Federal Government Contract Laws

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 What KInds of Contracts Does the Federal Government Use for Its Business?

The federal government purchases a wide variety of products and services. Federal law requires it to provide opportunities to benefit from these opportunities to small businesses.

There are two kinds of government contractors:

  • Prime contractors who deal directly with government agencies;
  • Subcontractors who are part of a team with a prime contractor. Subcontractors usually provide a special capability or product.

If a smaller company wants to do business as either a prime contractor or a subcontractor, it must first qualify legally as a small business and then register as a government contractor. Then, it can start searching for the type of opportunities with the federal government that it wants to pursue.

It pays for a business interested in government contracts to become familiar with the types of contracts that federal agencies use for their procurement. There are four major kinds of contracts that federal agencies currently make use of when they need to procure goods or services as follows:

  • Fixed-price contracts: The most basic type is the fixed-price contract. These are also referred to as “lump sum contracts.” The contractor offers goods or services to a federal agency at a set price that does not change, even if the costs incurred by the contractor should vary. Rather, the price for the contract goods or services is estimated at the beginning of the process and set by the terms of the contract.
    • If actual costs exceed the estimated price set in the contract, the contractor is still responsible for providing the goods or services at the contract price. Agencies prefer these contracts for this reason as they reduce risk for them.
    • They also offer a profit opportunity to the seller, especially if they plan and forecast accurately. If the seller fixes a price in a contract and the cost of the goods then decreases, they can buy the goods at the decreased price, get paid the higher contract price, and make a profit on the transaction.
      • These types of contracts are generally used in situations in which the supplies and services requested offer reasonably definite specifications, which makes estimating and setting a price easier. An example would be construction contracts;
  • Cost-reimbursement/cost-plus contracts: When situations require greater flexibility for final expenses, federal agencies use cost-reimbursement, or cost-plus, contracts. Generally, the seller provides an estimated quote at the beginning of the process. The final price is determined either at the completion of the project or at a designated date in the course of project completion.
    • The flexibility of these contracts is not unlimited. Additional costs may only be incurred as allowed and agreed on in the contract. There are different variations of cost-plus contracts, including cost-plus-fixed-fee, cost-plus-incentive-fee, cost-plus-award-fee, and more.
      • An agency may use this kind of contract when accurate estimation for fixed-price contracts is unrealistic or unlikely. The government agencies that often use cost-reimbursement contracts are the National Weather Service and the Federal Transit Administration;
  • Time-and-material contracts (T&M): These contracts are viewed as offering the lowest level of risk to contractors and the most risk to the government. For this reason, they are used less often than other types. Time-and-materials contracts basically offer payment on the basis of time and materials spent on a project.
    • A T&M contract uses a fixed cost for materials and a fixed hourly rate of pay for labor in determining a final price. It can offer many benefits for contractors, but it also means that the contractor must engage in tedious record-keeping of everything that happens on a project. It must be shown that every resource used was a necessity, how much time was spent, and how much material was consumed.
      • The federal government tends to avoid T&M contracts if it can because they pose an increased risk to them. However, they may be used in situations where the duration or scope of work is unknown or difficult to reasonably estimate;
  • Indefinite delivery, indefinite quantity (IDIQ) contracts: This type of contract can be used with both fixed-price and cost-reimbursement types of contract. The indefinite part of the agreement refers to the fact that these contracts often have recurring “task orders” under the umbrella or main contract.
    • The government specifies a set of recurring tasks and then whether each task will be fixed-price or cost-reimbursement. The agency can select a pool of contractors who compete on a recurring basis for each task rather than one winning the entire contract.
      • These contracts have become more popular recently and are used when the government cannot determine ahead of time the required quantity of supplies or services above a specified minimum.

In addition, this type of contract is usually used in a situation in which it is not strategic for the government to commit to more than a minimum quantity. Rather, a recurring order for supplies or services makes more sense from an economic perspective.

An attorney who is experienced in contract or government law can make sure that any public contract between a contractor and the government meets the requirements of the federal agencies.

When Does the Federal Government Use a Procurement Contract?

In the basic federal procurement process, federal personnel responsible for acquisition determine what their agency requires in the way of goods and services. They then post solicitations for contracts on the federal government’s SAM.gov website.

Companies that are interested in obtaining procurement contracts with federal agencies then prepare their offers in response to the solicitations. The personnel of the agency then evaluate the offers according to the Federal Acquisition Regulation (FAR).

A company can also get federal procurement opportunities as a subcontractor for a company that is a government contractor. In order to compete for federal government contracts, a company should first get a Unique Entity ID (UEI) number. The company would then want to register with the federal government’s System for Award Management (SAM).

There are a number of federal agencies, e.g., the General Services Administration (GSA) that give help and provide services to existing and potential government contractors. There are opportunities in procurement for research and development (R&D) that involve traditional contracting methods, such as solicitations and contracts.

There are also opportunities to obtain contracts through nontraditional methods, which include agency-sponsored contests and venture capital funds.

When Does the Federal Government Use a Federal Grant or Cooperative Agreement?

The government uses either a grant or cooperative agreement instead of a procurement contract when the main purpose of the relationship is to transfer something of value to a state or local government or a non-profit organization. In addition, the purpose is to enable the state or local government or non-profit to carry out a public purpose.

A grant is used in situations in which the government agency does not expect to be substantially involved with the recipient of the funds when the recipient carries out the activity contemplated in the agreement. A “cooperative agreement” is used when there is expected to be substantial involvement between the government and the recipient.

Do I Need an Attorney if I Wish to Enter into a Public Contract With the Federal Government?

All types of public contract agreements with federal government agencies are governed by federal rules, so the help of a contract attorney can be very helpful.

LegalMatch.com can connect you to an attorney who has the experience to help you ensure that any public contract between you and the government meets the requirements of federal law. Also, consulting the right contract attorney will be invaluable in making sure that the terms of the contract are advantageous to you from a business perspective.

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