Risk Management Flashcards

Question

Payment by the government is made on the _______ day after the designated billing office receives a proper invoice. 30th 13th 3rd 10th FAR 32.904(b)

Answer 1

Commercial items

Answer 2

There are no outstanding debts due to the Government

Answer 3

Cost Plus Fixed Fee

Answer 4

Credit card

Answer 5

Firm-Fixed-Price

Answer 6

Patent infringement bond

Answer 7

Advance Payment for non-commercial items

Answer 8

Anti-Deficiency Act Under the Anti-Deficiency Act, no officer or employee of the Government may create or authorize an obligation in excess of available funds, nor may they obligate the Government in advance of appropriations. Violating this act is a serious offense.

Answer 9

Multiple "Multiple" is not a recognized type of surety under FAR. The three types of sureties recognized in FAR are: Co-surety Individual Corporate

Answer 10

Cost Plus Percentage of Cost FAR prohibits Cost Plus Percentage of Cost contracts because they provide no incentive for contractors to control costs. The other contract types are allowed under specific circumstances.

Answer 11

Qualified products list A Qualified Products List (QPL) refers to a list of products that have been examined, tested, and found to meet all applicable requirements before being approved for procurement.

Answer 12

Basic Ordering Agreements Basic Ordering Agreements are written instruments of understanding that contain terms and conditions that apply to future orders, a description of supplies and services to be provided, and methods for pricing, issuing, and delivering future orders.

Answer 13

Indefinite Delivery Indefinite Quantity Contracts

Answer 14

To issue your company a contract, the government must determine that your company is responsible. This decision about your company's "responsibility" is called a responsibility determination.

Answer 15

Government contracting officers perform responsibility determinations. Sometimes, the contracting officer will conduct a thorough review of your company to determine your responsibility. However, in most cases, the contracting officer simply checks your company's status in the System for Award Management (SAM) registration website for federal contractors. If nothing bad shows up, your company is assumed to be responsible. Whenever a contracting officer signs a government contract, the signature by the contracting officer acts as a (positive, acceptable) responsibility determination. If the contracting officer signs your contract, the contracting officer effectively determines that your company is responsible.

Answer 16

Contracting officers use the following factors to determine whether your company is responsible and therefore eligible for federal contracts: Does your company have adequate financial resources-or the ability to get them? Is your company able to comply with the delivery or performance schedule? Does your company have a satisfactory record of past performance?

Answer 17

The government is supposed to check the status of your company in the System for Award Management (SAM). (When SAM was being upgraded and integrated with other systems, the government temporarily called it Beta.SAM.)

Answer 18

CPARS is incredibly important for the success (or failure!) of your company in government contracting. Every federal contract above a certain dollar threshold requires the contracting officer to record an assessment of the performance of your company into CPARS. Therefore, CARS is an online database of past performance of federal contractors. Other contracting officers and other federal agencies will look up the past performance evaluations of your company within CPARS. If you have negative evaluations or disagreeable information in CPARS, other federal clients will see it and will avoid your company like the plague.

Answer 19

Yes, and your company should carefully monitor any CPARS action. Find out the timelines for when your government client will enter information into CARS. Immediately read and analyze the information about your company in CPARS, which will be made available to you. If you find negative information, do your best to rebut or respond to the negative information. If you are persistent and lucky, maybe you can convince the government to change or remove your negative commentary and other information.

Answer 20

Yes, it is difficult and unlikely for your company to succeed in changing CARS information. CARS is a tool designed, created, and maintained for the government's benefit, so the government wants its employees to have broad discretion to be honest and candid about CPARS evaluations.

Answer 21

Your company has the right to respond, in writing, to the CPARS evaluation. Make sure you respond before the deadline. Commit significant resources to your formal response, as if the future of your company depends on it —because it does!

Answer 22

The government has several policy goals when describing what it wants to buy from industry, including: Using market research to formulate an intelligent description of what it wants Promoting full and open competition Using restrictive conditions only as necessary Encouraging commercial supplies or services Describing requirements in terms of functions to be provided, performance specifications, or essential physical characteristics

Answer 23

The goal of these policies is to shape government solicitations towards objective outcomes or characteristics so that any qualified contractor can win and perform the contract. Avoid using a brand name or proprietary technology in the description of the requirement so that many companies can compete, instead of just one or few. For example, let's discuss the agency's need for laptop computers. We will start with a very poor, anticompetitive description of the agency's needs: "The agency needs an Apple-branded laptop computer that has smooth edges." This description is anticompetitive because only Apple can manufacture the laptop. There are no required functions or performance specifications. Also, having smooth edges sounds like a personal preference, not an

Answer 24

The common theme is these factors are objective needs (rather than subjective preferences) and can be satisfied by almost any company, rather than a single company. These factors are not proprietary or monopolized by a single brand or company. Any company can evaluate these objective characteristics to determine whether they can provide the item. As such, the revised statement of what the government needs will attract more companies and proposals and therefore, more competition.

Answer 25

Commercial solutions are available immediately and have been sold (or offered) to the open market-not just to the government. Developing a new product or new service includes, of course, development and testing costs. The customdeveloped item may not work as reliably as solutions that go back many years. Finally, the custom-developed item will usually have a price higher than a commercial solution because the custom item has only one potential customer— the government.

Answer 26

Yes, the federal government has commercial procedures for procuring commercial items. These commercial procedures significantly speed up the government contracting process. Therefore, commercial procedures are preferred by law and regulation. Remind the government of the preference for commercial items and commercial procedures whenever possible. For more information, read Part 12, Acquisition of Commercial Items.

Answer 27

Yes, the term commercial items include products and services. Your company's products and your company's services may be classified as "commercial items" for government contracting purposes. Remember: Commercial items include both physical goods and intangible services.

Answer 28

Yes, some government contract solicitations will restrict competition to a particular brand name. Other competitions will restrict competition to brand name or equal, which allows a contractor to provide a comparable substitute.

Answer 29

If the solicitation is restricted to a particular brand name only, the government must say so explicitly and explain its justification. It is acceptable to limit competition to a brand name, but there must be a reason the government needs the brand name. It cannot be based solely on a brand preference. There must be some other relevant or "salient" characteristic of the brand name that benefits the government. Requiring Apple products is an example of a government contract competition restricted to a brand name. The justification could be that the entire information technology system of the government is compatible only with Apple products. However, the justification cannot be that the government employees simply "like" Apple products.

Answer 30

Brand name or equal allows slightly broader competition than a solicitation limited to a specific brand name. If the government knows that the objective specifications of a brand-name product will meet the requirement, reliance on brand name or equal could make sense. Whenever possible, the government should restrict to brand name or equal rather than brand name only. The government does not need the specific brand, but it knows that the performance characteristics of a particular brand will satisfy its needs. If there is some other brand or manufacturer that can provide at least the same objective specifications, the government will have no problem contracting with the alternative brand or manufacturer. For example, the government could restrict competition to something brand name or equal to the Apple iPhone X. The government could list the objective specifications of the Apple iPhone X, which the contractor must meet or exceed to win the contract. Apple can win this competition by supplying the iPhone X. However, any Apple competitor can also win this competition if it supplies a cell phone that meets or exceeds the same specifications. In this way, brand name or equal provides more competition,

Answer 31

A sole-source government contract means that one company alone on planet Earth can provide the goods or services. The government must write, sign, and publicize a special justification to restrict competition to only one source. Read more about this special justification in Part 6, Competition Requirements. Sole source is not the same as brand nameonly. For example, Honda cars can be sold many different car dealerships. Many Honda dealerships are not owned by Honda.

Answer 32

Always pause and ask yourself and anyone what they mean when they refer to a "contract type." Contracts have many different attributes, including payment type, delivery type, and the type of goods or services delivered or provided under the contract. Do not mix up the different "types of types."

Answer 33

If I asked you what type of car you drive, you could respond in several ways: "I drive a Honda." "I drive a blue car." "I drive an old car." "I drive a car with an automatic transmission." Your car is an old, blue, Honda with an automatic transmission. We just covered four different attributes about your car (and we did not even get to the model of the car, e.g., Accord!). We also just covered four different "types of types" of cars: Brand type (Honda) Color type (blue) Age type (old) Transmission type (automatic) Government contract types pose the same problem of classification, which you can avoid by asking or answering precise questions about contract type.

Answer 34

You can ask, "What is the payment type of this contract-is it fixed-price, cost-reimbursement, or time and materials?"

Answer 35

Decide what you want to learn or share. Pause and think about whether you are exploring the payment type, delivery type, or the type of goods or services, for example.

Answer 36

You can ask, "Is this an indefinite-delivery, indefinite-quantity (IDIQ) contract or a contract with fixed delivery dates and quantities?"

Answer 37

You can ask, "Is this contract for products?" or "Is this contract for services?" or "Is this a government contract for commercial items?"

Answer 38

This example will be my last to explain the different "types of types" of contract. You can find a government contract that is cost-reimbursement (payment type); that is indefinite-delivery, indefinite-quantity or IDIQ (delivery type); that deliversproducts (as opposed to services); and that delivers noncommercial items (as opposed to commercial items). When someone asks a vague question about this contract- "What type of contract is it?"— what will be your answer? My answer will be: "The payment type is cost-reimbursement. The delivery type is IDIQ. The contract delivers products, and the products are noncommercial. Did you want to know about any other aspects of the contract?" Be precise!

Answer 39

The first two "families" of contract payment types are (1) fixed-price and (2) cost-reimbursement.

Answer 40

The third "family" of contract payment type is the time and materials contract, which we will discuss after fixed-price and cost-reimbursement contracts

Answer 41

The bottom line is that a fixed-price contract provides your company a specific amount ofmoney. No matter how much money your company actually spends to complete the contract, your company will only receive the originally specified amount. In contrast, cost-reimbursement contracts will pay your company based on your actual costs incurred. If yourcompany spends more money than expected to complete the contract, your company might receive more money than was negotiated originally.

Answer 42

Cost-reimbursement means the government will reimburse your costs in performing the contract, as long as they are reasonable, allowableand allocable. For more info about reasonableallowable, and allocable costs, read Part 30, CostAccounting Standards Administration and Part 31, Contract Cost Principles and Procedures.

Answer 43

If your company is reimbursed for costs greater than originally negotiated, this situation is called a cost overrun. The actual, reimbursed costs of the contract have overrun the original estimated costs.

Answer 44

Cost-reimbursement contracts make the government nervous. The nature of the work is too complex or difficult to define properly. If the government could define exactly what work needs to be performed, your company would instead receive a fixed-price contractWhenever the project or work is vague and ill-defined, the government may decide to pay your company for its best efforts, rather than for a specified deliverable. Your company gets paid for all its allowable, allocable, and reasonable costs. This makes the government nervous because there is a very probable risk of a cost overrun.

Answer 45

Your company faces higher levels of administrative oversight, documentation requirements, and accounting controls with cost-reimbursement contracts. The government wants to minimize the risk of a cost overrun and avoid reimbursing any inappropriate costs. To achieve these government goals, your company will be subject to a heavy administrative burden.

Answer 46

Cost-reimbursement contracts are where your company will experience the dreaded Cost Accounting Standards or CAS. In plain English, CAS is an entirely different set of accounting rules that applies only to government contracting. CAS compliance creates significant overhead costs that you will not incur for any other type of contract. You should not use a standard accountant trained in Generally Accepted Accounting Principles. Now your company needs a specialized government contracting accountant who understands CAS. For more info, read Part 30, Cost Accounting Standards Administration and Part 31, Contract Cost Principles and Procedures.

Answer 47

Yes, you probably need to spend money and time to get your accounting practices into compliance. For this reason, many government contractors choose to avoid cost-reimbursementcontracts. The additional costs of complyingwith CAS, hiring a specialized governmentcontracting accountant, and dealing with the , complicated accounting requirements can overwhelming. Before you accept your first cost- reimbursement contract, perform an economic fee. analysis to see if the benefits outweigh the costs.

Answer 48

Cost plus fixed fee or CPFF is the most common type of cost-reimbursement contract. In addition to the reimbursement of all reasonable, allowable, and allocable costs, your company will receive an additional fee. Your fee will be a fixed dollar amount that does not change based on your cost expenditures, unless there are new requirements added to the original contract. This means your profit margin decreases if you commit a cost overrun.

Answer 49

Here's the financial mathematics of an overrun. If your company spends more thanthe estimated cost ceiling to get the job donethis cost overrun increases the total cost ofthe contract, but it does not increase the fixedfee. Your original fee is a fixed dollar amount.Therefore, the ratio of the fixed fee relative to the total cost decreases, which decreases your profitmargin. For example, the total estimated cost of the contract is $1 million, and the fixed fee is $100,000. This means your fixed fee is 10 percent of the total cost. If your company commits a cost overrun, now the total cost of the contract is $1.5 million. Your company receives an extra $500,000 in reimbursed costs, which is helpful. However, now your fixed fee is less than 7 percent of the total cost. Cost overruns provide your company more revenue, but likely slimmer profit margins.

Answer 50

In cost-reimbursement contracts, your company will be subject to an estimated cost ceiling. The government is not liable to pay for and you are not liable to perform work beyond this cost ceiling, unless you receive a contract modification.

Answer 51

Your contract will have a Limitation of Funds or Limitation of Cost clause which forces you and the contracting officer to closely monitor the cost ceiling. Only the contracting officer has the authority to increase the cost ceiling and obligate more money on the contract. These clauses require your company to provide written notice to the government when you approach or know you will surpass the estimated cost ceiling.

Answer 52

When you notify the government that your company will exceed the cost ceiling, the government has a choice. The government can either add more money to your contract, or do nothing, which means your company will need to eventually stop work. Be sure you have written authorization to proceed from the contracting officer before you spend any money beyond the cost ceiling. Even better, wait until you receive a signed modification to the contract. Remember, the government is not liable to pay for and you are not liable to perform work beyond the cost ceiling. Unless the cost ceiling is increased, your company will be working at risk of not being paid back or reimbursed.

Answer 53

Yes, although cost plus fixed fee or CPFF is the most common type of cost-reimbursementcontract, you may encounter two other types: incentive fee and award fee.

Answer 54

Incentive fees are inversely proportional to the total reimbursed cost. If you commit a cost overrun, your incentive fee decreases. If you finish the contract using fewer costs than originally negotiated, your company gets a higher incentive fee.

Answer 55

Award fees are administratively decided by government committee. Every few weeks or months, the government decision makers huddle into a room and decide how much award fee to give your company. As crazy as this award fee sounds, the idea is that your company will constantly want to please the government because the next award fee meeting is just around the corner.

Answer 56

In cost-reimbursement contracts, the government will reimburse your costs only if they are reasonable, allowable, and allocable. The contracting officer decides if the costs are reasonable, and the determination is mostly used as a check on ridiculous prices or unnecessary expenses. Allocable means you can tie the costs or a portion of the costs to the particular contract you're charging them against. The cost might be 100% allocable to a single contract —a direct cost. Alternatively, the cost might be spread across several contracts-in other words, an indirect cost. The good news is the government will reimburse you for both direct and indirect costs. Allowability is more complicated. The FAR lists allowable and unallowable costs in FAR Part 31, Contract Cost Principles and Procedures. Don't forget that your contract itself might also preclude certain costs from being reimbursed,and that contract language will trump any other guidance you find. In other words, if CAS or the FAR says the cost is allowable but your contract says the cost is unallowable, the cost is unallowable. To read more about these concepts, check out Part 30, Cost Accounting Standards Administration and Part 31, Contract Cost Principles and Procedures.

Answer 57

Fixed price contracting is the land of opportunity. With greater risk comes greater reward and higher profit margins. In firm fixed price or FFP contracts, the government will only pay you a specified amount of money. If you must spend more to complete the job, it's your problem. Your profitability decreases and you can actually lose money. On the bright side, if you can find a way to successfully perform while needing less money than the fixed price, your profit margins can be sky-high when compared to a cost-reimbursement contract. For this reason, many government contractors prefer fixed-price contracts. Furthermore, fixed-price contracts are much simpler to set up than cost-reimbursement contracts. Fixed-price contracts do not require special accountants, extra documentation, and compliance with Cost Accounting Standards.

Answer 58

Yes, the business strategies behind fixed-price and cost-reimbursement contracts are not just about economics and profit margins. Cost-reimbursement contracts require a massive amount of oversight, accounting, compliance, and record-keeping. Make sure you have the office staff or the outside consultants to help you stay compliant.

Answer 59

For most fledgling small businesses, a cost-reimbursement government contract is not a good option. Fixed-price contracts are much simpler. The transition to the first cost-reimbursement government contract should be deliberate and methodical. Plan your company growth and financial operations in a way that makes sense for the types of government contracts you expect to win.

Answer 60

Time and materials government contracts are very similar to contracts you see for plumbers, attorneys, or car mechanics. You pay your attorney by the hour, and you pay for your attorney's costs, such as postage or court filing fees. You pay your plumber by the hour, and you pay for your plumber's costs, such as pipes, equipment, and new toilets. When the government is the client, the government pays your company by the hour, and the government also pays for your materials used in the contract. This is the time and materials contract.

Answer 61

Labor-hour contracts are a subset of time and materials contracts. Labor-hour contracts are basically the same, except they involve no materials. The government pays your company only by the hour, for labor. No materials exist in a labor-hour contract. For example, your labor-hour contract pays your company an hourly rate for every hour of work your employee completes onsite at the government building.

Answer 62

The fully loaded labor rate is the rate you bill your clients. When you win a time and materials or labor-hour government contract, you need todecide how much to bill the government per hour of work. This rate must be higher than the direct labor rate your company pays the employee. Otherwise, how can you make any money? If you win a government contract based on time and materials, the "time" will be measured in labor hours. Your company will be paid for each hour of work and for any materials used. Each hour of work will be classified according to a labor category and labor rate. Your experienced employees will have a more expensive labor rate because they cost you more to employ. Your cheaper employees will have a cheaper labor rate.

Answer 63

The wrap rate is the multiplier your company uses to transform the employee's direct, hourly cost into a fully loaded labor rate. In the earlier example, the wrap rate is calculated by dividing the fully loaded labor rate by the direct cost of $50 per hour. Wrap rate = fully loaded labor rate / direct labor rate 1.3 = $65 / $50 $65 is 130% of $50 n this example, the wrap rate or wrap multiplier is 1.3 or 130%. The fully loaded labor rate is 130% of the direct labor rate your company pays the employee. If you multiply the direct labor rate by 1.3, you arrive at the fully loaded labor rate.

Answer 64

An indefinite-delivery, indefinite-quantity or IDIQ contract allows agencies the flexibility to place orders for the amounts they need when the need arises. If the agency knew it needed 1,000 computers in 30 days, the agency could sign a simple purchase order for 1,000 computers. This purchase order would have a definite quantity (1,000) and a definite delivery schedule (within the next 30 days). But what if the agency knows it needs between 1,000 and 1,000,000 computers at various points within the next 5 years? Enter the IDIQ contract, which establishes a minimum and maximum quantity (between 1,000 and 1,000,000) and an ordering period (today through the next 5 years). Through this IDIQ contract, the agency can easily satisfy its needs for computers whenever they arise. Next month, the agency can order 2,000 computers. The following month, the agency can place zero orders. At the end of next year, the agency can order 30,000 computers. This flexibility is very convenient for the agency and the contracting office. If you remember our earlier discussion about the "types of types" of contracts, the IDIQ description pertains to the delivery type.

Answer 65

Great question! You understood the earlier lesson about "types of types." Yes, IDIQ contracts can have fixed-price or cost-reimbursement payment types. So, there are fixed-price, IDIQ contracts and there are cost-reimbursement, IDIQ contracts.

Answer 66

A single-award, IDIQ contract is held by one company, rather than multiple companies. For example, company ABC wins the only IDIQ contract to deliver computer laptops. Company ABC will "win" every order placed against the single-award IDIQ contract.

Answer 67

Multiple-award, IDIQ contracts are awarded to two or more companies, rather than a single company. For example, the government wants to diversify its suppliers of computer laptops. So, the government awards three multiple-award, IDIQ contracts to company DEF, company XYZ, and company QRS.

Answer 68

Usually, the government will compete each order among the three companies. The terms of the multiple-award, IDIQ contract will usually require the government to give each of the three companies a fair opportunity.

Answer 69

Fair opportunity is a special standard of competition that applies to multiple-award contracts, like multiple-award, IDIQ contracts. This competition standard of fair opportunity is different from the "full and open competition" required by FAR Part 15 and the "maximum extent practicable" required for simplified acquisition procedures under FAR Part 13. The competition standard of fair opportunity applies exclusively to multiple-award contracts. Under fair opportunity, the government must notify each contract-holder, but not any other companies. Therefore, if your company failed to win one of the original multiple-award contracts, you are ineligible to win any orders placed against the multiple-award contracts. Only the contract-holders have a "fair opportunity" to win the orders.

Answer 70

An indefinite-delivery, definite-quantity contract is very similar to an IDIQ contract. The important difference is the government knows the exact quantity of supplies or services but does not know when they need to be delivered or performed. This difference is spelled out in the names: Indefinite-delivery, indefinite quantity (IDIQ): "I don't know how much I need or when I need it." Indefinite-delivery, definite quantity: "I know how much I need, but I don't know when I need it."

Answer 71

A requirements contract is awarded to a single company to provide all the government's needsfor a supply or service during a specific period. You should celebrate if your company wins a requirements contract.

Answer 72

Bid means any response to a solicitation, including a proposal or offer. So, your bid is what you send to the government to win a competitive contract.

Answer 73

A bid guarantee is a form of security assuring that the bidder (1) will not withdraw its bid and (2) will get any required bonds for the contract. Think of a bid guarantee as an insurance policy that protects the government against the possibility that a bidder will "chicken out" by failing to honor and follow through with its bid. The government needs reassurance that it can rely upon your bid to move forward with the deal. The government also wants assurance that if selected, your company will take all required steps to sign the contract, including obtaining any required bonds. So, a different company guarantees your company's bid. This different company assures the government of two things. First, your company will not withdraw its bid before the window of time closes for acceptance. Second, your company will follow through with its bid by signing a contract and securing any other bonds required by the government solicitation.

Answer 74

Let's start with a type of bond you may have read about in the news or noticed in a movie about criminals. If the accused criminal-the defendant—is released after arrest and allowed to go free before the trial, the justice system wants a guarantee that the person will show up for trial. Let's say the judge sets bail at $1,000,which means the defendant must pay $1,000 to walk free before the trial. The bail bondsman provides the valuable service of guaranteeing that the person will show up for court. The defendant does not have $1,000 on hand, so the bail bondsman posts the bail bond for the defendant, who pays the bail bondsman ten percent ($100) of the full bond ($1000). The other 90 percent ($900) is covered by collateral, such as a house, car, jewelry, or other valuables. So, the bail bondsman pays the bail bond-the full $1,000. The defendant pays 10 percent-just $100-and provides other property or valuables as collateral. If the defendant shows up to court as promised, the bail bond is dissolved, and the collateral is returned to the owners). The bail bondsman keeps the 10 percent ($100) as a service fee. If the defendant fails to show up, the bail bondsman keeps not just the $100, but also the collateral (the house, car, jewelry, or other valuables that covered the remaining 90 percent or $900).

Answer 75

Back to government contracting and other types of bonds. Your company is like the defendant (sorry!). The government is like the judge. The surety company-which provides the bond for your company-is like the bail bondsman. The government wants assurance that your company will follow through with its obligations to the government, just like the judge wanting assurance that the defendant will keep the promise to show up before the judge in court. In both cases, the bond assures fulfillment of promises made by one party to another. In this way, bonds are somewhat like an insurance program because they share and distribute risk. The government requires bonds in a variety of situations to limit, mitigate, or eliminate various risks in government contracting, just like thejudge requiring bail (or a bail bond) to make sure the defendant shows up in court. When two parties do not trust each other enough, bonds fill in the gap and make the deal go through.

Answer 76

The surety company provides the bond.

Answer 77

The bond is a written instrument (contract) between the surety company and a contractor. The terms of the bond will state that if the contractor fails to fulfill its obligations to the government, the surety company will pay a certain amount of money to compensate the government for its loss. In this way, a bond is somewhat like an insurance policy.

Answer 78

Bid bond: This type of bond serves as a bid guarantee, discussed earlier. Annual bid bond: Instead of executing a series of individual bid bonds, a contractor can provide an annual bid bond that covers all its bids within the same year. Advance payment bond: Sometimes the government pays a contractor before completing the work. The government wants assurance that the contractor will finish the work (that was already paid for). The advance payment bond covers the cost of the contractor's obligations. Performance bond: This type of bond provides coverage for the possibility that the contractor fails to complete performance of the contract. Be careful to distinguish a performance bond from a bid bond. The bid bond assures against a bidder failing to honor its bid (before beginning work on the contract). The performance bond assures against a contractor failing to complete its contract (after the contract is signed). Annual performance bond: Instead of executing a series of individual performance bonds, a contractor can provide an annual performance bond that secures performance for all the contractor's contracts within the same year. Payment bond: This type of bond assures that the contractor will pay its employees and subcontractors involved in the government contract. Patent infringement bond: This type of bond secures fulfillment of the contractor's obligations under a patent clause in a contract.

Answer 79

Many! You need to find an excellent insurance broker, agent, or professional to give you insurance advice. Remember, my book is not legal advice, nor is it tax advice, and it is not insurance advice. Contact a qualified professional insurance advisor to meet your insurance needs. This book provides you only the broad strokes to start you on your journey. As a government contractor, your company probably needs several types of insurance. Even if your company has no government contracts and participates only in the private sector, your company probably needs insurance. Let's explore the different types: General liability insurance protects against risks like bodily injury or property damage, which are physical, tangible risks. For example, general liability insurance may cover your company for litigation claims if your employee hurts someone else or destroys someone else's computer while performing work. General liability is important for any company, including government contractors. Professional liability insurance protects against abstract risks like errors or omissions in the services your company provides. For exampleprofessional liability insurance may cover your compensation requirements, but your company company for litigation claims if your employees is required to pay these costs to employees provide inaccurate advice and commit who get hurt "in the course and scope" of negligence. Just like general liability insurance, their job. If you have no workers' compensation professional liability insurance is important for insurance, your company must pay these costs any company providing professional services, out-of-pocket. If you have insurance, the insurer including government contractors. pays these costs (in exchange for your monthly premiums). Many states require companies to Workers' compensation insurance pays for carry workers' compensation insurance. medical expenses, lost wages, and rehabilitation costs to your employees who become injured or sick at work. Each state has different workers'

Answer 80

Cash flow is the lifeblood of any business, including government contractors. If your company is a federal contractor or subcontractor, you will learn this lesson quickly or go bankrupt slowly. Learn about cash flow.

Answer 81

Contract financing consists of different ways to help your company's cash flow by giving you money when you need it so you can perform the contract. There are several types of contract financing.

Answer 82

Yes, at least sometimes. The federal.government's Office of Management and Budget (OMB) released a memo called "Providing PromptPayment to Small Business Subcontractors." This policy memo requires that prime contractorsthat receive accelerated payment schedules from the government client must also pay small business subcontractors on an accelerated schedule. The idea is that if the primecontractor gets money faster, the prime contractor is supposed to pay any small business subcontractors faster.

Answer 83

Congress passed a law requiring agencies to pay contractors within 30 days of submitting a proper invoice. Be careful to note that not just any invoice qualifies. Your company must submit a "proper invoice" by complying with any required format, delivery, or content requirements. Although you may have submitted an invoice 30 days ago, the Prompt Payment Act does not start unless your invoice qualifies as a proper invoice. If the agency fails to pay your company within 30 days of a proper invoice, your company receives interest penalties, which discourages the government from dragging its feet.

Answer 84

Advance payments are like a special favor to your company. You get payment before you complete the contract. Advance payments are not measured by performance or progress, your company just gets the money early, perhaps to pay subcontractors or for some other reason. Advance payments seem like a great deal but remember that any advance payments will be subtracted from any later payments you are owed. You will not get paid twice for the same work.

Answer 85

Performance-based payments are based on your company's performance as measured by objective measurements, accomplishment of defined events, or other quantifiable standards or results.

Answer 86

Progress payments are based on costs your company incurs during the contract. Progress payments are not based on the percentage or stage of completion, nor are they based on performance, nor are they based on partial delivery. Instead, progress payments are tied to your company's costs (not its results).

Answer 87

As a subcontractor, always try to negotiate to remove a pay when paid provision. Examine your payment terms and try to decipher if any of the timelines for payment are contingent upon the prime contractor getting paid first. If you need help with this analysis, email me at Christoph@ChristophLLC.com. The subcontractor starts with a cash flow disadvantage. As a subcontractor, you always worry about getting paid on time. First, the prime contractor must be paid by the federal agency. Then, the subcontractor gets paid by the prime contractor. But wait! Is this sequence the only possible order of operation? Pay when paid provisions between the prime contractor and subcontractor are disturbingly dangerous for the subcontractor. If the prime contractor does not get paid by the federal agency, the subcontractor does not get paid. If the government pays the prime contractor late, the subcontractor's payment is delayed even further.

Answer 88

Your cost-reimbursement contract will have a Limitation of Funds or Limitation of Cost clause that forces you and the contracting officer to closely monitor the cost ceiling. Only the contracting officer has the authority to increase the cost ceiling and obligate more money into the contract. These clauses require your company to give written notice to the government when you approach or know you will surpass the estimated cost ceiling. Read more about these topics in Part 16, Types of Contracts.

Answer 89

Termination clause doesn't sound very appealing, does it? Death, destruction, ending, finality, time-traveling cybernetic organisms with Austrian accents! You may be familiar with termination clauses in your apartment lease or cell phone contract. When you want to move early or switch cell phone providers, you read your termination clauses to determine your rights and how to proceed.

Answer 90

In government contracting, the Termination clauses allow the government to abruptly fire or terminate your company. You need to understand the three types of Termination clauses: convenience, default, and cause.

Answer 91

The scariest clause in all of government contracting is Termination for Convenience of the Government. This clause allows the government to abruptly fire or terminate your company without paying the rest of the money from the remaining contract. To put this in perspective, let's contrast it with private sector contracts. You sign a contract with Donald Trump for $500 million worth of supplies across 5 years, $100 million per year. Your company provides the supplies, Donald Trump provides the $500 million. At the end of the first year, Donald Trump delivers his famous line, "You're fired!" There is no reason for the termination. It occurs simply for the convenience of The Donald. In private sector contract law, you are entitled now to sue Donald Trump for at least some of the remaining money on the contract. You spent millions of dollars preparing for this 5-year contract. You hired hundreds of professionals. By breaking the deal and violating the contract, The Donald harmed your company or deprived it of future revenue. You can sue The Donald for this future revenue-it's called expectation damages. Expectation damages can be thought of as the dollars you expected to receive if The Donald had carried out the terms of the contract rightfully to its conclusion. Contrast this private sector example with the frightening realm of government contracting. Instead of The Donald, you sign a government contract with the Department of Justice for $500 million worth of services over 5 years, $100 million per year. At the end of the first year, the Department of Justice contracting officer writes you an email that states: "You are hereby terminated for the convenience of the government." Guess what? You cannot sue the government or Department of Justice for the future revenue you lost. You can try, but you will lose. You are not entitled to the expectation damages of the broken deal. Now you see the reasoning behind why the Termination for Convenience of the Government is the scariest clause in government contracting. Although you can get paid for a few things after your company is terminated for convenience, you are not entitled to expectation damages. Aside from some minor costs your company incurred to wind down the contract, the government walks away with zero liability. This extraordinary power of the government can bankrupt your company. Terminations for convenience are a risk that almost every government contractor assumes, whether knowingly or in ignorance. You must price in the risk of these terminations for your long-term business plans. Every day thesun rises is another day the government can terminate your entire contract and not pay your company for breaking the deal. Technically, the "deal" or contract says the government can do this and your company agrees!

Answer 92

Yes. If your prime contract with the government has the Termination for Convenience clause, you need to flow down a version of this clause to your subcontractors. If you do not, then the government can terminate your prime contract, but you are still on the hook to pay all your subcontractors. Remember, your subcontractors can sue you for expectation damages. You will be left holding the bag when the government terminates your company for convenience. To avoid this disastrous situation, include a Termination for Convenience clause flow-down in your subcontracts. Stipulate that your company can use the Termination for Convenience clause against the subcontractor if the government uses the Termination for Convenience clause against your company.

Answer 93

If your company is the subcontractor, you should check your subcontract to see if the prime contractor has the right to terminate your company for convenience. If so, you should negotiate to change the subcontract terms to allow the prime contractor to terminate your company only if the government terminates the prime contractor. In other words, do not give any prime contractor the discretion to terminate your subcontract. Allow the prime contractor to terminate your company only to comply with a termination by the government. Include a requirement for the prime contractor to show proof of this termination.

Answer 94

When the government procures commercial items (which can be products or services), the government is supposed to use a different clause that does not allow terminations for default. Commercial government contracts should include a clause that allows for terminations "for cause." Terminations for cause in commercial government contracts must be based on some failure of your company. This process differs completely from the scary Termination for Convenience of the Government clause. Contract language about termination for cause is nothing to lose sleep over, but actually getting terminated for cause is a nightmare! You can read more about terminations for default to understand why you must avoid terminations for cause or for default.

Answer 95

In noncommercial government contracts, the contracting officer is supposed to use a version of the Termination clause that allows for termination "for default." Just like the commercial version (Termination for Cause), any termination "for default" requires some failure of your company-hence the word "default." Your company has "defaulted" on its responsibility or its ability to fulfill the contract. If your company is terminated for default, this termination may be a death sentence. The termination for default will appear on your company record for years. Other potential government clients will review this information before they decide to award you a contract. At all costs your company must avoid being terminated by default.

Answer 96

One way to dodge a termination for default is to convert the bitter pill into a terminationfor convenience. When government contractors litigate or challenge terminations for default, they're sometimes settled, transformed, or ruled by a judge to be a termination for convenience. This change saves the company's reputation in government contracting. That outcome is what your company will want, so try to negotiate a termination for convenience rather than a termination for default.

Answer 97

The government may send you two warning signs before terminating your company. If you see any correspondence with the words Cure Notice or Show Cause, you need to go on red alert. Assemble your company's chain of command and get in touch with your expert for government contracting.

Answer 98

The Cure Notice provides your company a written warning that something is wrong. Your company is doing something or failing to do something that may breach the contract and result in a termination for default.

Answer 99

Show Cause is a more urgent notice that your company may soon be terminated for default. It warns your company to spell out any reasons.why the government should not terminate you for default. Usually the Cure Notice comes before the Show Cause Notice, which comes just before your oncoming termination for default. Receiving a Show Cause Notice is like hearing the ominous question, "Any last words?" or "What do you want on your tombstone?" It is your last opportunity for rescue before termination.

Risk Management Flashcards

FAR Parts 9, 11, 16, 28, 32, and 49