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In
fiscal year 2008, the federal government purchased over $500 billion in goods
and services. That is more than double
what the federal government spent in 2001, and with the passage of the
American Recovery and Reinvestment Act of 2009, federal spending is going to
increase in areas such as energy and infrastructure. Contracting
with the federal government is a heavily-regulated process with unique risks
and restrictions, but the federal government is also a stable consumer with
an unlimited supply of money. If you
are considering whether to enter the federal marketplace, or whether to
increase your level of participation in the federal marketplace, you should
be aware of some of the important differences between federal government
contracts and commercial contracts. Here
are a few of the fundamental differences between federal government contracts
and commercial contracts. 1.
Liability for
false claims or statements. It is
a federal crime to knowingly present a false claim to the government for
payment. In practice, this means there
is a potential for both civil and criminal liability for inflated change
order requests, front-loaded progress reports or certifications, and
unauthorized product substitutions. 2.
Broad audit
rights. The federal contracting
officer must determine that the price of every contract is "fair and
reasonable," based on cost data (including overhead and profit) which
the contractor must certify as "accurate, current and
complete." It is not unusual for
post-award audits of cost and pricing data to result in a retroactive price
reduction. 3.
Limitations on
communications with customer. Many
normal commercial marketing activities are restricted or prohibited when
dealing with the federal government.
There are detailed statutes and regulations on subjects such as
gratuities, kickbacks to or from subcontractors, obtaining bid or source
selection information before the contract award, and employment discussions
with agency officials. 4.
Socio-economic
requirements. In general, these
include preferences for small and disadvantaged businesses; equal
opportunity/affirmative action; prevailing wage and related labor standards;
and the Buy American Act. 5.
Limitations on
authority of federal employees. In
most instances, it is the contracting officer – and only the contracting
officer – who has the authority to enter into or modify a contract. Thus, even if a high-level agency program
officer requests or approves a contract change, that is probably not binding
on the government unless the contracting officer approves it as well. 6.
Limited access
to courts. Because the federal
government generally has sovereign immunity, bid protests and contract
disputes do not go through the normal judicial process. Most bid protests are handled by the
General Accountability Office (GAO), while most contract disputes must be
presented first to the contracting officer, and then appealed to the Board of
Contract Appeals or the Court of Federal Claims. Injunctive relief generally is not
available. 7.
Short-term
funding obligations. Federal
contracts usually have a one-year base period with a government option to
renew, because the underlying appropriations are generally limited to one
fiscal year at a time. Contractors
therefore cannot count on the security of a multi-year contract. Also, the federal government cannot make
advance payments, although it does make progress payments. 8.
Likelihood of
increased oversight and enforcement. Both Congress and the Obama administration
have made it clear that they intend to crack down on cost overruns and
wasteful spending, especially in defense contracts. For example, on May 6, 2009, the Pentagon
announced that it plans to hire 9,000 new employees and transfer 11,000 more
positions from contractors to the federal workforce over the next five years
to help manage and administer contracts.
The McCain-Levin Bill, which passed the Senate unanimously on May 7,
2009, would among other things create a new director of independent cost
assessment to help ensure the accuracy of cost estimates. 9.
Mandatory
contract provisions. Many contract
clauses and administrative procedures are specifically mandated by the
Federal Acquisition Regulation (FAR) and agency supplements such as the
Defense Federal Acquisition Regulation Supplement (DFARS). These clauses may include such provisions
as termination for convenience of the government, unilateral authority of the
government to change the contract within its general scope, and a broad range
of licenses of differing scope for intellectual property developed at
government expense. 10. Ethics and compliance issues. Recent rule changes have shifted
responsibility for compliance from the government to contractors. For example, contractors are now required
to disclose to the government any credible evidence of False Claims Act
violations or significant overpayments. Although
there are unique risks in doing business with the federal government, there
can also be significant rewards. For
more background about federal business opportunities in general, go to www.fbo.gov, the government-wide virtual
marketplace and point-of-entry for procurements over $25,000. For
more information about this article, or about federal procurement in general,
you may contact Rich Ciambrone, Dustin DuBois or Tami Earnhart. This publication is intended for general information
purposes only and does not and is not intended to constitute legal advice.
The reader must consult with legal counsel to determine how laws or decisions
discussed herein apply to the reader's specific circumstances. |
