How to Prevent a Government Contract from Going Wrong
In a recent report from Grant Thornton, 50% of businesses involved in government contracting indicated that revenue from government contracts grew from the previous year from the previous year. However, there were 21% that experienced no significant change and 29% that experienced reductions in revenue.
For most of the businesses, 93% of their revenues come from government contracting. That means that those 29% of companies were severely affected by those drops in revenue. Payment is a major issue in government contracts. Here are three useful strategies to prevent that a government contract goes wrong.
1. Don’t Become a Volunteer
Unless you’re willingly taking on a government project on a volunteer basis for tax or charity purposes, don’t make the mistake of becoming a project volunteer. If you think that novice small business owners are the only ones that haven’t got paid for completed work for a government agency, think again.
The Boeing Company found had to present its case to the Armed Services Board of Contract Appeals (ASBCA) to demand payment for completed subcontractor work. The main culprit was a clause that clearly stated that the government wasn’t required to reimburse the contractor for costs in excess of the amount allowed by the contract, unless the contractor would notify the government in writing and the government would agree. This is known as a Limitation of Funds clause.
However, talks between the contracting officer and Boing about a revised cost estimate (from $79 million to $155 million) never made it to writing form. This oversight created a big legal battle between ASBCA and Boeing that lasted close to 10 years.
The main lesson from Boeing’s struggle is that you need to carefully check any “Limitation of Funds” clause applicable to your government contract because it may put a hard ceiling in costs in excess of a contract ceiling. In simple words, you legally are still liable for work that you won’t get paid for.
2. Meet Technology Requirements for Contracts
Lockheed Martin had a $195 million payment withheld by the government due to company’s flaws in tracking costs and schedules for F-35 jet contracts.
While it is understandable that original cost estimates can be underestimated, it is important to be ready to explain why they were underestimated. The Defense Contract Management Agency had serious concerns about how project data was generated for Lockheed’s fighter jet programs.
Several cost logs were kept manually and project managers wouldn’t find have access to the latest cost data for several weeks, meaning that the project manager wouldn’t know if a project went over budget until it was too late. On top of that, additional overages would have already been incurred by the time any corrective action could be taken.
In 2011, the DoD established contract guidelines that require contractors to use electronic systems to keep track of costs, store contracts and contract-related documents, submit invoices, and complete other tasks related to any government contract.
This is why investing in contract management software is a smart decision because it shows that your enterprise is proactive in keeping the latest contract and project data and providing access to those items in real time.
3. Maintain Good Communication
The report from Grant Thornton presents one point for major concern: 19% of surveyed companies rated their relationship with auditors as fair or poor, and 10% of surveyed companies rated their relationship with contracting officers as fair or poor.
Proper management of client relationships is critical to maintain a sustainable operation, particularly with government agencies. The competition for government contracts is intense and having to compete for a new contract is very hard. Savvy contract managers understand the importance of keeping existing clients and creating repeat business from them.
Additionally, contract managers can leverage a contract management system to maintain well-organized contract processes and anticipate the needs from clients. Nothing undermines trust in your organization like a lack of responsiveness from a contract manager. Here are some additional tips to improve client management.
On the average, companies that focus in government contracting report a 30% win rate on proposals submitted in a competitive environment for new work. Therefore, it’s key to maintain a healthy contract relationship. Three useful strategies to prevent a government contract going wrong are avoiding to become a volunteer, meeting technology requirements set by government agencies, and maintaining good communication with contract officers.