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Know Your Client - Especially When It's The Government |
How to do business with the government successfully
By Colonel Ralph J. Capio
| Above
Picture: Colonel Ralph J. Capio, USAF (Ret.), is an
attorney with Armstrong Teasdale LLP and practices in government
and commercial contract work, contract relations, and international
affairs. Prior to his recent retirement from the U.S. Air
Force’s Judge Advocate General’s Department, he was legal
advisor for an organization responsible for more than $75
billion annually in foreign military sales and government
contracts. |
Doing business with the government is a prospect
that can create some angst, especially for those not routinely
engaged in what has become a very specialized practice. The all-too-often
reaction of most people when hearing this phrase, unfortunately,
are thoughts of bureaucratic red tape, excessive costs, and risky
exposure to complex rules and regulations. However, it can, and
should, equally suggest unique and potentially profitable business
opportunities with a “customer” that has diverse, and frequently
large, requirements, one that scrupulously complies with open
procurement policies, honors its contractual commitments, and
pays its bills on time!
As with other things in business, government contracting presents
something of a dilemma for companies. It is quite clear that government
contract business can present insurmountable obstacles to the
unwary, as well as excellent business opportunities to the initiated.
And, also as with other things, the more one knows about government
contracts, the more likely it is that one can resolve this dilemma
in his or her business favor.
Identified below are some of the most important aspects of government
contracting, if one is to successfully engage as a government
contractor. There is no reasonable way to cover such a broad topic,
of course, without necessarily being selective in choosing such
topics for consideration. But, with all due respect to David Letterman,
I would like to offer up these items as my “Top Ten Things To
Consider” if one is to be a successful federal government contractor.
Number Ten: Government procurement represents “big bucks.” Billions
of dollars are spent every fiscal year—at all levels of government,
both domestically and internationally—buying goods and services
necessary to satisfy some public need. This equates to unquestionable
business opportunities. If businesses routinely “disqualify” themselves
from participating in what can be a stable and large business
base merely because they are unfamiliar with the unique rules
and regulations of doing business with the government, they place
themselves at a great business disadvantage. With business comes
risk, certainly, but with knowledge comes the opportunity to both
measure and limit that risk.
Number Nine: It is quite true that the government procurement
process is driven by rules and regulations that differ from the
ordinary commercial market place. The procurement of goods and
services by the government is a unique activity, directed at the
public well being. It is in the nature of a trust, not merely
the doing of business. As such, it is dominated by specialized
rules and regulations designed to protect that trust, as well
as giving potential contractors fair and equal access to the system.
A government contractor must be aware of a host of specialized
statutes, rules and regulations designed to accomplish not only
the task at hand, but to do so with a wide variety of socio-economic
objectives also in mind.
Number Eight: For some of the reasons identified in Number Nine,
the government procurement process brings with it very well defined
and enforced ethics rules. Again, this is a situation that differs
from the ordinary course of commercial business. In the commercial
marketplace, one hopes and perhaps even expects, to deal with
people who comply with standards of ethical conduct. But, in the
government contracting arena, this is an absolute requirement.
It is an ever-present consideration when dealing with the government
procurement process. Government contractors, then, must be well
aware of the set of ethics rules against which they and their
government counterpart will be measured. By knowing what is expected,
contractors and their employees can steer a course through this
ethics minefield with impunity.
Number Seven: The substantive legal rules in the government procurement
process can be very different from those encountered in the commercial
marketplace. For example, the government is generally entitled
to enforce “strict compliance” with contract requirements, rather
than having to accept “substantial performance.” This is so, again,
because the government is operating in the public trust, it is
fundamentally important that the taxpayers’ funds be well spent
on defined requirements, and that the integrity of the procurement
process be maintained throughout. Thus, contractors seeking to
do business with the government must be well aware of the substantive
differences in the law they are likely to encounter, so that they
can act accordingly.
Number Six: Not all government personnel are vested with the authority
it takes to enter into or modify an existing government contract.
Unlike the law applicable to commercial contracts, the government
is not bound by what is called “apparent authority.” Only warranted
contracting officers are authorized to commit public funds in
the awarding of a government contract, or can modify an executory
contract. Government contractors must know with whom they are
dealing in the course of contract performance, and the limits
of their authority.
Number Five: There are a number of ways government contracts terminate.
The most desirable way, of course, from both the government and
contractors’ perspectives, is for the contract to be completed
according to its agreed upon terms and conditions, on time and
within cost. However, if changed circumstances require it, the
government has the undisputed right to terminate a contract for
its convenience. This “T for C” provision is unique in government
contracting, and legally justifiable only because the public’s
interest in having a remedy available to address changed circumstances
outweighs its interest in having “fixed” contracts, not subject
to unilateral termination. The very uniqueness of this unilateral
governmental prerogative carries with it business risk not ordinarily
present in the commercial marketplace. Government contractors
must be aware of this as a potential in every government contract,
and assess the likelihood of its occurrence as they would assess
any potential business risk associated with any project. Their
bid/offered price should reflect this assessment accordingly,
and then they should keep records that are complete and accurate
enough to support an impact claim, if their project is terminated
in
this way.
Number Four: In offering to perform government contracts, a government
contractor must know that the government has information needs
that greatly exceed those of his or her commercial trading partners.
The government often requires wide-reaching access to a business’
proprietary data, and its books and records. This generally has
no parallel in the commercial arena. In certain procurements,
the government can command the production of cost and pricing
data as preconditions to doing business, and these access rights
survive years after contract close-out. This is viewed by some
potential contractors as so onerous and intrusive that they would
choose rather not to do business with the government altogether.
Contractors wanting to do business with the government should
expect the government to ask for information and data not generally
released in the ordinary course of business. They should also
understand that the government is under very stringent requirements
to protect the data gathered in this way. Again, as in other business
transactions, this is an element that requires risk assessment.
Number Three: Government contracts very often involve change.
It has been frequently said that the one constant in government
contracting is change. As projects mature, as requirements are
refined, as resources — financial and otherwise — are made more
or less available, as new needs are identified, the government
must have the flexibility to proceed in the direction most appropriate
to satisfying its public service obligations. This requires contractors
to be prepared to match the government’s flexibility. Successful
government contractors will understand the changes process, and
the government contract clauses addressing change. This is incredibly
important if one is to minimize the business risk associated with
change, and the degree of project uncertainty inherent in most,
if not all, government contracts.
Number Two: While it is true that the consequences of succeeding
at a government contract can be very great for an individual contractor,
it is equally true that the consequences of failing can be equally
great, or even greater. In the unhappy circumstance where a contract
is terminated by the government for default, the consequences
can be severe. Not only does such an event impact instant contracts,
but “past performance” is almost always an evaluation factor in
the award of future government business. It is very difficult,
if not impossible, to simply walk away from a government contract
without incurring long-lasting consequences.
And, the Number One item for government contractors to consider:
It is very important that actual or potential government contractors
have access — in some form or fashion — to professionals who have
complete knowledge of the government procurement process, the
statutes and regulations governing it, and who have the ability
to maneuver successfully within the government bureaucracy. If
“to be forewarned is to be forearmed,” then the more one knows
about the process and its unique set of rules, the more likely
problems can be either avoided altogether or resolved in the most
satisfactory way possible. This is clearly one area of business
opportunity where risk is inextricably linked with one’s ability
to penetrate seemingly opaque rules, where the greatest dividends
are paid to those who know the process, and to those who systematically
plan and act according to those rules.
Doing business with the government can be extremely rewarding.
It carries with it the potential for a solid business base. It
also offers the sense of satisfaction that comes from doing something
for the public well being. It can also be very challenging. The
process is often complex, the sums involved are often large, and
the consequences for the firm can be both immediate and long-lasting.
But, with proper planning and the competent advice of contracting
and legal professionals, the risks of doing business with the
government can be well managed.
Colonel Ralph J. Capio, USAF (Ret.), is an attorney with Armstrong
Teasdale LLP and practices in government and commercial contract
work, contract relations, and international affairs.
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