Federal Contracts and Terminations Risks
There seems to be a lull in spending from the Federal Government. We have noticed some companies that were previously notified of an award are still waiting for the documentation and official start of work. Why is that? Quite simply, the Federal Government is bracing for this "perfect storm" that is brewing. The perfect storm that everyone is talking about is the continuing resolution postponing spending, the pending Sequestration and other factors like the Army's overseas contingency budget shortfall. Combine this with the inability of the two sides of congress to work with each other and there is a lot of uncertainty within the government right now. Not to mention that we will be withdrawing from Afghanistan over the next year so military spending will be reduced from that standpoint as well. Agencies are holding tight and curtailing all but absolutely necessary spending right now.
The impact to American business could be substantial and the impact to our economy as well. What impacts will there be to current Federal contractors? Obviously, there will be a reduction in the number and type of new contracts being issued, we have all debated that over the last 6 months to a year. But what about companies with existing contracts? Are they safe? In some cases, yes they will be. It depends on the type of contract and the nature of products and/or services to be provided. For instance, if a contractor has a contract to supply mission critical services to the military, there is a good chance this contract will continue. On the other hand, some new weapon development contracts or other low priority programs could be high risk to be terminated. The government almost always puts a clause in each contract that gives them the right to terminate the contract for convenience ( FAR 49.502 & 49.503 ). Many companies do not adequately prepare for this nor do they know what their rights are in such actions. We have seen many companies that receive these termination notifications actually mismanage the process and lose money that otherwise they could have realized. As a contractor you have certain rights and should follow a very specific path on a termination in order to protect yourself. Large corporations obviously deal with these issues all the time and have a staff experienced in knowing what to do and protect the best interests of the contractor all the while satisfying the government's expectations to close out the contract. Small companies usually don't have that type of resource unless they contract an outside consultant to help them. ReliAscent has several expert contract specialists that can help a company through this process. If you receive a termination notice today, please don't panic but give us a call and we can help you through the process. It doesn't have to be the end of the world.