By: Coleman Jackson, Attorney & Counselor at Law
April 27, 2021
For many businesses, landing a government contract can become a much-welcomed source of steady income. Often snagging a public contract is a big deal; big break and big win! But proper and timely performance of the public contract will be of utmost importance since government agencies and entities will not tolerate any lapses, delays and crummy work. Obviously, all contracts should be handled in a professional manner, but the consequences of breaching a government contract can be even more dire than is the case with private party-to private party contracts. The issue is managing risk, such that a party receives the benefit of its bargain; which is, the essence of contracting. How is a public contractor to manage government contract risk? The ideal strategy is by claims avoidance but that is not always possible. In this blog we review five best practices for managing government contracts.
1. Know the Government: Public Contracts are Complex in terms of scope, requirements, specifications and regulatory rules and policies:
Before entering into a contract with any local, state, or federal governmental agency, a company must first ensure that it truly has the capability to meet the outlined requirements. Oftentimes, a government procurement contract is large, complex and multifaceted. Depending on the scope and complexity of the governmental agency’s demands, some companies simply may not have the physical resources, technological resources, or personnel to perform with precision, core competencies and with the punctuality required. Many companies, although they have years of experience in the private sector, simply do not have the accounting systems and internal controls in place to meet the exacting regulatory accounting standards and audit standards required by the highly regulatory environment of public contract law. In light of the importance of maintaining good relationships with government personnel and the agencies they oversee; it would be unwise to take on more than the company can really handle. Count the costs before bidding on the public contract because a government contract breach can lead to shame, allegations of false claims and other serious financial and even criminal consequences.
One of the trickiest aspects of engaging in government contracting is that there are often quite a few stringent rules and regulations governing the arrangement. These rules usually entail fairly strict compliance mandates, which cannot be taken lightly. Thus, in addition to examining your company’s own strengths and potential shortcomings, it is critical to ensure a full understanding of the legal constraints that will be at play. In many cases, it is a good idea to run some of the more nuanced aspects by legal counsel to ensure there is sufficient understanding and preparation.
As mentioned at the top, governmental agencies will not tolerate delays or disruptions to the contracting process. There could clearly be financial ramifications in the event of a breach, such as fines or penalties. But there is also a good chance that the contract will be rescinded at the time of the mishap or perhaps not renewed for another cycle. And, if either scenario happens, it is quite likely that a company will have a hard time winning another government contract down the line.
Thousands of businesses contract with local, state and federal governmental agencies every single day to help the government to serve its citizenry and carry out very important public functions; such as, building and maintaining roads, bridges, water systems, schools, colleges, broadband internet, libraries and shopping and leisure districts, correctional facilities and camps, parks and entertainment venues and everything in between..
2. Know yourself! Is your company up to the task? That indeed is the first question that any aspiring public contractor should ask of themselves! It is critical that your company know its capabilities before entering into the public contract environment. Sometimes it is easier to see the shortcomings of others than to see our own weaknesses. Your company might want to compensate for these blind tendencies by:
- Considering teaming agreements with more experienced players in the government contract market place;
- Considering counseling with government contract attorneys;
- Considering counseling with accountants and others experienced in government accounting and auditing standards;
- Considering business structures with other small, middle size and larger companies that could bring in additional expertise, skills, talents and intelligence.
- Once you have examined your organization and structure from top to bottom, you must now turn and take an exacting look at the specific government contract’s scope, specifications and requirements. As I said before, government contracts are not quite like private contracts. First of all, the government is a sovereign. That means, the government writes the laws, enforce the laws and interpret the laws of public contracts. So, the question is this one: How can a public contractor protect itself when contracting with the government? Contract claims avoidance; that’s how! Contract disputes avoidance begins in the contract’s negotiations process and continues throughout contract performance and ends with successful public project completion and file closing. Therefore, make sure you have skilled public contract counsel and advisors on your company’s team from the first salvo of reviewing a request for proposals throughout the performance process through successful completion of the public project. You want to know and appreciate the contract terms, conditions and risk before you sign the contract, while you perform the contract and when you close the contract file. You want to sign the contract before you begin the work. Know what you are getting into before you get into the contract. Watch for blowing sand and government changes throughout the performance stage and be ready to respond within the four corners of the contract with cogent public contract legal principals. These practices alone could minimize the potential of protracted and expensive government procurement disputes. But not all government contract disputes are avoidable.
3. Know when an actionable contract dispute arises. Obvious, not all disputes can be avoided in life; and that is true in the public contract law environment as well. Government contracts, unlike private contracts, can be terminated for the convenience of the government. That simply means that the government can terminate the contract for its convenience, even though, your performance has been perfect. Furthermore, sometimes local, state and federal governmental agencies breach public contracts and doesn’t pay for goods and services provided by individuals and businesses. Federal, State and local public contract laws permit private parties to sue local, state and federal governmental agencies when they breach their contracts or fail to perform. Public contact disputes and claims are an exception to the rule of sovereign immunity. But in order to preserve your rights and pursue your rights against the government, you must be able to recognize that a breach of contract has occurred since every disagreement that might develop during the course of performance of a contract does not satisfy the legal definition of a breach of contract. The breach must diminish your bargain; it must somehow dampen or poor shade on the bargained for benefit. Knowing the various types of breach of contract cognizable or actionable in public contract law could be helpful to you:
The four main categories of public contract breach are as follows:
a. Material Breach of Contract
A material breach occurs when one party receives significantly less benefit or a significantly different result than what was specified in the contract. Material breaches can include a failure to perform the obligations and conditions within the four corners of the contract or a failure to perform contracted obligations timely. When a material breach occurs, the other party may pursue damages related to the breach and both its direct and indirect consequences.
b. Minor Breach of Contract
The minor breach of contract is also sometimes called a Partial Breach of Contract or an Immaterial Breach of Contract, a Minor Breach of Contract refers to situations where the deliverable of the contract was ultimately received by the other party, but the party in breach failed to fulfill some part of their obligation. In such cases, the party that suffered the breach may only be able to pursue a legal remedy if they can prove that the breach resulted in financial losses. A late delivery, for example, may not have a remedy if the breached party cannot show that the delay resulted in financial consequences.
c. Anticipatory Breach of Contract
A breach need not actually occur for the responsible party to be liable. In the case of an Anticipatory Breach, an actual breach has not yet occurred, but one of the parties has indicated that they will not fulfill their obligations under the contract. This can occur if the breaching party explicitly notifies the other party that they will not fulfill their obligations, but such a claim could also be based on actions that indicate the parties does not intend to or will not be able to deliver. I remind you again that in public contract law, the government can terminate a contract for the convenience of the government. Its extremely important that government contractors study this public contract clause, the changes order clause and scope clause of public contracts very carefully.
d. Actual Breach of Contract
An Actual Breach of Contract refers to a breach that has already occurred, meaning the breaching party has either refused to fulfill their obligations by the due date or they have performed their duties incompletely or improperly.
4. What can a public contractor do when a breach occurs? When a breach of public contract does occur, there are several types of remedies available to either party. These include compensatory damages to address direct economic losses stemming from the breach, and consequential losses, which are indirect losses that go beyond the value of the contract itself but are the result of the breach. Although below I am mentioning only process and remedy for breach of federal contracts, similar processes and rules apply to State and local public contracts:
a. Contractor Must Pursue Administrative Remedies
The CDA requires that a private contractor follow specific steps. The first is to seek a decision on the contract dispute from an official — called the contracting officer – -in charge of administering the contract. The claims of both the private contractor and the government agency that is the party to the contract are subject to the contracting officer’s decision. If the private contractor is not satisfied with the decision, she moves to the next step and has two choices.
b. Appeal to the Board of Appeals
The contractor can continue to seek administrative relief or can file a lawsuit against the government. The first of these options is accomplished by appealing the contracting officer’s decision to the agency board of appeals, where it is reviewed de novo; that means the board will decide the issue without reference to the conclusions or assumptions made by the hearing officer. If the private contractor is unsatisfied with the decision of the appeals board, he can appeal to the United States Court of Appeals for the Federal Circuit.
c. United States Court of Federal Claims
The second avenue for a private contractor unsatisfied with the contracting officer’s decision is to seek competent counsel and file lawsuit directly in the United States Court of Federal Claims. This will begin the civil litigation process, which requires attorney representation. An adverse decision by the court can be appealed by the contractor to the United States Court of Appeals for the Federal Circuit. The appellate court will review the trial court’s rulings de novo.
5. Business Decisions: Don’t forget pursuing government contracts is a business decision. The decision as to whether to pursue a government contracts claims when claims avoidance fail is also an important business decision. Cost considerations and other business impacts must be considered before deciding whether to pursuelegal remedies in breach of public contract claims. The contractor must weigh the probability of success, the probable amount of the damages awarded and the expenses involved in pursuing the claim when deciding to sue the government for breach of contract. Generally, pursuing relief through administrative remedies is significantly cheaper than litigation in court. On the other hand, a case before a court involves an impartial judicial process separate and independent from the agency, which may be worth the extra expense to some contractors.
As I have said before the government is not quite like a private party. Whenever a contractor is dealing with the government, this fact should be front of mind. For example, in Texas, direct and indirect limitations insuing and obtaining remedies and judgments against the State of Texas and local governmental agencies in Texas must always be considered in government contracts litigation matters against Texas and its agencies and local governmental entities in Texas.
The ability to bring a claim against a governmental entity in Texas, the scope of the public contract claim and extent of recovery could be drastically impacted by various well-established legal principles in Texas law. Examples of these legal principles and legal limitations are as follows:
- a right of action for a county, incorporated city or town is not limited by most statutes of limitation under Texas law (TEX. CIV. PRAC. & REM. CODE §16.061)
- damages recoverable from a governmental entity may be limited to exclude damages other than direct actual damages ( Gov’t Code Ann. §2260-001)
- any action against a county must be brought in that county, and
- Court of jurisdiction may be limited to the Courts situs in Austin, Texas.
However, the most important, and most litigated, restriction on enforcing claims against the State of Texas, its agencies and local governmental entities is that of sovereign immunity.
A sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the logical and practical ground that there can be no legal right against the authority that makes the law on which the right depends.
The Texas Constitution contains waivers of immunity that are effective irrespective of any statutory waivers. These constitutional waivers are self-executing if they provide “a sufficient rule by means of which the right given may be enjoyed and protected, or the duty imposed may be enforced; and it is not self-executing when it merely indicates principles, without laying down rules by means of which these principles may be given the force of law.” Examples of these self-executing waivers are the waivers that relate to the Texas Constitution’s Takings Clause and that relating to the Bill of Rights for claims alleging a taking, these claims will not be permitted if they are breach of contract claims disguised as takings claims in order to avoid immunity. For claims alleging a violation of the Bill of Rights, this waiver exists only for the purpose of holding acts contrary to the Bill of Rights to be void, thereby permitting equitable relief but providing no private right of action for damages.
Contractors must perform the due diligence to make sure the government officials with whom they are dealing with have the authority to bind the government. This fact is true whether the public contract is a federal, state or local contract. Again, claims avoidance begins with the request for proposal, continues all through the performance stage and ends with successful contract completion and successful project file closing.
This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.
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