The Esquire’s Letter
So you have a useful good or important service that the government – local, state, or federal – is buying and you want the government as a customer. And why wouldn’t you, the federal government spends over $400 billion a year with federal contractors; states like Maryland spend nearly $8 billion a year with government contractors. But doing business with the government, though lucrative, is complicated. Government agencies are notoriously slow to pay and the rules are oh so plentiful and complicated.
Still interested? Here’s what should you know before you sign your first or your next government contract:
1. What Type Of Contract Do You Have
The type of contract you have will determine the rules that apply and how you get paid. The goods or services offered and the duration of the arrangement will often dictate the type of contract. The following list includes some of the most common contract vehicles:
Fixed-price contracts provide for a set price, or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. A firm-fixed-priced contract provides for a price that is not subject to any adjustment on the basis of the contractor’s costs in performing the contract.
Cost-reimbursement contracts provide for payment of allowable incurred costs. The contract establishes an estimate of total costs for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed without the approval of the contracting officer.
There are three types of indefinite-delivery contracts: definite-quantity contracts, requirements contracts, and indefinite-quantity contracts. The appropriate type of indefinite-delivery contract may be used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award. These are also called delivery order contracts or task order contracts.
Time-and-material contracts are used when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.
A labor-hour contract is a variation of the time-and-materials contract, differing only in that the contractor does not supply materials.
2. Know the Rules
While guided by some of the same principals, government contracts are different than typical commercial contracts. The rules dictate the game. For instance the applicable rules will cover when and how you will be paid; dispute resolution procedures; ownership of intellectual property and what you must include in your subcontracts. Federal contracts are, for the most part, governed by The Federal Acquisition Regulation (FAR). FAR is a substantial and complex set of rules governing the federal government’s purchasing process. Its purpose is to ensure purchasing procedures are standard and consistent, and conducted in a fair and impartial manner. A link to the FAR can be found here. As you can see, it is both long and not necessarily easy to understand the interrelated parts.
Every state and local government has its own set of procurement and contracting laws, which like the FAR, aim to promote uniformity and fairness into the contracting process. Further, like the federal government each individual state agency may have additional rules specific to contracting with that agency.
Stay tuned next month for Part II of this article where I will discuss what, if any thing, you can negotiate in your government contract and what to do if you have a dispute. In the meantime check out this prior newsletter article regarding women-owned businesses and government contracting.
If you are looking for ways to partner with other companies to offer your goods or services to the government you should register for my course on Teaming Agreements with the Prince George’s Community College Center for Entrepreneurial Development.