CPR For Government Contractors; What To Do Until The Government Contracts Lawyer Shows Up.

April 26, 2007

It Looks So Good: Because the U.S. Government buys more than $370 billion of goods and services each year, it is an enticing market for many businesses that have done little or no selling to government agencies. The market for state and local government purchases is of the same order of magnitude. Selling to the federal government is lauded (by the government) as being much easier than it used to be (which is true), so many businesses think that government contracts can’t be all that much different than commercial sales. Like many messages from the feds, this one should be taken with a grain of salt. It is true that selling to the government is much easier than it was even a decade ago; however, the differences are still significant and they can trip up and frustrate a business that is not prepared for those differences. So the odds are that sooner or later a client will call you either with a question about getting a government contract or because it is in trouble with a government contract. This commentary addresses what can be done and what should not be done while waiting for the government contracts expert to arrive at the scene of the crisis.

There are two situations that require an immediate response. Although the details are different, these situations arise in state and local government contracting also.

The Dark Side of Government Contracting. The following situations and their implications will come as no surprise to you, but as you know, they will come as a big shock to the client: The government customer has uttered one of those “fighting words” such as “fraud” or “bribery.” Or the client has gotten a call from the FBI or an agency Inspector General or an auditor. Or equally likely, the client has discovered a situation that may be a serious violation of the rules. This may not happen as often as it did when there were so many more ways for a government contractor to screw up, but the government customer is still the one customer that has its own cadre of policemen and is quite willing to send them after vendors whom they find annoying. Government customers are not like commercial customers who resolve disputes mostly by civil litigation (although the government can do that too).

There are still a plethora of federal crimes intended to prevent vendors from taking unfair advantage of a government customer, so it behooves a government contractor to know the rules and follow them. But that is a topic for future commentary. Beyond that, government contractors are often encouraged to make self-disclosures. This is not necessarily advisable, certainly not before a careful investigation of the facts and analysis of the legal implications of those facts. Because of the multitude of potential investigative agencies, government contractors may also be confronted by investigators who can be less than professional with their methods and allegations. Government contracting is still subject to technical and convoluted regulations; the existence of a regulatory violation, let alone a criminal violation, can be determined only after a careful review of the facts and analysis of the applicable rules. Guilty or not, any businessman must take seriously any assertion by a government customer that an illegal act has occurred or any indication that an investigative agency has developed an interest in the businessman’s activities or any internal disclosure of a potential violation.

Such situations need to be treated like any potential white collar matter, with appropriate limitations on the client’s statements and preservation of evidence and prompt and careful internal investigation covered by privilege. Like other potential white collar situations, the client needs the advice of your white collar expert and your subject matter expert. Prompt but not precipitate action by counsel and the client are the order of the day.

And Even More Possibilities for Litigation: The other situation requiring rapid response is the pre-award dispute. Government contracting is unique in that the failure of the government buyer to follow applicable procurement rules gives rise to judicial and administrative remedies. Clients can find themselves on either side of these pre-award disputes, referred to as bid protests, either protesting an award to a competitor or defending an award to themselves. With these disputes, rapid action is vital to protect the client’s remedies. If a protest is filed within 10 calendar days, contract awards can be withheld or contract performance suspended. Protests may be taken to the procuring agency, the General Accountability Office (formerly known as the General Accounting Office) or the U.S. Court of Federal Claims. Agency and GAO protests must be filed in 10 working days of actual or constructive knowledge of the basis for the protest. We all know that it usually takes a client a week to decide whether to talk to a lawyer. You can do the math. D efending against a protest can also be time critical because the administrative and judicial protest processes move quickly. Deciding whether to protest is not a simple decision. There are both marketing and legal considerations to consider carefully. For large defense contractors dealing with bet-your-company bids, there may be no meaningful choice but to protest. For the typical client dabbling in government contracts, the issue can be difficult and confusing and decisions must be reached under considerable time pressure.

Although bureaucrats are not immune from typical customer emotions, it is important to understand that the government buyer’s motivations are not necessarily those of the usual commercial buyer. When and how to start an adversarial process with a government customer, either during the bidding process or during contract performance, is another topic for future commentary, as are the differences in the marketing and bidding processes in government contracting. Until then, be aware of the two situations that really need a quick response to protect the client’s interests, the threat (or even a hint) of a criminal investigation and the pre-award bid protest process.