FLOWDOWNS & THEIR IMPORTANCE
Increase your compliance–Reduce your risk!!
What are flowdown clauses?
Flowdown clauses are those clauses contained in the Federal Acquisition Regulation (FAR), the Defense Federal Acquisition Regulations Supplement (DFARS), and numerous other supplemental agency acquisition regulations which require the contractor to “flowdown” all or certain requirements of the clause to suppliers and subcontractors. Some clauses require first-tier suppliers and subcontractors to further flowdown certain clauses to lower-tier suppliers and subcontractors.
Unfortunately flowing down clauses is an often overlooked important part of contract administration for which non-compliance can be problematic and even costly.
What is meant by “flowing” down clauses?
“Flowing” down clauses is the process of transferring and the translation of requirements from clauses requiring flowdown contained in a prime contract into a subcontract or purchase order in support of the prime contract. In certain circumstances, clauses require further flowdown by first-tier suppliers and subcontractors to lower-tier suppliers and subcontractors.
Are small businesses required to flowdown clauses?
Yes, absolutely. Small businesses are not exempt from flowing down clauses as required by the respective flowdown clauses. It is a myth small businesses are not required to flowdown clauses because they are not required to have subcontracting plans. There is no nexus between the requirement for a subcontracting plan and flowing down clauses.
Flowdowns are only required above the Simplified Acquisition Threshold (SAT), correct?
That is incorrect. Flowdown clauses have various dollar thresholds (some are required to be flowed-down regardless of dollar amount), while others are required to be flowed-down under certain circumstances, including the type, duration, and dollar value of the prime/subcontracts.
What happens if I don’t flowdown clauses?
Flowdowns are a contractual requirement. Failure to flowdown clauses could jeopardize continued contract performance and even result in a contract being terminated for cause or default. Noncompliance and termination actions may also be reflected in the Contractor Performance Assessment Reporting System (CPARS) which could affect future awards. CPARS is the principal source of past performance information for Federal contracting officers and is used as part of their responsibility determinations in considering offerors for contract awards.
Additionally, it is possible such failures could be actionable under the False Claims Act. Please keep in mind the majority of False Claims Act lawsuits these days are brought on the behalf of the government by individuals known as ex-relators which are often current and former disgruntled employees, as well as competitors. These lawsuits are brought under the qui tam (Latin loosely translated as on behalf of the King) provisions of the False Claims Act. The government recovers billions of dollars each year under the Act and pays out hundreds of millions of dollars to those filing the lawsuits. It’s better odds than winning the lottery and there are an average of 12+ qui tam lawsuits filed every week!
Additionally, failure to flowdown clauses could result in potential litigation between prime and subcontractors. This costs money too!
Our company just flows every clause down from our prime contract to our suppliers and subcontractors, obviating the need for determining which specific clauses require flowdown. This saves us lots of time. Is there anything wrong with this method?
Absolutely! Many clauses contained in a Federal prime contract are intrinsic only to the prime contractor because there are no flowdown requirements. It is possible compliance with clauses flowed down without a flowdown requirement cannot be complied with by subcontractors or suppliers, even if they were so inclined to accept them. Flowdowns are part of risk sharing. Subcontractors may not accept them, or if problems occur in performance may seek to litigate disputes in an attempt to render prime contractor-specific clauses as unenforceable. Disputes between prime and subcontractors are not resolved by the Federal government and generally addressed in State courts.
As a prime contractor, who is responsible for lower-tier flowdowns by my suppliers and subcontractors?
The prime contractor is responsible. As part of the prime’s (and subs’) contract administration program, safeguards ensuring compliance should be included in respective contract administration plans to compel stellar compliance at all tiers—primes, you’re liable for your subs! Do you trust they will get flowdowns correct?
Flowdowns are not required for commercial item acquisitions, correct?
This is a common myth also. Commercial item acquisitions awarded pursuant to the authority of FAR Part 12 do contain flowdowns, and they do change from time to time.
Is there a matrix for DFARS?
Yes, DFARS flowdowns are included in FedBizAssist Flowdown Matrices Subscriptions Item 102 (which is the DFARS only) and Item 103 which contains the FAR, DFARS, and twenty-plus agency supplemental acquisition regulations.
Flowdowns are especially important to DoD contractors. For example, DFARS Clause 252.244-7001, Contractor Purchasing System Administration—Basic (MAY 2014), sets forth system criteria for contractors’ purchasing systems. An important criterion is the purchasing system must ensure purchase orders and subcontracts contain flowdown clauses including terms and conditions and any other clauses necessary to carry out the requirements of the prime contract. The clause also requires contractors establish and maintain policies and procedures to ensure purchase orders and subcontracts contain mandatory and applicable flowdown clauses, as required by the FAR and DFARS, including terms and conditions required by the prime contract and any clauses required to carry out the requirements of the prime contract, including the requirements of DFARS 252.246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, if applicable. If a contractor’s purchasing system is disapproved, the contracting officer may cause payments to be withheld from the contractor.
My company doesn’t award subcontracts, we issue purchase orders, and they do not require flowdowns, correct?
No. For the purposes of Federal contracting/subcontracting, “Subcontract” means any contract as defined in FAR subpart 2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders.” In other words, purchase orders are subcontracts. “Subcontractor” means any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor. (Ref: FAR 44.101)
How can I tell which clauses require flowdowns?
Each clause tells you if there is a flowdown requirement and whether further flowdown is required to lower-tier subcontractors/suppliers by first-tier subcontractors/suppliers. It would be necessary to read every FAR clause and Supplemental Agency Acquisition Regulation Clause contained in your contract to determine flowdown requirements. As you are probably aware, some clauses are not shown in full text in your contract, they are incorporated by reference and you would need to find the full text in the FAR or respective agency acquisition regulations. This can be very time consuming. Time is money!
Can I make my own matrices?
You can if you have lots of time on your hands and your time is worth less than a subscription cost. and you can develop and maintain them for less than the cost of a subscription. It would necessitate reading all of the clauses/provisions in FAR Subpart 52.2, as well as DFARS 252.2, and the various agency implementing regulations. The FAR has over 600 clauses and provisions, the DFARS about another 350, not including the other agency supplements. Not to mention monitoring the Federal Register daily for changes to keep your matrices up-to-date. Certainly your time and peace of mind is worth more than the annual cost of a subscription ($169 to $294.40)!!
What is the advantage of a FedBizAssist Flowdown Matrices Subscription?
We’ve done the work for you! Our flowdown subscription matrices contain all FAR, DFARS, and agency supplemental acquisition regulation clauses requiring flowdown. The matrices are very easy to use. Simply compare clauses in your contract to those shown in Column “A” of the matrices. If there is a match, then there is a flowdown requirement. The flowdown requirement is shown in Column “B”, and if there is a further flowdown requirement by first-tier suppliers and subcontractors to lower-tier suppliers and subcontractors, this requirement is indicated in Column “C”.
The flowdown matrices also allow for prime contractors and subcontractors to better administer their subcontracts in terms of this important compliance requirement.
Each clause shown in the matrices is hyperlinked to its respective regulation for ease of reference and cutting and pasting from the actual clause.
The subscriptions will help increase your contract compliance and reduce your risk of non-compliance. Contract administrators tell us this is a great resource and time saver. Get this important tool for your contract administrators—they will be glad you did!!
Are there any disadvantages of having a Flowdown Matrices Subscription?
We can’t think of any.
How often are the matrices updated, and how would I get the updated information if I subscribe?
The matrices are updated as changes occur. The FAR is updated when Federal Acquisition Circulars (FACs) are issued making modifications to the FAR which affect flowdown clauses. The Federal Register is reviewed daily for changes to the FAR, the DFARS, and the twenty-plus civilian departments and agencies with supplemental acquisition regulations. The matrices are updated accordingly based on final rules and interim rules published in the Federal Register and their effective dates. Changes to occur. Under Executive Orders 13771 (“Reducing Regulation and Controlling Regulatory Costs,” January 30, 2017) and 13777 (“Enforcing the Regulatory Reform Agenda,” February 24, 2017) issued by President Trump, agencies are making changes to their acquisition regulations, some have eliminated clauses. Legislation often requires development of new clauses to implement the law, and sometimes changes or eliminates clauses. We keep track of all of this for you.
How much do the Flowdown Matrices Subscriptions cost?
The price of the flowdown matrices is far less costly than the potential cost of non-compliance if you are caught not flowing down clauses and determined not to have complied with flowdown requirements. Depending on subscription type, the one-year subscription price is $179.00—significantly less than it would cost for your contract administrators to do this. We also honor the original subscription price for renewals, even if there is a price increase–we value our subscribers–they help pay the bills!
What is the subscription period?
Subscriptions are for a one-year period. We love referrals and do offer two-month no-cost subscription extensions for each referral made that results in a subscription. One subscriber has received one-year in extensions for referrals. Please make sure your referral lets us know who referred them so we may add two months to the period of your subscription.
Where may I subscribe?
How do I get the matrices and updates?
Once you subscribe at the above website, you will be able to download your subscription/the matrices. All updates to your matrices will be sent to the e-mail address included with your registration/payment. The matrices are sent in zip files and contain a Microsoft Excel version and a portable document format (pdf) file. Please note if your e-mail address changes or if you move to another company, let us know so we can update the e-mail address for your subscription.
What if I have questions about flowdowns and the matrices?
Give us a call at 22-4-FLO-DOWN (224.356.3696) or drop us an e-mail at firstname.lastname@example.org. We frequently help subscribers with questions regarding specific flowdown clauses and are always glad to help out (note: substantial inquiries are subject to hourly consulting rates).
Contract and subcontract administration is the sole and ultimate responsibility of the respective prime contractor/subcontractor(s). The FedBizAssist, L.L.C., Flowdown Matrices are a tool to assist with contract compliance with regard to flowdown requirements contained in the Federal Acquisition Regulation (FAR), the Defense Federal Acquisition Regulation Supplement (DFARS), and the various Federal department and agency acquisition regulations which supplement and implement the FAR. The matrices are not a substitute for proactive, stellar contract administration at the prime and subcontract levels. Use of the matrices is with the user’s complete understanding and acceptance the matrices and subscription service is a resource available to assist in contract administration, not to obviate the need for contract administration. Use of the matrices constitutes the user’s understanding and acceptance of their responsibility for contract administration. FedBizAssist assumes no responsibility or liability for a contractor’s or subcontractor’s contract administration, lack of contract administration, or their interpretation and application of flowdown requirements.
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