Prime Contractor Surveillance of Subcontractors

Government contracting officers are responsible for determining price reasonableness of prime contracts. Those contracts often include subcontract costs. It is the prime contractors' responsibility to fulfil certain obligations related to those subcontracts including performing adequate subcontract pricing and monitoring.

In 2007, Congress required the Department of Defense to set up a Panel on Contracting Integrity. The purpose of the panel was to conduct a department-wide review to identify vulnerabilities that might lead to contracting fraud, waste, and abuse. In 2008, the Panel issued its report identifying 28 actions for implementation in 2009. One of those actions required the Panel's Adequate Pricing subcommittee to review and assess the current regulations related to contracting officer surveillance over prime contractor's pricing of its subcontracts. This recommendation was spurred by an IG report which identified cases where the Government failed to ensure fair and reasonable prices because the prime contractors failed to fulfill their responsibilities.

The Adequate Pricing subcommittee's initial assessment concluded that existing subcontract pricing coverage in FAR, DFARS, and applicable policies, guidance, and instructions appear adequate. The committee was very concerned however that these regulations have not been implemented effectively.

Contractors should be aware that there will be increased emphasis on requiring them to fulfill their pricing and monitoring obligations with respect to their subcontractors.