With the specter of massive federal budget cuts looming, lawyers who represent government contractors are advising clients on how to dodge the ax.
"The key element is that there will be even greater competition for scarce funds," said Crowell & Moring government contracts partner J. Chris Haile, speaking at a firm-sponsored webinar today. “There will be battles within Congress, within agencies...and winners and losers within the contracting community. Programs perceived as having low benefits and high costs will be targeted.”
The 12-member congressional “super committee” is charged with finding ways to reduce the deficit by at least $1.2 trillion over the next 10 years, and has until Nov. 23 to vote on a plan. If the committee fails to meet its deadlines, across-the-board automatic cuts (known as sequestration) would occur in 2013.
It’s not clear how much the cuts will hit government contracts, but companies—and their lawyers—are bracing for the worst.
Haile predicted “a much greater use of aggressive termination for default by the government. There’s no cheaper way for the government to end a contract than default termination.” When a contract is ended for default because a contractor failed to deliver the goods or services, or to make adequate progress on the project, contractors are sharply limited in how much money they can recoup.
Crowell counsel Robert Wagman Jr. also predicted that there will be much greater scrutiny of contracts for waste, fraud and abuse. “You don’t want to be the problem child now,” he said.
Haile cautioned contractors that typically carry on work when faced with situations such as a slow-to-pay contracting officer, no clear allocation of funding or the need for a contract extension. “That business decision to work during the gap is much more risky,” he said. “It’s not business as usual....It’s no longer just paperwork.”
Knowing that agencies will be looking to shed contracts, Haile recommended that companies work with their contracting officers to “help them better make the case that this [program] takes higher priority within the agency.” And he added that it is in companies’ best interests to help contracting officers look good rather than “allowing them to make costly mistakes.”
Wegman also recommended companies “take inventory of your contracts, understand your contracts, understand your funding,” he said. “There are still more questions than answers....Your customers are floating on a sea of uncertainty with you. It’s difficult for them to make long range plans or execute existing ones.”
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