Heads up CEOs. Your contracts can get away from you fast if
you have not identified all the risks going in, do not recognize constructive
changes during performance, and do not provide proper notices and reservations
of rights. The buck starts
here. We critique for your benefit a
recent project.
This is a critique of the management of a
federal government construction project. The first thing that went wrong was that trained eyes did not review the solicitation when it first came out. By trained
eyes I mean a contracts manager and a lawyer both of whom are well trained and
well steeped in the rules and regulations of government contracting and
interpretation of government contracts. That means they're familiar with the
regulations, the clauses that normally go in contracts, and the case law
interpreting them.
Those two people must review a solicitation when it first
comes in and look for conflicts, errors, and omissions. This means reviewing
not only the statement of work for possible conflicts, errors, and omissions but
also reviewing the clauses and terms and conditions to see if they conflict
with each other and if so whether the order of precedence clause is in the
contract which describes what happens when clauses are inconsistent.
A contract manager is a person whose duties are described
in the article that I've written about contract managers.
A lawyer well versed in government contracts law, not some
neophyte, must also be on the initial review team. The contract manager and the
lawyer must report their findings before anything else takes place, including
the technical review and the pricing. They become part of the risk assessment
committee that passes on whether there is a bid or no bid on the project. So,
their report becomes part of the documentation that is used to assess the risk.
The next thing that the contract manager and the lawyer do
is review the proposal. Assuming a decision is made to bid, the critical review
of the proposal must come from the contract manager and the lawyer. They have
the final say on the language that goes in the proposal. If in fact, there are
any conflicts, errors, or omissions, and they are patent, there must be a pause
in the process to raise those concerns with the contracting officer. If not
resolved by the contracting officer the contract manager and the lawyer need to
either handle the protest or make a recommendation to hire an outside lawyer to
handle the protest. The protest would consist of a description of the problem
with the language in the solicitation and the corrective action that needs to
be taken.
In the case in point, it is apparent that none of these
actions took place prior to bidding. If the proper review had taken place, all
the interpretation issues that resulted in the difficulties during the performance
could have been avoided. The fact is that contract interpretation issues are
often the basis for disputes. In the very worst case, a protest should have
been lodged to correct some of the errors prior to bidding. If a language
problem is patent, the contractor must protest or assume the risk. Otherwise, the
company assumes all the risk of the contract interpretation questions as they
may well be determined to be patent in any litigation. The rules of contract
interpretation do not allocate the risk to the government unless the issues are
latent.
The next thing that went wrong was the fact that the
contract manager and the lawyer did not monitor performance. They have the duty
to monitor closely what is going on in the contract to the extent of even walking
the walk. Had this occurred, they would have raised the red flag that there
were problems that had to be addressed early on. The main issue that developed
was a poor relationship with the contracting officer. There were no boots-on-the-ground contract managers or lawyers working on monitoring performance. They
would have discharged their duty to keep in constant contact with the
contracting officer. That means they would have prepared daily diaries as to
what was going on and communicated often in person and in writing with the
contracting officer, keeping the contracting officer aware of the issues that
would become claims if not handled properly.
Early on there was apparently no
closely monitored management of the project. That was just an extension of the
initial problem of not having a contract manager and lawyer managing the
contract from a regulation and contract terms and conditions point of view. Upper management apparently had not read the
contract. When all else fails, read the
contract.
The changes in the project were so numerous and so important
that cumulatively they became a cardinal change entitling the company to
abandon performance. But it never came to that because there were questions
about whether the company's position would be sustained in such an event. Management
wanted to get out of the contract but there was just no way to do it without precipitating
a termination for default. One could not have even reasonably threatened to
abandon performance under the circumstances because that would have resulted in
default termination.
Contract management and legal review is not art, it is a
science. All the large government contractors learned the lesson years ago that
they must invest in the proper expertise to manage the contracts with the
government. Those contracts are contracts of adhesion meaning the government
dictates the terms and conditions and therefore a premium is placed on the
review of the terms and conditions and the management of performance. Thus,
over the years a profession has developed called contract manager. Again, see
my article on what a contract manager does. Moreover, there are lawyers who are
steeped in the regulations and judicial interpretations and who are
fully capable of assisting contractors from the very beginning.
Most large
contractors in either the construction, supply, or service sectors have what is
called contracts departments where educated and trained contract managers
reside along with a team of lawyers. The lawyers are not in the legal
department. They are in the contracts department where the action is. They
accompany the contract manager on the review of performance, and they certainly
are involved in the review of the solicitation up front, the risk assessment,
and the preparation of the proposal.
It has been said that
this is an expensive proposition that cuts the margin and ruins the
profitability of the contract. Nothing could be further from the truth. Those
professionals, the managers, and the lawyers optimize the profit of the
contract. How? They point out ways in which performance can be achieved by
following the letter of the law and the contract terms and conditions.
Moreover, they can avoid the pitfalls that ruin profitability on a contract and
if necessary, file claims which translate directly to the bottom line when
paid. Therefore, it is profitable for contractors to hire managers and lawyers
as all the big government contractors determined years ago.
spriggslawgroup.com
