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Government Subcontractors: Avoid A Shut Out By Your Prime


Signs That Your Prime May Be Shutting You Out

Your company worked hard to establish a relationship with a prime contractor. It has already performed under one subcontract, and you and the prime contractor have successfully bid on another government contract. But you fear the prime contractor is shutting you out. And you didn't execute a teaming agreement to cover the most recent bid. In addition, your relationship with the prime contractor exhibits one or more of the following tell-tale signs that your company is being shut out of future work:

● The prime contractor never returns your calls to discuss the recently-awarded contract.

● Communications with the prime are dotted with vague but unsubstantiated suggestions that your company did not perform adequately in the past.

● The prime contractor refuses to meet or engage in detailed discussions about your company's work.

● The prime contractor has engaged in discussions with your key employees that cross over into recruiting expeditions.

Avoiding The Shut Out

There are five precautions that a subcontractor can take to minimize the chance that it will be shut out by a prime contractor on the next contract.

1. Have a Teaming Agreement in Place For Each of Your Bids
The teaming agreement should have enforceable exclusivity provisions that ensure your company will get work on any contract that it bids on with the prime contractor. The agreement should also cover future enhancements or task orders. If your company and the prime contractor bid on additional contracts, either the existing teaming agreement should cover those contracts or you should enter into a new teaming agreement with the prime contractor.

2. Protect Your Intellectual Property And Proprietary Information
Aside from obtaining appropriate patents and copyrights, your company should have agreements with the prime contractor that prevent disclosures of proprietary information to third parties. In addition, your agreements should clearly allocate rights among your company and the prime contractor to data and software.

3. Use Employee Non-Solicitation Clauses
Your teaming agreement and any subcontracting agreement should contain provisions that prevent the prime contractor from recruiting your employees during the bidding process and before, during, and after any contract is awarded.

4. Keep Channels of Communication Open With the Agency or Contracting Officer
Avoid contract provisions that prevent your company from communicating with the agency or contracting officer during the contract performance period. You may be able to dispel vague complaints from the prime about the quality of your company's work by talking directly to the agency or contracting officer.

5. Be Familiar With Rules That May Prevent the Prime From Dropping a Subcontractor
In some instances, a prime contractor cannot simply walk away from a subcontractor after it has been awarded a contract. For example, under the Small Business Jobs Act of 2010, in contracts requiring a subcontracting plan, a prime contractor must make a good faith effort to use the subcontractor identified in the proposal and provide a written explanation to the contracting officer if there is a change in how the proposed subcontracted work will be performed.


New Maryland MBE Subgoals


If you missed it, in July 2011, the Maryland Governor’s Office of Minority Affairs (GOMA) issued a directive setting “recommended subgoals” for spending by Maryland agencies under the state’s Minority Business Enterprise (MBE) Program.  Under Maryland’s MBE Program, to be eligible for certification as an MBE firm, a business must be at least 51% owned and controlled by one or more socially and economically disadvantaged individuals.  An individual is presumed to be socially and economically disadvantaged if that individual is African American, Hispanic American, Asian American, Native American, a woman, or disabled.

Under GOMA’s July 2011 directive, for the first time in the State’s history, state agencies have subgoals for contracting with Hispanic-owned businesses.  GOMA’s directive also provides subgoals for the following subgroups: African American-, Asian American-, and Women-owned businesses.

GOMA’s directive implements substantial changes to Maryland’s MBE Program that were made earlier this year in legislation that was signed into law in May 2011.  That legislation extended Maryland’s MBE Program until July 2012.   The legislation, however, also made significant changes to the MBE Program.  Before the legislation was enacted, MBE law dictated that government agencies set an overall goal of spending 25% of their contracting dollars with women and minority-owned businesses.  State agencies also were required to set subgoals of spending 7% and 10% of their contracting dollars with African American-owned businesses and women-owned businesses, respectively.  Under the May 2011 legislation, agencies must still try to meet the overall goal of spending 25% of their procurement dollars with minority and women-owned businesses.  However, the legislation eliminated the statutory subgoals for women-owned and African American-owned companies.  This change to MBE law in Maryland was prompted by a lawsuit in Maryland (which was eventually voluntarily dismissed) challenging the constitutionality of Maryland’s subgoals and a federal court of appeals decision that found North Carolina’s subgoal requirements were unconstitutional.

Under the May 2011 legislation, GOMA was required to issue recommended subgoals to replace the statutory subgoals, which GOMA did in its July 2011 directive.  Importantly, GOMA’s directive establishes subgoals to be applied on a contract by contract basis that vary depending on the goods or services provided.    For example, the directive sets the following subgoals for contracts with Hispanic-owned businesses:

  • Architectural & Engineering and Construction Related Services (2%)
  • IT Services and IT Supplies & Equipment (2%)
  • Maintenance (3%)

And an agency is only required to try to meet subgoals on a contract only after the agency has met overall goals for participation by all MBE’s.   MBE participation goals range from 13% (Construction contracts) to 25% (Contracts for Human, Education and other Services).   GOMA’s directive can be found here.

Companies that have teamed together in the past should examine carefully how MBE participation goals are allocated among different MBE subgroups in the contracts they compete for.