F09 Six Contract Clauses You Should Be Watching
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With the ever-changing regulatory environment, understanding clauses and maintaining compliance can be a full-time job. We've picked six of the hottest topics in recent years to ensnare government contractors of all sizes. Join our lively discussion on what's changed and learn how to stay compliant.
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F09 Six Contract Clauses You Should Be Watching
- 1. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level
- 2. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level 2 Six Contract Clauses You Should Be Watching Breakout Session # F09 Robert Jones, Left Brain Professionals Melanie Burgess, Burgess Consulting, LLC Date: July 28, 2015 Time: 4:00-5:15 pm
- 3. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Session Objectives • Critically think about contract clauses, terms, and conditions • Understand 6 critical clauses • Learn reporting requirements, flow down requirements, and negotiation possibilities for these clauses 3
- 4. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Positive Share 4
- 5. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Safety Check 5
- 6. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Understanding Your Contract • We all read our contracts, but do we understand them? • How do you review a contract – read it like a book or jump around? • Hidden clauses • Terms in your subcontract 6
- 7. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Complying with Your Contract • Now that we understand the requirements, how do we comply? • Monitoring contract changes and modifications • Staying up to date with regulatory changes 7
- 8. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Six Contract Clauses • Termination for Convenience • Counterfeit Parts • Cybersecurity • Conflict Minerals • Intellectual Property • Liquidated Damages 8
- 9. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Termination for Convenience • Unique government right to terminate a contract at will – Not addressed in the UCC • Prime should flow down some form of this requirement to subcontractors • If the clause is incorporated by reference or unaltered, the prime has the unilateral right to terminate the subcontract at will 9
- 10. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Termination for Convenience, cont’d. • What to watch for – Clause incorporated by reference – Clause allowing prime to terminate at will • What to negotiate – Subcontract term should limit prime’s right to the extent that the prime contract is terminated for convenience 10
- 11. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Counterfeit Parts • What are they? – Unauthorized copy or substitute part – Item misrepresented as coming from a legal source – An item from a legally authorized source that is misrepresented as meeting performance requirements • Brokers and unauthorized distributors are highest risk for selling counterfeit parts 11
- 12. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Counterfeit Parts 12
- 13. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Counterfeit Parts, cont’d. • Small businesses may be exempt from DOD rule – Only exempt if prime – Flow down requirements when prime is subject to rule • Reporting requirements – Self identifying and reporting when counterfeit parts are discovered • What to watch for – DFARS 252.246-7007 Contractor Counterfeit Electronic Part Detection and Avoidance System – Tough requirements for inspection of parts throughout the supply chain 13
- 14. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Counterfeit Parts, cont’d. • More things to watch for: – Rework costs due to counterfeit parts are Not allowable – Counterfeit parts procedures part of purchasing system audits – Potential for penalties for supplying counterfeit parts and/or not reporting counterfeit parts 14
- 15. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Cybersecurity • The protection of computers and computer systems against unauthorized attacks or intrusion. • Risk areas, to name a few: – Email – Social media – Cloud storage – Online accounts – Mobile devices – Corporate networks – Intellectual property – Proprietary data – Personal identification data – Classified military data – Homeland Security 15
- 16. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Cybersecurity, cont’d. • Reporting requirements – Notify Government of cyber intrusions or incidents within 72 hours • What to watch for – DFARS clause 252.204-7012 – Technical data governed by ITAR may not be stored in the cloud – Flow down requirements – small & commercial businesses are not exempt – Conflicting rules and requirements 16
- 17. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Cybersecurity, cont’d. • Consequences of non-compliance – Breach of contract – Termination – Suspension or debarment – Negative past performance • Use the NIST Framework to setup compliance system 17
- 18. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Conflict Minerals • Dodd-Frank Act of 2010 – Holds publicly traded companies accountable – Requires SEC reporting – The real requirement – elimination of use • What are they? – Tantalum (columbite-tantalite, coltan) – Tungsten (wolframite) – Tin (cassiterite) – Gold • How we use conflict minerals 18
- 19. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Conflict Minerals, cont’d. • Reporting requirements – Due diligence throughout the supply chain • What to watch for – Delivery of “conflict free” products • What to negotiate – Due diligence procedures – SEC reporting compliance – Not certifying to conflict free items 19
- 20. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Intellectual Property • Most valuable asset any company owns • What is it – Recipes, Drawings, BoMs, Processes & Methods, Trade Secrets • Spectrum of rights – Restricted/Limited to Unlimited 20
- 21. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Intellectual Property • What to watch for – Specific license agreements for property purchased under government contracts – Contract requirements that don’t match the buyer’s need • What to negotiate – Everything 21
- 22. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Liquidated Damages • Effectively a penalty for late delivery • Usually stated in terms of a % • What to watch for – How the damages are calculated – Applying liquidated damages in the Small Business Subcontracting Plan • What to negotiate – Limit the % of damages and how they are applied – Grace period – Maximum penalty amount 22
- 23. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Contact Information Robert E. Jones Left Brain Professionals Inc. robert@leftbrainpro.com www.leftbrainpro.com Melanie Burgess Burgess Consulting, LLC melanie@burgessconsulting-llc.com www.burgessconsulting-llc.com 23
- 24. Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level 24
Editor's Notes
- The idea for this slide is to discuss how the audience goes about reading and understanding their contracts. Things we can discuss: - kickoff meetings to bring together programs, accounting, and contracts - reviewing at least the entire contract, not just the sections that pertain to your job - thinking critically about what clauses and terms require from the company - Hidden clauses are those that are incorporated as terms in a subcontract or are not in their typical contract locations – section C (PWS) and H are hot spots for dumping requirements. Clauses are definitely outside of Section I. Discuss how often FAR clauses are translated as a term or condition in a subcontract. May be buried in the small, column printed attachment to a PO.
- Ideas on compliance: - policies that are not just written but followed - contract briefs - update meetings with key stakeholders - setting a schedule for when things are due, what requirements are Read CM Mag – back sections on regulatory changes; Attend seminars Have internal meetings to share lessons learned and word on the street type info
- Existed for many years but became a public issue when included in an aircraft delivered to the Government Parts that look and behave similarly to OEM parts but do not have the same quality - difficult to identify these parts as they are made to look identical to legal parts May not work at all and usually do not work as well as non-counterfeit parts Must have mitigation policy to identify and quarantine counterfeit parts
- Large primes are now incorporating this language into their quality manuals and T&C – not a reference, but the actual language so the DFARS aspect is irrelevant.
- Make sure you have purchasing T&C and sales T&C in place to protect your business in regards to warranty and indemnity. The latter can be expensive if you are left holding the bag.
- DFARS requires reporting within 72 hours of discovery of a reportable cyber incident - possible exfiltration, manipulation, or other loss or compromise of UCTI on prime/sub info system - any unauthorized access to system on which UCTI is present DFARS clause 252.204-7012 – requires additional safeguards on data Cloud servers may be located in other countries creating a deemed export
- Result of the financial crisis of 2007-2010 – consumer protections Tin (lead) is used in electronics as solder Gold lead is also used in mostly high-end electronics Tantalum is used in capacitors which are in most circuit boards Tungsten is known best for its use in light bulbs
- Difficult, if not impossible to deliver conflict free minerals 100% of the time Only Apply and Sony currently claim to use all conflict free minerals (need to double check this before WC)
- If customer is buying HW with a non-exclusive right to use the tech and no delivery of tech data is required, the contract and license language should match Hire an attorney to help with interpretation of the Government Purpose rights and negotiating the appropriate terms in your contract