Doing Business with the Government and the Impact of COVID-19
Speaking to Pamela Mazza, who specialises in government contracts, we explore why companies should consider doing business with the government and the possible pitfalls they should be aware of.
Pam also discusses the challenges COVID-19 presents for government contractors and changes we should be on the lookout for.
Why should a business consider doing business with the government?
The U.S. federal government is the number one purchaser in the world, purchasing all sorts of supplies and services, so providing products or services to government agencies is worth billions in sales to businesses each year. Many contracts issued by the federal government are multi-year contracts, some as long as 10 years so they can provide a steady stream of revenue to a business. Whether you’re an IT service provider or a medical device company, a government contract offers an additional revenue stream that can either supplement or replace your commercial business revenues. Other reasons a commercial business might consider doing business with the federal government are below:
- Government contractors seem to be more recession/natural disaster proof than some commercial businesses. Depending on the type of services/products a company provides, government contracts may sustain it or even increase its revenues during times of crisis. Often, when commercial customers are tightening their belts, the federal government is ramping up to provide disaster relief through its contractors. Moreover, since the government procurement cycle is so lengthy, contracts are issued 12 months a year and, once awarded, may provide a steady stream of revenue to the contractor. The government can be a good client and a reliable source of income. If a contractor understands the purchasing system and proper invoicing techniques, the government pays its bills.
- Government agencies also buy products and services in large quantities. Large orders can be a double-edged sword for small businesses. However, if managed correctly, they can help small businesses grow and develop the infrastructure necessary to become more competitive.
- Government agencies have mandates to work with small businesses and there are numerous programs designed to give small businesses a competitive advantage. These programs include special designations such as HUBZone, 8(a), small business, service-disabled veteran owned small business and women-owned small business, among others.
What are some of the roadblocks to being a government contractor?
Conducting business with the government comes with its own unique challenges. While the payoffs can be great, contracting with the government is not for the timid. Consider the following potential pitfalls:Government contracts are heavily regulated by the Federal Acquisition Regulations (FAR) and special regulations promulgated by the individual agencies. Failure to know and follow these regulations can cost a contractor money, result in a contract being terminated or, under extreme circumstances, a suspension or debarment from doing further business with the government. Knowing how to traverse this maze of regulatory requirements is paramount to success and it is wise to seek the advice and counsel of government contracts specialists for your legal, accounting and banking needs.
- The government solicitation process is often lengthy and cumbersome. Offerors must comply with the solicitation terms or risk being rejected as nonresponsive. Agencies often receive an unmanageable number of proposals, especially for large, multiple award procurements, and agency evaluators will try to make their jobs more manageable by eliminating offers from the competitive pool. Solicitation terms may seem unclear, confusing or overly restrictive. Offerors should understand whether such terms can be challenged and, if so, what timeliness requirements exist.
- Once the contract is awarded, depending on the contract type, disappointed offerors may have an opportunity to protest the award. Such protests can challenge the eligibility of the awardee if the solicitation was issued under an SBA program or they can challenge the award decision based upon arguments, such as the government misevaluated the proposals or engaged in unequal discussions with offerors. Such protests may delay contract performance creating difficulties for the awardee who will need to decide how to handle new hires or contingent hire situations. If a protestor is successful, it is possible that the contract may be awarded to an offeror other than the original awardee.
- Due to budgetary constraints, the government tends to award projects based on the lowest price, even if the evaluation criteria allow the government to award the offeror that presents the “best value”. This environment creates difficulties when trying to attract or retain qualified employees. New entrants to the federal contracting space or to a particular agency requirement may submit low ball proposals, win the work and then be unable to perform, resulting in a blemished record and a disappointed customer. More often than not, contractors cannot seek modifications to increase the contract value absent certain changed circumstances so contractors are held to their original price..
- Government agencies usually favor outsourcing work to commercial companies instead of having government employees perform the tasks; however, contractors often complain that once they have recruited and trained an employee and obtained any necessary clearances, the government descopes the position and hires the employee directly.
- The unpredictable nature of government spending can add to the uncertainty of working with the government. Contractors must also anticipate contract change orders and terminations since the government retains the unilateral right to redirect priorities.
What further pressing challenges has COVID-19 presented for government contractors? Does this differ from commercial businesses?
A major challenge for contractors is their potential inability to execute or complete a contract in the midst of a pandemic. This challenge could lead to performance issues and ultimately hinder payment on the contract. Section 3610 of the CARES Act, entitled “Federal Contractor Authority”, specifically states that Contracting Officers have authority to continue paying contractors in order to maintain employment for contractor personnel, even if the contract is subject to a stop work order or other delays. Again, this is true even if no work is being performed on the contract.
Due to the unprecedented economic disruption caused by COVID-19, the CARES Act was signed into law to provide billions of dollars in relief for businesses.
Another pressing concern for government contractors is how to obtain upward equitable adjustments for increased operating costs due to the crisis. These costs could include more janitorial services, reconfiguring and/or refurnishing workspaces, changing processes and/or systems, overcoming supply chain fluctuations, enabling more remote work, compartmentalising workgroups, implementing shift work, allotting administrative time for health checks, giving more transportation and parking benefits, providing Personal Protective Equipment, adding headcount made necessary by changes, as well as recouping the costs for any lost efficiencies due to the foregoing.
Finally, like so many other businesses, government contractors are slowly beginning the reopening process and preparing their facilities for a returning workforce. Undoubtedly, with the COVID-19 pandemic still ongoing, a return to work certainly will not mean a return to how things used to be and companies will need to implement new processes and procedures to adequately prepare employees and comply with state and local requirements.
What assistance is available to help businesses deal with the pandemic? How have these impacted businesses?
The crisis has highlighted the U.S. government’s dependency on Chinese manufacturing and the risks to our supply chain and national security.
Due to the unprecedented economic disruption caused by COVID-19, the CARES Act was signed into law to provide billions of dollars in relief for businesses. Employers have the Economic Injury Disaster Loan and the Paycheck Protection Program (PPP), which offer loan and debt relief options to help businesses survive the challenges related to the pandemic. The recently passed Paycheck Protection Program Flexibility Act, in particular, provides businesses with the following:
- Extend the “covered period” under which small businesses can spend the loan proceeds from eight weeks to 24 weeks or until 31 December
- Remove the limits on loan forgiveness for small businesses that were unable to rehire employees, hire new employees, or return to the same level of business activity as before the virus.
- Expand the 25% cap to use PPP funds on nonpayroll expenses, such as rent, mortgage interest, and utilities, to 40% of the total loan, which lowers the 75% requirement for payroll expenses to 60% to get maximum forgiveness.
- Allow small businesses to take a PPP loan and also qualify for a separate, recently enacted tax credit to defer payroll taxes, currently prohibited to prevent “double dipping”.
- Extend the loan terms for any unforgiven portions that need to be repaid from two years to five years, at 1% interest.
- Give small businesses more time to rehire employees or to obtain forgiveness for the loan if social-distancing guidelines and health-related actions from the Centers for Disease Control and Prevention or other agencies prevented the business from operating at the same capacity as it had before 1 March 2020.
- Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.
Do you think there will be any changes in the long run?
As a result of the pandemic, listed below are four long-term changes we expect to see. Some impact government contractors and others will impact all commercial businesses.
- With personnel concerns around the return to work, remote working will remain at a high level, which stresses deficiencies in the remote infrastructure. The recent CARES Act legislation earmarked billions of dollars to address these deficiencies. If spent properly, it could help the government and its contracting partners move into a more digital work environment, with basic innovations like e-signatures, digital forms, and website developments.
- The crisis has highlighted the U.S. government’s dependency on Chinese manufacturing and the risks to our supply chain and national security. We’ve already seen the Trump Administration invoke the Defense Production Act, which allows a range of government authorities to control the distribution of a company’s products and compel companies to prioritise the government’s production order over those of other clients.
- By extension, we anticipate that the current Buy America Act procurement preferences may be expanded. Current provisions are well-established in the FAR and we expect these would be increased and expanded from an acquisition perspective.
- Finally, we are already seeing the government taking actions to tighten and reform the supply chain, such as the Defense Department’s Cybersecurity Maturity Model Certification (CMMC) initiative, which requires government contractors doing business with the DOD to meet select CMMC level requirements before they can bid on a contract.
Pamela J. Mazza
Pamela Mazza, Managing Partner of PilieroMazza PLLC, is nationally recognized for her over 30 years of work with small to mid-sized government contractors. Her practice includes all aspects of government contracts, including federal procurement programs for small businesses, audits, and investigations. Pam is also responsible for the firm’s government relations practice, which represents corporations and trade associations before Congress and the Administration. As managing partner, Pam has overall responsibility for the firm’s practice groups, the operational infrastructure, and strategic planning and implementation.
PilieroMazza—a business law firm—serves as a strategic partner to government contractors and commercial businesses from across the United States. We deliver results for our clients by implementing legal and business solutions that take into consideration the client’s best interests. With attorneys from a cross-section of the firm’s core practice areas––including Government Contracts, Business & Corporate/Mergers & Acquisitions, Labor & Employment, and Litigation & Dispute Resolution––working seamlessly as a team to support our clients, we offer thoughtful and thorough solutions to protecting their business interests. Furthermore, our knowledge on how laws are administered, productive relationships with decision-makers at various government agencies, and “boutique” business model, make PilieroMazza uniquely qualified to provide clients with highly valuable and exceptionally skilled representation.