Public Contracting Institute LLC Webinar: Making the Right Choices in Government Contracting Part 3 Presented by Richard D. Lieberman, FAR Consultant, Website: www.richarddlieberman.com. Email rliebermanconsultant@gmail.com. Mr. Lieberman is a procurement consultant and retired government contracts attorney. He is the author of eight books including The 100 Worst Government Mistakes in Government Contracting,; The 100 Worst Mistakes in Government Contracting (with Jason D. Morgan), and Elements of Government Contracting. His published articles include 10 Big Mistakes in Government Contract Bidding, 10 Big Mistakes in Government Contract Administration, Incorrect Government Advice Whom Should You Heed and The Ten Big Mistakes Made by Small Businesses and New Government Contractors. Mr. Lieberman is a former Deputy Inspector General and Assistant Inspector General of the Department of Defense. He served as a Professional Staff Member of the Senate Appropriations Committee. He has taught government contracts courses for the Public Contracting Institute, Federal Publications Seminars, LLC, the George Washington University Law School, the University of Maryland and numerous military, aerospace and information technology contractors. Lieberman 1
Contract Administration Never start to work and incur costs before your contract is actually signed, on the promise of award A Government intent letter to award is not enough to form a contract. A Government award letter stating the CO accepts your bid or proposal forms a contract, or a signed contract forms a contract. Unfunded Contracts: (Availability of funds clause): Funds are not presently available for this contract. The Government's obligation under this contract is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. No legal liability on the part of the Government for any payment may arise until funds are made available to the Contracting Officer for this contract and until the Contractor receives notice of such availability, to be confirmed in writing by the Contracting Officer. FAR 52.232-18. ***Do not work on anything without a signed contract that is funded. Lieberman 2
Contract Administration Always submit a proper invoice Invoice must contain: Name and address of the Contractor. Invoice date and invoice number. Contract number or other authorization for supplies delivered or services performed (including order number and contract line item number). Description, quantity, unit of measure, unit price, and extended price of supplies delivered or services performed. Shipping and payment terms (e.g., shipment number and date of shipment, discount for prompt payment terms). Bill of lading number and weight of shipment will be shown for shipments on Government bills of lading. Name and address of Contractor official to whom payment is to be sent Name (where practicable), title, phone number, and mailing address of person to notify in the event of a defective invoice. Taxpayer Identification Number (TIN). Electronic funds transfer (EFT) banking information. Any other information or documentation required by the contract (e.g., evidence of shipment). FAR. 52.232-25, Prompt payment. Make the first invoice correct, and prohibit staff from changing format Lieberman 3
Contract Administration Never follow oral promises and direction, but rather, follow what is in the written contract. Contract modification means any written change in the terms of a contract. FAR 2.101 Change order means a written order, signed by the contracting officer, directing the contractor to make a change. FAR 2.101 Supplemental agreement is a contract modification that is signed by the contractor and the contracting officer. FAR 43.103. Oral modifications may not be made where the FAR requires they be in writing. 835 F. 2 nd 865. Lieberman 4
Contract Administration Always follow up immediately on nonpayment of proper invoices. Payments are generally due within 30 days. 31 USC 3901. Regardless of due dates, which may vary by contract, track payments and due dates Advise CO in writing of nonpayment at 45 days, request payment. If denial or non-reply from CO by 60 th day, submit formal Contract Disputes Act claim to CO Lieberman 5
Contract Administration No matter what you think, you have no right to receive award of an option Options are normally unilateral and FAR Subpart 17.2 states that CO may exercise an option if: Funds are available There is government need Option is most advantageous method Option was synopsized if required. Caselaw establishes that exercise is up to Government s discretion/judgement. 847 F.2d 811. Normally, government can also extend a services contract for up to six months (FAR 52.217-8) Lieberman 6
Contract Administration Never volunteer to perform extra work with the expectation that you will be compensated later. Volunteers do not expect to be paid. Courts and Boards recognize this. 30 Fed. Cl. 259 If you perform work not in your contract, without a change order or modification, you are a volunteer Demand a written modification or change order, or decline to perform such work and notify the CO in writing. Lieberman 7
Contract Administration Always pay at least the minimum wages and/or benefits required by the wage determination in your contract. Wage determinations in solicitations must be complied with (usually service contract) Minimum wages and benefits (you can pay more, but most do not) Wage determination applies to all subcontractors (must flow down) Penalties: Financial, debarment, criminal prosecution, contract cancellation Lieberman 8
Contract Administration Always insist that the government exercise any option in strict accordance with its terms. Although government has discretion in whether to exercise an option, it must exercise it exactly as required by contract. Typically, preliminary notice of intent to exercise is required 60 days before exercise-this is mandatory for exercise Any attempt by government to alter the option, such as period of performance, makes the exercise ineffective Insertion of an availability of funds clause, makes exercise conditional and invalid If option isn t exercised properly, the contractor can decline performance or seek an equitable adjustment Lieberman 9
Subcontract Management Always remember to flow down the FAR clauses in your contract to your subcontractors and suppliers, particularly the Termination for Convenience and Changes clauses. Subcontract management is often critical to a prime s success. Mandatory flow-downs: audit, cost accounting standards, equal opportunity, Davis-Bacon, Service Contract Act, others Essential also to flow down Changes Clause (FAR 52.243-1) and Termination for Convenience (FAR 52.249-2) clauses [both can be modified so they are not triggered until there is a related change in the prime contract]. Permits subcontractor to request equitable adjustment and submit a termination for convenience settlement proposal to the prime. When in doubt about a clause, flow it down. Lieberman 10
Polling Question Your contract has one priced option, which the government may exercise as follows: The CO may exercise the option by written notice to the contractor within 30 days of contract expiration, provided that the Government gives the contractor a preliminary written notice of its intent to exercise at least 60 days before the contract expires. [Similar to FAR 52.217-9]. 50 days before the contract expires, your CO sends you an email stating that it is my intent to exercise the option, but this email is NOT an exercise of the option. That will only be exercised as stated in the contract. 17 days before the contract expires, the CO sends you a modification that formally exercises the option. Must you perform the option? 1) Yes 2) No Lieberman 11
Subcontract Management Always tailor subcontract clauses and include dispute resolution methods in subcontracts Clauses in your subcontracts must be tailored: Use incorporation by reference of a list of FAR clauses from prime, and state whenever Government or Contracting Officer appears, replace it with Prime Contractor; whenever contractor or prime contractor appears, replace with subcontractor You should include a method for resolving disputes. Gov t disputes clause is not appropriately worded for disputes between private contractors (FAR 52.233-1 should not be flowed down) Lieberman 12
Contract Administration Always comply with the quality control/quality assurance requirements in your contract Contract quality requirements are the technical requirements in the contract relating to the quality of the product or service and those contract clauses prescribing inspection, and other quality controls incumbent on the contractor, to assure that the product or service conforms to the contractual requirements. FAR 46.101. Four QA categories in the FAR (FAR 46.202) Standard inspection requirements: acceptable inspection system, gov t right to inspect Higher-level QA: for high performance aircraft, submarines, etc., gov t right to inspect For contracts under $100K: Gov t may rely on inspections by contractor Commercial (existing) QA systems: gov t should rely on contractor s system Lieberman 13
Contract Administration If you request a revision to the delivery schedule for reasons other than government delay or fault, always offer consideration (generally a price reduction). In commercial contract, modification does not require consideration. UCC 2-209(1) [Consideration is money or something of value, e.g. a warranty] Government contracts are different. Performance of a pre-existing legal duty is not consideration. 369 F.3d 1318 Contract modifications require consideration to be valid. ASBCA 32924 Adequacy or dollar amount of consideration is not considered ($1 is enough) When seeking a new delivery schedule, always offer some consideration (price reduction, longer warranty, higher quality, etc.), otherwise the CO cannot lawfully accept the proposed modification. Lieberman 14
Polling Question What sort of consideration would be acceptable for a revision to the delivery schedule a. A $1 million reduction in total contract price b. A 5 cent/item reduction in unit price on the late items c. A 6 cent/item reduction on some other items d. A one year increase in the warranty on some of the delivered items e. A 3-5 page report explaining how to use the firing pin in one item. Lieberman 15
Answer to Polling Question Lieberman 16
Contract Administration Always assert your right to an equitable adjustment in a timely manner The Contractor must assert its right to an adjustment under the Changes clause within 30 days from the date of receipt of the written order. However, if the Contracting Officer decides that the facts justify it, the Contracting Officer may receive and act upon a proposal submitted before final payment of the contract. FAR 52.243-1 If the Contracting Officer knows about this claim, strict compliance with notice requirement is not required. ASBCA 17342. Even oral notice to the Contracting Officer is acceptable. ASBCA 29431 Lieberman 17
Contract Closeout Always maintain contract records, especially supporting final rates, no matter how long before contract closeout & get your full payment Agencies, especially Department of Defense (including Defense Contract Audit Agency), take years to close out contracts. It is imperative that your records be complete and accurate, even if musty; continue pressure on agencies to complete closeouts as soon as possible Push the gov t to close out before too many govt personnel have rotated out of the out of the position and the institutional knowledge on the Government side is lost. Ensure to follow all steps in FAR 4.804-5(classified material, patent report, royalty report, no VECP outstanding, plant clearance, property clearance, pricing and disallowed costs, etc.) ENSURE ALL contractor costs are PAID IN FULL, including any holdbacks such as those in T&M and LH contracts, FAR 52.216-8, 52.232-7 (15% of fixed fee or 5% of labor up to $50K) Always insist that any final release be bilateral Lieberman 18
Terminations Always respond properly to a cure notice or show cause notice. (1)The Government may, by written notice of default to the Contractor, terminate this contract in whole or in part if the Contractor fails to-- (i) Deliver the supplies or to perform the services within the time specified in this contract or any extension; (ii) Make progress, so as to endanger performance of this contract or (iii) Perform any of the other provisions of this contract (2) The Government's right to terminate this contract under subdivisions ((ii) and (iii) above, may be exercised if the Contractor does not cure such failure within 10 days (or more if authorized in writing by the Contracting Officer) after receipt of the notice from the Contracting Officer specifying the failure. FAR 52.249-8, Default Only (i) and (ii) require a mandatory cure notice; in (iii) default may occur when you fail to deliver on time with no cure notice at all Show cause notice is optional Your response to either a cure notice or a show cause notice should be on time, complete and convincing, explaining you are not at fault or have cured the problem. Lieberman 19
Terminations Always request a no-cost termination in lieu of a default termination. No cost settlement possible, see FAR 49.603-6, 7; excess cost of reprocurement should be specifically waived. May be attractive to CO; gov t must prove default. 323 F 3d 1006 Lieberman 20
Claims When it happens, always identify and submit a claim for a constructive change. Constructive change = change + order. 68 Fed. Cl. 296 If Govt expressly or by implication orders or requires contractor to incur additional work not in contract: constructive change Broad Categories of constructive change: Dispute over interpretation during performance Gov t interference/failure to cooperate Defective specifications Superior knowledge/nondisclosure Acceleration Contractor should submit a formal claim under the Disputes Clause for any constructive change Lieberman 21
Claims Always include a sum certain in your claim. Claim means a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. FAR 2.101. A sum certain is an exact amount The components of your claim may be based on valid estimates, but the claim sum must be certain Do not say at least, or not more than or approximately; no such phrase is a sum certain Certain claims may be revised when better information becomes available (either before the CO or at the Board or Court) Lieberman 22
Claims If a contracting officer fails to issue a final decision on your claim within 60 days of its submission (or fails to schedule a date certain for issuance of a final decision) immediately deem your claim denied and appeal to a Board of Contract Appeals or the Court of Federal Claims. if claim is under $100K, CO must issue a final decision within 60 days of receipt. If claim is over $100K, CO must issue a final decision within 60 days of receipt or notify contractor of an exact date or number of days within which the decision will be issued Any failure by the CO to issue a decision within the required period will be deemed to be a decision by the CO denying the claim and will authorize the commencement of an appeal or suit at the COFC or Board. 41 USC 605(c) ( deemed denied ) Court or Board may direct CO to issue decision, or proceed with the Appeal Why wait? Lieberman 23
Polling Question Why should a contractor always submit proper claims and pursue them at the Board or Court? a. The contractor is legally entitled to do so b. Even though it may upset the government, it is important to assert the contractor s rights c. The government frequently ignores Requests for Equitable Adjustments d. Sometimes a claim is the only way to get the government s attention. Lieberman 24
Ten Big Choices in Contract Formation 1. Read the entire solicitation, including all clauses incorporated by reference. 2. Always submit your bid or proposal on time 3. Always ask a written question about an ambiguity in any solicitation. 4. Always follow instructions in the solicitation precisely even if they seem unusual. 5. Don t expect to have discussions in a negotiated procurement, and be allowed to submit a final proposal revision. Lieberman 25
Ten Big Choices in Contract Formationcont d 6. Always be sure your bid complies with the IFB or your proposal conforms to the RFP. 7. Never take verbal advice, or advice from someone not authorized to give you valid advice or answers. 8. Be sure you understand the evaluation factors in an RFP and base your offer on them. 9. Always have someone who did not prepare your bid or proposal check it for compliance with the solicitation. 10. Always request a post-award debriefing in a negotiated procurement. Lieberman 26
Ten Big Choices in Contract Administration 1. Always read the entire contract, including all modifications and all clauses incorporated by reference. Be sure you understand them or ask the contracting officer questions in writing. 2. Always take direction only from officials authorized to give it. 3. Always follow what is written in your contract do not accept oral promises or directions. 4. Always comply with the specifications and quality control/quality assurance requirements in your contract. 5. Always deliver on time as required by the delivery schedule in your contract or a mod late delivery is not acceptable. Lieberman 27
Ten Big Choices in Contract Administration cont d 6. On Multiple Award Schedule Contracts, give most favored customer pricing to the Government if required. 7. Do not be a volunteer and do not perform extra work without seeking an equitable adjustment. 8. Always invoice properly, and demand timely payment from the government, or file a claim. 9. Always flow down necessary FAR (or other) clauses to your subcontractors and suppliers. 10. Make your performance world class, care about your customer, and always treat government officials with appropriate respect and dignity. Lieberman 28