Negotiating a Subcontract that - PowerPoint Presentation

Slide1

Negotiating a Subcontract that Pleases Both Sides

Daniel J. Kelly

NCMA

Boston Chapter

57th Annual March Workshop

March 7,

2018Slide2

Top 9 Negotiated Contract Terms*Limitation of LiabilityIndemnification

Changes

Service Levels and Warranties

PaymentIntellectual PropertyPerformance/Guarantees/UndertakingsTerminationDelivery/Acceptance*Per International Association for Contract and Commercial Management 2015 Study (Red Terms top terms since surveys began 2000)

2Slide3

Top 9 Suggested Collaborative Terms*Alignment on Scope/GoalsChange ManagementCommunication/Reporting

Responsibility of the Parties

Service Levels/Warranties

Changes in PriceLimitation of LiabilityDelivery AcceptanceDispute Resolution* Per IACCM Survey

3Slide4

And the Nominees are…

4Slide5

LIMITATION ON LIABILITY5Slide6

FAR 52.212-4(p)*Limitation of liability

. Except as otherwise provided by an express warranty, the Contractor will not be liable to the Government for

consequential damages

resulting from any defect or deficiencies in accepted items.*May be tailored to reflect customary commercial practices (FAR 12.203(b))

6Slide7

Subcontractor Wish List expand scope of damages covered

expand scope of actions covered

extend limitations or cap limitations

extend categories of persons/entities protected by limitationinclude statute of limitationsextend to third party actions

7Slide8

Raytheon General Terms and Conditions of Purchase TC-001 (10/17) – NO CLAUSENorthrop Grumman Terms and Conditions, Firm Fixed Price Order for Non-Commercial Items – U.S. Government

CTM

-P-ST-002 (1/2/18) and Firm Fixed Price Order for Commercial Items (

CTM-P-ST-001) – NO CLAUSE Lockheed Martin CORPDOC 2 General Provisions for Subcontracts/POs for Commercial Items Under a U.S. Government Prime Contract (2018) – NO CLAUSE

8Slide9

NG Non-Commercial Item Form Subcontract15. Disputes In no event shall

Buyer

be liable for

anticipated profits, incidental damages or consequential damages. Buyer’s liability on any claim, of any kind and for any loss or damage arising out of, connected with or resulting from this Order, or from the performance or breach thereof shall, in no case, exceed the price allocable to the Products and/or Services . . . which give rise to the claim. Buyer shall not be liable for

penalties

of any description. Any action resulting from any breach on the part of the Buyer as to the Products and/or Services delivered hereunder must be commenced

within one year

after the cause of action has accrued

.

One-sided

Limit on type of damages

Expansive definition of claim

Cap on damages

Statute of limitations on bringing claims

9Slide10

GD Mission Systems FFP PO (U.S. Government) (Commercial and Non-Commercial) (2018)19.0 Limitation of Liability – In addition to any other limitations on buyer’s liability set forth herein, in no event shall

buyer

,

its employees, agents or representatives be liable by reason of buyer’s breach or termination of this order or for any buyer acts or omissions in connection with this order for any special, incidental or consequential damages of any kind, however caused, including, but not limited to, loss of profits or revenue, loss of data, work interruption, or any claims or demands against seller by any other entity, whether such remedy is sought in contract, tort (including negligence), strict liability or otherwise.

In no event

shall buyer’s liability for damages in any circumstances set forth in this clause

exceed the price payable for the work to be performed by seller under the order

. This order shall neither create for nor give to any third party any claim or right of action against seller or buyer which would not otherwise arise without this order.

Expands scope of limitation on types of damages

Extends to third party claims

Extends parties who benefit from clause

10Slide11

INDEMNIFICATION11Slide12

FAR 52.212-4(h)*Patent indemnity. The Contractor shall indemnify the Government and its officers, employees and agents against liability, including costs, for actual or alleged direct or contributory infringement of, or inducement to infringe, any United States or foreign patent, trademark or copyright, arising out of the performance of this contract,

provided the Contractor is reasonably notified of such claims and proceedings

.

*May be tailored to reflect customary commercial practices (FAR 12.203(b))

12Slide13

NEED FOR CLARITY IN PATENT INDEMNITY CLAUSESdefine term indemnification (does it include defense?)

t

emporal limits

add right to control defense and settlementprovide option to modify, substitute or obtain licenseestablish more cooperationmake it contingent on no bad conduct by Government or prime

Relationship with “Authorization and Consent

”

13Slide14

Common Embedded Indemnity ProvisionsInfringementCompliance with the Law

Export Control

Defective Cost or Pricing Data

Contract Disputes Act Appeals Made on Sub’s Behalf“Seller shall indemnify and hold Buyer and its customers harmless from any and all expenses, liability, and loss of any kind (including all costs and expenses including attorneys’ fees) arising out of claims, suits, or actions . . . .”14Slide15

SUBCONTRACTOR WISH LISTlimitations on types of claims

limiting indemnitees

adding concept of fault or negligence

limitations on who is making the claimnoticeopportunity to defend and settlecaps (e.g., at insurance)carving out nature of work being performed at prime

reasonableness of costs, expenses and fees

15Slide16

Raytheon Indemnity Against Claims(b) Seller shall, without limitation, indemnify and save Buyer and its customer(s) and their respective officers, directors, employees and agents

harmless from and against (i) all claims (including claims under Workers’ Compensation or Occupational Disease laws or other equivalent laws in Seller’s country) and resulting

costs, expenses (including attorney fees and costs) and liability

which arise from personal injury, death, or property loss or damage attributed to, or caused by, the goods supplies, or the services performed by Seller pursuant to this Purchase Order, including, without limitation, latent defects in such goods and/or services, except to the extent that such injury, death, loss or damage is caused solely and directly by the negligence of Buyer, and (ii) all claims (including resulting costs, expenses and liability) by the employees of Seller or any of its subcontractors

.

16Slide17

NG (FP NC and CI)26. INDEMNIFICATIONSeller shall indemnify, defend, and hold harmless the Indemnitees . . . from and against all costs, losses, expenses, damages, claims, suits, or any liability whatsoever (

including attorneys’ fees

),

arising out of or in connection with the work to be performed hereunder, or the Products to be sold hereunder, or any act or omission of Seller, its agents, employees, or subcontractors, except to any extent otherwise expressly provided for elsewhere within this Order. . . . Buyer will inform Seller of any claim, demand or suit asserted or instituted against it and, with Buyer’s consent, permit Seller to defend the same or make settlement in respect thereof. Buyer shall have the right to participate in the defense of any such claim, demand or suit with counsel of its choosing at Buyer’s expense and Seller may not

settle,

compromise or consent to the entry of any judgment in respect thereof, without Buyer’s prior written consent, unless such settlement, compromise or consent: (i) includes an unconditional release of Buyer from all liability arising out of such claim, demand or suit; (ii) is solely monetary in nature and (iii) does not include an admission of fault by Buyer or otherwise adversely affect Buyer. If Seller fails to indemnify, defend and hold harmless Buyer as provided in this clause, then Seller shall pay for any damages, attorney’s fees, and any other fees, costs, and expenses that may be incurred by Buyer in the defense of any action related to this Order and/or in the prosecution of any action to enforce the provisions of this clause.

Definition of Indemnitees:

Buyer, its directors, officers, employees,

consultants, agents

, affiliates, successors, permitted assigns and

customers

17Slide18

LM 17. INDEMNITYSELLER shall defend, indemnify, and hold harmless LOCKHEED MARTIN, its officers, directors, employees, consultants, agents, affiliates, successors, permitted assigns and customers from and against all losses, costs, claims, causes of action, damages, liabilities, and expenses, including attorney’s fees, all expenses of litigation and/or settlement, and court costs, arising from

any act or omission of SELLER, its officers, employees, agents, suppliers, or subcontractors at any tier, in the performance of any of its obligations under this Contract.

18Slide19

GD Mission Systems Section 28.3 IndemnificationSeller agrees to indemnify, defend and hold harmless Buyer, its affiliates, subsidiaries, directors, officers, employees and agents from and against any and all actions, causes or action, liabilities, claims, expenses (including reasonable attorney’s fees and court costs), losses, damages, penalties, fines, forfeitures, suits, judgments, liens, awards and damages of any kind and nature whatsoever for (

a) property damage, (b) personal injury, including death

, and (c) all violations of applicable laws

which arise out of, or are in any way related to Seller’s or any of its suppliers’ breach of obligations or responsibilities arising from this Order or 2) failure to comply with all applicable Federal, state and local laws and regulations in the performance of this Order. Seller’s obligation hereunder is not limited to insurance available to or provided by Seller or any of its suppliers. . . . This duty to defend, indemnify, and hold harmless extends to any suit, liability, claim, judgment, or demand that

may arise out of or in connection with the performance or nonperformance of this Order by Seller or its agents, breach of warranty by Seller or its agents, any defective work performed or delivered by Seller or its agents . . . or any other breach of Seller’s obligations hereunder, whether such suit, liability, claim, judgment, or demand is based upon contract, warranty, strict liability in tort, negligence, or other legal theory, and extends not only to “third party claims” but also to any direct loss suffered by Buyer.

Buyer will

inform Seller

of any claim, demand, judgment, or suit asserted or instituted against it to which this provision may apply.

“Agents”

as used herein includes, but is not limited to, Seller’s employees, subcontractors, and suppliers.

19Slide20

CHANGES IN PRICE20Slide21

Changes. Changes in the terms and conditions of this contract may be made only by written agreement of the parties.

FAR 52.212-4(c

)*

21Slide22

SUBCONTRACTOR WISH LISTmutuality

l

imiting breadth

tied to government actionaddressing constructive changes and authority

claim

process – no unreasonable deadlines

f

lexibility with duty

to continue performing

l

imiting verification

of claim

22Slide23

Raytheon 15. ChangesBuyer shall have the right by written notice to suspend

or

stop work

or to make changes from time to time in the services to be rendered or the goods to be furnished by Seller hereunder or the delivery schedule. If such suspension, stoppage, or changes cause an increase or decrease in the cost of performance of this Purchase Order or in the time required for its performance, an equitable adjustment shall be negotiated promptly and the Purchase Order shall be modified in writing accordingly. Any claim by Seller for adjustment . . . must be asserted in writing within

twenty (20) days

from the date of receipt by Seller of notification of the change or suspension and shall be followed as soon as practicable with

specification of the amount claimed and supporting cost figures

. Failure to agree to any such change shall be resolved in accordance with Section 7 Disputes and Governing law herein. However,

nothing herein shall excuse Seller from proceeding with this Purchase Order as changed pending resolution of the claim.

u

nilateral

b

readth

n

ot tied to government action

w

hat about constructive changes and authority

c

laim process

d

uty

to continue

performing

v

erification of claim

23Slide24

NG (FP NC and CI)13. ChangesBuyer’s PCO may at any time, by written order, and without notice to sureties or assignees, if any, make changes within the general scope of this Order, in (1) drawings, designs, statement of work, specifications, planning and/or other technical documents; (2) method of shipment, packaging, or packing; (3) time and place of inspection, delivery or acceptance; (4)

reasonable adjustments

in quantities and/or delivery schedules; (5) place of performance of the Service; (6) the amount of Buyer/Government furnished property; and (7) terms and conditions required to meet Buyer’s obligations under its Prime Contracts, including, but not limited to, any mandatory flow-down clauses.

If any authorized change causes an increase or decrease in the cost or time required to perform this Order, Buyer and Seller shall negotiate an equitable adjustment in the price and/or schedule, to reflect the increase or decrease. Buyer shall modify this Order in writing accordingly. 1. Any claim for adjustment shall be unconditionally waived unless: (i) asserted in writing and delivered to Buyer within

fifteen (15) days

of the date of the written change order and (ii) a fully supported proposal is delivered to Buyer’s

PCO

within thirty (30) days

of the date of the written change order.

. . .

3. Buyer, its authorized representatives, and its customer have the

right to examine

any of Seller’s pertinent books and records for the purpose of verifying Seller’s claim. However, at Seller’s request, in lieu of Buyer, a mutually agreeable third party can examine books and records to verify Seller’s claim.

4. Failure to agree to any adjustment shall be a dispute within the meaning of the “Disputes” clause hereof. However,

Seller shall not be excused from proceeding with this Order as changed.

C. Buyer’s engineering, technical personnel and other representatives may from time to time render assistance or give technical advice or discuss issues or engage in an exchange of information with Seller’s personnel concerning the Products or Services hereunder.

No such action shall be deemed to be a change

, nor shall it be the basis for an equitable adjustment, and no such action shall relieve Seller of its obligations under this Order.

24Slide25

DELIVERY/ACCEPTANCE25Slide26

FAR 52.212-4(a)*26

Inspection/Acceptance.

The Contractor shall only tender for acceptance those items that conform to the requirements of this contract. The Government reserves the right to inspect or test any supplies or services that have been tendered for acceptance. The Government may require repair or replacement of nonconforming supplies or reperformance of nonconforming services at no increase in contract price. If repair/replacement or reperformance will not correct the defects or is not possible, the government may seek an equitable price reduction or adequate consideration for acceptance of nonconforming supplies or services. The Government must exercise its

post-acceptance rights

–

Within

a reasonable time after the defect was discovered or should have been discovered

;

and

Before

any substantial change occurs in the condition of the item, unless the change is due to the defect in the item.

Acceptance is defined

in

Prompt Payment Act

regs

as

an

acknowledgement by the Government that goods received and services rendered conform with the contract requirements.

*

May be tailored to reflect customary commercial practices (FAR 12.203(b))Slide27

Delivery to Warranty TimelineDelivery

Inspection

Rejection/Repair/Replace/Price Adj. Acceptance Warranty

27Slide28

Delivery to Warranty Pressure PointsWho can inspect and when and where?

Time period for acceptance once delivered/inspected

Remedies other than rejection – repair and replace, cost adjustment, cost or third party repair or replace

Time limits for acceptanceIs Customer acceptance an issueLatent defects and fraudSeller notice of defects and seller assurancesWatch out for creeping warranties

28Slide29

Raytheon Section 14 Inspection(a) All goods and services shall be subject to inspection and test at all reasonable times and places by Buyer or Buyer’s customer before, during, and after performance and delivery

. Buyer may require Seller to repair, replace or reimburse the purchase price of rejected goods or Buyer may

accept

any goods and upon discovery of nonconformance, may reject or keep and rework any such goods not so conforming. Cost of repair, rework, replacement, inspection, transportation, repackaging, and/or reinspection by Buyer shall be at Seller’s expense. Buyer’s acceptance of goods and services shall not be deemed to diminish Buyer’s rights or be final or binding on Buyer if latent defects, fraud, or misrepresentation

on the part of Seller exists.

(c) Neither Buyer’s inspection nor

Buyer’s failure to inspect

shall relieve Seller of any responsibility to perform according to the terms of this Purchase Order. Notwithstanding any other provision of the Purchase Order, the risk of loss of, or damage to, nonconforming goods remains with Seller until

cure or acceptance

.

29Slide30

NG (FP for NC and CI)Section 9 Defective WorkNotwithstanding any prior acceptance, Buyer

may reject

or require prompt correction of any Products or Services which are, in Buyer’s judgment, defective in material or workmanship or otherwise fail to meet the drawings, designs, statement of work, specifications or other technical documents, or other requirements of this Order.

If Seller delivers defective or nonconforming Products or Services, Buyer may: 1. Accept all or part of the defective or nonconforming Products or Services at an equitable price reduction or credit against any amounts that may be owed to Seller under this Order or otherwise; or

2. Reject all or any part of a delivery or performance of defective or nonconforming Products or Services and demand delivery of conforming Products or re-performance of Services. All rejected Products shall be shipped back to Seller at Seller’s expense and any re-performance of defective or nonconforming Services shall be at no cost to Buyer; or

3. Make or perform, or have a third party make or perform, all repairs, modifications, or replacements necessary to enable such Product or Service to comply in all respects with Order requirements and charge the expense to Seller; or

4. Terminate this Order for default in whole or in part.

Any rejected or corrected Products or Services shall not thereafter be tendered for acceptance unless the former rejection or requirement for correction is disclosed. All repair, replacement and other correction and redelivery shall be completed within the original delivery schedule unless otherwise directed by Buyer.

Seller shall immediately

notify

Buyer upon discovery of actual or potential defects or nonconformance affecting delivered Product or performed Service.

30Slide31

LockheedSection 21 Inspection and AcceptanceLOCKHEED MARTIN and its customer may inspect all Work at reasonable times and places, including, when practicable, during manufacture and before shipment. SELLER shall provide all information, facilities, and assistance necessary for safe and convenient inspection without additional charge.

No such inspection shall relieve SELLER of its obligations to furnish and

warrant all Work in accordance with the requirements of this Contract.

LOCKHEED MARTIN’s final inspection and acceptance shall be at destination.If SELLER delivers nonconforming Work, LOCKHEED MARTIN may, in addition to any other remedies available at law or at equity: (i) accept all or part of such Work at an equitable price reduction; or (ii) reject such Work; or (iii) require SELLER, at SELLER’s

cost, to make all repairs, modifications, or replacements at the direction of LOCKHEED MARTIN necessary to enable such Work to comply in all respects with Contract requirements.

SELLER shall not re-tender rejected Work without disclosing the corrective action taken.

31Slide32

GD Mission SystemsSection 12.0 Acceptance and/or RejectionBuyer shall accept the Goods or give Seller notice of rejection within thirty calendar days after delivery

, notwithstanding any payment or prior test or inspection. No inspection, test, delay, or failure to inspect/test or

failure to discover any defect

or other nonconformance shall relieve Seller of any of its obligations under this Order or impair any rights or remedies of Buyer or Buyer’s customers. Buyer may revoke acceptance of Goods if the Goods are not conforming and if Buyer’s acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the Seller’s assurances.If Seller delivers nonconforming Goods, Buyer may require Seller to promptly correct or re-perform the nonconforming Goods. Redelivery to Buyer of any corrected or re-perform Goods shall be at Seller’s expense. In addition, Buyer may at its sole option (

i

) correct the nonconforming Goods, or (ii) obtain replacement Goods from another source at Seller’s expense, and reduce the Order price by the costs to correct or obtain replacement. Seller shall disclose any corrective action taken. All repair, replacement and other correction and redelivery shall be completed within the original delivery schedule or such later time as Buyer’s Authorized Procurement Representative may reasonably direct.

All costs and expenses and loss of value incurred as a result of or in connection with nonconformance and repair, replacement or other correction may be recovered from Seller by equitable price reduction or credit against any amounts that may be owed to Seller under this Order or otherwise.

32Slide33

WARRANTIES33Slide34

FAR 52.212-4(o)*Warranty. The Contractor warrants and implies that the items delivered hereunder are

merchantable and fit for use for the particular purpose

described in this contract.

*May be tailored to reflect customary commercial practices (FAR 12.203(b))

34Slide35

Warranty – Common Pressure PointsExcluding implied warranties

Limiting warranty period

When does warranty period commence

Limitations on remedy Subject matter of warranty Defects in workmanship and materialsDefects in designConform to specifications

High professional standards

35Slide36

RaytheonSection 13 WarrantySeller warrants that the goods shall be (i) new; (ii)

free from defects in workmanship, materials, and design,

and (iii

) in accordance with all the requirements of this Purchase Order. Seller further warrants that the performance of work and services shall conform with the requirements of this Purchase Order and to high professional standards.Unless Buyer expressly identifies the goods that are procured under this Purchase Order as non-technical and for Buyer’s internal use only, Seller warrants without limitation as to time that the goods delivered pursuant to this Purchase Order shall (i) be and only contain materials obtained directly from the Original Component Manufacturer (OCM) or the Original Equipment Manufacturer (OEM) (collectively, the Original Manufacturer (OM)) or an authorized OM reseller or distributor (collectively, an Authorized Distributor); (i

i)

not be or contain Counterfeit Items or Suspect Counterfeit Items, as defined below

; and (iii) contain only authentic, unaltered OM labels and other markings. Seller shall obtain and retain all documentation required to fully trace the distribution and sale of the goods delivered hereunder back to the relevant OM, and, on request of Buyer, shall provide such authenticating documentation.

36Slide37

. . . .Seller warrants without limitation as to time that any hardware, software and firmware goods delivered under this Purchase Order: (i) shall not contain any viruses, malicious code, Trojan horse, worm, time bomb, self-help code, back door, or other software code or routine designed to : (a) damage, destroy or alter any software or hardware; (b) reveal, damage, destroy, or alter any data; (c) disable any computer program automatically; or (d) permit unauthorized access to any software or hardware;

(ii) shall not contain any third party software (including software that may be considered free software or open source software) that (a) may require any software to be published, accessed or otherwise made available without the consent of Buyer, or (b) may require distribution, copying or modification of any software free of charge

; and (iii) shall not infringe any patent, copyright, trademark, or other proprietary right of any third party or misappropriate any trade secret of any third party.

These warranty entitlements shall inure to the benefit of both Buyer and Buyer’s customers. As used in this Purchase Order, Buyer’s customer(s) shall include its direct and indirect customers such as direct sale end-users, higher-tier subcontractors, prime contractors and the ultimate user under relevant prime contract(s).

37Slide38

(f) Seller shall be liable for and save Buyer harmless from any loss, damage, or expense that Buyer may suffer from breach of any of these warranties. Remedies shall be at Buyer’s election, including, but not limited to, the prompt repair, replacement, or reimbursement of the purchase price of nonconforming goods and, in the case of services either the prompt correction of the defective services at no cost or reimbursement of the amounts paid for such services. Return to Seller of defective or nonconforming goods and redelivery to Buyer of repaired or replaced goods shall be at Seller’s expense. Goods or services required to be corrected, repaired or replaced

shall be subject to this Section and the Inspection Section of this Purchase Order in the same manner and to the same extent as goods or services originally delivered under this Purchase Order

, but only as to the repaired or replaced goods or parts thereof or the corrected service thereof.

Seller shall promptly comply with Buyer’s direction to (i) repair, rework, or replace the goods, (ii) furnish any material or parts and installation required to successfully correct the defect or nonconformance or (iii) successfully correct the defective or nonconforming service.

38Slide39

NG FP (NC and CI)Section 12 WarrantySeller expressly warrants that all Product(s) delivered and Service(s) performed hereunder shall be free from defects, shall be of good materials and workmanship, shall conform to all requirements of this Order, and shall be free of any claim of any third party.

The foregoing warranties

shall survive inspection and acceptance of, and payment for, the Product(s) delivered and Service(s) performed hereunder and shall remain in effect as to each Product furnished or Service performed and shall run to Buyer, it successors, assigns, and customers

. These warranties shall not be deemed to limit any warranties of additional scope given to Buyer by Seller, nor limit Buyer’s rights or Seller’s obligations under any other provision of this Order, at law or in equity. No warranties are waived by Buyer supplying, reviewing, commenting upon, or approving plans, specifications, or Data, issuing changes to this Order, or inspecting or accepting the Product(s) or Service(s).

39Slide40

LockheedSection 42 WarrantySELLER warrants that all Work furnished pursuant to this Contract shall strictly conform to applicable specifications, drawings, samples, descriptions, and other requirements of this Contract and be free from defects in design, material, and workmanship.

This warranty shall begin upon final acceptance and extend for a period of

one (1) year

. If any nonconforming Work is identified within the warranty period, SELLER, at LOCKHEED MARTIN’s option, shall promptly repair, replace, or reperform the Work. Transportation of replacement Work, return of nonconforming Work, and reperformance of Work shall be at

SELLER’s

expense. If repair, or replacement, or

reperformance

of Work is not timely, LOCKHEED MARTIN may elect to return,

reperform

, repair, replace, or

reprocure

the nonconforming Work at

SELLER’s

expense. All warranties shall run to LOCKHEED MARTIN

and its customers

.

40Slide41

GD Mission SystemsSection 6.0 WarrantySeller warrants that all Goods furnished under this Order shall conform at time of delivery to all specifications and requirements

of this Order and shall be

free from defects in materials and workmanship

. To the extent Goods are not manufactured pursuant to detailed designs and specifications furnished by Buyer, the Goods shall be free from design and specification defects. This warranty shall survive inspection, test, acceptance of, and payment for the Goods. This warranty extends to Buyer and its successors, assigns and customers. Such warranty shall begin with Buyer’s final acceptance and run for a period of one year

. Unless otherwise provided in this Order,

at Buyer’s option

, Buyer may (

i

) return the defective goods for credit or refund, or (ii) direct Seller to promptly repair or replace defective goods, or (iii) repair or replace the defective goods using Buyer’s employees or third parties and recover the cost of such repair or replacement from Seller. Return to Seller of defective Goods and redelivery to Buyer of corrected or replaced Goods shall be at Seller’s expense. Goods required to be corrected or replaced shall be subject to this Article 6.0 in the same manner and to the same extent as Goods originally delivered under this Order, but only as to the corrected or replaced part or parts thereof.

Even if the parties disagree about the existence of a breach of this warranty, Seller shall promptly comply with Buyer’s direction to: (

i

) repair, rework or replace the Goods, or (ii) furnish any materials or parts and installation instructions required to successfully correct the defect or nonconformance. If the parties later determine that Seller did not breach this warranty, the parties shall equitably adjust the Order price.

41Slide42

PAYMENT42Slide43

FAR 52.212-4(I)Payment.Items

accepted. Payment shall be made for

items accepted

by the Government that have been delivered to the delivery destinations set forth in this contract.(2) Prompt Payment. The Government will make payment in accordance with the Prompt Payment Act (31 U.S.C. 3903) and prompt payment regulations at 5 CFR Part 1315. (6) Interest.(i) All amounts that become payable by the Contractor to the Government under this contract shall bear simple interest from the

date due until paid unless paid within 30 days of becoming due

. The interest rate shall be the interest rate established by the Secretary of the Treasury as provided in 41 U.S.C. 7109, which is applicable to the period in which the amount becomes due, as provided in (i)(6)(v) of this clause, and then at the rate applicable for each six-month period at fixed by the Secretary until the amount is paid.

43Slide44

Prompt Payment Act – Fundamentals5 CFR Part 1315; FAR 32.9; 52.232-25.

Payment period begins on

receipt of a proper invoice

when requiredPayment is due 30 days of start of payment period unless specified in contract or if accelerated payment methods are not usedAn invoice is deemed received on the later of (1) actual receipt of an invoice or (2) the 7

th

day after the date goods are delivered or performance of services is completed or if a longer

acceptance

period is specified in the contract (constructive acceptance period for calculating interest)

PPA

regs

require

acceptance to be executed as promptly as possible

. Commercial items not be subject to extensive acceptance period

Acceptance is defined as an

acknowledgement by the Government that goods received and services rendered conform with the contract requirements.

For cost reimbursement contracts, payment is 30 days after date of receipt of a

proper

invoice.

Not applicable to subcontracts except for construction contracts (payment within seven days of payment from agency)

44Slide45

Raytheon TC-002 (10/17)Looks to the FAR for Cost and

T&M

Contracts

52.216-7 Allowable Cost and Payment 52.216-8 Fixed Fee (allows withholding of a reserve)52.232-7 Payments Under T&M and Labor Hour Contracts

52.232-20 Limitation of Cost (fully funded POs)

52.232-22 Limitation of Funds (incrementally funded

Pos

)

45Slide46

NG (FP NC and CI)Section 6 PaymentPayment terms will be stated in the Order. Payment due dates, including discount periods, will be calculated from the date of Buyer’s receipt of acceptable Product(s) or Service(s) or correct invoice, whichever is later

. Any applicable discount will be taken on the full amount invoiced. Buyer has the right, without loss of discount privileges, to pay invoices covering Products shipped in advance of schedule on the normal maturity after the date specified for delivery. Payment shall not constitute acceptance or approval of Products or Services rendered. At any time prior to final payment under this Order, Buyer may have invoices validated. Payment of Seller’s invoices shall be subject to adjustment for any amounts found to have been improperly invoices. Buyer shall be entitled at all times to set off (a) any amount owing at any time from Seller to Buyer or any of its affiliated companies; (b) any damages resulting from Seller’s default under or breach of any contract (including any purchase order and these terms); (c) any adjustment for shortage or rejection and any associated costs, against any amount payable at any time by Buyer or any of its affiliated companies to Seller.

In the event the Order does not include payment terms, payment will occur within forty-five (45) days from Buyer’s receipt of acceptable Product(s) or Service(s) or correct invoice, whichever is later.

WHEN DOES ACCEPTANCE OCCUR?

46Slide47

LockheedSection 27 Payments, Taxes and DutiesUnless otherwise provided, terms of payment shall be net thirty (30) days from latest of the following: (1) LOCKHEED

MARTIN’s

receipt of

SELLER’s proper invoice; (2) scheduled completion of performance date of the Work; or (3) actual completion of performance of the Work.Each payment made shall be subject to reduction to the extent of amounts which are found by LOCKHEED MARTIN or SELLER not to have been properly payable, and shall also be subject to reduction for overpayments. SELLER shall promptly notify LOCKHEED MARTIN of any such overpayments and remit the amount of the overpayment except as otherwise directed by LOCKHEED MARTIN.LOCKHEED MARTIN shall have a right of setoff against payments due or at issue under this Contract or any other Contract between parties.Payment shall be deemed to have been made as of the date of mailing LOCKHEED

MARTIN’s

payment or electronic funds transfer.

Unless otherwise specified, prices include all applicable federal, state, and local taxes, duties, tariffs, and similar fees imposed by any government, all of this shall be listed separately on the invoice.

47Slide48

GD Mission Systems FPSection 15.0 Invoice and PaymentPayment of the Order price or any portion thereof for Goods delivered shall not constitute acceptance

.

Buyer shall pay for all Goods within sixty calendar days from (1) the date Goods are received if Seller is on the “Pay From Receipt Program” or (2) the date of a receipt of an acceptable invoice if later unless the Parties agree to a cash discount.

In the event of early-unauthorized delivery of Goods by Seller, payment shall be computed from the scheduled delivery date, including discount periods. Buyer may pay Seller by electronic funds transfer (EFT) or by check unless otherwise stated in the Order. Seller shall provide Buyer with its EFT information. Payment is made on the day Buyer gives instructions to execute payment, or the date Buyer’s check is deposited into the U.S. mail, or payment is otherwise tendered. Seller shall promptly repay to Buyer any amounts paid in excess of amounts due Seller.48Slide49

INTELLECTUAL PROPERTY49Slide50

Raytheon Preamble: For the avoidance of doubt, the words “Government” and “Contracting Officer” do not change: when a right, act, authorization, or obligation can be granted or performed only by the Government or the prime contract Contracting Officer or duly authorized representative . . . or when title is to be transferred directly to the Government.

FAR 52.227-11 (Applicable to POs for experimental, developmental, or research work to be performed by a small business concern or nonprofit organization)

FAR 52.227-14 Rights in Data -- General

50Slide51

Raytheon Preamble: With respect to any DFARS clause . . . relating to rights in noncommercial technical data and noncommercial computer software and noncommercial computer software documentation, the Seller grants to Buyer the right to use, disclose, modify, combine, integrate or make derivative works of any [such data] delivered . . .

to the extent necessary, and for such period as required, for Buyer to complete its performance under the Buyer’s U.S. Government programs.

252.227-7038 Patent Rights – Ownership by the Contractor (Large Business)

252.227-7013 Rights in Technical Data – Noncommercial Items (tied to delivery of technical data)252.227-7014 Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation (tied to delivery)252.227-7015 Technical Data – Commercial Items (tied to delivery)252.227-7017 Identification and Assertion of Use, Release, or Disclosure Restrictions252.227-7019 Validation of Asserted Restrictions – Computer Software252.227-7026 Deferred Delivery of Technical Data or Computer Software

252.227-7027 Deferred Ordering of Technical Data or Computer Software

51Slide52

TERMINATION52Slide53

FAR 52.212-4(l)*Termination for the Government’s convenience. The Government reserves the right to terminate this contract, or any part hereof, for its sole convenience. In the event of such termination, the Contractor shall immediately stop all work hereunder and shall immediately cause any and all of its suppliers and subcontractors to cease work. Subject to the terms of this contract, the Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system, have resulted from the termination.

The Contractor shall not be required to comply with the cost accounting standards or contract cost principles for this purpose. This paragraph does not give the Government any right to audit the Contractor’s records. The Contractor shall not be paid for any work performed or costs incurred which reasonably could have been avoided

.

*May be tailored to reflect customary commercial practices (FAR 12.203(b))

53Slide54

FAR 52.212-4(m)*(m) Termination for cause. The Government may terminate this contract, or any part hereof, for cause in the event of any default by the Contractor, or if the Contractor fails to comply

with any contract terms and conditions

, or fails to provide the Government, upon request, with adequate assurances of future performance. In the event of termination for cause, the Government shall not be liable to the Contractor for any amount for supplies or services not accepted, and the

Contractor shall be liable to the Government for any and all rights and remedies provided by law. If it is determined that the Government improperly terminated this contract for default, such termination shall be deemed a termination for convenience.*May be tailored to reflect customary commercial practices (FAR 12.203(b))

54Slide55

WHAT DOES THE PRIME CONTRACTOR ALWAYS DO?Watch out for 52.249-2 incorporated by reference.

55Slide56

Raytheon Section 5 Termination for DefaultBuyer may, after providing Seller with ten (10) calendar days written notice, and upon Seller’s failure to cure such default in that ten (10) day period (“Cure Period”), terminate this Purchase Order in whole or in part at any time by notice in writing for (

i

)

breach of any one or more of its terms, (ii) failure to deliver goods or services within the time specified by this Purchase Order or any written extension, (iii) failure to make progress so as to endanger performance of this Purchase Order, or (iv) failure to provide adequate assurance of future performance; provided, however, there shall be no Cure Period for default related to failure to meet the delivery schedule or defaults incapable of cure. Buyer may also terminate this Purchase Order in whole or in part without a Cure Period in the event of Seller’s suspension of business, insolvency, appointment of a receiver for Seller’s property or business, or any assignment, reorganization or arrangement by Seller for the benefit of its creditors. In the event of partial termination, Seller is not excused from performance of the non-terminated balance of work under the Purchase Order.In the event of Seller’s default hereunder,

Buyer may exercise any or all rights and remedies accruing to it, both at law, including without limitation, those set forth in Article 2 of the Uniform Commercial Code, or in equity, including but not limited to, Seller’s liability for Buyer’s excess re-procurement costs for goods or services.

If this Purchase Order is terminated for default, Buyer may require Seller to transfer title to, and deliver to Buyer, as directed by Buyer, any (1) completed supplies, and (2) partially completed supplies and materials, parts, tools, dies, jigs, fixtures, plans, drawings, information, and contract rights that Seller has specifically produced or acquired for the termination portion of this Purchase Order. Upon direction of Buyer, Seller shall also protect and preserve property in its possession in which Buyer has an interest.

56Slide57

Section 6 Force MajeureExcept for a default of Seller’s subcontractor at any tier, neither Buyer or Seller shall be liable for any failure to perform due to any cause beyond their reasonable control and without their fault or negligence. Such causes include, but are not limited to, acts of God or of the public enemy, acts of the government in its sovereign or contractual capacity, fires, floods, epidemics, terrorism, quarantine restrictions, strikes, freight embargoes, and unusually severe weather. In the event that performance of this Purchase Order is hindered, delayed or adversely affected by causes of the type described above (“Force Majeure”), then the Party whose performance is so affected shall so notify the other Party’s authorized representative in writing and, at Buyer’s option, this Purchase Order may be completed with such adjustments to delivery schedule as may reasonably be required by the existence of Force Majeure.

57Slide58

SUBCONTRACTOR FLOW-DOWNS58Slide59

Flow-Down ClausesRequired Flow-Downs vs. Discretionary Flow-Downs

Some cannot be flowed down –

e.g., Disputes ClauseSome are to protect the prime’s interests e.g., termination, stop work, suspension, changes, warranty, DPAS, and IP rights clauses59Slide60

Mandatory Flow-Down Clauses Non-NegotiableOften Conditioned on Contract Type, Type of Work to be Performed and Total Anticipated Contract Value

FAR and DFARS limit flow-downs on commercial item subcontracts (listed in FAR 52.212-5(e)(1), FAR 52.244-6(c)(1)) and 252.224-7000) plus “a minimal number of additional clauses necessary to satisfy . . . Contractual obligations”

60Slide61

More on Commercial Item Subcontracts FAR 12.504 and FARS 212.504 lists laws that are not subject to subcontracts at any tier.Some exemptions listed in clauses themselves:

FAR 52.203-14 – Display of Hotline Posters

FAR 52.219-9 Small Business Subcontracting Plan

61Slide62

How to Flow Down ClausesFAR 52.102 recommends incorporation by reference versus full text and that they be tailored on a contract-by-contract basis.

Primes must flow down version of the clause in the Prime contract. Earlier versions of clauses available at “Archives” tab of

www.acquisition.gov

websitePrimes should alter terms to fit the subcontract but watch for global alterations62Slide63

Suggested Categories for Flow-DownsPrime (Commercial)Prime (Non-Commercial) – Sub (Non-Commercial)

Prime (Non-Commercial) – Sub (Commercial)

Regardless of contract value

Value exceeds certain dollar amountsDoD Prime Contract63Slide64

The following FAR clauses apply to this Contract regardless of value52.202-1 DEFINITIONS.52.204-21 BASIC SAFEGUARDING OF COVERED CONTRACTOR INFORMATION SYSTEMS (Applicable to all Orders where Seller will have Federal contract information, as defined by the clause, residing in or transiting through its information system).52.219-8 UTILIZATION OF SMALL BUSINESS CONCERNS.

52.222-21 PROHIBITION OF SEGREGATED FACILITIES.

52.222-26 EQUAL OPPORTUNITY.

52.222-41 SERVICE CONTRACT LABOR STANDARDS (Applicable to Orders that are subject to the Service Contract Labor Standards statute).The following FAR clause(s) apply to this Contract if the value of this Contract is equal to or exceeds $150,000

52.203-19 PROHIBITION ON REQUIRING CERTAIN INTERNAL CONFIDENTIALITY AGREEMENTS OR STATEMENTS.

52.215-2 AUDIT AND RECORDS NEGOTIATION.

52.222-17

NONDISPLACEMENT

OF QUALIFIED WORKERS (Applicable when Services are to be performed by the Seller (1) under service contracts, (2) that succeed Orders for performance of the same or similar work at the same location, and (3) that are not exempt by FAR 22.1203-3 or waived in accordance with FAR 22.1203-3. Seller to furnish information needed by Buyer to comply with the paragraphs (d) and (e) of this clause).

52.222-35 EQUAL OPPORTUNITY FOR VETERANS.

52.222-37 EMPLOYMENT REPORTS ON VETERANS.

52.227-1 AUTHORIZATION AND CONSENT (Applicable to Orders that exceed the simplified acquisition threshold).

64Slide65

The following DFARS clauses are applicable if this Order is placed under a Department of Defense Prime Contract and is for procuring commercial items

The following DFARS clauses apply to this Contract regardless of value

252.204-7012

Safeguarding Covered Defense Information and Cyber Incident Reporting (Applicable to Orders for operationally critical support or for which performance will involve covered defense information, as defined in this clause. Buyer shall notify Seller when submitting a request to vary from a NIST SP 800-171 security requirement to the Government’s Contracting Officer, in accordance with paragraph (b)(2)(ii)(B) of this clause; and provide to the Buyer the incident report number, automatically assigned by DoD as soon as practicable, when reporting a cyber incident to DoD as required in paragraph (c) of the clause.).

252.204-7015

Notice of Authorized Disclosure of Information for Litigation Support

.

252.223-7008

Prohibition of Hexavalent Chromium

(Applicable to all Orders for supplies, maintenance and repair services or construction materials).

252.225-7000

Buy American--Balance of Payments Program Certificate

.

252.225-7009 RESTRICTION ON ACQUISITION OF CERTAIN ARTICLES CONTAINING SPECIALTY METALS (Applicable, except for paragraph (d) and (e)(1) which are deleted from this clause) (Applicable to Orders for items containing specialty metals to ensure compliance of the end products that Buyer will deliver to the Government).

252.225-7020 TRADE AGREEMENTS CERTIFICATE .

65