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The legal pitfalls of government contracting

By: DOLAN MEDIA NEWSWIRES//July 31, 2012//

The legal pitfalls of government contracting

By: DOLAN MEDIA NEWSWIRES//July 31, 2012//

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The contracts are there, but companies need to know how to get the work

By Dan Heilman
Dolan Media Newswires

Minneapolis — In a number of industries — especially construction — government contracts can be a rewarding source of work and revenue.
But getting in on the award process is challenging and poses legal challenges.

“There’s a reason there’s such a thing as government contract law, and why there are entire enterprises devoted to doing business with the government,” said Daniel Cragg, a government contract lawyer with Eckland & Blando in Minneapolis. “It’s different than any type of business. The rules are different. They even have their own courts.”

Government contract work is fraught with processes and regulations that do not exist in the private sector, and indeed, disputes are heard by a special court, the Court of Federal Claims.

Even so, there are a number of good resources for businesspeople who want to learn more about the ins and outs of government contracting.

One is the Small Business Administration, which offers a mentor/mentee program for businesses seeking government contracts.

Another good place to begin is the National Contract Management Association. The nonprofit NCMA aims to promote professional growth and government and industry contract work for its members.

Also worth checking out is the FedBizOpps.gov guide to government contracts that can be organized by location, date and set-aside code.

“There are lots of subcontract opportunities with the larger contractors, such as Mortenson, or with companies that do a lot of government work like Ecolab or 3M,” said St. Paul, Minn. government contract attorney Tim Connelly.

So there’s no shortage of contract opportunities. Where it can get tricky from a legal standpoint is in putting together the applications for those jobs and making sure a company complies with the many requirements for such jobs.

Take the North American Industry Classification System code. The NAICS is the standard used by federal statistical agencies in classifying business establishments, and it’s used regularly for awarding government contracts.

The system requires companies provide a series of metrics based not only on recent company revenue but also the number of employees and other factors. And government bodies have cracked down on contract applications that prove to be inaccurate or even fraudulent.

“If you bid on a government contract job, you have to know your average revenue over the past three years — all kinds of things,” Connelly said. “You have to know how to calculate that and make sure it’s accurate because enforcement has become a big theme with these entities the past few years.”

Prospective contractors should pay special attention to the federal Small Business Jobs Act of 2010. That law gives government entities wide latitude to pursue legal action when a business misrepresents its ownership status or size in winning a government contract.

For example, if a business falsely claims to be owned by a disabled veteran and it does 1,000 hours of masonry work for the U.S. Army, the Army can claim a loss on that procurement and file suit.

“If you build something as a small business set-aside based on the fact that your company is woman-owned,” Connelly said, “you need to make sure your company’s articles of incorporation can back that status up and that they conform to the specific regulations.”

Most government contracts also contain a “duty to proceed” clause. Unlike in the private sector, where disputes with the contracting officer about the meaning of a contract are resolved through negotiation, government entities reserve the right to presume the terms are as they interpret them.

But if a company can show the entity substantially changed the terms of the work after the contract was signed, that company can avoid the duty to proceed with the work or possibly be paid more for changing the work.

“In a government contract, they say, ‘If we’re wrong, you can make a claim against us for the excess,’” Cragg said. “That leads to a claims process, which is different at the state and federal level.”

Companies with government clients know that kind of work comes with its own distinctive hoops to jump through —
but also that it can be rewarding.

“If you do it right,” Cragg said, you can make some money.”

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