And sometimes, Bjorklund said, it’s simply because the prime contractor prefers to keep the entire contract for themselves -- an increasingly common side effect of reduced government spending.
Legal action a double-edged sword
One way small businesses can avoid being victims of bait-and-switch, experts say, is by signing clear teaming agreements with primes they bid with.
“You can have a mandatory provision that says that if you are awarded the prime contract, you shall award me a subcontract for this specific amount,” said Terry Murphy, chairman of the government contracts practice group at Kaufman & Canoles. “Then you have a binding legal agreement that is enforceable because it is a breach of contract.”
But some primes won’t agree to such specific language, knowing that they’ll want to reserve the right to swap out a contractor if someone better—or cheaper—comes along for a particular order.
“Instead, the prime will say they’ll use ‘their best efforts’ or ‘endeavor’ or ‘negotiate in good faith’ to give them the work,” Murphy said. “That’s how the prime protects itself from a claim by the sub.”
And for many small companies, there’s a trade-off between suing to get promised work and maintaining good relations with a potential future prime partner.
“If a big contractor has these business opportunities, they’ll tell the sub, ‘I’ll make it up to you next time,’ ” Murphy said.
Taking legal action can also get expensive for a small firm. Basu did sue one prime he said had cut him off after promising him work, but he spent $50,000 in fees to recover $30,000 in invoices.
Dona Storey, a contracting consultant who is also a former federal contractor, said she once was stung by a big construction company that refused to recoup her labor costs when the project was delayed.
“It was the one detail I forgot to negotiate,” she recalls.
At the time, she couldn’t afford an attorney, so she let it go. Now, in her consulting role, she recommends extensively detailed teaming agreements that leave nothing to chance.
“I would lay out the work we’re going to do, how much we’re going to do, the contingencies, the assumptions,” she said. “As a small business, I want to do a great job and put on a happy face, but this is my business, not my hobby.”
New legislative and regulatory changes may make it harder to drop subcontractors.
One bill, which has passed the House, would penalize contractors that fail to file reports outlining their subcontracting plans and would also notify government agencies when there’s a discrepancy between the subcontractor a prime had planned to work with and the one they actually used.
The Small Business Administration, meanwhile, is working on a proposed rule that would allow contracting officers to denote changes in subcontractors or late payments in a contractor’s past performance record, which could impact their future contracts.
“That’s the real hammer,” Murphy explained. “In contracting, past performance is critical.”
Follow Olga Khazan and On Small Business on Twitter.
Loading...
Comments