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Small Business Tackles More Federal Contract Risks

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Contractor Looking at a gap in a bridge

Congress' most recent round of action and delaying tactics mean a continued federal fiscal squeeze in the face of uncertainty. Expect federal buyers to push contractors to the limit of risk and resources -- because buyers have no resources left to absorb the risks.  There will be some sharp short term adjustments as many projects get cut.  That uncertainty and pressure is making small business owners think hard about whether it's worth getting into the federal market. It's also driving others  -- like an 18-year-old multimillion dollar firm with experience in over a dozen agencies -- to make major investments to sustain their federal success.

"The knowledge [we] need to protect our businesses is crazy. What we need our Program Managers and our Operations people to know is not like it was 5 or 10 years ago. It’s not just about forecasts, small business set-asides and relationships anymore."

~ Marissa Levin, CEO, Information Experts

When Congress cuts a Federal buyer's money, the project risk of failure rises because there's less money to pay for essential changes in requirements.

Business as usual isn't the same as ten years ago. Sure, your federal contract still includes a lot of provisions about things thatmighthappen.  But how ready would you be if theydidhappen?

Here's just one example: tight budgets mean incrementally-funded contracts will get funded at lower levels. So those projects will need to get topped up more often…and it's up to the contractor to watch out for when the money's running low.  Contractors need to keep close track of when they expect a project's costs to reach 75% of total funding within 60 days. That threshold triggers the Limitation of Costs and Limitation of Funds Clauses (check out the details in Federal Acquisition Regulation Subpart 32.7.)  Funds might get topped up…but you can't count on that as much these days.

What can you do? Most importantly, don't work at risk. Did you know? Contractors are not obligated to keep working beyond the contract ceiling if the funds aren't available. In fact, you can issue a notice of intent to stop performance if funds are not obligated on time. Furthermore, if your fundingisdelayed, be sure to document the costs of all related delays and disruptions in support of a Request for Economic Adjustment.

The FARS say it's the contracting officer's responsibility to notify the contractor if additional funding isn't forthcoming, and to initiate termination.  That may be so, but contractors need to stay on top of this issue -- you don't want any surprises of either delays or cutoffs. 

It's high time to go back and read the fine print (and those clauses incorporated by reference) in your top revenue-driving contracts. Acquisition rules onlylooklike a Dark Art. In fact, they're your Defense  Against the Dark Arts: they explain what might happen, but also what you can do about that.

Thanks to Marissa Levin for bringing this issue to my attention and sharing a presentation (by Sam Davidson of Ryan Sharkey, who spent generous time explaining fine points to me, and Terry Elling of Holland and Knight) at an event sponsored by Access National Bank.

© 2012 — Washington Business Journal. Used by permission.

Mon, 01/07/2013 - 5:00am

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