Federal Contract Termination-Part 1

Why Work For The Government?

There are many compelling reasons to work for the Federal Government.  We will go into in-depth detail about how a small business can benefit greatly from being a government contractor.

Being A Government Contractor Is A Great Way To Make Your Business Stand Out In An Overcrowded Field

Business can be very competitive. Working on government projects is a great way to make a mark in an oversaturated market. The government has a great deal of work specifically set aside for small businesses.

Also, many small businesses often do not want to deal with the hassle of working with the government, and sometimes there can be surprisingly little competition for a government project. That is why utilizing Sam Directory to handle all the confusing registration requirements is a very smart investment. 

The United States Government Is A Very Powerful Client With Deep Pockets

The Federal government usually spends around 500 billion dollars a year on goods and services. This makes the U.S. government an extremely attractive client. There are few other organizations with this type of spending power and clout.

The government also tends to buy goods and services in bulk. If your business has the infrastructure to handle large orders, then the government can help you grow substantially at an accelerated pace.

Government agencies also buy goods and services in large quantities. Large orders can be a double-edged sword for small businesses. However, if managed correctly, they can help you grow substantially and rapidly.

Responsibilities of Contractors

When you are awarded a government contract, it is vitally important that you read it carefully before signing the document. This might be intimidating since many contracts are very long.

However, there are often standard terms that are commonly reused, depending on the complexity of the purchase. Understanding these terms will help you go through the contract more effectively.

Make sure you know what government office or agency is administering the contract. This is usually the same office that awarded the contract to your business. However, there can be exceptions. The Department of Defense has a special office that administers all their contracts. You want to make certain that you direct any questions to the correct department.

Contract Administration Issues

Federal contracts are different from the average commercial contracts. They have general contract provisions that are totally unique to the government.

These contract provisions include statutory or regulatory requirements that only apply to the federal government. They include the following:

  • Termination for default 
  • Termination for convenience
  • Contract changes
  • Payments
  • Specifications
  • Inspection 
  • Testing. 

These matters are described in the Federal Acquisition Regulations.

Termination For Default

Government contracts provide that the government may cancel or terminate your contract if:

  • You fail to make delivery within the time specified in the contract;
  • You fail to make progress so as to endanger performance of the contract;
  • You fail to perform any provisions of the contract.

You will get the opportunity to cure the defects in your performance or prove why your contract should not be terminated. Your business will also be entitled to payment for items purchased and accepted by the government. The government also has the right to purchase any items that you failed to deliver from other vendors and pass the costs on to you.

Your contract will not be terminated for default if you can prove that your failure to deliver is excusable. This means that the issue is beyond your control and not caused by any negligence or fault on your part. If your contract is terminated for default and you can prove that the government’s action was improper, the termination will be treated as one for the “convenience of the government”.

Termination For Convenience

The federal government can actually terminate a contract for its own convenience even though there is no fault on the part of the contractor. This protects the government’s interest by allowing the government to cancel contracts that have become obsolete or unnecessary.

For termination for convenience, the government is required to give written notice of the termination but is not obligated to give you advance notice. This notice will usually direct the contractor to stop all work on the project and place no further orders. You will also have to notify and terminate any subcontractors that were hired for the job. You will also receive instructions on how to preserve and protect what is now government-owned property. After all, this is completed you can prepare a termination settlement claim to present to the government for losses. Failure to stop work can result in great risk and expense.

The government will make a settlement to you after the termination of convenience. This settlement should compensate you fully and fairly for the terminated part of the contract. They will also include a modest allowance for profit.

Make Sure You Have Your CAGE Code (Commercial and Government Entity)

This code is five characters and unique to your business. It’s basically your ID code, and government agencies will identify your business using this code. It is a bit like a social security number for your business. If your business includes more than one facility, then you will need multiple CAGE codes. Each location must have its own unique code, and each location must be registered separately with SAM.

Make Sure You Have The Right Staff

It is vitally important that government contractors have skilled accounting staff to ensure that the company is in compliance with all policy regulations. The company must have adequate policies and procedures in place for the prevention of mistakes, and especially for their timely discovery and correction. This helps cut down on exposure to accounting errors that jeopardize contractors, inaccurate data, incorrect data entry into the system, or errors in the performance of internal accounting processes.

How Do You Get Started Working With The Government?

SAM stands for System Award Management.

In order to do any business with the federal government, you must register your business in the System for Award Management. The government will not hire any type of business that has not registered in the SAM directory.

We have an article on our site, Everything You Need to Know About SAM for Small Businesses, that gives you important information about this process.

As a smart entrepreneur, you have already used our site to register in the SAM directory. Congratulations on taking this important first step to become a government contractor.