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The Department of Defense recently issued a long-awaited final rule prohibiting DoD prime contractors from “flowing down” FAR and DFARS clauses in subcontracts for commercial products or services, unless flowdown is specified by regulation. This rule implements language, dating from the 2017 National Defense Authorization Act, intended to reduce administrative burdens on DoD contractors and subcontractors by adding a prohibition on extraneous flowdowns at DFARS 252.244-7000 Subcontracts for Commercial Products or Commercial Services.

As part of its supply chain management framework, the Government relies on contractors at every tier to “flow down” mandatory FAR and DFARS clauses to their lower tier contractors. Prior to the final rule, contractors were “not required” to flow down clauses in subcontracts for commercial products and services unless the flowdown was specified by regulation. However, although not required, the contractor was also permitted to flow down a “minimal number” of additional clauses necessary to satisfy their contractual obligations. In practice, prime contractors often elect to flow down many, if not all, of their prime contract clauses in subcontracts for commercial products and services. Such a “kitchen sink” approach can lead to confusion about the clauses that are actually applicable to the subcontractor and increase the commercial subcontractor’s administrative and compliance burden.

The final rule revises DFARS 252.244-7000 to direct that “[t]he Contractor shall not” flow down FAR or DFARS clauses at any tier unless: (i) for FAR clauses, the clause is listed at FAR 52.212-5(e)(1) or FAR 52.244-6(b)(1); or (ii) for DFARS clauses, the mandatory flowdown is specified in the particular clause. (Emphasis added). The rule also revises the prescriptive language in DFARS 212.301 to prohibit Contracting Officers from including additional clauses in a prime contract unless doing so is either required by the FAR or DFARS, or consistent with customary commercial practices.

Although the final rule may provide a level of relief for commercial product and service subcontractors, DoD prime contractors (and lower-tier contractors with subcontracts) may in fact see increased administrative burdens and should review their practices to ensure compliance with the final rule (which became effective November 17, 2023). Contractors also should be aware that Defense Contract Management Agency (DCMA) contractor purchasing system reviews, which assesses compliance with subcontracting policy under DFARS 252.244-7001 Contractor Purchasing System Administration, may find deficiencies if a contractor includes unnecessary or prohibited clauses in commercial product and commercial service subcontracts. At the same time, contractors often have often relied upon flowdowns now prohibited under the final rule, such as the flowdown of clauses addressing Termination for Convenience under FAR Part 49. Contractors will need to ensure that such topics are appropriately addressed in their standard subcontract terms and conditions (rather than in flowdowns) to avoid running afoul of the new regulation.

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Photo of Peter J. Eyre Peter J. Eyre

Peter J. Eyre is a partner and co-chair of Crowell & Moring’s Government Contracts Group. He is also a member of the firm’s Management Board. Peter was named to BTI Consulting Group’s list of “Client Service All-Stars” in 2016, 2017, and 2019 and…

Peter J. Eyre is a partner and co-chair of Crowell & Moring’s Government Contracts Group. He is also a member of the firm’s Management Board. Peter was named to BTI Consulting Group’s list of “Client Service All-Stars” in 2016, 2017, and 2019 and has been named an Acritas Star, Acritas Stars Independently Rated Lawyers (2016, 2017, 2019). He is nationally ranked by Chambers USA in Government Contracts since 2014, and by Super Lawyers since 2017.

Photo of Nicole Owren-Wiest Nicole Owren-Wiest

Nicole Owren-Wiest is a partner and member of the Steering Committee of Crowell & Moring’s Government Contracts Group in the firm’s Washington, D.C. office. Nicole is nationally ranked by Chambers USA in Government Contracts and a recognized leader in two of the most…

Nicole Owren-Wiest is a partner and member of the Steering Committee of Crowell & Moring’s Government Contracts Group in the firm’s Washington, D.C. office. Nicole is nationally ranked by Chambers USA in Government Contracts and a recognized leader in two of the most complex areas in government contracting: accounting, cost, and pricing, and intellectual property/data rights. With over 20 years’ experience, Nicole has a broad counseling and dispute-resolution practice and leads the Group’s cost accounting practice, which focuses on helping clients navigate the government’s complex cost and pricing rules, including the FAR Part 31 cost principles, the Cost Accounting Standards (CAS), and Truth in Negotiations Act/Truthful Cost or Pricing Data (defective pricing).

Photo of M.Yuan Zhou M.Yuan Zhou

M. Yuan Zhou is a counsel in the Washington, D.C. office of Crowell & Moring, where she is a member of the firm’s Government Contracts Group.

Yuan’s practice includes a wide range of investigatory, counseling, and transactional capabilities, including: internal investigations related to…

M. Yuan Zhou is a counsel in the Washington, D.C. office of Crowell & Moring, where she is a member of the firm’s Government Contracts Group.

Yuan’s practice includes a wide range of investigatory, counseling, and transactional capabilities, including: internal investigations related to the False Claims Act, the Procurement Integrity Act, and other civil and criminal matters; compliance reviews and enhancing contractor compliance programs; representing clients in suspension and debarment proceedings; counseling on data rights issues, challenges, and disputes; mandatory disclosures; and providing government contracts due diligence in transactional matters. As part of the firm’s State and Local Practice, Yuan also counsels clients on state and local procurement issues, ranging from bid protests to contract negotiations with state agencies, and advises prime contractors and subcontractors on a variety of issues including prime/sub contract formation, disputes, and other government contracts issues.

Photo of Zachary Schroeder Zachary Schroeder

Zachary Schroeder is a counsel in Crowell & Moring’s Washington, D.C. office, where he practices in the Government Contracts Group.

Zach represents contractors in both litigation and counseling matters. His practice focuses on representing contractors in bid protests before the Government Accountability Office…

Zachary Schroeder is a counsel in Crowell & Moring’s Washington, D.C. office, where he practices in the Government Contracts Group.

Zach represents contractors in both litigation and counseling matters. His practice focuses on representing contractors in bid protests before the Government Accountability Office (GAO), the U.S. Court of Federal Claims, and the Federal Aviation Administration’s Office of Dispute Resolution for Acquisition. His practice also includes federal regulatory and ethics compliance, as well as various aspects of state and local procurement law, including representing contractors in size protests and affiliation matters. In the transactional context, Zach has performed government contracts diligence for government contractors in a range of industries.

While in law school, Zach served as a judicial intern for Judge Mary Ellen Coster Williams at the U.S. Court of Federal Claims. He also served as the chair of the 2017 Government Contracts Moot Court Competition and as an editorial staff member of the American Intellectual Property Law Association (AIPLA) Quarterly Journal.