Many firms experience federal contracting first as a subcontractor, delivering part of a larger effort under a prime that holds the contract with the government. It is an excellent way to learn and to build a record, and it raises questions that new subcontractors ask again and again. Here are the common ones.
Who is my customer?
Legally, the prime contractor. A subcontractor has no contract with the government and, in the language of the law, no privity with it. The prime is responsible to the government for all performance, including yours, and you are responsible to the prime under the terms of your subcontract. In practice you may work alongside government staff every day, but direction, payment and disputes all run through the prime. Keep that structure in mind when a government employee asks you to do something; the request should be routed through the prime unless your subcontract says otherwise.
What are flow-down clauses?
Many clauses in the prime contract require the prime to include the same or similar terms in its subcontracts. These flow-downs bring federal obligations down to your level: labor standards, anti-trafficking requirements, cybersecurity safeguards, limitations on subcontracting, audit and record-keeping rights, termination provisions and others. Some are mandatory; others the prime includes to protect itself. Read every flow-down, ask which prime contract clause each one implements, and price the ones that carry costs. Resist the temptation to accept a subcontract that simply incorporates the entire prime contract by reference without identifying what applies to you.
When will I get paid?
Your subcontract sets payment terms, and they often depend on when the prime is paid by the government. Federal policy encourages primes to pay small business subcontractors promptly, and a standard clause directs primes to accelerate payments to small business subcontractors after receiving accelerated payments from the government, to the extent possible. In construction, the Prompt Payment Act requires primes to pay subcontractors within a set period after receiving payment and provides for interest on late payments; the Miller Act’s payment bond also protects subcontractors and suppliers on larger federal construction projects. For services and supplies, your protection is your subcontract, so negotiate clear terms and invoice exactly as it requires.
Does subcontract work count as past performance, and can I talk to the government?
Generally yes, it counts. Most solicitations allow offerors to cite work performed as a subcontractor, usually with a description of the portion you performed and a reference at the prime or, where possible, the government. Document your work as you go: scope, value, dates, results and contacts. Ask the prime for a written reference while the relationship is fresh.
As for talking to the government, day-to-day technical coordination with agency staff is normal on many contracts. What you should not do is take direction that changes your scope, negotiate terms, or market yourself for the follow-on contract behind the prime’s back. Teaming agreements often include exclusivity terms; know what yours says.
What should I watch for in the subcontract?
- Scope: exactly what you are responsible for, and what you are not
- Payment terms, including any pay-when-paid or pay-if-paid language, which a lawyer should review
- Termination provisions and what happens to you if the prime contract ends early
- Flow-down clauses and their cost implications
- Dispute resolution and whether you are bound by the outcome of the prime’s disputes with the government
- Intellectual property and data rights in what you deliver
And how do you move from sub to prime? Deliver well, learn the government’s systems while someone else holds the risk, and use the record you build to compete for smaller requirements as a prime. Many successful primes started exactly this way. Subcontracting is not a lesser form of federal work; it is the apprenticeship most of the industry served.