Five Differences Between Managing a Subcontract and a Government Prime Contract

By: Tom Reid

Depending on the industry, often 60 to 80 percent of the prime dollars ultimately flow to subcontractors and suppliers. Given the importance of the subcontracting team to the successful performance of the prime contract, the prime contractor and the government should be intensely interested in the proper management of the subcontracts. Since the government has no direct relationship with the subcontractors, the government must rely on the prime to properly select and manage the team of subcontractors while properly drafting contracts that will protect both the government customer and the prime contractor—and at the same time being fair and reasonable with each of the subcontractors. In legal terms, this simply says that the government and the subcontractors are not “in privity of contract” with each other. The prime contractor has full responsibility for dealing with the government customer as a seller and dealing directly with each of the first-tier subcontractors as a buyer. This role of being the intermediary and the added twist of preserving the government flow down requirements makes the differences in managing the two contracts significantly more substantial.

This article will highlight five specific aspects of managing subcontracts that distinguishes them from the management of a government prime contract. While there are others, paying specific attention to these five will improve both your understanding of the contracting relationship and your successful management of the subcontracting team, as appropriate. This in turn will reduce performance risk and improve the bottom line for the prime.

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