The United States Government Want To Encourage the Success of Small Businesses
As we mentioned in the first part of this series, the federal government is required to set aside at least 23 percent of its total spending specifically for small businesses.
This includes contracts specifically for women-owned small businesses, small disadvantaged businesses, companies within historically underutilized business zones (HUBZone), and service-disabled, veteran-owned small organizations. This allows for underserved groups to have a real chance to get awarded lucrative government contracts.
It is smart to utilize this group of highly specialized government personnel as they are an invaluable resource for small businesses to succeed in obtaining government contracts.
However, it is important for businesses to understand the various ways that contracts can be terminated. We want to make sure that you protect your business from unneeded risk and liability.
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. We covered termination for default and termination for convenience in the first part of our series. Now, we will continue to explain how you can protect your company from unnecessary risk and liability when contracting with the federal government.
Contract Changes
It is not uncommon for the needs of the government to change periodically. This means that government contracts contain a clause that authorizes the contracting officer to order change in the specifications and other terms of the contract. You will be required to perform the contract as it is unilaterally changed by the contracting authority. This type of change usually occurs in the scope of the contract itself. However, the government can not use this type of change to disrupt the general nature of the contract. You will be entitled to an equitable adjustment in price and delivery schedule if changes are ordered.
Payments
The government is obligated to make prompt payments for any products delivered or services rendered by the contractor on any type of procurement contract. Obviously, prompt payment is essential to the lifeblood of any small business. The contract that you sign will have very specific instructions for invoicing the office or agency that is administrating your contract. You must make sure that your payment process is accurate so that you can be paid as quickly as possible. This type of efficient payment benefits both the government and contractor. If the government does not provide prompt payment under certain circumstances, then you submit a request for interest payments under Public Law 97-177, Prompt Payment Act.
Fixed Price Contracts
These government contracts are used when the scope of work is clear from the beginning and therefore a price is determined by the agency in advance. There are many different types of this particular contract. The method of payment can vary depending on the dollar value of the contract. Lump sums are usually paid out for relatively small contracts with a single item of work. Payment is usually made when the government accepts delivery. Progress payments based on the cost incurred may be available on larger contracts where the first delivery may be several months after the contract is signed.
However, since progress payments are given when the work is not completed, you must repay them if you fail to complete the work. The government protects its interest by taking title to your work-in-process for which progress payments have been made. To qualify for progress payments, you must have an accounting system that can accurately identify and segregate contract costs.
Specifications
The invitation for bids or requests for proposals will contain exact specifications for most of the products and services needed by the government. This precise language will also be included in your contract.
After you are awarded the contract, you are contractually obligated to deliver the product or services that are described in the specifications. Basic specifications can make reference to federal specifications. You will be bound by all the terms and conditions of the specifications and failure to deliver a product or service meeting these exacting terms can result in the termination of your contract by default.
Make sure that you never bid on a contract unless you have read and understood all the specifications required for performance. Make sure that you understand all that is required before signing the contract.
Inspection And Testing
In federal contracts, the government has the right to inspect and test the items you deliver to determine if they conform to contract requirements and specifications. The government does not have to accept a contractor’s product unless it passes inspection. The type and extent of inspection and testing depend largely on what is being procured.
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.
Remember SAM
SAM stands for System Award Management.
To do any business with the federal government, you must register your business in the System for Award Management directory. The government will not hire any type of business (large or small) that has not registered in the SAM directory.
Please read one of the helpful blog articles on our site like Everything You Need to Know About SAM for Small Businesses. These blogs will help give you all the information you need to understand how we can help make the process very easy for you. Sam Directory will happily guide you through this often confusing process. With our help, you will be able to be on the path to government subcontracting quickly and efficiently.