Difference between revisions of "Subcontract/Supplier Contract Clause Flow-Downs"

Revision as of 19:45, 12 February 2018

Definitions

Subcontract - Binding agreement between two corporations or parties to perform specific task for a specific price.

Subcontract Flow-Down Clauses

Most prime contractors insist that all contract clauses must be flowed down to subcontractors. This is not true. Subcontracts are commercial contracts, not US Federal contracts, and the subcontract must reference the Choice of Law as Federal Common Law of Contracts, for mandatory FAR flow down provisions to apply. If the choice of law is state law, then state law applies, or the Uniform Commercial Code, and mandatory clauses applicable via the Christian Doctrine would only apply to the extent that the state law requires a certain clause as a matter of law. Examples of clauses that are believed to be mandatory clauses, but are not are:

• 1. Disputes, changes and termination for convenience clauses,

• 2. Default clauses

However, having said this, it is general practice to understand that contract clauses applicable to the Prime Contractor will be flowed down to the Subcontractor. For example, if the Prime Contractor has a Truth in Negotiations (TINA) contract clause, and it is flowing a $5M subcontract down, and it is sole source (that is not a commercial item) , it is prudent to expect and accept the TINA clause in the subcontract.