One important area that businesses and project managers new to the government contracting arena may be a bit nervous about is the issue of communicating bad news to the contracting officer (CO). Nobody likes to give, nor receive, bad news, but it is a rare contract that does not have some form of setback or unforeseen problem. And COs tend to keep a steady eye and a long view on things – they are interested in the contractor’s success, too, so open communication and earnest efforts to correct the error and get back on track will usually win the day. The critical part is early, full communication about the problem, the plan to fix it, the realistic estimated completion date, and a good guess at overall contract impact. If you provide the facts to the CO, and demonstrate sincere intentions to make good, most likely he or she will grant you the benefit of the doubt. In my experience, it’s only after repeated mistakes, delays or mishaps that COs get serious about seeking restitution, whether through consideration or liquidated damages.
Before we continue, here is a quick word on those concepts, in case the reader is not familiar with them. Consideration is a bilateral adjustment to the contract wherein the contractor offers the government some form of relief, whether it is lower prices or increased quantities, to make up for schedule delay or performance defects in the original contract. For instance, if a contractor misses a delivery date in the contract, he may offer a 2% rebate on the original price as “consideration” for the difficulties that the delay caused the government. Liquidated damages (LDs), on the other hand, are much more formal and punitive, and are written into the contract as a means of forcing the contractor to maintain the schedule. Once the required delivery date, or project milestone, has been missed, the contracting officer can exercise the liquidated damages, levying monetary fines on the contractor for each day that the delivery is late. Common LDs exact a daily fee for technical specialists such as engineers or inspectors whose work is delayed because of the contractor’s failure to meet the timeline. These LDs can run into the thousands of dollars per day that will be deducted from the final payment amount of the contract, amounting to a pretty stiff penalty for a small business.
But back to the original point – if the contractor can provide some early warning, and show good faith efforts to resolve the delay(s) as quickly as possible, then the CO will be more inclined to refrain from the harsher measures available, and will work with the contractor as much as possible to reach a mutually satisfactory agreement. Remember, the government seeks a ‘win-win,’ and wants the contractor to succeed, but at a fair and reasonable price. So a new contractor is best served by communicating problems or concerns as early as possible, so as to avoid the appearance of shadiness or suspect business dealings.