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  • Question

    1) Does this being a 1099 consultant matter? It still just another subcontract basically? 2. What due diligence is required when receiving a request for Consent to Subcontract, and what else if anything should a prudent buyer do? Thank you


    Answer

    Let us start with a little background information to set the table for the answer: FAR part 44 - Subcontracting Policies and Procedures, helps the government mitigate the cost and performance risk that may be associated with subcontracts.  The government has a relationship with prime contractors. The government does not have a relationship with subcontractors. There may be risk to the government getting what it wants in the prime contract if the prime contractor does not do a reasonable job evaluating and selecting subcontractors. Since the government cannot violate, or direct, the Prime to Sub contractual relationship the government exercises the concept of consent to subcontracting. If the prime contractor does not have an approved contracting purchasing system, or when the subcontract may have disproportionate impact on the success of the prime contract, the contracting officer must review the proposed subcontract with an eye toward discovering if there is evidence of the prime contractor exercising reasonable cost, price, and risk analysis when selecting a subcontractor. When viewed in this light, the focus of FAR part 44 on the prime contractor's approved purchasing system helps to identify and avoid risk to the prime contract performance and cost. The contracting officer seeks evidence that the prime contractor has practiced, or has in place systems that allow for, reasonable analysis prior to letting subcontracts. If the evidence is there, the contracting officer consents.  If the evidence is not there, the contracting officer does not consent. If the contracting officer does not consent, the prime contractor is free to either provide additional information proving due diligence in their analysis or try again proposing a different subcontractor. All actions, as specified in FAR clause 52.244-2 follow from the background just stated.

    For your question #1: "Does this being a 1099 consultant matter?" Please review the definitions in FAR 44.401 for subcontract and subcontractor to ensure that consultant will fall under those definitions. The bottom line is the consultant will be considered a subcontractor if providing services for the requirement. Otherwise the consultant would be considered a marketing consultant IAW FAR 9.501 if that person is only helping with preparing and submitting an offer for a government contract.

    This IRS web document lays out the major issues well: https://www.irs.gov/pub/irs-regs/subcontractorstext.prn.pdf . Simplified, the answer is; the consultant is another subcontractor. If the consultant were an employee of the prime contractor's firm, there would be no need for a 1099.  FAR 52.244-2 deals with type of contract, not who has responsibility to report income for IRS purposes.

    For your question #2: "What due diligence is required when receiving a request for Consent to Subcontract, and what else if anything should a prudent buyer do?" Look to FAR 44.202-1(a) and recognize that the office of the administrative contracting officer (ACO) is the default cognizant official unless the contracting officer retains contract administration or withholds the consent responsibility. This is because the considerations listed at FAR 44.202-2 and the detail of a Contractors' Purchasing Systems Review (CPSR) listed at FAR subpart 44.3 are time consuming and require considerable insight into the contractor's records. If the contracting officer chooses to retain consent responsibility, a good starter list for due diligence is the considerations presented at FAR 44.202-2.

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