Government Contracting & the risk of Withholding Payments

The Federal Government has specific instances when they can withhold payment of money owed to Government Contractors.  Many companies that are in the business of government contracting do not fully realize what this means and they can be surprised when they do not receive the full amount they are due at the time they think they are due the funds.  After all, the Federal Government is the world's largest purchaser of goods and services and have an excellent credit rating.  There are costs associated with dealing with this customer, however.

There are a couple of clauses in the FAR that dictate when the contracting officer may withhold payment to the contractor.  For instance, FAR 52.203-10 allows the government to adjust the contract amount based on "illegal" activities.  FAR 52.215-11 allows the Government the ability to lower payments based on what they determine to be faulty cost and pricing data submitted earlier in the process.  I think this clause is a real key as I know many government contractors that submit their bids, not fully understanding the government's requirements for certified cost and pricing data.  If the company would have only requested some help at this point in the process, they would eliminate this risk later on in the process. FAR 52.222-7 allows the contracting officer to withhold funds to make sure that laborers are compensated according to the Davis-Bacon wage requirements.  In addition, many times there are terms in a government contract related to 48 CFR 352.242-73 which allow the government to withhold payments pending delivery of all the work, requirements or services required by the contract.  The DoD also has special DFARS requirements that allow the government to withhold money due to government contractor system deficiencies.  this can be found in DFARS 252.242.7001.

The purpose for the blog today related to a news story I saw earlier this week.  It seems that the Federal Government is withholding $25,700,000 in payments to a government contracting company due to internal business system deficiencies.  This illustrates very well that the risk of these terms in federal contracts is serious and real.  I would encourage all small businesses to enlist help in reviewing RFP's and also reviewing initial contract documents carefully prior to signing up.  It pays to enlist the services of experts in this field (like some of our experts here at ReliAscent) to help in this process to reduce your risk in this area.  If you would like to discuss this, please give me a call.


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