More Information About Starting Your Small Business
|
Contractor Responsibilities |
Knowing what and how the government
buys is essential if a business owner is to be successful in government
contracting. Don't think, however, that you can relax once you receive
the good news that you have won a contract. Your work is just beginning.
If you cannot perform according to the terms of the contract, the
government will not get the product or service it needs and you may
find yourself in financial difficulty as well. The first thing
to do is to read the proposed contract carefully before signing
it. This may look like an imposing task, as some contracts may contain
many pages, depending on the type of contract and complexity of
what the government is buying. However, many contract terms and
conditions are "boiler plate." Once you read and understand
the terms, you will be familiar with them when they appear in your
next contract.
One important feature of the contract is the identity of the office
that will administer it. In most federal agencies this is usually
the same office that awarded the contract. In the Department of
Defense, however, the contract is generally assigned to a special
administering office. If you have any questions about the contract,
contact the office of administration. Do not proceed and find out
much later that you are not in compliance.
|
Specific Contract Administration Matters |
While federal contracts are similar
to commercial contracts, they are different in some very important
ways. They contain or make reference to many general contract provisions
unique to the government.
These provisions implement various statutory or regulatory requirements
applicable solely to federal contracts Some of the important matters
covered by these provisions are termination for default, termination
for convenience, contract changes, payments; specifications, and
inspection and testing. These matters are described in various parts
of the Federal Acquisition Regulations. The SBA's Office of Government
Contracting can assist you understanding these FAR provisions. |
Termination for Default |
Government contracts provide that
the government may cancel (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, and/or
- you fail to perform any provisions of the contract.
Before terminating a contract for default, the contracting officer
must, however, give you an opportunity to remedy defects in your
performance or show why your contract should not be terminated.
If your contract is terminated for default, you are entitled only
to payment at the contract's price for items accepted by the government.
If the government still needs the items that you failed to deliver,
it has the right to procure the same items elsewhere and, if they
cost more, charge the excess costs to you. This can be a very serious
and costly matter.
If you can show that your failure to deliver or to make progress
is excusable, your contract will not be terminated for default.
To be excusable, a delay must be beyond your control and not caused
by your fault or negligence. 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 government may unilaterally terminate
all or part of a contract for its convenience. This type of termination
does not arise from any fault on the part of the contractor. Termination
for convenience protects the government's interests by allowing it
to cancel contracts for products that become obsolete or unnecessary.
As with terminations for default, the government must give you
written notice of termination for convenience, but is not required
to give advance notice. The notice of termination will usually direct
you to:
- stop work,
- terminate subcontracts,
- place no further orders,
- communicate similar instructions to subcontractors and suppliers,
and
- prepare a termination settlement claim.
If you fail to follow these directions, you do so at your own risk
and expense. You should also receive detailed instructions as to
the protection and preservation of all property that is or may become
government-owned.
After termination for convenience, the government will make a settlement
with you to compensate you fully and fairly for the work you have
done and any preparation made for the terminated portion of the
contract. A reasonable allowance for profit is also included. |
Contract Changes |
Because the government's needs change
from time to time, government contracts contain a clause authorizing
the contracting officer to unilaterally order changes in the specifications
and other contract terms. The changes must be "within the general
scope of the contract." The contractor is obliged to perform
the contract as unilaterally changed by the contracting officer. A
change is within the scope of the contract if it can be regarded as
within the contemplation of the parties at the time the contract was
entered into. The government cannot use a change order to change the
general nature of the contract. The contractor is entitled to an equitable
adjustment in price and delivery schedule if changes are ordered. |
Payments |
The obligation to make prompt payments
for products delivered or services rendered is, generally speaking,
the primary obligation of the government on a procurement contract.
Payment is, naturally, of utmost importance to the small business.
Your contract will specify the government office responsible for payment
and will contain invoicing instructions. The more accurate your invoices,
the more quickly you will be paid, so it is important to understand
the payment process thoroughly. Prompt payment on all contracts serves
the best interest of both the contractor and the government. Under
certain circumstances if the government does not accomplish prompt
payment, you can submit a request for interest payments. (Reference:
Public Law 97-177, Prompt Payment Act.) Under fixed-price contracts,
the method of payment can vary with the dollar value of the contract.
For relatively small contracts with a single item of work, you will
generally be paid the total contract price in one lump sum. Payment
is made after the government accepts delivery. For larger contracts
with many items, you can invoice and receive partial payments. For
example, in a contract for 120 units with a delivery rate of 10
per month, you can invoice each month for the price of delivered
(and accepted) items.
Larger fixed-price contracts and subcontracts where the first delivery
is several months after award may contain a clause permitting you
to receive progress payments based upon costs incurred as work progresses.
Because progress payments are based on work that is not completed,
you must repay them if you fail to complete the work. To protect
its interest, the government takes 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 federal government has exact specifications
for most of the products and services it buys on a regular basis.
In all likelihood, your contract will contain such precise specifications.
In fact, the specifications -- which describe the government's requirements
-- were contained in the invitation for bids or request for proposals
on which you based your bid or proposal. Once an award is made
to your company, you are contractually bound to deliver the product
or service described in the specifications. Sometimes, the basic
specifications will make reference to and incorporate other federal
specifications. You are, of course, bound by the terms of these
specifications as well as the basic specifications. Failure to deliver
a product meeting these terms may result in termination of your
contract by default.
Accordingly, as mentioned previously, never bid on a contract unless
you have read and understood all of the specifications. Also, read
the specifications again before you start work under the contract. |
Inspection and Testing |
Government contracts provide that
the government may inspect and test the items you deliver to determine
if they conform to contract requirements and specifications. The government
will not accept a contractor's product unless it passes inspection.
The type and extent of inspection and testing depend largely on what
is being procured. |
Special Recommendations and Advice |
In addition to knowing the item you
are manufacturing or the service you are providing, you should have
a working knowledge of government contracting procedures, some of
which are explained in this publication. You should also be aware
of the following:
- As you have learned, the government conducts its business through
authorized agents called contracting officers. Only a contracting
officer has authority to bind the government, unless you are otherwise
advised in writing. However, even contracting officers have limits
on their authority, so do not hesitate to make sure of the authority
of the person with whom you are dealing.
- Government procurement has historically been used as a vehicle
for advancing various national, social and economic objectives.
As a government contractor, you will be required to comply with
the labor standards statutes (Service Contract Act, Contract Work
Hours and Safety Standards Act, etc.) and other statutes advancing
national socio-economic objectives, except for certain contracts
where such legislation is specifically stated as non-applicable.
- You should become familiar with the contract provisions protecting
the integrity of the government procurement process. These provisions
include the "officials not to benefit" clause, the "anti-kickback"
provisions, the "gratuities" clause, etc.
- Disputes between you and the contracting officer may occur under
the contract. Federal contracts contain a clause setting forth
procedures to resolve disputes. If the contracting officer issues
a decision that is not satisfactory to you, you must make a timely
appeal or the decision becomes final. Appeals are heard by the
Board of Contracts Appeal.
- Do not attempt to build something bigger, better or different
than called for by the contract. If you do, it may be too big
or too heavy or may not fit and the government will not accept
it. Simply comply with the contract terms, particularly the specifications.
- If your contract requires production, establish a production
control schedule to assure that you will have the right materials
in-house at the right time to meet delivery requirements. Make
sure to place any subcontracts promptly and schedule delivery
of subcontracted items carefully to avoid over-or-under stocking.
If it appears you will not meet your schedule, notify the administration
office immediately to obtain assistance. Failure to deliver on
time gives the government the right to cancel your contract, with
possibly disastrous results to you.
- One of the first things that must be done by a small business
is to market to the Federal government. The best ways to start
include registering on SBA's PRO-Net database, and contracting
the agency's office of small and disadvantaged business utilization
(OSDBU).
- Being e-commerce savvy is very important in doing business with
the federal government. For example, if you want to do business
with the Department of Defense, you must be able to invoice and
receive payments electronically. Therefore, small business owners
interested in doing business with the federal government should
master electronic commerce.
|
|