make certain your subcontractors adhere to the requisite FAR clauses.

Schedule a quick, hassle-free, 15-minute demonstration to see how SpendLogic can ensure you and your organization maintain compliant subcontracts and purchase orders.