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.

EARLY AND CAREFUL PARTNER SELECTION/TEAM MANAGEMENT

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.

CONTRACT DOCUMENTATION AND TRANSITION FROM PROPOSAL TO CONTRACT

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

BASELINE MANAGEMENT

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

SUMMARY

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.

How Crazy Subcontractors Can Kill Your Bid

EDITOR'S NOTE: 

The following article by Bob Lohfeld in “Washington Technology” a few years ago is still an excellent primer on the challenges associated with subcontractor management when teaming with other firms in small business federal government contracting. I work with clients regularly who are encountering these risks.  Ken Larson

"WASHINGTON TECHNOLOGY"

"Have you ever had a subcontractor kill your bid? Surprisingly, it’s not all that infrequent that a subcontractor can do you in. 

Here are some of the situations we have seen this year from companies  who have called us for help, generally after it is too late to fix the  problem. Since many of these teaming nightmares could have been  prevented with some good counseling earlier in the bidding process, I  thought I would share some of these with you and also offer advice that  you can use to keep these problems from happening to you.

Subcontractor teaming restrictions

 
A recent government solicitation stated that prime contractors were  encouraged to team with multiple smaller businesses in order to fulfill  the socioeconomic goals of the procurement. The request for proposals  further stated that subcontractors shall be limited to teaming with only  one prime contractor and cannot be a subcontractor on multiple teams.  I’m sure you have seen this kind of restricted teaming language before.

The prime contractor who called said they selected their small  business subcontractors and executed teaming agreements with each, wrote  a fine proposal which was submitted on time, and then got a letter back  from the government saying their proposal had been rejected.

They explained that apparently, their subcontractor thought that if  teaming with one prime contractor was good, teaming with multiple primes  was better. Even though the subcontractor signed an exclusive teaming  agreement with the prime contractor, they teamed with multiple companies  in order to increase their chances of winning. All prime contractors  who teamed with this subcontractor had their proposals rejected.

We told the prime that in the future, when an RFP contains specific  language restricting subcontractor teaming, we recommend that this  language be included in an addendum to the teaming agreement and the  addendum be signed by an executive of the subcontractor certifying that  they have teamed in accordance with the teaming restrictions.

Regrettably, in this case, it was too late to correct the problem.

Subcontractor conflict of interest

 
A solicitation required the prime and its subcontractors to  individually certify that they had no organizational conflict of  interest (OCI). Less than one week prior to submission, the  subcontractor’s contracting officer (CO) on a related contract indicated  he thought the subcontractor had an OCI on the job the company was  bidding.

The subcontractor communicated the news to the prime and indicated  the issue was resolved. The subcontractor signed the OCI certification,  and the prime contractor submitted the proposal. Shortly after the  proposal was submitted, the contracting office notified the prime  contractor that their bid had been rejected due to the subcontractor’s  OCI.

The prime contractor challenged the rejection by asking the CO to  evaluate the bid without the subcontractor’s input, and while the CO  sympathized with the prime contractor, the decision rejecting the bid  stood.

Clearly this subcontractor wanted to run from its OCI problem and  signing a statement that a conflict doesn’t exist does not make the  conflict go away. We advised that the prime to get an OCI determination  directly from the government before submitting its proposal and if this  could not be resolved prior to submission, the prime should either  submit an OCI mitigation plan with its proposal or submit an alternate  proposal without the subcontractor rather than risk its entire proposal  being rejected because of an unresolved OCI problem.
Getting the subcontractor to certify that an OCI problem does not  exists is not sufficient since it is the government who is the final  arbitrator of whether or not there is an OCI issue.  Relying on the  subcontractor’s certification statement cost the prime contractor its  bid.

Subcontractor poor past performance

A prime contractor identified several small businesses that had  direct contract experience with the customer and invited these companies  to join their team. The sales reps from the small businesses boasted  how well they knew the customer, how strong their relationships were,  and how insightful they were about the work being competed. It was a  perfect match, and the prime signed up the subcontractors.

The prime and the subcontractors worked hard on the proposal. The  prime submitted the bid, and shortly thereafter was told they lost. In  the debriefing, the government indicated the subcontractors’ past  performances was marginal and was overstated in the proposal. As a  result, the government down-scored the proposal based on the poor  subcontractor past performance and overstated claims.

I suppose no sales rep has ever told a prime contractor that his/her  firms performance was marginal and they had a lousy relationship with  the customer. After all, sales reps wouldn’t last very long in that  position if they didn’t put a positive spin on a marginal situation.

Subcontractors with extreme incumbentitis

 
The government changed the size standard on the recompete of a  contract, forcing the incumbent to look for a company with the right  size standard and socio-economic certification to prime their contract.  After careful deliberation, they identified a partner who had a  long-term history with the client and an outstanding reputation. The  teaming agreement was signed and the proposal was begun.

Next, the incumbent proceeded to make the new prime’s life miserable.  They developed an extreme case of incumbentitis, could not understand  the necessity of improving their processes on the new contract, thought  every benefit rested on the argument that they were the incumbent, and  were extremely cautious sharing information with the prime contractor  even to the detriment of the bid.

The incumbent insisted that the proposal only had to conform with  section C (statement of work) of the RFP, not section L (proposal  instructions) and M (proposal evaluation criteria). According to  subcontractor, they never paid attention to L and M, only the SOW. They  were quite adamant and disrupted all review meetings.

To resolve these issues, we arbitrated a meeting between the top  executives of both firms resulting in the subcontractor changing out the  people supporting the proposal. With new, more reasonable players  involved, progress is being made towards a winning proposal but much  valuable time has been lost in the exercise of forming a highly  functioning team. We’ll have to wait to see how this one turns out.

A positive outlook on teaming

 
Not all teaming arrangements turn out badly. If you want to read more  about teaming and the characteristics that make teaming successful,  refer to Washington Technology’s articles by Nick Wakeman about the WT Insider Reports.

However, if you can’t resist telling your story about how a  subcontractor sunk your bid, please add it to the comments section  below. Truth is stranger than fiction so let’s hear what you have to  say."

 http://washingtontechnology.com/Articles/2013/11/18/Insights-Lohfeld-crazy-subcontractors.aspx?Page=1

About the Author:  Bob Lohfeld is the chief executive officer of the Lohfeld Consulting Group. E-mail is robert.lohfeld@lohfeldconsulting.com.