6.3 Subcontract Management & Consent to Subcontract (FAR Part 44)

6.3 Subcontract Management & Consent to Subcontract (FAR Part 44)

Prime contractors frequently rely on subcontractors to furnish specialized components, labor, or sub-tier technical capabilities. However, because the federal government enters into agreements exclusively with prime contractors, subcontract management requires a distinct regulatory oversight mechanism. FAR Part 44 (Subcontracting Policies and Procedures) prescribes policies for evaluating contractor purchasing systems, granting consent to subcontracts, and enforcing mandatory FAR clause flow-down requirements.

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1. The Privity of Contract Doctrine & Pass-Through Claims

The fundamental legal principle governing federal subcontracting is the Privity of Contract Doctrine.

+-----------------------------------------------------------------------------------+
|                           PRIVITY OF CONTRACT DOCTRINE                            |
+-----------------------------------------------------------------------------------+
|  [ U.S. GOVERNMENT ]  <====== Direct Privity ======>  [ PRIME CONTRACTOR ]        |
|                                                              |                    |
|                                                    Subcontract Agreement          |
|                                                              v                    |
|  [ SUBCONTRACTOR ]    <====== NO PRIVITY ===========>  [ SUBCONTRACTOR ]          |
+-----------------------------------------------------------------------------------+

Legal Consequences of No Privity

• No Direct Claims: Subcontractors cannot file direct claims against the federal government under the Contract Disputes Act (CDA) or bring direct breach-of-contract lawsuits in the U.S. Court of Federal Claims.
• No Direct Protests: Subcontractors cannot file bid protests with GAO or COFC challenging prime contract awards or administration actions.
• Sponsor / Pass-Through Claims: If a subcontractor suffers damages caused by government action (e.g., defective specifications or government delay), the subcontractor must submit a pass-through (sponsored) claim through the prime contractor. The prime contractor must adopt and sponsor the claim before the Contracting Officer.

2. Consent to Subcontract Requirements (FAR Subpart 44.2)

Consent to Subcontract is the formal written approval given by the Contracting Officer authorizing a prime contractor to enter into a specific subcontract (FAR 44.101).

When Consent is Required (FAR 44.201-1 & 44.201-2)

Consent requirements depend on the prime contract type and whether the contractor has an approved purchasing system:

1. Fixed-Price Contracts: Consent is NOT required for routine fixed-price subcontracts. However, consent is required if:
   • The subcontract is unpriced, cost-reimbursement, time-and-materials, or labor-hour; OR
   • The CO specifically mandates consent for critical sub-assemblies or complex items.
2. Cost-Reimbursement Contracts: Consent is required for:
   • Any cost-reimbursement, time-and-materials, or labor-hour subcontract;
   • Any fixed-price subcontract that exceeds either the simplified acquisition threshold (SAT) or 5% of the total estimated contract cost.

Exception for Approved Purchasing System

If the contractor possesses an approved purchasing system resulting from a CPSR, consent requirements under FAR Subpart 44.2 are waived for most subcontracts (except for specific high-risk subcontracts designated by the CO).

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3. Contractor Purchasing System Reviews (CPSR - FAR Subpart 44.3)

A Contractor Purchasing System Review (CPSR) is an in-depth evaluation conducted by the Administrative Contracting Officer (ACO) and purchasing specialists to determine the efficiency, effectiveness, and compliance of a prime contractor's purchasing system (FAR 44.301).

CPSR Triggers & Thresholds

Under FAR 44.302, the ACO must determine whether to conduct a CPSR when a prime contractor's sales to the Federal Government (excluding competitive firm-fixed-price contracts) are expected to exceed $25 million over the next 12 months. CPSRs are typically re-evaluated every 3 years.

Benefits of System Approval

• Reduced Government Oversight: Waives routine consent to subcontract requirements.
• Increased Operational Efficiency: Enables faster subcontract awards without administrative delay.
• System Withdrawal: If a CPSR identifies major systemic deficiencies, the ACO may disapprove the purchasing system, triggering mandatory consent requirements on ALL subcontracts.

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4. Small Business Subcontracting Program (FAR Subpart 19.7 & FAR 52.219-9)

To promote small business participation, FAR Subpart 19.7 mandates that large business prime contractors submit and execute a Small Business Subcontracting Plan for acquisitions exceeding statutory monetary thresholds.

Statutory Thresholds & Applicability

Subcontracting plans are required for contracts awarded to large businesses that offer subcontracting possibilities when the contract value exceeds:

• $900,000 for standard supply and service contracts;
• $2,000,000 for construction contracts.

Types of Subcontracting Plans

1. Individual Subcontracting Plan: Covers an individual contract, establishing specific percentage goals for small business (SB), small disadvantaged business (SDB), women-owned SB (WOSB), HUBZone SB, and service-disabled veteran-owned SB (SDVOSB) participation over the contract lifecycle.
2. Commercial Subcontracting Plan: Used by contractors selling commercial products/services. Covers the contractor's entire corporate fiscal year across commercial and government sales.
3. Master Subcontracting Plan: Contains plant-wide or company-wide boiler-plate terms, supplemented by individual contract goals.

Reporting & Liquidated Damages (FAR 19.705-7)

• Electronic Subcontracting Reporting System (eSRS): Contractors submit Individual Subcontract Reports (ISR - SF 294/295) semi-annually.
• Liquidated Damages for Failure to Make Good Faith Effort: Under FAR 19.705-7 and FAR 52.219-16, if a prime contractor fails to make a good faith effort to comply with its approved subcontracting plan, the Contracting Officer MUST assess liquidated damages equal to the actual dollar amount by which the contractor failed to achieve its subcontracting goals.

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5. Mandatory Flow-Down Clauses (FAR 52.244-6)

Prime contractors are legally obligated to flow down specific mandatory FAR clauses to their subcontracts.

Commercial vs. Non-Commercial Flow-Downs

• Commercial Subcontracts (FAR 52.244-6): Minimizes clause insertion to promote commercial participation. Mandatory flow-downs include equal opportunity, veteran employment, human trafficking prohibitions, and basic safeguard of information systems clauses.
• Non-Commercial Subcontracts: Requires extensive flow-down of clauses, including Cost Accounting Standards (CAS), TINA certified cost data requirements, Audit rights, and Buy American provisions.

Summary Table: Subcontract Management Requirements Matrix