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Thursday, July 20, 2023

Managing Subcontractors And Independents As A Small Business Prime Contractor


Industry teaming is a fact of life in small business federal government contracting. Your team for a given contract pursuit may consist of several types of industry partners external to your organization. 

If you are the prime contractor on a multiple company program by virtue of a teaming agreement, the challenge may involve issuing purchase orders to independent contractors as individuals and negotiating fully executed subcontracts with firms subcontracting to you.

The techniques in managing each of these partner types are distinct. The contractual and regulatory factors are introduced in the following link:

What is a Small Business Federal Government Contractor

This article will convey guidance for a small business federal government prime contractor, in managing the external business relationships with other companies as subcontractors and independents as individuals.


Finding industry teaming partners should occur synonymous with finding an opportunity. We have previously discussed marketing federal business opportunities:

Multiple Front Marketing

SAM Contract Opportunities

Small Business Teaming

Assuming you have located an industry partner or perhaps a mix of subcontractors and/or independent individuals you wish to engage, make sure they have the capabilities to perform the parts of the statement of work on the program you are targeting. Remember that the quality of your proposal, your probability of a win, and ultimately your past performance rating on the contract, will reflect your supplier management. The government will hold you accountable for their performance. In some cases agencies will reserve the right to approve your key personnel and subcontractors before issuing your prime contract.

Two general guidelines should be observed:

1. Do not subcontract in excess of 40% of the program to another company in terms of hours, dollars and % of total work scope. The FAR regulations specify 49% as a ceiling but it is best to reserve 60% of the effort for your company employees and independent contractors under your control to avoid appearances of a front.

2. Do not exceed 50% of the internal labor hours for your company share of the program with contractors as individuals. Government source selection boards need some assurance that the capability to lead and perform major parts of the program resides in the permanent party of the small business prime contractor.

If you exceed the 50% rule for independents, include contingent hire agreements demonstrating the point in time where they will become full time employees or will be replaced by full time employees. A contingent hire agreement may be downloaded from the Box Net References Cube in the right margin of this site.

Sign subcontractors and independents to proprietary data agreements.  Develop thorough teaming agreements with subcontractors, including an explicit statement of work attachment to each agreement quantifying, the work scope guidelines in paragraph 1, above. A teaming agreement is available for download in the Box Net references cube at this site.

The independent should also understand the specific work and hours he or she will be expected to perform on the job and such personnel should be retained on a contractor retention agreement which is also available for download in the Box Net References cube at this site.

Teaming agreements, contingent hire agreements, contractor retention agreements and subcontractor proposals must be either included in your proposal submission to the government or made available for government fact finding.


During the proposal stage of the business relationship with your industry partners you will be issuing them requests for proposals (RFP’s) for their portion of the effort.

For independent contractors this may be as simple as asking them to sign contingent hire agreements or contractor retention agreements.

But you must include in the RFP’s to the companies which you propose as subcontractors the terms and conditions of your agency prime contract RFP and other specific guidance to make the proposal and subsequent contracting process work smoothly. This should include administrative guidelines and agreed upon cost targets and technical guidance.

Specify a due date for their proposals in response to your RFP in time to roll their data into your cost volume and provide guidance on the handling of fully loaded rate backup to which you do not have access to forward to the government auditors. This usually includes sealed packages provided by your subcontractors that you will not open, since they contain overhead and G&A rate information which is highly proprietary to the subcontractor.

Keep in mind that you are in a constant negotiation with these partners until you award them subcontracts to replace the teaming agreements when your team wins the program. Please see the following article for detail guidance on that point:

Contract Negotiation

Naturally the technical and management volumes of the proposal will be completed in consonance and in parallel with the subcontractor RFP cost proposal responses.

At contract award, be prepared to negotiate and execute formal subcontracts to the companies with whom you are teamed and to issue purchase orders to your independents to commence work. At that point you have achieved the contract baseline and you will commence work.
 Insure that your subcontracts and purchase orders contain limitation of funds and funding exposure protection for all parties in accordance with the following article:

Limitation of Funds and Funding Exposure


Please read the following article carefully on baseline management and bear in mind that work scope change sensitivity must be managed carefully and formally documented between you and your industry partners by change orders to formal subcontracts and purchase orders:

Contract Baseline Management


This article has provided an overview of subcontractor and independent contractor management from the early marketing stages of a contract pursuit through proposal preparation and submission then contract award and baseline management.

Please read the reference links in the text above carefully and check the table of contents at this site for other information relevant to this topic.

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