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Supply Chain Sourcing Risks in Government Contracting: Who’s “Responsible?”

Learn why it’s critical to determine whether a U.S. government subcontractor is “responsible.”
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Determining whether a potential U.S. government subcontractor is “responsible” is a critical step in the sourcing process to help reduce supply chain risk.

This article will explore the regulations driving U.S. government contractors to determine whether a potential supplier is suitable, the payoff of documenting whether a government subcontractor is considered responsible and capable, and how awarding to responsible government suppliers reduces supply chain sourcing risks.

Government Contract Regulatory Drivers to Help Manage Supply Chain Sourcing Risk

When going through source selection, it is critical to evaluate and determine whether a potential supplier is “responsible.” This determination is not only required for government contractors under Federal Acquisition Regulation (FAR) 9.104-4, Subcontractor Responsibility, but is also mentioned in three of the 24 system criteria of an acceptable Contractor Purchasing System (DFARS 252.244-7001) and assessed during a Department of Defense Contractor Purchasing System Review (CPSR).

The goal is to ultimately award work to a cost-effective government supplier who will deliver quality products or services on time and on budget. Including a responsibility determination in your procurement process helps attain this goal. If the lowest priced offeror is not “responsible,” awarding to the responsible supplier at the next lowest price is advisable. Determining responsibility is not only a best practice in avoiding the risk of poor performance or non-delivery but is also a logical step in your procurement strategy prior to awarding a purchase order or subcontract.

FAR 9.104-1, General Standards, lists seven standards for government contractors to consider before determining if their subcontractor of choice is “responsible.” The seven standards are as follows:

  1. Have adequate financial resources to perform the contract, or the ability to obtain them;
  2. Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments;
  3. Have a satisfactory performance record;
  4. Have a satisfactory record of integrity and business ethics;
  5. Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them;
  6. Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them; and
  7. Be otherwise qualified and eligible to receive an award under applicable laws and regulations.

Documenting the Responsibility Determination

Assessing whether a potential source meets these standards is dependent upon the scope, value, complexity, and type of the anticipated procurement, and it may not be necessary to evaluate all seven standards. The buyer should determine which standards require evaluation based upon the situation. For example, when purchasing a commercial product above the simplified acquisition threshold, evaluating items two, four, and seven may suffice. However, if procuring construction services for millions of dollars, the buyer may be inclined to examine and document adequacy with all listed standards.

Prime contractors that require buyers to document how they have determined that their chosen source is responsible usually make better sourcing decisions. By facilitating the evaluation and documentation of FAR 9.104-1, Standards, through a standard form and requiring written analysis to support each relevant standard, a summary “Determination of Responsibility” can then be stated (and defended).

This method of documenting responsibility determinations is relatively simple to develop and implement. For defense industry prime contractors and subcontractors subject to CPSR, this best practice provides an avenue to present objective evidence demonstrating compliance with evaluating an offeror’s technical and financial capabilities, and the selection of vendors who are responsible, reliable, and dependable.

Reducing Risk in Government & Defense Contracts With “Responsible” Suppliers

In the national news, we often read about commercial and federal contractors experiencing “supply chain sourcing issues” resulting in poor performance, delayed deliveries, unsafe products, or inflated prices. From what has been presented thus far, do you think the appropriate due diligence was done by these companies to evaluate the “responsibility” of their chosen suppliers?

The next time you take a trip for vacation or work, look around the car or airplane and take a moment to ponder whether the various suppliers involved in developing that conveyance were capable, reliable, dependable, and ultimately, responsible. You have put your trust (and life) in the hands of a known company you determined could get you to your destination on time and on budget, but what about the unknown supply chain also involved? Were they responsible, skilled, capable, and ethical? Did they deliver their products and services to your trusted entity on time and on budget, or were any corners cut to deliver the final product potentially putting you in danger?

FAR 9.103, Policy, may say it best:

“The award of a contract to a supplier based on lowest evaluated price alone can be false economy if there is subsequent default, late deliveries, or other unsatisfactory performance resulting in additional contractual or administrative costs. While it is important that Government purchases be made at the lowest price, this does not require an award to a supplier solely because that supplier submits the lowest offer. A prospective contractor must affirmatively demonstrate its responsibility, including, when necessary, the responsibility of its proposed subcontractors.”

This policy statement succinctly reiterates the critical nature of determining whether a potential subcontractor is “responsible.” Doing so can help to reduce supply chain risk and provide on-time and on-budget program management and contract delivery, which is a primary objective not only of company leadership, but also of the federal government.

For more information on government contracting supply chain and purchasing system challenges, please reach out to a professional at FORVIS.

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