Doing business with the U.S. government

I started my career with the U.S. government, so it came as a bit of a shock to me, when I went into private practice in the Midwest, to learn that people built buildings without all the clauses, forms and procedures I was used to. I came to discover that most of the construction industry operated on store-bought blank forms, informal agreements and old relationships, all of which seems to have worked pretty well for a long time.

A problem can arise for a contractor who has been operating this way when he gets involved in U.S. government work. The federal government operates exclusively through a system of formal delegation of authority to contracting officers. By law, the United States places the burden on the contractor to know what the limitation is of the authority of anyone with whom he does business. If a contractor takes someone's word for something, he is taking a giant risk in that he may not be able to rely on it.

Moreover, there are thousands of regulations in the Federal Acquisition Regulation (FAR) or the supplemental regs issued by various agencies that will be part of your contract whether you have ever seen them or not. Again, it is the contractor's responsibility to find out which regs are part of the contract and to comply with them. The penalties for not complying with these regulations are very, very serious — including the False Claims Act, 31 U.S.C. Sec. 3729 et seq.

My biggest concern for contractors who don't routinely do government work is that they may not even be aware that they are required to comply with these requirements because they may not realize that the work they are doing is considered “federal.” If you work as a subcontractor or supplier, you can't always tell by the name of the project that it involves federal funds. For example, much research work done on university campuses is federally funded. Work done under many grants to not-for-profit agencies that are used to construct facilities come from government entities. Conversely, just because work is done on federal land does not necessarily involve all these same laws. Congress allows what are known as “unappropriated fund activities” (such as PX's that operate on their own funds) to forgo much of the red tape that applies to most government projects.

Even knowing whether or not the project is considered “federal” doesn't resolve most issues because the contractor still needs to know which regulations apply. Some clauses are considered mandatory and must be in all contracts, but even then there are many optional versions among these clauses — such as the “Changes” or “Prompt Payment” clauses. Additionally, there are hundreds more clauses that might be in a particular contract. Clauses such as the “Buy America” Act, 41 U.S.C. §§ 10a-10d; the “Veterans Preference” Act, 5 U.S.C. § 3304 et seq.; and the many hazardous materials laws may particularly affect your work.

It is not uncommon for a subcontractor to ask the general contractor on a federal project for the applicable regs and for the general contractor to not know either. Sometimes the regs are printed in the paperwork given to the general contractor at the time of bid or negotiation, but often the regs are “incorporated” by reference into the contract. In this case, you are lucky if you get a two- to three-page list of these regulations and then you are on your own to find them. Fortunately, most of this information is now available on the Internet, but subcontractors and suppliers should know about them before they submit bids or quotes because some of the requirements can substantially change the cost of performing the work.

The penalty for not complying with these requirements is serious. The aforementioned False Claims Act is perhaps the most deadly because the “false” statement doesn't have to really be part of any “claim.” For example, contractors have been found to violate the act by:

• Getting an undisclosed rebate from their surety bond broker.

• Not passing on to the government a year-end volume discount of freight charges.

• Certifying compliance with environmental laws yet not reclaiming silver from photography development.

• Passing on claims of subcontractors and suppliers without verifying the accuracy of the claims.

Since the penalties are up to three times the amount of an overcharge and $10,000 per occurrence (per invoice, usually), and the contractor can be suspended or debarred for up to three years, this law is to be taken seriously. Giving gifts to government officials can get you (and the official) in a lot of trouble too (see the “Anti-Kickback Act,” 41 U.S.C. § 51).

None of this is meant to prevent contractors from doing business with the United States. It is just to urge you to know what you are getting into and to make sure that you are in a position to fully comply with all the requirements before accepting that work.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., 816/421-4800, e-mail to [email protected].

Elkay unveils new technology center

Broadview, Ill. — Elkay Plumbing Products Division President Jim Scott has announced the company will transform its sink manufacturing facility here into the Elkay Technology Center, which will include a new “rapid production facility.”

The facility will feature flexible tooling and production capability to deliver a new approach to products. The technology center will produce high-end sinks featuring new shapes, sizes and finishes, going from concept to production faster than is possible with current manufacturing systems.

Elkay sink plants in Lumberton, N.C., and Ogden, Utah, will assume responsibility for more of the high-volume sink production for Elkay's Plumbing Products Division.