Government construction contracts—and indeed the entire contracting process—are very different from private construction contracts. There are many different types of governmental entities, and each has its own rules and restrictions. However, all governmental entities have one thing in common: they are very particular about their rules and requirements, and there is not much, if any, flexibility. Failure to follow the rules results in not being awarded the contract, not being paid, or having the contract terminated with resulting damages against the contractor.
As an example, governmental entities typically have a requirement that all of the employees providing services on a government project be paid a “prevailing wage” and receive a defined set of benefits or payment in lieu thereof. In some instances, this wage may be higher than the wage normally paid to the employee. Moreover, the company is required to provide certified payroll records for both itself and its subcontractors. Because of this requirement and many other restrictions that must “flow down” to subcontractors, it is essential that a solid subcontractor agreement is utilized.
There is also typically a defined process for being awarded a contract, protesting an unsuccessful bid if the contract is not awarded to your company for an unfair reason and for modifying the scope of the contract. Being familiar with all of the requirements and your rights is extremely important. Our firm has been involved with clients who provided the lowest bid on a government contract but failed to properly submit supporting information and was therefore not awarded a contract. Similarly, our firm has helped contractors who were denied an award because the government was not following its own rules, challenge the process and overturn the wrongful award.
Compared to a private contract where payment may be a challenge, it is highly unusual a governmental entity cannot pay its bills, and it typically pays timely so long as the required paperwork is properly completed and submitted. If a contractor is properly entitled to additional compensation, and the governmental entity concurs or the contractor is successful in challenging a payment application denial, the payment is typically made. However, if the contractor owes money to a state or federal governmental entity, the entity will simply withhold any future payment from the state or federal government until the entity has been repaid in full.
Governmental contracts can be a very useful part of a contractor’s business so long as the contractors learn the rules and follow the rules. The Rosenblatt Law Firm has worked with several contractors on their governmental contracts, providing advice on how to abide by and use the governmental regulations, laws, and ordinances to their advantage.
