Subcontracting Smart: Labor Relations and Subcontracting Plan Obligations Between Prime Contractors and Subcontractors

Labor & Employment –

General Obligations –

– Prime is on the hook

– Flow down all obligations to the subcontractor

– Comply with all applicable labor laws


– Subcontracts usually have a general warranty

– But what else?

Please see full Presentation below for more information.

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Nichole Atallah
(202) 857-1000

Katie Flood
(202) 857-1000

About PilieroMazza
PilieroMazza PLLC is a full-service law firm located in Washington, D.C. We are
most well known as a government contracting firm and for more than 25 years we
have helped our clients navigate the complexities of doing business with the
federal government. We also provide a full range of legal services including advice
on business, corporate, labor and employment, SBA procurement programs, and
litigation matters. Our clients value the diverse array of legal guidance they
receive from us and our responsiveness as we guide their growth and secure their
© PilieroMazza PLLC 2016 4
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Labor Relations
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Labor & Employment General Obligations
• Prime is on the hook
• Flow down all obligations to the subcontractor
• Comply with all applicable labor laws
• Subcontracts usually have a general warranty
• But what else?
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Non-Solicitation Provisions
• Protect your assets
• The risk of employee poaching
• How important are specific people to your
• Subcontract or employment contract?
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Beyond the Flow Down: OFCCP, Service Contract Act, Davis Bacon Act
• Clauses must be flowed down in full
• Attach any wage determination
• Labor classification selections – proceed with
• Investigations and withholding
• Compliance challenges
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• Employee complaints of discrimination,
harassment, whistleblower
• Prime – subcontractor
• Subcontract – government
• What information do you share?
• Risks
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Fair Pay Safe Workplaces
• Executive Order 13673
• Proposed Rule, 80 Fed. Reg. 30.547
• Applies to government contractors and
subcontractors with contracts over $500,000
• Requires disclosure of violations of 14 different
federal employment laws and state equivalents
• New contracts beginning in 2016
• 3-year look back requirement
• Contractors disclose corrective actions related to
• Prime contractors responsible for subcontractors
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14 Federal Labor Laws:
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• Fair Labor Standards Act
• Occupational Safety and Health
• Migrant and Seasonal
Agricultural Worker Protection
• National Labor Relations Act
• Davis-Bacon Act
• Service Contract Act
• Executive Order 11246 of Sept.
24, 1965 (EEO)
• Family and Medical Leave Act
• Title VII of the Civil Rights Act
• Section 503 of the
Rehabilitation Act of 1973
(prohibits disability
• Vietnam Era Veteran’s
Readjustment Assistance Act
• Americans with Disabilities Act
• Age Discrimination in
Employment Act
• Executive Order 13658 of Feb.
12, 2014 (contractor minimum
• State law equivalents

Fair Pay Safe Workplaces
• Prime must evaluate responsibility of
• Willful, serious or pervasive violations
• Practical implications
• Impact of information sharing on competition
• Alternatives

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Indemnification Provisions
• Consider costs outside of direct damages
• Investigation costs
• Attorneys’ fees
• Evaluate the language of the clause
• Limitations: responsibility goes beyond this

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Small Business Subcontracting Plans
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Subcontracting Plan Obligations
• Contractor’s responsibilities
• Promote the government’s objective to maximize
small business participation in federal procurements
FAR Subpart 19.7
• FAR 52.219-8, Utilization of Small Business Concerns
• FAR 52.219-9, Small Business Subcontracting Plan
• SBA’s rules at 13 C.F.R. § 125.3
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Subcontracting Plan Obligations
• Types of Plans
• Individual
• Master
• Commercial
• Department of Defense Test Program for
Comprehensive Small Business Subcontracting Plan
(Comp Plan)
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Compliance with Subcontracting Requirements
• Reporting obligations (FAR 52.219-9)
• Notification requirement for non-use of SBs
• Vendor identification
• Diversity
• Good faith efforts
• Implementation of policies and procedures
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Why You Should Focus on Compliance
• Increased activity on Capitol Hill focusing on
subcontracting plan compliance
• Number of SBA audits are up
• Contractual requirement for prime contractors
• Potential breach issues
• Adverse past performance implications
• Evaluation factor for future procurements
• Potential of liquidated damages assessment
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Best Practices
• Establish realistic goals upfront
• Limit your responsibility for flow down and
oversight of subcontracting plans by
• Know your exclusions from the subcontracting
• Thoroughly vet your SB vendors
• Current, written self-certifications of SB and
socio-economic status
• Independent verification
• Written subcontracting plan manual
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SBA Audits
• Occurring with greater frequency
• Performed by SBA regional offices
• Procurement Center Representatives (PCR)
• Commercial Market Representatives (CMR)
• Contracting agencies and DCMA may also be
• Reviews may be fulsome or targeted
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What to Expect During the Audit Process
• SBA will send a letter disclosing the date they
will visit your office
• Usually lasts 1-2 days
• Coordinate with Small Business Liaison Officer
• You must submit information to CMR/PCR prior
to visit:
• All subcontracts to SBs within the last year
• All subcontracts to LBs over $150,000 within the last
• All blanket purchase agreements entered into
within last year
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What to Expect During the Audit Process
• SBA will select samples from each list, and will
want to see the necessary supporting
• Must complete SBA compliance review checklist
• SBA wants to see good faith efforts to comply
with plan
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Audit Follow Up
• Given a rating at end of the audit process
• If rating is “Marginal” or “Unacceptable,” SBA
requires submission of corrective action plan
• Must submit it to both SBA and agency
• Failure to follow up with CA plan may result in
penalties/liquidated damages assessment
• SBA will follow up with visits to ensure that you
are implementing CA plan measures
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Upcoming Subcontracting Developments
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Limitations on Subcontracting Rule
• Proposed rule issued in December 2014; final rule
expected in 2016
• Proposals for subcontracting plans include:
• Before prime identifies SB by name in its proposal or
subcontracting plan, prime must notify SB in writing
• Penalties for primes that do not provide a written
corrective action plan or demonstrate good-faith effort
to comply:
• May be considered for liquidated damages under
FAR § 52.219-16
• Material breach of contract
• Must be considered in any past performance evaluation
• Referral to SBA IG if contractor makes a false statement about
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Lower-Tier Subcontracting Rule
• Implements 2014 NDAA
• Proposed rule issued in 2015; final rule by end of
• Would allow prime contractors with individual
subcontracting plan to receive credit for awards
to SBs at any subcontracting tier
• Unresolved question of how to avoid “double-
counting” at lower tiers
• Increased obligations to monitor subcontractors
and enforce subcontracting plan requirements
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Changes to FAR 19.7 and 52.219-9
• Proposed rule issued in 2015; finalized in 2016?
• Highlights:
• Requires subcontracting plan to list NAICS code
for each subcontract
• Permits primes to rely on subcontractor
representations in SAM
• Allows goals based on total contract dollars
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Changes to FAR 19.7 and 52.219-9
• Highlights:
• Primes cannot prohibit subcontractor from discussing
payment or utilization matters directly with CO
• Primes must notify unsuccessful subcontract offerors
in writing
• Primes with individual subcontracting plans must
report order-level subcontracting info for multiple
award contracts
• Failure to comply in good faith with subcontracting
plan shall be a material breach of contract and may be
considered in past performance evaluation
© PilieroMazza PLLC 2016 28
888 17th Street, NW, 11th Floor
Washington, DC 20006
Tel: (202) 857-1000
Fax: (202) 857-0200
© PilieroMazza PLLC 2016 29
Nichole Atallah Katie Flood
202-857-1000 202-857-1000

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