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April 16, 2014

The Debt Ceiling & What Government Contractors Can Do

As we approach the end of the federal government’s fiscal year, another debt ceiling debate is looming.  Many contractors have expressed concerns about this issue.  We would like to take a moment to pass along a few thoughts about how you can deal with this potential cash flow issue and come out strong on the other side:

1.  Continue to Submit Proper Invoices in a Timely Manner.  Government contracts are existing obligations of the U.S. government.  The government is still obligated to pay contractors under the terms of their contracts, whether or not the government experiences a cash flow problem.  Invoice payments generally are covered by a "Prompt Payment" clause, which details the government's responsibilities to pay interest on most late payments to contractors so long as the contractor is in strict compliance with the FAR invoicing rules.  If the government makes a late payment, the interest should be automatically included in your payment.  If it’s not, then promptly contact your Contracting Officer. 

2.  Keep Up Your Documentation.  In the unlikely event that your customer agency decides to put your contract performance “on hold,” make sure that you get that direction in writing from the proper authority: your Contracting Officer.  Also, keep detailed records of the costs of the delay – they may be reimbursable. 

3.  Remember You Still Have Contractual Obligations to Subs & Employees.  With the exception of subcontracts that include “pay when paid” provisions, the government’s failure to pay you does not automatically relieve your obligation to pay your subcontractors, your suppliers or your employees.  If you are having serious cash flow issues due to the government’s delayed payments, you may want to contact your Contracting Officer to see if payments can be expedited.  

4.  Continue to Perform High Quality Work for your Customer.  Contractors working on funded, existing contracts should continue to perform their contractual responsibilities.  Note, however, that in the case of incrementally funded contracts, option exercises, and/or unawarded contractual actions, continuing to perform unfunded work is generally at the contractor’s own risk.

© 2014 Odin, Feldman & Pittleman, P.C.

About the Author

David Lawrence, Corporate, Tax, Finance Attorney, Odin Feldman, law firm
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David routinely advises clients on matters of teaming agreements, contract interpretation, subcontracting, and closely-held business issues. He focuses particularly on issues related to the structure of government contractors, as well as mergers, acquisitions and dispositions of government contracting companies, including conducting due diligence review, compliance and approval requirements, and handling contract negotiations.

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