Probably not. The clause’s flow-down requirement contains an exception for subcontracts where the place of “delivery or performance” is outside the United States.
Because the exception is written in the disjunctive (i.e., “expressed by mutually exclusive alternatives joined by or”), a subcontract performed outside the United States may qualify for the exception even when the finished goods are delivered in the United States. That relatively straightforward example, however, raises harder questions for global supply chains in which manufacturing, assembly, installation, services, and delivery occur in multiple countries.
Quick Hits
- FAR 52.222-90, “Addressing DEI Discrimination by Federal Contractors,” flows down to subcontracts at any tier, including subcontracts for commercial products and commercial services, subject to an exception where the place of “delivery or performance” is outside the United States.
- The use of “or” is significant. A foreign manufacturer that performs a supply subcontract entirely at an overseas facility may fall within the exception even if the finished goods are shipped FOB destination to a U.S. location.
- The more difficult questions arise when subcontract performance occurs partly inside and partly outside the United States. FAR 52.222-90 does not expressly address how the geographic exception applies to mixed-location performance.
Applying any FAR flow-down clause begins with identifying which lower-tier relationships are subcontracts. As we discussed in a prior article on the DEI clause, the FAR defines “subcontractor” broadly to include “any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor” (FAR 44.001), although the line between a subcontractor and a vendor is not always bright. FAR 52.222-90 adds a second threshold question: even when a supplier is a subcontractor, does the geographic exception to the flow-down requirement apply?
That question is particularly important for commercial companies with global supply chains. A product may be manufactured overseas, transported to the United States, installed by personnel in another country, or pass through multiple affiliates before reaching the government. The text of FAR 52.222-90 suggests that contractors should examine both where delivery occurs and where the subcontract is performed before deciding whether the clause must be flowed down.
The Clause and Its Flow-Down Provision
FAR 52.222-90 implements EO 14398 and appears in the Revolutionary FAR Overhaul (RFO) version of FAR Part 52 posted on Acquisition.gov, which the FAR Council intends to finalize through notice-and-comment rulemaking. Contracting officers insert the clause in solicitations and contracts valued over the micro-purchase threshold, including those for commercial products and commercial services, subject to the clause’s geographic limitation. The clause is also listed among the clauses that flow down to commercial subcontracts under FAR 52.244-6.
Paragraph (c) of FAR 52.222-90 requires contractors to include the substance of the clause in subcontracts at any tier, including those for commercial products and commercial services, “except those where the place of delivery or performance is outside the United States.” The wording of the exception matters. The clause does not require both delivery and performance to occur outside the United States. Instead, it uses the disjunctive “or.” Under the ordinary reading of that language, a subcontract should fall within the exception if either its place of delivery or its place of performance is outside the United States.
The resulting compliance determination can be important. As we discussed in a prior article, FAR 52.222-90 requires prime contractors to report certain “known or reasonably knowable” subcontractor conduct that may violate the clause, states that compliance is material to the government’s payment decisions for purposes of the False Claims Act, and is paired with new causes for suspension and debarment. Contractors, therefore, have reason to determine carefully which subcontracts actually fall within the clause’s flow-down requirement.
Place of Performance and Foreign-Manufactured Goods
For a straightforward supply subcontract, identifying the place of performance may be relatively simple. The FAR treats “deliveries or performance” as a schedule term specifying the time, place, and method of delivery or performance (FAR 15.209-1), and its “place of performance” provisions (FAR 52.215-6 and 52.214-14) ask offerors to identify the street address of any plant or facility used in performing the contract.
For a supply contract, performance generally occurs where the goods are manufactured, assembled, or otherwise produced. A foreign manufacturer that makes a commercial product entirely at its own plant overseas therefore has a strong basis for concluding that the subcontract is performed outside the United States.
The fact that the finished product is ultimately delivered to the United States should not, standing alone, change that conclusion. Consider a German manufacturer that produces a commercial product entirely at its German facility and ships the product FOB destination to its customer’s warehouse in Virginia. Under FAR transportation terminology, the contractual place of delivery may be Virginia. But the place of performance remains Germany. Because FAR 52.222-90 excepts subcontracts where the place of “delivery or performance” is outside the United States, the foreign place of performance should be sufficient to bring the subcontract within the exception.
This reading is also significant because other FAR clauses use different language when the drafters intend any U.S. performance to trigger a requirement. For example, FAR 52.222-55 addresses subcontracts “performed in whole or in part in the United States,” while FAR 52.203-14 uses the formulation “performed entirely outside the United States.” FAR 52.222-90 uses neither formulation. Instead, it asks whether the “place of delivery or performance is outside the United States.”
Those textual differences become important when a subcontract does not have a single, easily identifiable place of performance.
FOB Terms Still Matter, but They Do Not End the Analysis
Although an overseas place of performance may independently satisfy the exception, delivery remains relevant because FAR 52.222-90 expressly identifies it as a separate geographic consideration.
The FAR does not define “place of delivery” specifically for purposes of FAR 52.222-90, but it does define how delivery terms work. FAR 2.101 defines “FOB” (or “F.o.b.”) as a term used in conjunction with a physical point to determine responsibility and the basis for payment of freight charges and, unless otherwise agreed, the point where title for goods passes to the buyer or consignee.
Under “F.o.b. origin,” the seller or consignor places the goods on the conveyance, and the buyer or consignee generally assumes responsibility for transportation and risk of loss. Under “F.o.b. destination,” the seller or consignor delivers the goods at the specified destination and generally remains responsible for transportation and risk of loss until the goods reach that point.
FAR Subpart 47.3 also recognizes delivery terms tailored to international shipments, including “F.o.b. vessel, port of shipment” and “F.o.b. inland point, country of importation.” The FAR expressly contemplates that supplies originating outside the contiguous United States may be acquired on either an “F.o.b. origin” or “F.o.b. destination” basis (FAR 47.304-4).
Those rules can help identify the place of delivery, but they should not be used to collapse the two parts of the FAR 52.222-90 exception into a single delivery test. If a foreign manufacturer produces goods entirely overseas and ships them “F.o.b. destination” to the United States, the U.S. delivery point does not eliminate the fact that performance occurred outside the United States. Conversely, a U.S. manufacturer that produces goods domestically but contractually delivers them at an overseas destination may have an argument that the foreign place of delivery itself satisfies the exception.
The result is that contractors likely will want to analyze delivery and performance independently rather than stopping the analysis after identifying a U.S. nexus.
The Harder Question: Performance in More Than One Country
The more difficult cases arise when a subcontract involves performance both inside and outside the United States.
Consider a foreign manufacturer that builds specialized equipment at its facility in France and ships the equipment to a U.S. contractor. The manufacturer then sends technicians to the United States to install, test, and commission the equipment. The subcontract plainly involves substantial performance outside the United States, but it also involves performance in the United States.
FAR 52.222-90 does not expressly state how its exception applies to that situation. It does not say that the exception is limited to subcontracts “performed entirely outside the United States.” Nor does it state that the clause applies whenever a subcontract is performed “in whole or in part” in the United States. The absence of either formulation leaves room for questions about how to identify “the place of performance” when there is more than one place.
Similar issues can arise when a product is manufactured overseas but customized or assembled in the United States, when testing occurs at facilities in multiple countries, or when a foreign supplier provides both products and services under the same subcontract. A contractor’s foreign affiliate may purchase goods abroad and transfer them to a U.S. entity, and FAR 52.244-6 provides that “subcontract” includes certain transfers of commercial products between divisions, subsidiaries, or affiliates at any tier. In each case, identifying a single “place of performance” may be considerably more difficult than it is for a finished commercial product manufactured entirely at one overseas facility.
Implications for Flow-Down Compliance
For companies subject to FAR 52.222-90, the geographic exception is ultimately a supply-chain and flow-down compliance issue. But the exception may be broader than contractors initially assume.
A U.S. destination does not necessarily mean that a foreign supplier must receive the clause. When a commercial product is manufactured entirely outside the United States, the overseas place of performance provides a substantial basis for applying the exception even if the supplier delivers the finished product to a U.S. location. Likewise, a foreign place of delivery may independently be relevant even where some performance occurs domestically.
The harder cases are those in which the subcontract itself crosses geographic boundaries. Contractors evaluating those relationships may want to identify where the material elements of the subcontract occur, including manufacturing, assembly, customization, testing, installation, services, and contractual delivery. They also may want to document the basis for determining whether the geographic exception applies, particularly where performance occurs in multiple countries.
For foreign commercial companies supplying goods into the U.S. federal market, the practical takeaway is equally important. The mere fact that a product ultimately reaches the United States does not necessarily subject the foreign manufacturer to FAR 52.222-90. The analysis should focus on the actual places of delivery and performance under the subcontract. Contractors may want to pay close attention to the clause’s particular wording. The word “or” may do significant work in determining the reach of FAR 52.222-90, while mixed-location performance may present the more difficult compliance question.
Next Steps
Ogletree Deakins’ Diversity, Equity, and Inclusion Compliance Practice Group, Government Contracting and Reporting Practice Group, and Workforce Analytics and Compliance Practice Group will continue to monitor developments and provide updates on the Diversity, Equity, and Inclusion Compliance, Government Contracting and Reporting, and Workforce Analytics and Compliance blogs as additional information becomes available.
This article and more information on how the Trump administration’s actions impact employers can be found on Ogletree Deakins’ Administration Resource Hub.
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