Competition in Subcontracting

Does your U.S. Government contract include requirements for you to obtain competition for goods and services acquired in the performance of your contract? The U.S. government pursues full and open competition in its acquisitions to the maximum extent possible. There are also requirements in many prime contracts for the prime contractor to do the same.

Pay Attention to these Clauses

Federal Acquisition Regulation (FAR) clause, FAR 52.244-5, entitled Competition in Subcontracting, will be inserted into most solicitations and contracts in excess of $150,000 when contracting by negotiation unless the prime contract is awarded based on adequate competition. This clause requires that you select subcontractors (in other words, any suppliers of goods or services) on a competitive basis to the maximum practical extent consistent with the objectives and requirements of the contract.

In addition, the clause at FAR 52.244-2, entitled Subcontracts, is included in all cost reimbursable contracts, and many other non-competitively awarded negotiated contracts in excess of $150,000. This clause contains requirements for you to obtain consent before entering into some subcontracts unless you have an approved purchasing system.

The degree of price competition you obtain and your compliance with FAR 52.244-5 are specific special considerations in obtaining purchasing system approval.

Department of Defense contracts containing FAR 52.244-2 will also include the clause in the Defense Federal Acquisition Regulation Supplement (DFARS) 252.244-7001 Contractor Purchasing System Administration. This DFARS clause further delineates the criteria for an adequate purchasing system, including criteria for using competitive sourcing to the maximum extent practicable and requiring management level justification for any sole or single source award.

How Is a “Subcontract” Defined?

For purposes of applying the requirements of these clauses, a “subcontract” means any contract entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders and changes and modifications to purchase orders.

A contractor purchasing system review (CPSR) is normally performed by the U.S. government to ascertain if your purchasing system should be approved. During the conduct of this review, U.S. government oversight officials will review your purchasing files for:

  • Documentation demonstrating your pursuit and success in obtaining adequate competition; or
  • Your justification(s) for not doing so.

Consequently, if you are unable to produce adequate documentation and/or justifications, you may find yourself in noncompliance with your contract clauses and with a determination that your purchasing system is inadequate. This will not only require you to obtain consent to subcontract, but could also lead to interim payment and contract financing withhold, exacerbated audit oversight frequency and scrutiny, and contract negotiation and award disruption.

Unusual and Compelling Urgency

FAR Part 6, entitled Competition Requirements, identifies a number of circumstances permitting U.S. government officials to procure goods and services using other than full and open competition, including when there is only one responsible source and no other supplies or services will satisfy agency requirements or when there is an unusual and compelling urgency.

There are also several other circumstances delineated in FAR Part 6. While FAR Part 6 does not address non-competitive subcontracting, prime contractors should consider these same circumstances when justifying their non-competitive acquisition of goods and services procured for contract performance.

Tips for Documenting Justification for Non-Competitive Acquisitions

Review your current population of single source suppliers in other words, all non-competitive acquisitions:

  1. Identify any suppliers you’ve been directed to use by your customer in the contract or in writing from an authorized official.
  2. Identify sole source suppliers (one source is known) and prepare appropriate documentation demonstrating they are the only responsible sources and no other supplies or services satisfy your requirements. Examples include:
  • The supplier is the only known producer or provider.
  • The item or service must be acquired from the original equipment manufacturer in order to ensure adequate form, fit and or functionality.
  • The item is the only one compatible with or supporting current information technology licensed software or systems requirements.
  • The item is a required source as designed into the engineering drawings or specifications and is the only one providing adequate form, fit and/ or functionality.

Review your remaining population of single source suppliers:

  1. Identify and document justifications for single source acquisitions procured under unusual and compelling urgency. Acceptable reasons include:
  • This is the only approved source currently qualified to meet quality/technical requirements.
  • This is the only approved source currently capable of meeting delivery requirements.
  • The cost required for qualification of a new source to meet current procurement needs is prohibitive.
  1. Identify any other single source procurements and your reasons for not pursuing competition. Acceptable reasons may include:
  • This item or service is being procured from a small business to further achievement of small business subcontracting goals.
  • The time required for qualification of a new source to meet current procurement needs is prohibitive.

For all other single source suppliers, have your buyers:

  • Document market research efforts and results demonstrating pursuit of competition.
  • Document reasons and obtain management level approvals for non-competitive acquisitions.

Be prepared to explain your plans, if any, for reducing the number of single source acquisitions.

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