FAR 17.402—Limitations.
Plain-English Summary
FAR 17.402 sets the limits on when the Government may use leader company contracting and what protections must be built into that arrangement. This section covers four threshold conditions for using a leader company: the leader must have the necessary production know-how and be able to help the follower(s); no other source can satisfy the Government’s needs without that assistance; the leader’s assistance must be limited to what is essential for the follower(s) to produce the items; and the arrangement must be authorized under agency procedures. It also requires the Government to reserve the right to approve subcontracts between the leader company and the follower(s). In practice, this means leader company contracting is a narrow, controlled technique—not a general teaming or industrial base strategy—and it should be used only when the Government has a real need that cannot be met otherwise. The section is designed to prevent unnecessary dependence on a leader company, protect the Government’s interests in subcontracting relationships, and ensure agency-level oversight before this contracting approach is used.
Key Rules
Use only in limited cases
Leader company contracting is permitted only when all stated conditions are met. It is not a default method and should be used only when the Government truly needs the leader company’s assistance to obtain the required items.
Leader must have know-how
The leader company must possess the necessary production know-how and be able to provide the required assistance to the follower(s). If the leader cannot actually support production, the arrangement does not satisfy the rule.
No other source available
The Government must determine that no other source can meet its requirements without a leader company’s assistance. This makes the technique appropriate only when the market cannot satisfy the need through ordinary competition or direct sourcing.
Assistance must be essential only
The leader company’s support must be limited to what is essential to enable the follower(s) to produce the items. The rule prohibits broader assistance than necessary, helping prevent overreliance or unnecessary transfer of effort.
Agency authorization required
Use of leader company contracting must be authorized under agency procedures. Contracting personnel must follow internal approval and policy requirements before employing this approach.
Government controls subcontracts
When leader company contracting is used, the Government must reserve the right to approve subcontracts between the leader company and the follower(s). This preserves oversight over key downstream relationships and terms.
Responsibilities
Contracting Officer
Determine whether all four conditions for leader company contracting are satisfied, ensure the arrangement is authorized under applicable agency procedures, and include the Government’s right to approve subcontracts in the contract structure or related terms.
Agency
Establish the procedures that authorize use of leader company contracting and define any internal approval requirements or oversight steps before the technique may be used.
Leader Company
Provide the necessary production know-how and only the essential assistance needed for the follower(s) to produce the items, while operating within the limits of the approved arrangement.
Follower Company(ies)
Rely on the leader company only for the assistance necessary to produce the required items and comply with any subcontract approval requirements and other contract terms.
Government
Reserve and exercise the right to approve subcontracts between the leader company and the follower(s), and ensure the contracting approach is used only when justified by the procurement need.
Practical Implications
This section makes leader company contracting a narrow exception, so contracting officers should document why ordinary sources cannot meet the requirement without a leader company.
A common pitfall is treating a leader company arrangement like a routine teaming or subcontracting structure; FAR 17.402 requires a specific necessity showing and agency authorization.
The Government’s subcontract approval right is important in practice because it gives the agency leverage to review the flow-down relationship and avoid unfavorable or unnecessary subcontract terms.
Contractors should expect closer scrutiny of the leader-follower relationship, especially whether the leader is truly providing essential production assistance rather than simply acting as a pass-through.
If the agency procedures are not followed, the arrangement may be vulnerable to protest, internal review findings, or contract administration problems later in performance.
Official Regulatory Text
(a) Leader company contracting is to be used only when- (1) The leader company has the necessary production know-how and is able to furnish required assistance to the follower(s); (2) No other source can meet the Government’s requirements without the assistance of a leader company; (3) The assistance required of the leader company is limited to that which is essential to enable the follower(s) to produce the items; and (4) Its use is authorized in accordance with agency procedures. (b) When leader company contracting is used, the Government shall reserve the right to approve subcontracts between the leader company and the follower(s).