Tuesday, May 26, 2009

The Prompt Payment Act

Given the title, I probably have everyone’s attention right now. Late payments are a bane of any contractor – the killer of cash flow and worse. Many laugh at the thought of the government paying anyone on time, but I promise you, there are laws set in place so that Uncle Sam can’t delay or rip your business off.

In response to a study conducted by the General Accounting Office in 1978 showing that the government paid at least 30% of their contractors well after the due dates, the government created the Prompt Payment Act. Passed in 1982, the Prompt Payment Act is a piece of legislation intended to force the government to pay contractors and vendors in a timely fashion, including interest fees if payment is not made within 30 days of the due date. The Act also states that the government can only take discounts if payments are made within the discount dates set in a contract.

One of the major benefits of this act is that it states specifically both how much the vendor can charge in interest fees and at what point they start to accrue when Uncle Sam doesn’t pay on time. In addition, the act encourages federal agencies to take full advantage of the prompt payment discounts, which contractors often offer to agencies making early payments. These discounts ultimately save the government money in both late fees and original cost, making this act valuable to both the taxpayer and the small business owner.

In 1993, President Clinton emphasized the importance of electronic commerce in government payments. His original intent was to make the government pay strictly electronically to help save tax dollars on late fees and increase efficiency. President Clinton’s thoughts spurred an addition to the act called the Debt Collection Improvement Act of 1996, which promoted the use of government credit cards and made the payment process much faster.

Why is this act important? One of the big frustrations for contractors of any time is not being paid on time. You can’t go to the grocery store, have the clerk ring everything up, and then hand them an IOU and neglect to pay it for a couple months. Well that’s the main purpose of the Prompt Payment Act – to protect the vendors from being abused by Uncle Sam and to be paid on time. To take advantage of this there are three criteria that contractors must meet:

1. Valid contract exists listing the supplies or services
2. The government agency accepts completion of the contract without dispute to quality, quantity, or other contractual provisions
3. The designated government billing office receives a proper invoice.

Is there is any dispute, no late penalties will be accepted by the government. It is critical that contractors file all the correct documents to the right places in order to be paid in a timely manner. It is true that the payment and invoicing systems can be incredibly complex, so it is very important that you pay careful attention when doing this. When working with the government, there is no room for documental error, which is why Gateway to Government wants to help your small business. We know where every “i” needs to be dotted and “t” needs to be crossed. Our contracting experts have worked with these systems and know the regulations like the back of their hand, meaning that they can ensure that the Prompt Payment Act works in your favor.

Thursday, May 21, 2009

A HUB Zone Is Not a Husband Hangout

The term HUB-Zone is thrown around a lot in government contracting. Many contracts include restrictions that limits bidding to businesses located within a these zones. If you are new to the game, it is easy not to know if the area your business is located in qualifies as a HUB-Zone or even if your business qualifies.

So… what is a HUB zone?

The Small Business Administration (SBA) created the Historically Underutilized Business Zone (frequently referred to as a HUB Zone) program in 1997 when Congress passed the Small Business Reauthorization Act, which included the HUB-Zone Empowerment Act. The SBA enforces the act by maintaining a list of qualified businesses for federal agencies to use. They certify businesses in these areas as Hub-Zone businesses based on the following requirements:

• The company must be a small business based on the size standards used by the North American Industry Classification System (NAICS).
• At least 51% of the company must be owned and controlled by US citizens.
• The main location of business, where most employees do work (excluding contract sites), must be located in an authorized HUB zone.
• At least 35% of the company’s employees must live in a HUB zone.

The main objective of the SBA’s HUB Zone program is to promote economic growth and create more employment opportunities by bringing them the opportunity to obtain Federal contracts. The SBA reports to Congress how much the Empowerment Act has increased employment opportunities in these areas. According to the SBA’s website, for an area to be classified as underutilized it must have at least one of the following:

• Qualified census tract criteria (areas are subject to change every 10 years due to census)
• A qualified non-metropolitan county that has an average household income of less than 80 percent of the State median household income, or with unemployment rates 140% or more above the state-wide average.
• Land within a federally-recognized Indian reserve.

There are many advantages designed to help businesses located within a HUB Zone and meeting all the requirements obtain these special federal contracts. For many contracts, there must be at least $100,000 set aside for small businesses that qualify as HUB-Zones. There can be sole-source contracts in the areas, but the value must be greater than $100,000 but less than $3 million (or $5 million for manufacturing contracts). While that may not seem like a decent advantage, HUB Zone small businesses receive what is known as a “10% price evaluation.” This means that a HUB Zone company bidding on a project (based on price) will have their bid evaluated at 10% lower than it actually is - so long as their price is no more than 10% higher than a non-HUB Zone small business, they will win.

Aside from the benefits listed above, there are plenty more opportunities for small businesses within these areas. Another example is that when larger companies that win bids need sub-contractors they are required to have at least one HUB Zone sub-contractor to help complete the project. In addition, these businesses can apply for higher surety bonds then others, tax credits, investment tax deductions, and tax-free facility bonds. For more information about where these HUB Zones are located visit the SBA HUB Zone homepage: http://www.sba.gov/hubzone.

Tuesday, May 19, 2009

What Are No Bid Contracts?

There are several things business owners need to know when joining the contracting circle. As we mentioned last week, contract bundling is a big one that many don’t know about, and this week’s topic is no different. Lucky for us regular folk, the government doesn’t create wacky acronyms for every contracting term they use and in this case the name makes sense.

Sole-source contracts, also commonly known as no bid contracts, are contracts awarded when the government feels there is only one company or business that can successfully complete all requirements of the contractual agreement. Another reason Uncle Sam feels these contracts are necessary is because if regular bidding were to be held, only one company would be eligible to successfully complete the contract, making the process last longer than it should.

Typically, the government awards sole source contracts after negotiations with the company and the sole source contracts are considered justified only if a few criteria are met:

a. only one business has a product that will meet the projects needs or only one firm can do the work (for example due to patent restrictions)
b. the existence of an unusual and compelling urgency (emergency, disaster, etc)
c. for purposes of industrial mobilization or expert services (unique or exclusive experience)
d. a sole source award is authorized or required by law, (socio-economic programs, etc)
e. national security
f. the general interest of the public, or
g. the work involved is time sensitive.

While no bid contracts may seem like a negative aspect of government contracting, there is some good to them. For instance, in a pinch, if you’re offering services that the government needs immediately, then Uncle Sam will forego the normal bidding process and award the contract much more quickly. Or, if you have an exclusive product, patent, or licensing agreement or some sort of unique experience or expertise, you are going to be very well-positioned to do business on sole-source contracts. Of course, there are instances where this type of contract backfires and corruption ensues.

In March 2009, President Obama made a promise to help cut back on the number of no bid contracts in order to save money. As mentioned before, the original intent of awarding contacts without bidding is to cut costs and to speed the process up, but not everything always goes according to plan. The President claims that by decreasing the amount of sole source contracts the government can save as much as $40 billion each year. "The days of giving government contractors a blank check are over," President Obama stated.

President Obama asked his budget director, Peter Orszag, to have a reform plan ready by the end of September 2009. The reforms will involve making more contracts open to bidding and, in the process, hopefully saving the taxpayers money by awarding the contract to an independent contractor and their sub-contractors rather than a single company that could potentially inflate the price.

Obviously, there are still circumstances in which sole-source contracts will occur. For example, if you hold the patent on a particular item that the government determines that it needs, a sole-source contract will still be awarded.

The reforms requested are important because in the past eight years the amount of money spent on contracts has increased from $200 billion in 2000 to $500 billion in 2008. Many believe that a large percentage of the increase went to no bid contracts and by eliminating the number of them in 2010, Uncle Sam hopes to create more competition to cut back costs and to help the independent contractors and small business owners gain more work.

Tuesday, May 12, 2009

Trimming the Fat – Proposed 2010 Budget Cuts

By now, everyone has thrown in their two cents on President Obama’s proposed budget for the 2010 fiscal year. Most brought up the point that while he plans to cut out $17 billion next year, the $3.2 trillion he spends this year will still hurt the country overall. Many of the articles available don’t dig deep enough to see what exactly President Obama removed from the budget for next year.

Upon opening the Termination, Reductions, and Savings report that the White House recently published online, I went straight to the government contracting section. I was interested to see how President Obama planned to reduce the contracting costs for the government for next year while increasing the opportunities for small businesses this year. The method that was chosen is decreasing the Department of Defense (DoD) budget by $0.9 billion.

While $0.9 billion may not sound like a lot considering the $787 billion Recovery Act recently passed, it will be next year. Unlike this year, the US won’t need another bill to help stimulate the economy. The money allocated from the Recovery act will still exist until August 2010, when the White House predicts that roughly 75% of the money will have been contracted out.

One of the reasons that the Obama administration selected budget cuts for the DoD and not another federal agency is that they are the largest part of the government that hires contractors. According to the Government Accountability Office (GAO), the DoD’s contract obligation spending increased 83% between the years 1998 and 2007. One government solution involves hiring 33,500 Federal civilian employees by 2015 to help complete jobs that the DoD outsourced. It is projected to save the US about 40% on contracting dollars per year.

Not all small business owners offer products that the DoD requires, so many won’t be affected by their decrease in contracts. However, if the efforts to redo the DoD contracting arena are successful, many agencies might follow suit and hire Federal civilians rather than outside contractors. An advantage of gaining work now means that once August 2010 has gone and Uncle Sam’s agencies start to reform their policies, those contractors who already have their foot in the door will be favored over others who joined the cause too late.

Wednesday, May 6, 2009

Contract Bundling and Your Small Business

Among all the concerns small business owners have with government contracting, contract bundling rarely ever comes up in conversation. Part of the issue is that many business owners are only exposed to the negative stereotypes and don’t actually know about many of the real obstacles their company faces with successfully obtaining contracts with Uncle Sam. Contract bundling can potentially be a real impediment to small businesses trying to compete in the government contracting arena.

Now that we’ve identified a possible bump in the road, let’s go into a little detail to ensure that small business owners are aware of and fully understand the problem. According to the Small Business Reauthorization Act of 1997, contract bundling is “consolidating two or more procurement requirements for goods or services previously provided or performed under separate, smaller contracts into a solicitation of offers for a single contract that is unlikely to be suitable for award to a small business concern.” What this really means is that contract bundling happens when two or more contracts intended for small businesses are combined, making it difficult for a small business to complete.

There are circumstances that allow Uncle Sam to combine small business contracts if award to a small business is deemed unsuitable. If the conditions of the contract require work spread out over a geographical region too large for one small business to handle, the total dollar value of each contract isn’t suited to a small business, the diversity, specialized nature, or size of the task at hand, or any combination of these, contracts may be bundled without issue.

However, the Small Business Reauthorization Act requires that the government try to avoid these four issues in order to give small businesses equal opportunities to participate in the bidding process. In addition, the act requires the responsible contracting specialist to do market research with an aim to justify whether or not the contract needs to be bundled. The government agency can then validate combining contracts when there are “measurably substantial benefits,” which include cutting costs, better quality, less time to fulfill the contract, or better contract terms and conditions.

So what can your small business do to prevent contract bundling? Unfortunately, it isn’t an easy task. It involves convincing the agency and those involved in the process that your small business, contrary to their research, can and will perform one or more of the contracts. If you think that it is happening, contact a Small Business Administration Procurement Center Representative (PCR). In every federal agency with major contract programs there will be one with whom you can speak. There is also a bundling report, which you can fill out and submit to the Small Business Administration.

Sometimes bundling cannot be stopped. The decision to bundle contracts comes from many hours of meetings and research that leads agency officials reluctant to change their mind. If that happens, try befriending the larger company that wins the bundled contract. Just because they’re a large business doesn’t mean they won’t hire small businesses as sub-contractors. In addition, sub-contracting is a great way to get your business’s foot in the government’s door without the hassle of doing it all yourself.

Tuesday, May 5, 2009

Uncle Sam’s Bonus Program

Many businesses offer financial incentives to their employees in order to reward hard work, promote quality craftsmanship, or compensate superb ideas; the government is no different when paying a contractor. It isn’t corrupt to give bonuses to businesses that deserve it. I’m not talking about AIG or corrupt executives from some big company. The government tries, just like any business, to reward good work.

Recently, a rumor came around that Uncle Sam planned to reward the businesses that are “green” and offer better-than-average work bonuses. According to Amory Lovins, chairman and chief scientist of the Rocky Mountain Institute, the government is creating a program that will reward – or penalize – green contractors working on federal buildings and retrofits.

How does the government judge what is “quality” work by green companies? It isn’t as easy as one would think to obtain these bonuses. For instance, say a business installed an air conditioner on six buildings. Throughout the process there are federal employees tracking how much money and time it takes for the installation and what the current non-green air conditioner costs. Once everything is complete, the employee continues to track how well the system works. If the new system cuts energy costs by 30%, then the contractor who installed it can receive half of the savings as a bonus.

The bonus doesn’t cost anything extra; the green company still installed a system that saves Uncle Sam money, therefore the reward the contractor receives is a portion of the savings and not anything extra out of the tax-payers’ wallet. Many federal buildings will be retrofitted under contracts where companies come in and replace key systems to reduce energy costs over the next few years. There is $4.5 billion allocated from the American Recovery and Reinvestment Act of 2009 towards retrofitting; that money includes these bonuses.

Another benefit of awarding bonuses to green companies it that the repairs and installations these businesses are completing require skill and experience. The bonus system will help weed out those contractors that don’t have workers with the knowledge to successfully complete the projects. In addition, Congress is trying to pass an amendment that will help prevent giving bonuses to companies that don’t deserve them. Amendment 892 states that it wants to “End Bogus Bonuses for Poor Performance by Government Contractors and Executives.” One of its main goals is to prevent businesses that complete the contract below satisfactory will not receive more money than the original contract stated.

All in all, the government planning to reward green companies is a win-win situation for those businesses with the knowledge and experience to complete the going-green contracts. Kermit the Frog had it wrong when he said, “It ain’t easy being green.”