10 Common Traits Among Successful Small Business Government Contractors

As a volunteer counselor over the last 19 years, I have noted common traits among the most successful small business federal government contractors.  The following are 10 of the most prominent traits and tips on how successful small companies developed them. 

Commercial success before entering government contracting.  From maintaining buildings to keeping the lights on, from grounds maintenance to flight maintenance, look for niches that can be pursued based on successful past performance, transitioning via industry teaming via subcontracts, partner roles with larger companies or in small business set aside orders for minor items and simpler services provided directly to the government.  Your Entry Points

Willingness to concede there were things they did not know and seeking advice early.   You may download the book, SmallBusiness Federal Government Contracting and its supplement from the "Box" in the right margin of this site.  You may also benefit from the free "Reference Materials". Contract agreements, incorporation instructions for all the US states, guidance on marketing and business planning are also included.   Free Books and Supplements

Recognition of the value in industry teaming. Synergism is paramount in teaming with any size company, whether in a lead or subcontracting role. There should be technical, management and market segment similarities between you and any company with whom you are considering teaming. Your prospective team member ideally will not be a direct competitor; rather a business in a related field with whom you share a mutual need for each other's contributions in pursuing large-scale projects. Small Business Teaming in Government Contracting 

Strong capability statement (CAPE) development, networked prudently among government agencies and large government contractors. Your CAPE targets contracting officers and prime contractor buyers who are seeking to fulfill their small business buying goals. It is a way to get you in the door and speak to, or correspond with, the management and technical personnel who are the decision makers in sourcing small business buys.  A good quality CAPE is the spearhead of your marketing campaign and your visual image;  focused and direct, it must be informative, concise and a snapshot of the very best you can offer. Your Capability Statement

Maximizing set-aside qualifications in seeking both prime and subcontract opportunities. Small business group-designated procurements are far more frequent than sole source contract awards.  Agencies must prepare special justifications for sole sourcing and those most frequently approved are for Hub Zone and Small, Disadvantaged [8(a)] firms.  Small business group designations are beneficial to firms who hold them by enhancing the probability of an award through agency restrictions on prime contractor bidding to only those who hold the group designation. Others may bid as subcontractors to the prime but the prime small business contractor must be capable of performing at least 51% of the total effort in terms of work scope, hours and dollars. Marketing to Achieve a Small Business Set-aside Contract

Prudent bid/no bid decisions. Government contract proposal preparation is time consuming and can be costly. Meeting agency Request for Proposal (RFP) requirements with a responsive proposal can be well worth the effort if a winning strategy can be formulated.  When considering a proposal to a given government solicitation, conduct a bid/no bid exercise. By going through that process you will begin formulating your win strategy or you will discover that you should not bid the job for lack of such a strategy. Making an Astute Bid/No Bid Decision

Ethical business conduct and avoidance of conflicts of interest. A small business ethics image is different than a product or service "Brand Identity". The latter focuses on that which the customer receives from you in the way of products and/or services. A company ethics image is how the organization is viewed in general from a public perception as positive or negative.  That view is held by customers, your industry partners or prospective partners, regulators and the average citizen. If carefully sculpted your public ethics image can be a vital element in business success; if neglected it can pose a high risk to your enterprise.  Maintaining an Ethical Company Image

Excellence in risk analysis. The challenges and difficulties for the small business in government contracting are not so much in the areas of barriers as  they are in lack of knowledge (which I concede is a form of barrier but one that can be dealt with) Large business and government agencies take advantage of the small enterprise lack of knowledge or make poor assumptions regarding what a small business knows about the Federal Acquisition Regulation (FAR) and associated Cost Accounting Standards (CAS). This leads directly to abusive practices. Managing Small Business Risk

 Solid long range planning and plan maintenance. The time to consider separating government from commercial work and/or establishing new cost centers for bidding, accounting and billing purposes is when the enterprise is generating a long range marketing plan to determine rates for bidding new long term contracts. The location of the work (both geographic location and whether performance is in or out of a government facility, its duration, skill set requirements, government-mandated fringe benefits for workers and the competition are all factors to consider).Strategic Planning for Small Business

Excelling in meeting the past performance challenge, building a performance record with solid customer service and sensitivity.  How can a new organization or one that is new to government contracting muster a response to the past performance challenge? The answer lies in historical projects that may be similar in the commercial arena and a high quality proposal that clearly demonstrates an understanding of the requirement at hand, a unique and cost effective project plan and high performing personnel and/or products tailored to the statement of work to offset an interim, light past performance record. Meeting the Past Performance Challenge

Vital Tips for Project Management in Small Business Federal Government Contracting

Effective small business project management focuses the resources on a plan for contract execution, the schedule, budget and customer requirements baseline and the status of a given effort among other concurrent projects to give visibility into problem solving and management trade offs.

If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your project management challenge is minimal.

A service contractor faces a far greater challenge in understanding the nature of government contact project management and succeeding at it
.
PLANNING IS KEY

Strategic thinking must be applied to structuring a government service contract project management capability in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work and control it while interfacing with the customer.

A Framework For Small Business Federal Government Contracting Business Systrems

When one plans in detail to define the product or the service one reduces performance risk

The project management challenge is not to launch significant and costly resources before the specification for the product is sufficiently defined, obviating the need for costly revisions or abandonment, yet knowing when the product definition and plan are suitable for release.
Good project management starts early.

Without a well written Statement of Work (SOW) and associated supplies  and services specifications there is unacceptable risk in the future  contract and is it exceptionally high risk to bid or contract the job. 
Both the contractor and the customer must come to an understanding regarding the scope of effort to be performed. That understanding is conveyed in the Statement of Work (SOW) and confirmed in the specifications referenced therein.  A good SOW should have the following principal attributes:

* Clear identification of the products, services, skills, materials and performance factors required to complete the contract

* A description of the conditions under which the contractor will be required to perform and any related environmental or location factors

* Specific references to product specifications that govern an acceptable product or services performance outcome and delivery  acceptance

* A schedule for the contract that identifies discrete delivery dates for products and specific start and end dates for supporting labor.

* A precise description of customer furnished material or facilities required and when it will be made available to the contractor.

If your customer does not provide the above, offer the document during the comments period, during your proposal or during negotiations that represents a version to which your company will commit. 

Do not let the fact the program is competitive sway you from the facts. Signing off on a poorly written SOW results in a difficult contract to manage, a high probability for disputes during the  contracting period and a poor past performance record you will have to  deal with in the future on other jobs.

PROJECT MANAGEMENT RULES OF THUMB

A secondary and related challenge is managing the baseline for the product or service to avoid scope creep, superfluous bells and whistles and other diversions that risk the basic completion objectives. 

Set a baseline for what can and cannot be achieved for the resources and time that have been committed to the job and present to the client.  Use it as a bench mark for discussion to establish a plan going forward. Then control it using sound baseline management. 

Stay away from "Scope Creep" that can kill a contract, a customer relationship and a past performance record, all of which are important to your business. Stay in front of "Scope Creep" by communicating positively with the customer to control the baseline, keeping cost, schedule and technical performance integrated and synchronous.

Use the below rules of Thumb to control "Scope Creep":

KNOW - The contract value and its ceiling amount

KNOW - The incurred cost to date and commitments

KNOW - The scope of work and whether or not your current efforts are supporting it or some other objectives

KNOW - The estimated cost at completion based on where you are at today

KNOW - Your customer and who among the customer population is prone to direct out of scope effort.

 KNOW - WHEN TO SAY "NO" to "Scope Creep" and say it officially in   writing to the contracting officer specified in your contract.

For baseline management and earned value techniques in achieving the above, please see the articles linked below:

Baseline Management In Small Business Contracting

Earned Value Management Systems

CAREFULLY SELECT YOUR PROJECT MANAGER(S) OR PERFORM THE ROLE YOURSELF

The following are the more esoteric project manager attributes necessary in the government contracting industry:

DEVELOPING the ability to cross organizational lines and make disparate groups or functional organizations work together with only a power of persuasion and a contract.

EVOLVING the art of directing resources without having them as direct reports while keeping home departments and functional bosses happy at the same time.

MANAGING to convince the executives in the company that specific project (s) are the most important in the firm.

LIVING with the prospect that if the project is late, fails or otherwise disappoints the powers that be, replacing the project manager will be the designated corrective action.


GROWING to crave the satisfaction that comes from succeeding at the above challenges and you would not have any other job because no other pursuit makes your day go as fast, grows you skills as sharp and totally occupies your intellect.

Protecting Intellectual Property And Proprietary Data In Federal Government Contracting

Contractual relationships established directly with the US government or subcontracts and purchase orders under government contracts with other companies must contain provisions for the protection of intellectual property and proprietary data. This article will address the major processes by which that protection is achieved.

RIGHTS IN TECHNICAL DATA AND SOFTWARE

The Defense Federal Acquisition Regulation (DFAR) contains the most widely used provisions by a federal agency that allow a contractor, subcontractor or supplier under government contracts to assert ownership or protective rights for specific technical data and software. Keep in mind that the more a company has invested in a technology, a product or a system the higher the level of protection available under the DFAR. If the government has or will invest in the technical data and software then the level of protection that can be asserted diminishes and the government begins to assume ownership and attendant control of the related intellectual property.

It is important during the solicitation and proposal stage to assert rights in technical data and software so the business relationship is clearly understood by all parties and appropriate protective markings, licensing and related measures can be covered in the contractual documentation. The following information in the DFAR should be studied to ascertain how to appropriately assert rights during proposals to the government and to prime contactors:

SUBPART 227.71—TECHNICAL DATA AND ASSOCIATED RIGHTS

SUBPART 227.72—COMPUTER SOFTWARE, COMPUTER SOFTWARE DOCUMENTATION, AND ASSOCIATED RIGHTS

The government does not sign agreements to protect specific data, abiding instead by the DFAR-specified assertions regarding ownership and use of technical data and computer software as they are negotiated in contracts. The government will comply with specific marking and identification of proprietary data. Details on these markings are provided at the conclusion of this article.

NON-DISCLOSURE AGREEMENTS BETWEEN COMPANIES

When two companies begin an exchange of information that may lead to a mutually exclusive business arrangement under a government contract, a Non-Disclosure Agreement (NDA) is generally signed to protect proprietary data.

The first page of such an agreement is on the left in the illustration below. The entire document may be obtained free of charge by downloading it at the "Box Net" cubicle in the right margin of this site.

TEAMING AGREEMENTS BETWEEN COMPANIES

When two companies agree to form a mutually exclusive agreement to prepare a proposal as a team to a government agency a teaming agreement is generally executed. The first page of such an agreement is on the right in the illustration below . The entire document may be obtained free of charge by downloading it at the "Box Net" cubicle in the right margin of this site.

A teaming agreement remains in force until it is replaced by a subcontract from the lead company to the following company upon award of the prime contract. In the case of a joint venture, the prime contract award results in two contracts from the joint venture contract level to the respective participating company levels.

PLEASE CLICK ON ILLUSTRATION OR DOWNLOAD TO ENLARGE

PROTECTING RATE INFORMATION BETWEEN COMPANIES

It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.

Assuming everyone pays a generally similar labor rate on the market to retain employees and that fringe costs about the same for everyone, then overhead and G&A are what wins and loses jobs and specific, company internal overhead rates are very closely held.

Companies do not disclose the details of their rates to other companies and they do not expect to see another company's proprietary rate information. So companies view each other’s rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.

If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, 'Government Eyes Only'. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.

DCAA or federal agency pricing analysts perform detail audits of subcontractor rate information but prime contractors are not provided the result. An audit statement by the government that the subcontractor detail rate support is acceptable or not acceptable is all that is provided to the prime contractor.

Government auditors do not make value judgments or negotiate; they review the logic and support for rates, check the math and provide a report to the government contracting officer who will conduct the negotiations, if any.

PROTECTIVE MARKINGS FOR PROPRIETARY DATA SUBMITTED TO THE GOVERNMENT AND TO A PRIME CONTRACTOR

Your proposal data may contain rate information, proprietary data or strategic technical solutions that you would not want to fall into the hands of a competitor. The government does not sign Proprietary Data Agreements (PDA's). Examples of the government's obligation to protect your information are covered under the DFAR rights in technical data and software assertions discussed above and in the following FAR clause that requires protective markings by you on the title page of your document and on each subsequent page.FAR 15.509 Limited use of data:

(a) A proposal may include data that the offeror does not want disclosed for any purpose other than evaluation. If the offeror wishes to restrict the proposal, the title page must be marked with the following legend:

"The data in this proposal shall not be disclosed outside the Government and shall not be duplicated, used, or disclosed in whole or in part for any purpose other than to evaluate the proposal; provided, that if a contract is awarded to this offeror as a result of or in connection with the submission of these data, the Government shall have the right to duplicate, use, or disclose the data to the extent provided in the contract. This restriction does not limit the Government's right to use information contained in the data if it is obtainable from another source without restriction."

(b) The offeror shall also mark each restricted sheet with the following legend:

"Use or disclosure of proposal data is subject to the restriction on the title page of this Proposal."

(c) The coordinating office shall return to the offeror any unsolicited proposal marked with a legend different from that provided in 15.509(a). The return letter will state that the proposal cannot be considered because it is impracticable for the Government to comply with the legend and that the agency will consider the proposal if it is resubmitted with the proper legend.

Organization Conflict of Interest (OCI) In Small Business Federal Government Contracting

 

                                       Image: purchasinginsight.com

INTRODUCTION

While planning, marketing, teaming, proposing or performing under federal government programs (particularly service contracts) the small business will encounter the term, "Organizational Conflicts of Interest" or "OCI". The term has been established by the government as part of the process to control procurement integrity.

OCI clauses in solicitations and contracts require that companies certify their organizations and personnel do not have a procurement integrity issue with regard to a pending contract award or disclose what may be deemed an issue and provide mitigating factors to still be considered.

This site has discussed procurement integrity and the law at the following article:

Procurement Integrity and the Law

Meeting OCI requirements involves strategic planning to avoid situations where your company, your management and/or your personnel are placed in potentially compromising positions while government contracting in your industry.

An apparent win can be delayed indefinitely by a competitor protest claiming OCI. Government actions after the fact if an OCI violation is uncovered will be annotated to a contractor's past performance history and in severe cases result in disbarment from government contracting.

This article will define Organizational Conflict of Interest (OCI),  discuss situations under which OCI issue are likely to occur and recommend strategic planning and processes to manage the requirement. 

DEFINITION

The term "organizational conflicts of interest" means that a relationship or situation exists whereby an offer or a contractor has past, present, or currently planned interests that either directly or indirectly (through a client, contractual, financial, organizational or other relationship) may relate to the work to be performed under the forthcoming contract and:

 (a) may diminish its capacity to give impartial, technically sound, objective performance

 (b) may result in it having an unfair competitive advantage.

It includes chief executives and directors, to the extent that they will or do become involved in the performance of the contract, and proposed consultants or subcontractors where they may be performing services similar to the services provided by the prime contractor. 

It does not include the normal flow of benefits from the performance of the contract.

EXAMPLES

1. Competing for a management/services contract that might require the contracting company to evaluate its own or its competitors’ products for use by the government

2.  Competing to supply products/services for which you have designed the specifications

3.  Access to other companies’ proprietary information that has not been authorized for use in landing/performing the contract

4.  Access to other companies’ proprietary information obtained by leveraging the contract in question, which might provide an unfair competitive advantage.

The below article in the Washington Post addresses an apparent blatant example of OCI:

OCI Case Sheds Needed Light On Government Contracting

TYPICAL OCI REPRESENTATION AND DISCLOSURE

Below are exampes of typical representation certifications and disclosure statements required by OCI regulations.   For a given procurement either the Representation or the Disclosure is submitted - not both:

OCI REPRESENTATION STATEMENT

I hereby certify (or as a representative of my organization, I hereby certify) that, to the best of my knowledge and belief, no facts exist relevant to any past, present or currently planned interest or activity (financial, contractual, personal, organizational or otherwise) which relate to the proposed work; and bear on whether I have (or the organization has) a possible conflict of interest with respect to (1) being able to render impartial, technically sound, and objective assistance or advice; or (2) being given an unfair**competitive advantage.

Signature: Date:

Name : Organization:

Title :

OCI DISCLOSURE STATEMENT

I hereby certify (or as a representative of my organization, I hereby certify) that, to the best of my knowledge and belief, all relevant facts--concerning past, present or currently planned interests or activities (financial, contractual, organizational or otherwise) which relate to the proposed work and bear on whether I have (or the organization has) a possible conflict of interest with respect to (1) being able to render impartial, technically sound, and objective assistance or advice, or (2) being given and unfair**competitive advantage--are fully disclosed on the attached page(s) and formatted to show:

o For ease of presentation, divide following data into four parts: Organizational,
contractual, financial, other;

o The company, agency, organization in which you have a past, present, or currently planned interest or activity (financial, contractual, organizational, or otherwise);
 
o A brief description of relationship;

o A period of relationship;

o The extent of relationship (e.g., value of financial interest of work; percent of total holdings, total work, etc.).


Signature:


 Date:

** An unfair competitive advantage does not include the normal flow of benefits from the performance of the contract. 

STRATEGIC MANAGEMENT FACTORS

When considering the implications of OCI, examine your strategic plan for the following factors:

1.   Examine your market niche and what aspects of it would be subject to OCI as a function of your company role in it or the roles of past and future  personnel and suppliers or prime contractors. 

2.   If you are considering becoming  a SETA contractor determine what portion of the market in your industry will be unavailable to you in that role.  Systems Engineering and Technical Assistance (SETA) contractors are civilian employees or government contractors who are contracted to assist the government (In some areas of DOD, the acronym SETA refers to "Systems Engineering and Technical Assessment" contractors; also refers to "Systems Engineering and Technical Analysis.")  SETA contractors provide analysis and engineering services in a consulting capacity, working closely with the government's own staff members. SETA contractors provide the flexibility and quick availability of expertise without the expense and commitment of sustaining a government staff long-term.

3.  Bear in mind that non-disclosure agreements and OCI requirements for major programs have long term implications and expiration dates. 

4.  Keep in mind that subcontractor and prime contractor relationships also bear on OCI.  Vet your prospective teaming companies and suppliers carefully with regard to the OCI impact they may have on ventures you undertake and flow the requirement down to them in the early stages of any teaming agreement with them. 

5.  Carefully consider the following guidance from FAR Part 9.505:
 
“Each individual contracting situation should be examined on the basis of its particular facts and the nature of the proposed contract. The exercise of common sense, good judgment, and sound discretion is required in both the decision on whether a significant potential conflict exists and, if it does, the development of an appropriate means for resolving it. The two underlying principles are—
 
(a) Preventing the existence of conflicting roles that might bias a contractor’s judgment; and
 
(b) Preventing unfair competitive advantage. In addition to the other situations described in this sub-part, an unfair competitive advantage exists where a contractor competing for award of any Federal contract possesses — Proprietary information that was obtained from a Government official without proper authorization; or  Source selection information (as defined in 2.101) that is relevant to the contract but is not available to all competitors, and such information as would assist that contractor in obtaining the contract.”

CONCLUSION AND RECOMMENDATIONS

If a potential for a conflict of interest is real, it is best to make that fact a principal factor in your bid/no bid decision.

If you feel the risk could be mitigated and an effective OCI management plan could be submitted as part of your proposal to the government then carefully establish how such practical matters as firewalls, OCI certifications and clearances at the individual worker level will be handled.

Keep careful records of all written certifications and commitments in the form of NDA's, Teaming Agreements and OCI Certifications and Disclosures.  Review them on a regular basis for renewal, expiration and in connection with bid/no bid decisions.

Be open and honest in your presentation of the facts to the government.  Your past performance rating will take a major hit if OCI is uncovered after award and you have not made full and open disclosure previously.

NOTE:  Comments at this post have been maintained from previous discussions on this topic at "Small to feds" in the interest of demonstrating the often complex nature of the OCI process.

Managing Risk And Recovery In Federal Government Contract Terminations

On occasion the government finds it necessary to terminate contractual arrangements with contractors. FAR Sub-part 49.5 governs such actions. There are  two common forms of contract termination that you should know about and how to manage them.

GENERAL CONSIDERATIONS

Certain conditions are usually present when contact termination is on the horizon. These factors range from product and services obsolescence to developments that change the direction and amount of agency funding. They may also include customer relations difficulties or changes in the mission of an agency.

It is best to manage the risks associated with terminations by viewing them in the light of funding and performance liability. We have previously discussed limitation of funds and funding exposure in the following articles:

Limitation of Funds and Funding Exposure

Contract Baseline Management

If it is generally known, for instance, that if the government is having funding challenges in terms of justifying the next phase of a program, your company should carefully monitor incurred costs and commitments so they do not exceed the existing funding on the contract.

Moreover, if performance on a particular contract has been sub-par, deliveries have been late and corrective action has not remedied the situation, the reality of a termination for default should be assessed from a liability perspective; particularly concerning costs the government may bill the contractor for inconvenience. Receipt of "Show Cause" notices or "Cure Letters" are signs the government is positioning a justification for contract termination.

Terminations for default are particularly harmful to a contractor's past performance rating on federal government contracts:

Contract Past Performance Record

The remainder of this article will focus on each of the two major types of terminations and how to manage each.

TERMINATION FOR CONVENIENCE

This form of termination arises from standard clause(s) in your government contract that give the government the right to unilaterally terminate the contract at any time with or without giving any reason. The contractor is generally entitled to a negotiated settlement for an equitable recovery of costs and losses incurred. Please see the following link for applicable clauses:

Subpart 49.5 Termination Clauses

A termination for convenience is the least risky form of termination to the contractor. Although receiving a notice that your contract is being terminated for convenience is never good news, it does offer the opportunity to recover costs you have incurred and those you estimate will impact your business due to the termination.


Actions necessary:

1. First, insure your costs to date, plus commitments have not exceeded the funding level of the contract. If they have, consider asking for a funds amendment to your contact to cover the overrun. It may not be granted by the government. Next, immediately notify departments internal to the company with regard to the termination and inform them that their charge numbers for the program have been closed. Close all charge numbers. 

2. Notify all suppliers and subcontractors with respect to the contract termination, direct that they cease work, discontinue deliveries and submit to you a termination proposal containing itemization and costs associated with terminating their order or contract. You will negotiate with your supply chain and include their costs in your termination settlement proposal to the government.

3. Open a contract termination charge number for selected use by those who are associated with the termination to charge related time and expenses for ceasing work, inventorying material, supporting a termination proposal, dealing with suppliers, handling special requests or other direct efforts to cease work. It makes no difference whether the individuals are direct or indirect in their normal time keeping. This special accounting charge number will be utilized to record the cost to your firm for terminating the contract and proposing a settlement to the government. 

4. Complete your contract termination settlement proposal and submit it to the agency contracting officer to meet the date specified by the agency for same.

Termination Contract Settlement Proposal

5. When the contract termination settlement proposal has been negotiated and formalized with an amendment to closeout the contract in accordance with the following government approved practices:

Government Contract Closeout

TERMINATION FOR DEFAULT

A termination for default rises from standard clause(s) in your contract that give the government the right to unilaterally terminate the contractor if the contractor fails to perform according to the specified terms. The contractor is generally not entitled to any payment for the unfinished part of the contract and, instead, may be liable for (1) repayment of monies advanced, (2) liquidated and other damages and (3) excess cost incurred by the government in completing the contact under a new contractor. Please see the following link for applicable clauses:

Subpart 49.5 Termination Clauses

The Government contracting officer will terminate a contract for default when he or she determines that the contractor has failed to adequately perform in accordance with the contract. The Default clause applicable to fixed-price contracts limits the Government's liability for unaccepted work, subjects the contractor to actual (or liquidated) damages, and may subject the contractor for the excess cost of re-procurement. Moreover, the default becomes part of the contractor's past performance record which will harm the contractor's ability to compete on future contracts. Because the Government is not liable for work not accepted, the termination for default has a greater adverse consequence on supply contracts than service and construction contracts.

The government may terminate all or part of a contract for anything that was done that was not in the interest of the government, including:

• Attempted fraud

• Failure to meet quality requirements

• Failure to deliver the supplies or perform the services within the time specified in the contract

• Failure to make progress and that failure endangers performance of the contract

• Failure to perform any other provisions of the contract.

Cure Notice

Before terminating a contract for default because of your failure to make progress or to perform, the contracting officer will usually give you a written notice, called a "cure notice." That notice allows you at least 10 days to cure any defects. Unless the failure to perform is cured within the 10 days, the contracting officer may issue a notice of termination for default.

Show-Cause Notice 

If there is not sufficient time for a cure, the contracting officer will usually send a show-cause notice. That notice directs you to show why your contract should not be terminated for default. It ensures that you understand your predicament, and your answer can be used in evaluating whether circumstances justify default action.

If a contractor succeeds in appealing the termination for default, the default is usually converted into one for the convenience of the Government.

Actions Necessary:

1. When a termination for default is at hand, contact a law firm that specializes in government contract terminations and proceed within the guidance offered by them in pursuing any part of the termination that could be converted to a termination for convenience or other form of relief with respect to conditions over which you may not have had control or for which you may be entitled to a request for equitable adjustment or contact claim.

2.  You should also proceed in accordance with paragraphs 1 through 3 of the Terminations for Convenience section above to limit your internal and supplier liability as well as isolate costs associated with the termination for a potential settlement or claim.  

When the contract has been amended by termination for default, close out the contract in accordance with the following government approved practices:

Government Contract Closeout

SUMMARY

Contract terminations should be avoided if at all possible. They are expensive on the part of both the government and the contractor. The negative aspects of a termination for default, in particular, can last for years in government contractor past performance data bases.

Your Rights and Obligations Under a Government Contract Stop Work Order

 

During government shutdowns or other circumstances where the government reserves the right to order a cease work, actions must be taken recognizing receipt of the stop work order and the relationship of the order to resumption of effort, funding constraints, contract terminations and associated business risk.

PURPOSE

The purpose of a stop work order is to immediately bring to a halt the effort on a contract and any further performance and related cost against that contract. 

It is usually necessary when unforeseen circumstances necessitate the action, such as the government shutdown or similar exigencies. An example of a clause that appears regularly in most government contracts, reserving the government's rights to stop work, is as follows:

"Stop-Work Order (Aug 1989)

(a) The Contracting Officer may, at any time, by written order to the Contractor, require the Contractor to stop all, or any part, of the work called for by this contract for a period of 90 days after the order is delivered to the Contractor, and for any further period to which the parties may agree. The order shall be specifically identified as a stop-work order issued under this clause. Upon receipt of the order, the Contractor shall immediately comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage. Within a period of 90 days after a stop-work is delivered to the Contractor, or within any extension of that period to which the parties shall have agreed, the Contracting Officer shall either—

(1) Cancel the stop-work order; or

(2) Terminate the work covered by the order as provided in the Default, or the Termination for Convenience of the Government, clause of this contract.

(b) If a stop-work order issued under this clause is canceled or the period of the order or any extension thereof expires, the Contractor shall resume work. The Contracting Officer shall make an equitable adjustment in the delivery schedule or contract price, or both, and the contract shall be modified, in writing, accordingly, if—

(1) The stop-work order results in an increase in the time required for, or in the Contractor’s cost properly allocable to, the performance of any part of this contract; and

(2) The Contractor asserts its right to the adjustment within 30 days after the end of the period of work stoppage; provided, that, if the Contracting Officer decides the facts justify the action, the Contracting Officer may receive and act upon the claim submitted at any time before final payment under this contract.

(c) If a stop-work order is not canceled and the work covered by the order is terminated for the convenience of the Government, the Contracting Officer shall allow reasonable costs resulting from the stop-work order in arriving at the termination settlement.

(d) If a stop-work order is not canceled and the work covered by the order is terminated for default, the Contracting Officer shall allow, by equitable adjustment or otherwise, reasonable costs resulting from the stop-work order.

(End of clause) "

ACTIONS

A stop work order is to be taken literally.  Under a stop work order the government makes no guarantees it will take any further deliveries whatsoever, regardless of the contract type. A stop work order means just that.  Stop work and stop incurring cost. 

Upon receipt of a stop work order you have no guarantee of payment for any transaction date-stamped in your accounting system after the date of the stop work order (or the commencement date of a stop work order specified in a Contracting Officer's Letter).

 I suggest clients receiving these orders close the charge numbers applicable until the stop work order is lifted with an order to resume effort and immediately notify any effected suppliers and subcontractors to do the same.

To the degree the government has made progress payments or has any other form of payment invested in the product to date it has ownership rights in the product. If that is the case treat the physical material work-in-process as government owned, store it as such without performing any more effort on it and await further disposition.

To the degree the government has not paid anything on the contract or delivery order they have no ownership rights to the product and you are free to complete it and sell it to another customer (commercial or government) that has not stopped work. If the government recommences the order, quote a new price and delivery from ground zero.

At the bottom line a stop work is blunt and to the point.  Treat it as if you will never hear from this customer again to manage the risk.  

To the degree you do hear from the CO again and he or she has the funding to recommence work, be prepared to submit a proposal for what it will take to start the effort and a realistic delivery schedule to complete it, but do not build any retroactive costs incurred during the stop work period into your pricing and expect to bill them; that may not come to payment fruition. 

CONTRACT TERMINATIONS AND FUNDING CONSTRAINTS

Note that in the above cited clause the government discusses resumption of work and contract terminations as options.

Hypothetically at some future date the government could terminate the  contract without taking delivery and the contractor will then submit a termination proposal for recovery of costs and disruption. 

Contract Terminations

When a stop work order is lifted  the contract or the delivery order is open to negotiation on both price and delivery under the equitable adjustment and changes clauses in the FAR provisions of the contract.

At that time, you should inform the government that you are pleased to resume work, but under revised price and delivery conditions as specified in a proposal for equitable adjustment

You should not resume work until a contract or work order amendment is received granting the price and delivery relief to contract requirements commensurate with negotiation results under your proposal for equitable adjustment.

In short, time is money.

If your contract was adequately funded and remains so when work commences and assuming you negotiate acceptable terms and conditions you can proceed with low risk.  If the funding on the contract is low at the time of recommencement, it is recommended you request additional funding and handle that matter in accordance with the article linked below.

http://www.smalltofeds.com/2007/09/limitatoin-of-funds-and-funding.html

SUMMARY

Stop work orders are serious matters and require special handling to comply with government direction and to manage risk.  This article has discussed the principal options and equitable adjustment terms and conditions available to you if you undergo a stop work on a government contract.

Continuing effort on a contract after receipt of a stop work is high risk.

Astutely managing your options is a far better approach.