Department of Defense (DoD) issued a final rule effective November 17, 2023, amending the Defense Federal Acquisition Regulation Supplement (DFARS) to limit DoD prime contractors from flowing down FAR and DFARS clauses to commercial subcontracts unless the flowdown is specified in the regulation.
The Common Practice the New DoD Rule is Addressing
It has become common practice for many prime contractors to simply flowdown all the clauses in the prime contract to subcontracts, including commercial subcontracts, and include a statement that the clauses are self-deleting, if not applicable (i.e., the kitchen sink approach). While many clauses were not required to be flowed down, it was still necessary for the commercial subcontractor to understand and support the prime contractor’s contractual requirements to the Government. For example, termination for convenience clause (FAR 52.249-2) is not a required flowdown. However, it was a common clause that prime contractors included to comply with their contractual obligations to support a government termination for convenience. Going forward the prime/higher-tier contractor cannot simply reference the FAR clause and will have to include similar language in its terms and conditions for commercial subcontracts to support a government termination for convenience. The Government uses substantially different termination for convenience language in FAR 52.212-4(l) that the prime/higher-tier contractor should consider for a commercial subcontract. Additionally, the prime/higher-tier contractor needs to review each of the contractual requirements placed on it to ensure its subcontract terms and conditions address any reporting or compliance support it will need from its commercial subcontractors.
The New Regulations
DFARS 252.244-7000 Subcontracts for Commercial Products or Commercial Services states:
- The Contractor shall not include the terms of any Federal Acquisition Regulation (FAR) clause or Defense Federal Acquisition Regulation Supplement (DFARS) clause in subcontracts for commercial products or commercial services at any tier under this contract, unless
- For DFARS clauses, it is so specified in the particular clause; or
- For FAR clauses, the clause is listed at FAR 12.301(d) or it is so specified in paragraph (e)(1) of the clause at FAR 52.212-5 or paragraph (b)(1) of the clause at FAR 52.244-6 as applicable. NOTE – The appropriate reference for FAR 52.244-6 should be (c)(1)
FAR 52.244-6 Subcontracts for Commercial Product and Commercial Services is included in solicitations and contracts other than those for commercial products or services and includes the clauses that will be flowed down to commercial subcontracts. While existing commercial subcontracts are not impacted by the new rule, prime/higher-tier contractors will need to consider whether any modifications, orders, or options under those commercial subcontracts warrant a modification to reduce the number of flowdowns. Contractors should review and update their FAR/DFARS flowdowns on commercial subcontracts to only include mandatory flowdown clauses in FAR 52.244-6(c)(1) and any DFARS flowdowns that specifically state they are required in commercial subcontracts. Additionally, FAR 52.244-6(c)(2) states that a contractor may flow down a minimal number of additional clauses necessary to satisfy its contractual obligations, but no longer the kitchen sink. Contractors should also update their standard terms and conditions to include specific requirements on the commercial subcontractor in order to meet the prime/higher-tier contractor’s contractual obligations (e.g., termination for convenience, etc.) that can no longer be flowed down by reference.
What About Contracting Officers Limiting Clauses in Commercial Prime Contracts?
Contracting Officers are also going to be limited to the clauses included in DoD commercial prime contracts as a result of the final rule. DFARS 212.301(f) has been amended to state the following:
“The Contracting Officer shall not use other FAR or DFARS provisions and clauses unless required by the FAR or DFARS or consistent with customary commercial practices.”
So, let’s hope the intended effect of this change results in Contracting Officers reducing the number of clauses.
Takeaways
Prime/higher-tier contractors should immediately update their flowdown clause templates for commercial subcontracts based on the new limitations. Contractors should develop specific language to address any requirements that must be placed on the commercial subcontractor to support the prime/higher-tier contractor’s contractual requirements – such as a government termination for convenience and include the language in its standard terms and conditions.
It is also a best practice to review all commercial prime and subcontracts awarded to you to ensure the clauses are limited to those required by FAR 52.244-6(c)(1), specifically required in the DFARS clause, and any additional contractual language is understandable and acceptable to you.
We anticipate the DCMA Contractor Purchasing System Review team to start testing for this as part of their review of FAR/DFARS flowdowns.
Stay tuned as DoD has yet another open DFARS case (D2018-D074) regarding the applicability of select provisions and clauses to contracts/subcontracts for commercial products and services and commercially available off the shelf (COTS) items. The comment period has been extended from January 16, 2024, to March 15, 2024.
How Can Redstone Assist You
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s requirements for purchasing systems policies and procedures including flowdown requirements. We would be happy to be part of your team.
Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting