Government Subcontracting Information
By: Theodore Watson
Who are government subcontractors?
Under FAR 44.101. Generally a subcontractor is a supplier, distributor, vendor or firm that furnishes supplies or services to the prime contractor or another subcontractor (tier). The more unique limitation of this definition usually comes under the Miller Act ( 40.U.S.C.A. § 270a. )
Does the agency have to approve a subcontractor?
An government contracting agency does not normally have to consent to subcontracts for firm-fixed-price contracts. However cost-type contracts will require consent if the contract price is over a certain dollar value.
Construction government contracts in excess of $2,00.00 is covered under the Davis-Bacon Act, which requires the contractor to pay employees the prevailing wage in that region for work done. As a general rule, government contracts in excess of $500,000.00 ($1,000,000.00 for construction) require the prime contractor to submit a subcontracting plan allowing reasonable consideration for offers to small businesses.
Subcontracting Clauses
Prime contracts generally contain clauses that will be included in the subcontract. The Federal Acquisition Regulation (FAR) has approximately 36 or more contract requirements that “flow down” to subcontractors. It is critical that contractors ( prime or subcontractors) have attorneys that can explain, negotiate or comply with these sweeping clauses.
Subcontractor Claims
There is a general consensus that there is no privity of contract between the government and a subcontractor (See Merritt v. U.S., 267 U.S. 338.) The fact that the government may approve a subcontractor does not substitute the privity of contract analysis. In other words, subcontractors cannot sue the government directly absent an express or implied contract between the government and the subcontractor ; as well as the prime contractor. A typical situation could be when the government instructs the subcontractor on the project to do something (change) and assures the subcontractor that the contract will be modified.
To be more exact, the United States Supreme Court has held that a subcontractor who was not paid by the prime on a federal project cannot sue the government directly by asserting an equitable lien of funds held by the government. (See 525 U.S. 255).
Regarding claims against a prime contractor for nonpayment or breach of contract, the terms of the subcontract generally control and should be litigated in the appropriate state or federal court (Federal Miller Act Claims are generally brought a federal district court where the project is performed).
Having a strong subcontract to protect your legal interests is paramount to both and prime subcontractors in federal contracts. If you are involved in this process, you must seek help from an experienced government contract law attorney.
For more information, contact us online or call 720.941.7200
