PREFACE

When I started my career in contracts management 22 years ago, my manager handed me a new request for proposal from a prime contractor, asked that I review the terms and conditions and get back with her later in the day with my findings. I panicked. I was fresh out of college and had no formal training in contract law at the time. Several questions immediately came to mind: (a) What specific terms and conditions should I be addressing? (b) How was I going to decipher what constitutes a favorable provision from one that is unfavorable? (c) Are there specific clauses that I should be addressing? (d) How should I deal with any potentially damaging provisions, provided that I could ascertain what constitutes harmful language?

To my dismay, I could not locate a book in publication addressing this topic. Like many others before me, I learned the process of reviewing and negotiating terms and conditions through trial and error and with help from senior staff members. This initial experience prompted me to keep a log of terms and conditions of concern, risk mitigation techniques, lessons learned, and legal references for quick review as I gained knowledge along the way.

After 22 years of development, I accomplished the daunting task of drafting a book that walks even the most junior contracts administrator through reviewing and negotiating a government contractor’s terms and conditions. The contracts professional learns in easy-to-understand language how to review and negotiate onerous terms and conditions that could be financially costly and potentially damaging to the seller. Seller is defined in this book as one who sells a product or services to a government contractor.

This book addresses the party negotiating on behalf of a seller/subcontractor—such as a contracts administrator, salesperson, or program manager—with a government prime contractor or lower tier government subcontractor.

A subcontractor should not be confused with the prime contractor. A subcontractor is defined as an individual, company, partnership, or association that contracts with a buyer (prime contractor or lower tier subcontractor) to design, develop, design and manufacture, or manufacture items that are designed specifically for use in a government application. The prime contractor, on the other hand, contracts directly with the government.

When a prime contractor, subcontractor, and possibly a lower tier subcontractor, wish to work with one another on a government-funded effort, the parties must negotiate the terms and conditions dictating the agreement between the parties. Typically, buyer will submit to seller a request for proposal and/or a subcontract containing buyer’s standard terms and conditions along with any government flow-down provisions. Flow-down provisions are rules and regulations found in the Federal Acquisition Regulation (FAR) or the Defense Federal Acquisition Regulation (DFAR) that a government contractor must include in their supplier subcontracts.

Buyer-imposed terms and conditions often lend buyer more rights than they would otherwise be granted under the Uniform Commercial Code (UCC), Common Law, or the Code of Federal Regulations (CFR). It is thus incumbent on seller to mitigate potential risks associated with contractual terms and conditions, since many pose a financial risk to seller, expose proprietary information to a potential competitor, and/or give up rights and data that should have remained with seller and/or been jointly shared by seller and buyer.

This book quickly guides the seller through the process of reviewing and negotiating a contract to mitigate risk and help the parties reach an equitable agreement. The chapters are set up to walk the reader through the review and negotiation process with ease by pointing out the most common and damaging terms and conditions. A definition of these terms and conditions is provided, along with examples that are worded similarly to the terms and conditions commonly found in a buyer’s contract. This helps the seller easily pick them out of a proposal or contract. The second section of each chapter talks about the risks associated with each term and condition; here, the reader learns the potential threat associated with each term and condition if left unmitigated. A third section with responses walks through simple mitigation techniques the seller may use to reduce or possibly eliminate the associated risks. Finally, a reference guide provides the reader with a list of FAR regulations and UCC codes related to the terms and conditions mentioned or discussed at length in the book.

Combining these four facets—definition, risk, response, and reference—provides the seller with a firm understanding of what to look for when reviewing the terms and conditions of a proposal or contract, coupled with simple instructions on how to mitigate risks and where to find answers in the FAR and UCC.

While all terms and conditions noted in this book should be carefully analyzed by the seller, indemnification stands out as the most important and potentially harmful. Because of the complexity and importance associated with risk management as it applies to indemnification provisions, considerable emphasis is added to help the reader understand indemnification provisions, including how to review, disseminate, and mitigate these provisions. Chapters 27–32 are devoted to the indemnification process.

A list of acronyms often found in solicitations and contracts is provided after Chapter 32.

The appendix at the end of the book acts as a FAR reference guide, providing (1) the clause number and date, (2) the title of the provision/clause, (3) a general description of the provision/clause, and (4) a description of which rules and regulations flow the requirement down from the government to the prime contractor and from the prime contractor to the subcontractor. The appendix is a quick and easy tool to use to ascertain whether a particular clause or provision will pose a concern for the seller.

I hope that this guide will help clarify the many terms and conditions that a contracts manager or administrator negotiating on behalf of a seller or subcontractor must address every day.

Kenneth R. Segel

Anaheim, California