Should GovCons Accept or Decline ATPs and Letter Subcontracts?

You signed the NDA and the Teaming Agreement. Then your team won the federal contract! The period of performance is prompt, and you don’t have your subcontract settled just yet, so the Prime offers you either an Authorization to Proceed (ATP) or a Letter Subcontract so you can get to work.

Fantastic! Or is it?

What is the Difference Between an ATP and Letter Subcontract?

Let’s begin by exploring the differences between these two options. Both vehicles accomplish the same purpose: putting a subcontractor to work before the official paperwork is complete. Both will have a ceiling for the costs a Seller may incur prior to definitization/issuance of the final order. In contrast, an ATP is a more loosely constructed, agile version of a Letter Subcontract.

Comparison Table: Letter Subcontract vs Authorization to Proceed (ATP)

Letter Subcontract	ATP*
Highly structured document	Loosely structured document
Bilateral	Unilateral
Seller must perform once signed	Seller can choose not to perform
Seller can invoice	Seller cannot invoice
Establishes a definitization schedule	Does not offer a definitization schedule
If modeled after FAR 16.603-2 (c), it could have one or more onerous terms.	Usually carries the most basic terms, especially if a subcontract agreement for the effort is already in place.

*The criteria shown is common for ATPs, but not definitive.

Emotional High and Risks

Both options offer Sellers the emotional high of “they chose me!”, however, it is important to set emotions aside and make sure that accepting a temporary contract is the best decision for your GovCon. While it is possible that a Buyer can change its mind and choose your competitor if you refuse the temporary vehicle, it costs them money to do so., and if If they have a DFARS Certified Purchasing System, justifying paying more or choosing a less qualified Seller just because the best option (you) is not willing to take on the risk of an ATP or Letter Subcontract is no small challenge.

Unsettled Terms and Conditions

The most common reason for issuing an ATP or Letter Subcontract is unsettled terms and conditions. Depending on the risk balance of the subcontract terms and the openness of both sides to negotiations, settling can take some time; especially if negotiations do not begin until contract award. This raises the question of how accepting the temporary authorization impacts your ability to negotiate these terms effectively.

Factors to Consider

Some temporary authorizations, especially Letter Subcontracts, invoke the Buyer’s standard terms and conditions for use during the temporary period. If you cannot get this removed from the Letter and the standard terms are onerous to you, declining until negotiations are concluded and you can get a proper purchase order/task order is probably the right decision.
Some Letter Subcontracts reflect a FAR term that allows them to unilaterally settle your pricing if you and the Buyer cannot agree. If you cannot get this removed from the Letter, declining until negotiations are concluded and you can get a proper purchase order/task order is probably the right decision.
If you accept and start work, displacing you is costly and time consuming for the Buyer, especially if the ATP/Letter Subcontract extends for more than a few weeks.
If you accept and start work, you will incur costs and may have trouble collecting timely payments if you cannot definitize promptly.
If you accept and start work, it can take longer to definitize because you are no longer a priority.: Tthe Sellers that refused to accept the ATP/Letter Subcontract are the priority. These Sellers also have a stronger position for negotiating the terms and conditions and any unsettled pricing, especially if the Buyer needs them on contract to perform.

In all negotiations, intangibles like the nature of the Buyer/Seller relationship, the urgency of the schedule, and the dynamics of the competitive market all contribute to the win/win strategy. Navigating your way through accepting or declining temporary work authorizations is no different. Contact the BOOST contracts department for additional insight or help with negotiations.

Key Takeaways

ATPs and Letter Subcontracts: Both ATPs (Authorization to Proceed) and Letter Subcontracts are mechanisms that allow a subcontractor to begin work before the official paperwork is complete. They are typically offered when the period of performance is prompt and the subcontract isn’t settled yet.
Differences between ATPs and Letter Subcontracts: ATPs are more loosely structured and agile compared to Letter Subcontracts. They have different characteristics in terms of structure, bilateral/unilateral nature, invoicing capabilities, and definitization schedules.
Emotional High and Risks: Accepting a temporary contract like an ATP or Letter Subcontract can be emotionally rewarding but it’s important to consider the potential risks and whether it’s the best decision for your GovCon.
Unsettled Terms and Conditions: The most common reason for issuing an ATP or Letter Subcontract is unsettled terms and conditions. Accepting the temporary authorization can impact your ability to negotiate these terms effectively.
Factors to Consider: There are several factors to consider when deciding whether to accept or decline a temporary authorization. These include the terms and conditions invoked, the potential for unilateral settlement of pricing, the cost and time implications for the Buyer, and the impact on definitization and negotiation priorities.
Negotiation Strategy: The nature of the Buyer/Seller relationship, the urgency of the schedule, and the dynamics of the competitive market all contribute to the negotiation strategy. It’s important to navigate your way through accepting or declining temporary work authorizations carefully.
Remember, you can always contact the BOOST compliance services for govcons for additional insight or help with negotiations.

About the Author, Kathy Wright

Kathy Wright is a contracts and procurement professional with more than 30 years of experience working with government and commercial contracts. She has worked for both small and large businesses and has developed a contracts management style that blends agility with process improvement.