FAR-Compliant Subcontract Agreement

Drafts a subcontract between a prime contractor and subcontractor under a U.S. federal government prime contract with full regulatory compliance and appropriate risk allocation.

Prerequisites

Gather before drafting:

Prime contract — number, agency, contract type (FFP/CR/T&M), period of performance, value, Section I clause list
Parties — legal names, DUNS/UEI, CAGE codes, SAM registration for both prime and sub
Scope — SOW portions subcontracted, deliverables, milestones, labor categories
Security — clearance levels (facility/personnel), CUI/CDI handling, NIST SP 800-171 status
Special — Buy American/TAA, small business goals, ITAR/EAR applicability, key personnel

Quick Start

Identify contract type — drives pricing, termination, cost accounting, and clause selection
Pull Section I clause list from prime contract — flow down only what actually applies
Check FAR 52.244-2 — if CO consent required, make agreement contingent on approval
Draft using the document structure and flow-down schedule below

Document Structure

| Section | Key Contents | |---|---| | Preamble & Recitals | Effective date, legal names per SAM, prime contract number, agency, sub's acknowledgment of prime contract review | | Statement of Work | Tasks, performance standards, deliverable specs, acceptance criteria, milestones, labor categories, GFP/GFI, work location | | Flow-Down Clauses | Incorporation by reference with substitution rules (see schedule below) | | Pricing & Payment | CLIN structure, invoicing, payment terms, withholding rights, retention, final payment/release | | Warranties & Reps | Workmanship, SAM registration, no debarment/suspension, OCI disclosure | | Indemnification & Insurance | Mutual indemnity (broad for sub, narrow for prime), minimums, additional insured, waiver of subrogation | | IP & Data Rights | Background IP licenses, foreground IP ownership, government data rights per FAR/DFARS, Bayh-Dole | | Personnel & Security | Key personnel, clearances, NISPOM/DD-254, cybersecurity controls, CUI handling | | Lower-Tier Subcontracting | Consent thresholds, flow-down obligations, sub remains responsible | | Changes & Equitable Adjustments | Written change orders, REA procedures (30-day submission), constructive changes, duty to proceed | | Inspection & Acceptance | QA requirements, government inspection rights, rejection/correction, written acceptance | | Termination | T4C and T4D mirroring FAR clauses, cure notice, conversion of improper T4D to T4C | | Disputes | Written claim → escalation (30–60 days) → binding resolution; duty to proceed; sponsorship of prime claims | | General Provisions | Integration, order of precedence, notices, severability, force majeure, confidentiality, record retention (3+ years), audit rights | | Execution | Signature blocks, authority reps, government consent contingency, counterparts/e-signatures |

Flow-Down Clause Schedule

Include clause number, title, and date for each. Adapt to contract type:

| Category | Key Clauses | |---|---| | Contract Admin | FAR 52.243-1 (Changes—FFP) or 52.243-2 (Changes—CR) | | Termination | FAR 52.249-2 (T4C—FFP) or 52.249-6 (T4C—CR); 52.249-8 (T4D—FFP) | | Disputes | FAR 52.233-1 | | Socioeconomic | FAR 52.219-8/9 (Small Business); 52.222-26 (EEO); 52.222-35 (Veterans); 52.222-36 (Disabilities); 52.222-50 (Trafficking) | | Data Rights | FAR 52.227-14 or DFARS 252.227-7013/7014 (defense) | | Cybersecurity (defense) | DFARS 252.204-7012 (CDI); 252.204-7019/7020 (NIST 800-171); 252.204-7021 (CMMC) | | Cost Accounting (CR) | FAR 52.230-2/3/6 (CAS); 52.216-7 (Allowable Cost) | | Audit | FAR 52.215-2 |

Substitution rule: Replace "the Government," "the Contracting Officer," and "the Contractor" with the prime contractor — except where the U.S. Government retains direct rights (audit, inspection, data rights).

Contract-Type Pricing

| Type | Provisions | |---|---| | FFP | Total price by CLIN/milestone; all-inclusive; no cost breakdown in invoices | | CR | Allowable costs per FAR Part 31; fee structure; funded/unfunded ceiling; limitation of funds/cost; adequate accounting system required | | T&M | Fully burdened labor rates by category; materials at cost (or with handling rate); ceiling price; labor mix controls |

Payment Terms

Invoice must include: subcontract and prime contract numbers, CLIN/milestone ID, work description, amounts per CLIN, cost backup (CR/T&M only), authorized certification.

Prime reviews within [14] business days of proper invoice
Payment within [30] days of approval, subject to receipt of corresponding government payment
Prompt Payment Act flow-down if applicable

Withholding triggers: defective deliverables, failure to pay lower-tier subs, disputed amounts. Cure period required before withholding (except disputed amounts).

T4C Recovery Formula

Recovery = accepted-work price + allowable WIP costs (FAR Part 31) + reasonable settlement expenses + reasonable profit on work performed − prior payments − setoffs.

Cap: total subcontract price
Sub must mitigate (stop work, cancel orders, settle lower-tier claims)
Submission deadline: [1 year] from effective termination date

Insurance Minimums

| Coverage | Minimum | |---|---| | CGL | $1M/occurrence, $2M aggregate | | Workers' Comp | Statutory | | Auto | $1M CSL | | Professional (if services) | $1M/claim | | Cyber (if CUI/CDI) | $2M/claim |

Prime as additional insured (CGL, auto); waiver of subrogation; 30-day cancellation notice; certificates before work starts.

Critical Checks

Contract type first — determines pricing, termination, CAS, and flow-down selection
Verify Section I — flow down only clauses actually in the prime contract plus mandatory by-operation-of-law clauses
CO consent (FAR 52.244-2) — if required above threshold, make agreement contingent on approval
Pay-when-paid vs. pay-if-paid — some jurisdictions void pay-if-paid; use "subject to receipt of corresponding government payment" formulation
Order of precedence — subcontract terms > FAR/DFARS clauses > attachments/exhibits > SOW (confirm with client)
Incorporate by reference — cite clause number, title, date; do not reproduce full FAR text
CAS (CR only) — applies above $2M (FAR 52.230-2) unless exempt [VERIFY current threshold]
Cybersecurity (defense) — DFARS 252.204-7012 and CMMC must flow to any sub handling CDI/CUI; confirm SPRS score or CMMC level
Export controls — if ITAR/EAR applies, prohibit disclosure to foreign persons without authorization (separate from classification requirements)
Record retention — minimum 3 years after final payment; longer if prime contract specifies or claims pending
Small business plans — if FAR 52.219-9 in prime and sub is other-than-small, sub may need its own plan
Mark [VERIFY] — on current dollar thresholds, CMMC implementation dates, and recently amended clauses