Tick, Tick, Tick

Contractors are facing delays on both ends of major awards and in some cases it's pushing them toward financial disaster.

For one Northern Virginia-based information technology company, the competition for a major Interior Department contract looked like it might be a tipping point opportunity. The small business had made it through two rounds of the competition and expected an award imminently. But then came the waiting game. For months, the firm responded to the government's questions about its proposal and paid employees whose résumés had been submitted as available to perform the work, racking up close to $100,000 in costs.

After almost a year of delays, the company's president-who asked that neither he nor the firm be named-says the government scrapped the entire process, canceled the award and put out a new request for proposals.

Companies large and small say such pre-award contract delays are becoming more common and extremely costly. While all firms can incur significant costs waiting for an award to be made, the effect on small businesses is disproportionately profound. "A large company can absorb an 11-month wait more easily than a company like ours," says one service-disabled veteran small business owner. "With a four-person show, you can't absorb a lot of debt."

Even if a company navigates pre-award issues, the waiting game might not be over. Firms often face delays caused by government policies and procedures after they've won contracts, too.

Prior Delays

Several small business owners-who spoke on background for this article for fear of hurting their relationships with federal customers-say that delays for contracts that require résumés to be submitted as part of a proposal are among the most devastating. In these cases, an agency mandates that firms bidding on a contract keep certain employees, whose positions are deemed critical, on retainer so they are available should the company win.

During long pre-award delays, businesses can bring themselves to the brink of financial disaster trying to avoid laying off these people. If the company submits a résumé for a highly qualified individual and that employee has been laid off by the time the government makes an award, the firm can be accused of a bait and switch.

"I have two people right now I'm paying six-figure salaries waiting for an award," the president of the Virginia IT firm says. "The government wants you to list the résumé, but when you do, you understand the award is going to be in December and it doesn't come until April. Who in their right mind is going to keep critical people on the bench that long?"

While owners acknowledge that if they win an award, they usually recoup competition-related costs many times over, some are so crippled by the wait that they are not as well-positioned to perform the work if they do win and are hindered from moving forward with their businesses if they don't.

"They ought to make it a requirement that once a delay is initiated, contractors are asked to resubmit cost adjustments," one owner suggests.

But that approach seems increasingly unlikely, because the Obama administration is encouraging agencies to move away from cost-reimbursement contracts and toward firm fixed-price contracts wherever possible.

"Obligations to hold prices become severely tested when the government delays the award process" under fixed-price arrangements, says Small Business Administration spokeswoman Tiffany Clements. "While offers in which the price is established generally are time-sensitive with an expiration date applying to the offered price, some contracting officers are very reluctant to offer adjustments, or are very tough in negotiating adjustments. The result is that in terms of real dollar values, a delay often results in a small business contractor getting paid less than what it bid."

Guy Timberlake, chief executive officer of the American Small Business Coalition, which represents several of the firms whose leaders agreed to speak for this article, said the first step is to improve communication between awarding agencies and contractors that have submitted bids.

"There is a lot of conversation that doesn't occur, which we think should," Timberlake says. At a recent contracting forum organized by senior leaders at the Veterans Affairs Department, communication became the focal point. "If you're a vendor working with an agency, you ask the government, in the spirit of partnership, if something is going to happen on your side, let me know so I can make accommodations to cut resources loose or make adjustments to strategy. Then, when you're ready to proceed with the procurement, we're ready to support you," he says.

Timberlake and his organization's members say there are two primary reasons for contract delays-problems with the government's acquisition workforce and changes in contracts' scope or requirements. It has become almost a cliché that procurement personnel are overworked and there are not enough of them with the experience to handle complex acquisitions. In a vicious cycle, personnel shortfalls generate delays, which in turn exacerbate workforce problems, says one small business owner.

"When you take a contracting officer and delay their contract, that makes them unable to manage more," says the owner, who is also a former Army contracting officer with 25 years' experience in government. "If I gave you five contracts and said, 'Here's your time period in which I expect you to manage them,' and then all five got delayed, I can't give you five more. So they just sit there and the work piles up. The inefficiency that comes with contract delays is costing the government millions and millions and millions of dollars."

Of course, the fault for delays isn't entirely on the government's side. One small business owner acknowledges that a "culture of protesting" also contributes to the problem. As the frequency of protests of awards increases, contracting officers become more risk-averse. "There are so many layers of analysis and it takes an inordinate amount of time to do each one," he says.

After Awards

Pre-award delays are not the only problem that's plaguing contractors. Delays over the course of a contract also are common and, particularly for small businesses, can break the bank.

After a contract is awarded, the government then is required to provide a company additional time and money to perform work if the contractor can show that the delay was caused by a government act or omission. These "excusable, compensable delays" can be the result of holdups in approving contractor submittals, issuing change orders or performing inspections.

John Manfredonia, a former contracts litigation attorney at Veterans Affairs and the Transportation Department who now runs his own New Jersey-based law firm, says construction contracts are particularly ripe for delays due to site conditions and changing specifications.

"The government may put together a plan to build a hospital," Manfredonia says. "Then, as they're doing the work, the doctors will say, 'I think I need to have three surgery suites instead of two.' Then they have to go in while a job is going on to ask for changes."

To be compensated for a government delay, a contractor must first submit a claim with an agency contracting officer. If the claim is denied, then the company has the right to appeal to the Board of Contract Appeals or Court of Federal Claims. Of course, there are no guarantees. "The courts, in past few years, have tightened requirements to get delay damages," says Manfredonia.

In order to get reimbursed for costs caused by delays, a company must have rigorously documented problems as they were occurring and demonstrated it had informed the government of them in a timely fashion.

"The reason the government wants you to tell them about a delay is because they might be able to do something to mitigate the delay," Manfredonia says. "If you strip them of that opportunity, you could be waiving your right to claim time and money."

Michael H. Payne, who heads the federal construction practice group at the law firm Cohen Seglias Pallas Greenhall & Furman, says contract disputes are being litigated less frequently in part because the emphasis in construction contract awards has shifted from lowest bidder to a "best value, negotiated procurement" approach in which factors such as experience and past performance are taken into consideration. "Contractors are very careful about anything they might do that would adversely affect past performance, and some are afraid to file claims," Payne says. "I don't think they should be that concerned about it. I think in general the federal government is fair about those things. But nevertheless, it has reduced the number of claims."

Like pre-award delays, post-award holdups can be devastating to small firms.

Both Payne and Manfredonia noted that costs during a delay on a construction contract can accumulate very quickly, with people supervising a job site that has large pieces of equipment sitting around unused. "These delay claims go into the hundreds of thousands of dollars pretty quickly, and a small contractor who doesn't have the financing a large contractor might have, even though he may not be at fault, cannot continue to proceed if the government does not pay."

Even if a contractor has a legitimate claim, the company must continue to work on the project and hope the government promptly pays up, according to Payne.

"Delays can be company busters," he says. "It is not uncommon for lines of credit to be tapped out, for bonding companies to be concerned about outstanding money. It can be more difficult to get work until they resolve that claim."

According to Manfredonia, the key is for federal agencies to make investments of time upfront. "You're always going to have delays and defective specs and so on," he says. "But in my experience, working for the government and outside the government, the better the government investigates what the work required is and takes the time to put together a solicitation package that is as accurate as possible, that will minimize delays."

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