Considerations When Contracting on Federal Projects
Even in today’s difficult economic climate, the federal government is planning, funding and building projects. This may appeal to otherwise private commercial contractors and subcontractors seeking to fill the void left by the recession. Contracting with the federal government can be profitable, but it can also be dangerous for those new to the process. The following are just a few examples of complex federal contracting laws to consider and should be fully understood by before entering the world of federal contracting.
Authority Structure The authority structure of the federal government is rigid and must be respected. Different government personnel have different roles and authorities, and contractors should make sure the person with whom they are dealing has the authority to bind the government. That person is usually the contracting officer. Federal Acquisition Regulation (or FAR) states that only the contracting officer acting within the scope of the contract has the authority to bind the government with regard to contract modifications. But that authority is not unlimited. For example, FAR prohibits the contracting officer from executing a contract modification without first obtaining a certificate of funds availability.
A contractor may find itself with a negotiated price for the additional or changed work only to discover that the full amount was not approved.
Compliance with the Davis Bacon Act Contractors and subcontractors on federal projects must abide by the Davis Bacon Act governing wage rates for employees. This act is incorporated into prime and subcontracts and requires companies to pay prevailing wage rates to employees as determined by the Secretary of Labor. Companies must pay employees not less than once a week and provide weekly certification including those performing the work, hours worked and wages paid. The government has the authority to audit records and withhold funds on any current contract for non-compliance, or make payment to the affected employees.
Federal Prompt Payment Act The federal prompt payment act requires contractors to pay subcontractors and suppliers within seven days of receipt of payment from the government. Subcontractors must similarly make prompt payment to their subcontractors and suppliers. If cause exists to withhold payment, the contractor must give notice to the subcontractor (with copy to owner) of the amount withheld, reasons for the withholding and remedial actions the subcontractor must take to take to get paid. If payment is not made and is otherwise due, the subcontractor can recover interest on the unpaid amount. The rate for amounts accruing between Jan. 1, 2010 and June 30, 2010 is 3.25% per annum.
The American Recovery and Reinvestment Act Contractors receiving funds from ARRA must report the following on a quarterly basis: 1) the dollar amount of invoices 2) the supplies delivered and services performed 3) an assessment of the status of the work 4) an estimate of the number of jobs created or retained as a result of the recovery act funds 5) names and total compensation of the five most compensated officers for the calendar year in which the contract was awarded and 6) similar information about subcontractors, including, names and compensation of their five most compensated officers.
The reporting requirement is subject to the government’s right to audit the prime contract and subcontracts. Contracting officers must use “appropriate contractual remedies” for a contractor’s failure to comply and include the failure in its performance evaluation.
E-Verification The new law essentially requires all federal contractors and subcontractors to verify and report employment eligibility. Verification is made via an Internet-based system that checks I-9 forms against records of the Social Security Administration, Department of Homeland Security and Department of State. Contractors and subcontractors are subject to audits for non-compliance. The law applies to contracts awarded after Sept. 8, 2009 unless the contract is below the simplified acquisition threshold of $100,000 or for a period of less than 120 days, among other exceptions. Failure to comply can result in the contractor’s suspension or debarment from federal contracting.