By William Pannier, Government Contracts Attorney

The Federal Acquisition Regulation (FAR) and its supplements are complex, but staying compliant is essential. Compliance doesn't have to be overwhelming. This article provides a practical three-step framework – Understand the Requirements, Build a Plan, and Track Your Progress – to keep your contracts and subcontracts on the right path, with special attention to managing flowdown requirements.

Why Compliance with Federal Contract Regulations Matters

Non-compliance can jeopardize your business. A missed requirement might result in significant consequences, such as audits, penalties, or contract termination. Mishandling flowdown requirements can expose prime contractors and subcontractors to liability. For subcontractors being acquired, non-compliance with flowdowns can jeopardize the deal, as acquirers will scrutinize subcontract requirements to assess fulfillment and potential risks. Strong compliance builds trust with federal agencies and business partners, paving the way for more contracts and successful transactions. So, how do you get it right?

Step 1: Understand the Requirements

Compliance starts with knowing the rules that apply to your contract. Federal regulations, including agency-specific supplements, are extensive, so prioritize what's relevant.

• Review the Solicitation: Requests for Proposals (RFPs) identify requirements, including those incorporated by reference, which are fully binding.
• Understand Flowdown Requirements: Prime contractors must flow down certain federal requirements to subcontractors, including mandatory flowdowns (e.g., equal opportunity or cybersecurity provisions) and non-mandatory but essential flowdowns that protect the prime contractor or ensure contract performance. Subcontractors must review their subcontracts to identify which requirements are flowed down, as these are binding. Missing these can lead to disputes or penalties.
• Know What's in Your Contract: You don't need to master every regulation, but you must understand your contract's requirements to stay compliant. A breach of a federal requirement may constitute a breach of contract, potentially impacting both subcontract and prime contract levels.
• Conduct Flowdown Analysis for Acquisitions: For subcontractors facing acquisition, a thorough flowdown analysis is critical. Acquirers will examine subcontracts to identify all flowed-down requirements and evaluate whether the subcontractor is meeting them. Non-compliance can lower the company's valuation or derail the deal entirely.

Step 2: Build a Plan

Understanding requirements is just the beginning. A clear plan ensures consistent compliance, like mapping a route through unfamiliar terrain.

• Establish a Compliance Program: Document how you'll meet obligations, including flowdowns. For some requirements, tracking and recording accurate data is essential. For flowdowns, create a checklist to ensure all mandatory and essential non-mandatory requirements are included in subcontracts. Small businesses can usually keep it simple, but they still need a defined process.
• Train Your Team: Ensure employees understand their roles. For equal opportunity requirements, HR must know the rules. For flowdowns, train procurement staff to identify and incorporate mandatory and essential provisions. Brief, regular training keeps everyone aligned.
• Manage Subcontractors: Prime contractors must flow down mandatory requirements in accordance with the prime contract and consider non-mandatory but essential flowdowns to reduce risk.
• Subcontractor Compliance: Subcontractors should verify which requirements are flowed down in their agreements to ensure compliance. For subcontractors being acquired, maintaining clear records of flowdown compliance strengthens their position during due diligence.

A well-designed plan is your guide. Without it, you're navigating blind.

Step 3: Track Your Progress

Compliance is an ongoing commitment. Many contractors falter after contract award, assuming initial efforts suffice. Regular monitoring keeps you on course.

• Document Performance: By documenting performance, you will be able to demonstrate compliance efforts. For subcontractors in an acquisition, detailed records of flowdown compliance are key to an acquirer's due diligence. Thus, strong records can help avoid disputes or preserve deal value.
• Perform Internal Reviews: Periodically assess processes and flowdown compliance to catch issues early. For subcontractors, confirm that flowed-down requirements are being met. Think of it as a rehearsal for an audit or an acquirer's due diligence process.

The Benefits of Compliance

Compliance does more than avoid penalties. It enhances your reputation with federal agencies and other companies in your field, which is crucial in the competitive federal contracting landscape. Properly managing flowdowns fosters smooth relationships between primes and subcontractors. For subcontractors being acquired, robust compliance with flowdowns signals reliability and minimizes risks for the acquirer, potentially enhancing the company's value. Understand the requirements, build a plan, and track your progress—it's straightforward and effective.

Need help navigating federal regulations? At Pannier Law, we simplify compliance, including flowdown management and acquisition support. Contact us for a consultation.

Disclaimer: * This article is provided for information purposes only. It does not constitute legal advice. It is not intended to form an attorney-client relationship. Any legal advice should be sought from an attorney. Consult a qualified attorney for advice specific to your situation. *

About the Author: William Pannier is the founder of Pannier Law, with over 20 years' experience navigating federal acquisition regulations.