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Using Corporate Web Sites for Regulatory Terms and Conditions

Author(s):

James F. Southerland, CPCM
James F. Southerland, CPCM, President, Contracts Advisory Services, Inc., 1360 Rosecrans St., Ste "D", San Diego, CA 92106, (619)224-2042, e-mail: jimso-cas@att.net

86th Annual International Conference Proceedings - 2001 

Abstract. Corporate web sites provide an exciting capability to streamline and standardize the use of terms and conditions throughout the corporation, regardless of location or experience of the individual buyer. With recent business acquisitions, combinations, and mergers, companies now depend more and more on internet communications among the multiple locations; most have a web site to insure fast and consistent communications. By utilizing this site as a tool, every buyer in every division can include the appropriate general terms and conditions and insure that the appropriate clauses (and only the appropriate clauses) from the prime contract are included in subcontracts and purchase orders placed under that prime contract (flowed down).

The Opportunity. There are a limited number of Federal Acquisition Regulation clauses in the prime contract which are considered as "mandatory" flow down clauses. There are other clauses that should be incorporated because they are in the best interest of the company. There are clauses which should be paraphrased to incorporate the intent of the clause in the Regulation. There are other clauses in the company contract which should not be included in a subcontract because they simply do not apply to the subcontract, even though they may be applicable to the prime contract. These clauses from the regulation must be consistent and compatible with the general terms and conditions which cover the commercial nature of the transaction between prime contractor and subcontractor, to which the Uniform Commercial Code and other state laws apply. Because of this dichotomy and the level of inexperience of many buying organizations, too many clauses are incorporated because they are self-deleting or it is too much trouble to determine which clauses are appropriate.

A central web site can provide a remedy for the decentralized organization with a simple decision/choice driven process, resulting in the appropriate terms and conditions in both subcontracts and purchase orders consistently throughout the corporation.

Session Objective. Our objective is to show buyers and subcontract administrators how to demystify the confusion of which terms and conditions apply to transactions that are made under U.S. Government prime contracts. This benefit is enhanced by making the process less time consuming, more efficient, and consistently uniform throughout the company/corporation. Attendees will understand the hierarchy of terms and conditions and the logic for inclusion/exclusion.

Highlights of the Session. Subcontracts and purchase orders placed under a government prime contract vary widely in complexity, value, type, and period of performance. Even the most simple purchase order may require some flow downs in addition to the general terms and conditions, the fine print on the purchase order, usually consisting of fifteen to thirty clauses intended to comply with the UCC coverage of contracts. These general clauses are often at conflict with the FAR clauses or partially implement some of the FAR clauses inappropriately.

  • The method of placement of the prime contract and the subcontract affects the subcontract flow downs
  • the type of subcontract affects the flow downs and the clauses incorporated
  • the dollar value of the prime contract and the dollar value of the subcontract affects the flow downs
  • the subject matter of the subcontract affects the flow downs and clauses in the subcontract
  • the socioeconomic status of the prime and of the subcontractor affects the flow downs and clauses in the subcontract

The basic rule is to incorporate only the clauses that are appropriate to the subcontract/purchase order being placed. Redundancies of similar clauses should be avoided.

The content of the FAR clauses changes frequently. The rules for use of the clauses change frequently. It is important that buyers be aware of these changes and know when the change applies to a particular subcontract or series of orders. The newest change may or may not apply to new or existing subcontracts, especially if the prime contract remains unchanged.

The Web Site Solution. A company web site can easily and effectively provide the appropriate flow down clauses and can be linked to an analysis/explanation of the logic for inclusion/exclusion of the clause. This link would address the four items above that affect the requirement for the clause. The site provides the following additional benefits:

  • The web site can assure only the appropriate clauses are included in the order and can eliminate duplication, inconsistency, and unneeded clauses.
  • The web site can archive terms and conditions by prime contract.
  • The web site can provide standardized special provisions for use throughout the company.
  • The web site can provide socioeconomic data in total and by contract for reporting purposes.
  • The web site can provide total value of subcontracts by prime contract including commitments and termination liabilities.
  • The web site can provide a bulletin board for employee training, updates and information distribution.
  • The web site can provide an advisory function to respond to questions/inquiries by buyers sharing the corporate knowledge with all.

Methodology. The decision driven web site begins with the prime contract. If competitively awarded, the decision tree eliminates clauses such as cost or pricing data and cost accounting standards. If the prime contract is not competitively awarded, is the subcontract competitively awarded. If so, the same clauses are deleted. If the prime contract or subcontract is for a commercial item, most of the clauses are deleted and some special provisions that apply to commercial item purchases are added. Clauses to reflect the method of payment must be incorporated. Clauses to reflect the type of contract must be incorporated for time and material, cost reimbursement, incentive or award fee, and for a letter contract, if utilized. These can be standardized throughout the company with the link explaining the appropriate uses and any changes in the parameters permitted.

References
  • Federal Acquisition Regulations, Part 52 Solicitation Provisions and Contract Clauses
  • Federal Acquisitions Regulations, Part 52.301 Contract Clauses Matrix
  • Lieg, Robert V., A Study of the Applicability of Federal Acquisition Regulation Clauses to Subcontracts Under Prime Defense and NASA Contracts. National Defense Industrial Association, 2000.

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