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Six Contract Clauses You Should Be Watching
Breakout Session # F09
Robert Jones, Left Brain Professionals
Melanie Burgess, Burgess Consulting, LLC
Date: July 28, 2015
Time: 4:00-5:15 pm
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Session Objectives
• Critically think about contract clauses, terms, and conditions
• Understand 6 critical clauses• Learn reporting requirements,
flow down requirements, and negotiation possibilities for these clauses
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Positive Share
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Safety Check
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Understanding Your Contract• We all read our contracts, but
do we understand them?• How do you review a contract –
read it like a book or jump around?
• Hidden clauses• Terms in your subcontract
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Complying with Your Contract• Now that we understand the
requirements, how do we comply?
• Monitoring contract changes and modifications
• Staying up to date with regulatory changes
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Six Contract Clauses
• Termination for Convenience• Counterfeit Parts• Cybersecurity• Conflict Minerals• Intellectual Property• Liquidated Damages
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Termination for Convenience• Unique government right to
terminate a contract at will– Not addressed in the UCC
• Prime should flow down some form of this requirement to subcontractors
• If the clause is incorporated by reference or unaltered, the prime has the unilateral right to terminate the subcontract at will
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Termination for Convenience, cont’d.• What to watch for
– Clause incorporated by reference– Clause allowing prime to
terminate at will
• What to negotiate– Subcontract term should limit
prime’s right to the extent that the prime contract is terminated for convenience
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Counterfeit Parts
• What are they?– Unauthorized copy or substitute part– Item misrepresented as coming from a legal
source– An item from a legally authorized source
that is misrepresented as meeting performance requirements
• Brokers and unauthorized distributors are highest risk for selling counterfeit parts
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Counterfeit Parts
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Counterfeit Parts, cont’d.
• Small businesses may be exempt from DOD rule
– Only exempt if prime– Flow down requirements when prime is subject
to rule
• Reporting requirements– Self identifying and reporting when counterfeit
parts are discovered
• What to watch for– DFARS 252.246-7007 Contractor Counterfeit
Electronic Part Detection and Avoidance System
– Tough requirements for inspection of parts throughout the supply chain 13
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Counterfeit Parts, cont’d.
• More things to watch for:– Rework costs due to counterfeit
parts are Not allowable– Counterfeit parts procedures part
of purchasing system audits– Potential for penalties for
supplying counterfeit parts and/or not reporting counterfeit parts
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Cybersecurity
• The protection of computers and computer systems against unauthorized attacks or intrusion.
• Risk areas, to name a few:– Email– Social media– Cloud storage– Online accounts– Mobile devices– Corporate networks– Intellectual property– Proprietary data– Personal identification data– Classified military data– Homeland Security 15
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Cybersecurity, cont’d.
• Reporting requirements– Notify Government of cyber
intrusions or incidents within 72 hours
• What to watch for– DFARS clause 252.204-7012– Technical data governed by ITAR may
not be stored in the cloud– Flow down requirements – small &
commercial businesses are not exempt
– Conflicting rules and requirements16
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Cybersecurity, cont’d.
• Consequences of non-compliance– Breach of contract– Termination– Suspension or debarment– Negative past performance
• Use the NIST Framework to setup compliance system
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Conflict Minerals
• Dodd-Frank Act of 2010– Holds publicly traded companies
accountable– Requires SEC reporting– The real requirement – elimination of
use
• What are they?– Tantalum (columbite-tantalite, coltan)– Tungsten (wolframite)– Tin (cassiterite)– Gold
• How we use conflict minerals18
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Conflict Minerals, cont’d.
• Reporting requirements– Due diligence throughout the supply
chain
• What to watch for– Delivery of “conflict free” products
• What to negotiate– Due diligence procedures– SEC reporting compliance– Not certifying to conflict free items
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Intellectual Property
• Most valuable asset any company owns
• What is it– Recipes, Drawings, BoMs,
Processes & Methods, Trade Secrets
• Spectrum of rights– Restricted/Limited to Unlimited
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Intellectual Property
• What to watch for– Specific license agreements for
property purchased under government contracts
– Contract requirements that don’t match the buyer’s need
• What to negotiate– Everything
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Liquidated Damages
• Effectively a penalty for late delivery• Usually stated in terms of a % • What to watch for
– How the damages are calculated– Applying liquidated damages in the
Small Business Subcontracting Plan
• What to negotiate– Limit the % of damages and how they
are applied– Grace period– Maximum penalty amount
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Contact Information
Robert E. JonesLeft Brain Professionals [email protected]
Melanie BurgessBurgess Consulting, LLCmelanie@burgessconsulting-llc.comwww.burgessconsulting-llc.com
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