1. Panel: Gary Campbell - McCarter & English, LLP Dan Kelly – McCarter & English, LLP Maridee Kirwin – SAIC THE ART OF DRAFTING AND NEGOTIATING THE FEDERAL SUBCONTRACT NCMA - BOSTON CHAPTER 49 TH ANNUAL MARCH WORKSHOP March 10, 2010

2. Title Line 1 Line 2 2 Agenda  Overview of key concepts  Hypothetical  Discussion of key terms/sample clauses –Audience Participation!

3. Title Line 1 Line 2 3 Overview  Do your homework –Due Diligence on subcontractor (and prime)  Understand contract framework –Cost plus or fixed price? –Products or services? –Commercial item?

4. Title Line 1 Line 2 4 Hypothetical Subcontract  U.S. Navy Contract to Missiles “R” Us –Development of Next Generation Missile Scoring System  Missiles ‘R” Us wants to utilize Radar, Inc.’s existing radar technology  This technology is at the core of, and modified, for all of Radar’s products, but never before used in a missile scoring system  Missiles “R” Us awards a $1.5 Million Fixed-Price Subcontract to Radar, Inc.  Radar is to deliver a prototype and source code

5. Title Line 1 Line 2 5 Key Subcontract Terms Let’s look at our proposed subcontract!

6. Title Line 1 Line 2 6 Key Subcontract Consideration  PO must address: –Who? Buyer and Seller –What? What is to be delivered? –Where? Where performed? Where delivered? –When? When is delivery? Time of the essence? –How Much? Payment Terms clear?

7. Title Line 1 Line 2 7 Incorporation/Order of Precedence  Importance of clarity in language –Many layers add ambiguity and confusion –Subcontract language has no safety net  Need to make incorporation and OOP clause a priority  FAR Flowdown OOP clause not adequate

8. Title Line 1 Line 2 8 Inspection/Acceptance – ¶ 2  Should state the who, what, where and when of any inspection or acceptance requirements.  Failure to have definitive terms may lead to a revenue recognition issue.  May also effect triggering of warranty period.

9. Title Line 1 Line 2 9 Changes - ¶ 4  Should be in body of subcontract, not a flowdown  Modify to reflect risk allocation  Bilateral or unilateral  If unilateral, what are the restrictions on filing an equitable adjustment?

10. Title Line 1 Line 2 10 Termination – ¶ 5  Should be in body of subcontract, not FAR clause  Modify as appropriate to reflect risk allocation  Recovery in event of T for C needs to reflect contract framework

11. Title Line 1 Line 2 11 IP Rights - ¶ 6  Primes need to obtain sufficient rights for the Government  Prohibited from obtaining greater rights  Application of incorporation language and flowdowns results in prime gaining licenses and other rights  Patent rights language non-negotiable

12. Title Line 1 Line 2 12 IP Rights – ¶ 6 Technical Data Rights  Subcontractor Considerations: –Competition with the prime –Protection of technical data –Lack of access to the Government –Limiting and negotiating rights given to USG in IP delivered to the USG –What are deliverables? Need to consider products as well as SDRLs Prime cannot obtain IP if no requirement to deliver

13. Title Line 1 Line 2 13 Warranty - ¶ 7  FAR 52.246-17, 52.246-18, 52.212-4(o) –FAR Pt. 12 term incorporates implied warranties  No required FAR warranty  Time period –Sub’s warranty may begin on delivery to prime and expire before even delivered to the Government  Commercial Item Contracts may include the contractor’s commercial warranty (FAR 12.404)  Need obvious disclaimer of implied warranties

14. Title Line 1 Line 2 14 Limit of Liability - ¶ 8  Disclaimer of Consequential Damages –Commercial practice, but prime needs to protect itself with Government  Monetary cap on direct damages –Prime contract is unlikely to contain such a provision –Do the parties agree to allocate the risk in such a manner?  Prime liable to the Government for excess reprocurement costs –Many commercial limitations limit recovery to as provided for in contract

15. Title Line 1 Line 2 15 Disputes - ¶ 11  FAR 52.233-1  Prime should seek to address actions resulting from Government action through “sponsoring” sub’s claim  Negotiated disputes clause for other actions  Do not recommend agreeing to jurisdiction

16. Title Line 1 Line 2 16 Indemnification ¶ 15  Typically, no indemnification to or from the Government (other than patent indemnity)  Common commercial term  Can be used to address defective pricing, disallowed costs, other reductions in prime’s contract price  Should be tied to Seller’s negligence

17. Title Line 1 Line 2 17 FARS and DFARS Flowdowns  “Kitchen Sink” Approach disfavored  Mandatory & Necessary –Depends on type and value of subcontract –Subs should request copy of prime contract  Christian Doctrine  Incorporation Language –Introductory language replacing “Government” with ‘Prime” generally not appropriate  Need to reconcile flowdowns with body of subcontract to avoid confusion and contradiction

18. Title Line 1 Line 2 18 Ethics Flowdowns  52.203-7, Anti-Kickback Procedures –Required in all subcontracts over $100,000  52.209-6, Protecting the Government’s Interest when Subcontracting With Contractor’s Debarred, Suspended or Proposed for Debarment –Not required but reasonable expectation to include in subcontracts over $30,000  252.203-7001, Prohibition on Persons Convicted of Fraud or Other Defense Contract Related Felonies –Required in all non-commercial item subcontracts over SAT

19. Title Line 1 Line 2 19 Socioeconomic flowdowns  52.219-8, Utilization of Small Business Concerns –Required in all subcontracts with further subcontracting opportunties  52.219-9, Small Business Subcontracting Plan –Required in all subcontracts over $550,000  52.222-26, Equal Opportunity –Required in all subcontracts over $10,000  52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans –Required in all subcontracts over $100,000  52.222-36, Affirmative Action for Workers with Disabilities –Required in all subcontracts over $10,000

20. Title Line 1 Line 2 20 IP clauses  52.227-1, Authorization and Consent –Required in all subcontracts over SAT  252.227-7013, Rights in Technical Data – Noncommercial  252.227-7014, Rights in Noncommercial Computer Software –Needs to be in body of Subcontract when negotiate license rights

21. Title Line 1 Line 2 21 General flowdowns  52.204-2, Security Requirements –Required in all subcontracts with access to classified information  52.211-15, Defense Priority and Allocation Requirements –Not a required flowdown, but it applies anyway  52.223-6, Drug-Free Workplace –Not a required flowdown

22. Title Line 1 Line 2 22 Commercial Item Subcontract Flowdowns – FAR 52.244-6  52.203-13, Contractor Code of Business Ethics and Conduct;  52.203-15, Whistleblower Protections Under the American Recovery and Reinvestment Act of 2009;  52.219-8, Utilization of Small Business Concerns;  52.222-26, Equal Opportunity;  52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans;  52.222-36, Affirmative Action for Workers with Disabilities;  52.222-50, Combating Trafficking in Persons ;  52.247-64, Preference for Privately Owned U.S.-Flag Commercial Vessels.

23. Title Line 1 Line 2 23 Q & A

24. Title Line 1 Line 2 24 Panel Members Gary Campbell McCarter & English, LLP 265 Franklin Street Boston, MA 02110 617.449.6558 gcampbell@mccarter.com gcampbell@mccarter.com Maridee Kirwin SAIC 7 Wells Avenue Newton Centre, MA 02159 617.618.4630 mkirwin@saic.com mkirwin@saic.com Dan Kelly McCarter & English, LLP 265 Franklin Street Boston, MA 02110 617.449.6526 dkelly@mccarter.com dkelly@mccarter.com