Monday, March 12, 2012


One of our dear friends and readers has a small business client who expresses this concern:
His complaint with the system is a real one for small businesses, especially those working on limited resources.  That problem is the real fact that many government agencies withhold payments on a contract when there is a dispute over extra work or perceived failure of a contractor to live up to the terms of the contract's specifications.  Many times the contractor is forced to abandon a claim in order to get paid.  The government forces the contractor to perform additional work and then file a claim; at that point there is no assurance that he will be paid, and even if he is, as you know, it can be a matter of a year or more.
We think this is a form of extorting the extra work.  Or call it taking routine payments hostage.  It's just plain wrong.  Any suggestion, no matter how subtle, that a contractor must abandon any claim for extra work in order to get paid is a material breach of the contract.  Moreover, it is the worst form of contractual abuse to put a small business with limited resources in financial jeopardy by effectively removing its statutory right to relief.  This is the worst form of extortion.  Or call it hostage taking.  But what do you do about it?

If you have the resources, the remedies are effective and can be made economical and efficient with the right expert assistance.  But here we are talking about firms which cannot insist on a modification for extra work or a contracting officer's decision on a contract interpretation issue.  The contracting officer has effectively said do it my way or I'll drive you to bankruptcy.  The government contracting disputes system is not an option if you have been told you will not get paid unless you comply.

We don't like even thinking about situations where we have to put the judicial system aside.  That should not be the case.  We know exactly what to do with the luxury of a little time and money to exercise the rights congress already has given contractors.  In fact, each small business should explore just how expensive and time consuming it would be to solve its particular problem.  The reason we are in business to help contractors is to "pull rabbits out of hats" as Gil Cuneo used to say.

The solution here, however, is with Congress.  Small businesses need help.  Write your congressperson.  There are a spate of bills presently in mark up in the House to aid small businesses.  Several congresspersons have lined up in support.  We need to ask them to do one more thing for small businesses:  make extorting extra work and holding payments hostage to unilateral contract interpretation illegal.  But making such behavior illegal is not enough.  There also have to be penalties imposed through a swift and effective administrative appeal procedure.  Give the power to the SBA and require resolution within 10 working days.  Remedies should include removal of the offending contracting officer from the contract.

Perhaps even better, the (almost) Equal Access to Justice Act needs to be overhauled and expanded.  There needs to be a special inexpensive expedited procedure for handling small business disputes.  And attorney fees should be paid in total if you prevail whether or not the government had a good argument. 

Some will advise SBA may be a good source of help even without this new legislation.  Others may say escalate the problem within the agency and write your congressperson.  But there is precious little time for those approaches, as well.  And, if you are told you will not get paid, you are most likely to give up unless there is a remedy that is swift and effective.  In our opinion, the problem will not be solved unless and until Congress enacts new legislation specifically addressing it.  See also our blogs at    

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