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Friday, August 17, 2018

Federal Government Contracting Small Business Set-aside Designations

Image:  SBDC Florida

Many questions have recently been received  regarding federal government contracting small business set aside designations. This article will explain the designation types and suggest the best ways to establish and use them in your business planning.

There are 7 major small business set-aside designations in federal government contracting:

1. Small Business - Established by North American Industry Classification (NAICS) Code for all categories of government business (Please download the "SBA Small Business Size Standards" at the "Box Net" Cubicle on the right margin of this web site for further information). Every federal procurement has a NAICS Code assigned to it and is registered on the below web site if it exceeds $25k:

2. Minority Business Enterprise (MBE) - A  good interim designation while an 8(a) application is in process for minority-owned companies:
National Minority Supplier Development Council MBE Information

3. Woman-Owned Business - Applicable to Women-Owned Businesses only:
SBA Woman-Owned Business Information and Application Site

4. Veteran-Owned Business - Applicable to Veteran-Owned Businesses only
SBA Veteran-Owned Business Program Information

5. Service Disabled Veteran-Owned Business - Applicable to Service Disabled Veteran-Owned Businesses only
SBA Service Disabled Veteran-Owned Business Information

6. Small/Disadvantaged Business SBA 8(a) Program - Requires 2 years in business and a lengthy application process with the SBA at the following web site:
SBA 8(a) Information and Application Site

7. Historically Under-Utilized Business (HUB) Zone Located - Pertains to small businesses located in geographic areas with a historical record of low government contracting. This designation requires application at the following HUB Zone Site Web Site:
Hub Zone Information and Application Site


To qualify as a small business for a given solicitation an enterprise must have registered at the System for Award Management Web Site under the applicable NAICS code for the procurement and meet the SBA eligibility size standards for that code.

A small business also certifying under the above  must have individuals qualifying for the designations with at least 51% ownership interest and an operating role in the company. 60% is recommended to avoid the appearance of a front. Silent partners and investors without qualifying status or an operating role in the firm do not count toward the designation. It is suggested that ownership interest be specified by name on the articles of incorporation with the state and by % of ownership in an operating agreement or similar document.

To qualify as a HUB Zone Enterprise the business must be located in a HUB Zone and a qualifying percentage of the members (owners or employees) of the business must also live in the applicable HUB Zone.


Carefully select your small business designations when preparing your business and marketing plans for federal government contracting. Keep in mind that self-certifications are verified through records checks and site visits by contracting officers, DCMAO and Source Selection Boards for federal procurements before contract awards are made.

A small business set-aside designation can be a valuable tool if adequately documented, registered, certified and prudently used for bidding work that your enterprise is capable of performing successfully.

Thursday, August 16, 2018



We have previously discussed at this site the development of credible cost and pricing data. That data is the product of not only estimating and pricing but also job cost accounting for managing contracts, business system design to meet Cost Accounting Standards (CAS) and the integrated aspects of the company business system demonstrating regulatory compliance:

The purpose of this article is to cite the specifics of the “Truth in Negotiations Act” and recommend  management techniques to comply  with this law and avoid defective pricing claims by the US Government. 


Public Law 87-653 (codified by 10 USC 2306a) was originally enacted in 1962 to place the Government on equal footing with the contractor during contract negotiations.  The following are the principal features of the law:
  • Defines requirements for obtaining cost or pricing data
  •  Requires certification that data are current, accurate, and complete
  • Delineates exceptions to the requirement
  • Addresses data submission for pricing of commercial items, below threshold contracts, and “other information”
  •  Provides right of Government to examine contractor records
  • Defines cost or pricing data
  • Provides rules governing defective pricing
  • Downward Contract price adjustment
  • ·Recovery of overpayment (cost & profit) & interest (as of 1985)
  • Contract actions include contracts, subcontracts, and modifications
  •  TINA applicability is not affected by contract type
  •   For subcontracts, the $2M threshold applies to the submission of data from the subcontractor to the prime contractor.
Below is an excellent presentation on further details of TINA by the National Contracts Management Association.  (Note: the version included here has not been updated for the recent TINA threshold change discussed above). 
1)    The information in question fits the definition of cost or pricing data.

(2)    Accurate, complete, and current data existed and were reasonably available to the contractor before the agreement on price.

(3)    Accurate, complete, and current data were not submitted or disclosed to the contracting officer or one of the authorized representatives of the contracting officer and these individuals did not have actual knowledge of such data or its significance to the proposal.

(4)    The Government relied on the defective data in negotiating with the contractor.

(5)    The Government’s reliance on the defective data caused an increase in the contract price.

A government auditor relates to TINA and defective pricing whether or not it is required contractually and uses the TINA provisions as a frame of reference in how he or she views trend analysis of your company. Even if you do not have the TINA requirement in your bid or your contract, be aware the auditor is forming his or her opinion of your compliance with the law against the TINA framework.

Post award audits can be ordered at any time by a PCO. During such audits your proposal is juxtaposed to your incurred cost and historical data on a given contract. During such juxtapositions, defective pricing stands out glaringly.  If you become aware of an anomaly, cover your tracks by immediately assessing the impact and deciding whether or not a disclosure should be made.  

Integrate your system from pricing to billing to close out utilizing a consistent cost structure template and be aware you are putting audit history in place and that historical trends are what auditors follow.
Keep all subsequent disclosures under proposals to the government well documented, serialized and current at the prime and subcontract level, reflecting them in a detail record of negotiation.  

If you have commenced work prior to final negotiations under a letter contract or similar interim arrangement, conduct a sweep of actual costs and commitments and reflect them in an updated proposal to the government prior to negotiation of a final price.  Reassess quotes, escalation factors, indirect costs and related factors in the same manner if a proposal expires and you are asked to extend your pricing. 

If substantive conditions in an open proposal estimate change, document them thoroughly and disclose them to the government based on an astute analysis of your risk if they can be misconstrued as defective pricing by an auditor.  Carefully convey the impact on the prospective contract and its pricing to the contracting officer if you decide to disclose. 

Consistency with CAS and your CAS disclosure statement as well as your latest negotiated forward pricing rates is mandatory. Any departure from these baselines will attract audit attention.
In many defective pricing instances what you knew and when you knew it becomes a factor.  Continually assess changing conditions that may dramatically impact your cost performance and manage them by taking corrective actions, developing workarounds and carefully communicating requirements to your subcontractors and suppliers. 

Remember under TINA you are required to perform cost/price analysis of your subcontractors if their work scope exceeds the $700k threshold. You must submit the results with your proposal to the government.  If a disclosure becomes necessary, make it sooner rather than later when the data may be under the cloud of a negative audit finding.

Defective pricing actions by the government can have a severe impact on your past performance rating.  They must be cited by you with any new business proposal in which you are asked if your company has been accused or convicted of a violation of the law or has open or pending government adjudications regarding legal violations. 

For examples of TINA violations please see the “Federal Contractor Misconduct Data Base”, maintained by the Project on Government Oversight:

Sculpt and educate your auditor, contracting officers and government analysts on the specifics of your company business system and preserve its integrity over the long run to maximize your win potential and lower the risk of defective pricing claims by the government. 

A good rule of thumb is to consider every proposal as if it were under TINA compliance whether or not you must submit a “Certificate of Current Cost and Pricing” under TINA.  This will keep your business system sharp, your ethics and standards high and your past performance record clean.


Friday, August 10, 2018


Image:  Cosential - Teaming to the Top: CRM is the Secret Weapon for Subconsultants

While developing a government marketing plan, teaming with other companies is a productive venue for the small business. This article will convey general guidance pertinent to teaming and explore the types of teaming used successfully by small business federal government contractors.


Synergism is paramount in teaming with any size company, whether in a lead or subcontracting role. There should be technical, management and market segment similarities between you and any company with whom you are considering teaming. Your prospective team member ideally will not be a direct competitor; rather a business in a related field with whom you share a mutual need for each other's contributions in pursuing large-scale projects.

Relationships must be developed with primes and other small businesses that can help you, team with you and keep you in mind as they search for success. That takes time, patience and open-minded, out of the box thinking. It also takes more than a Non-Disclosure Agreement (NDA), a teaming agreement (TA) and a proposal to succeed. It takes dynamic marketing and communication with strong partners and hard, innovative work. Nice buzz words you say - but it is the truth and you have to find what that truth means to you.

Successful teaming for a specific program occurs early. Very few astute teams in government contracting are formed after a solicitation is formally published on FEDBIZOPPS. Checking the "Interested Parties" block of a solicitation there and attempting to form or join a team is generally too late to effectively achieve a cohesive relationship, agreement and a win strategy by the time the proposal is due.

A size factor need not be a deterrent if you use contingent hire agreements, aspire to take over incumbent work forces in existing government operations or keep yourself open as a partner to a multiple number of primes and synergistic small businesses who are not direct competitors but with whom teaming will permit chasing larger procurements than any one small business could pursue. You can also grow into security clearances, as individuals and as a company with government agency sponsorship through already cleared companies.

In making contacts with larger firms you may have to go through the "Gate Keepers", such as the small business liaison officer, the registration boxes at web sites, a purchasing agent or a contracts person to get to the program people with the real decision making authority. Give the gate keepers their due, since you may end up working with them later.

Nothing makes a prospective small business or a large business teaming partner perk up like a real hot lead on a program. If you can offer a "Carrot on a Stick" such as an opportunity that they cannot access other than through you, it will get their attention. A non-disclosure agreement (NDA) should be signed before the discrete information on the job is disclosed. Please see the following article on NDA's and Teaming Agreements as documents and protecting your associated intellectual property:

Protecting Intellectual Property


In teaming as a subcontractor with other companies your goal is to sign a teaming agreement with a prime contractor for a prospective program. You prepare your proposal and submit it to the prime contractor who incorporates it into his submission to the government. Your submission contains flow down terms and conditions from the prime's proposal as well as a technical description of the effort you intend to perform. Your cost proposal to the prime contains fully loaded rates for the labor categories and material as well as the travel you will perform on the subcontract. The government awards the prime contract to your team member. You then undertake negotiations with the prime to convert your teaming agreement to a subcontract. 

The subcontract will replace the teaming agreement between you and your prime and contract performance can then commence.

Be especially careful in negotiating the attachment to a teaming agreement which identifies the scope of work which you will perform. Insure it has sufficient detail in terms of labor categories, % of the program (both hours and dollars) a discrete description of your effort, and any additional assurances you need to feel comfortable with the deal.

Keep on mind that a teaming agreement is an agreement to agree. It is not a contract and rarely enforceable in a court of law. That means you must negotiate your contract upon award and in many cases the prime may pressure you to lower your rates, decrease your share of the program or otherwise depart from the teaming agreement when your subcontract is finalized. Your business acumen will come into play during that transition. For tips please see the following link:

Contract Negotiation


As a prime contractor you sign a teaming agreement with a subcontractor during the RFP stage of a solicitation. Your subcontractor prepares a proposal and submits it to you. You incorporate it into the prime contract proposal to the government. You negotiate flow down versions of terms and conditions from your federal contract to the subcontractor as well as a technical description of the effort the subcontractor will perform. The subcontractor's cost proposal contains fully loaded rates for the labor categories and material as well as the travel he intends to perform on the subcontract. The government awards the prime contract to you. You undertake negotiations with the subcontractor to convert the teaming agreement to a subcontract. The subcontract will replace the teaming agreement between you and your subcontractor.

Your role as a prime may be the result of your status a small business, a woman-owned, minority-owned or veteran-owned business under a program set-aside to one of those designations. It is usually best to subcontract no more than a 40% share of the total business to firms with whom you are teaming to avoid the appearance of a front. The statutory requirement is 51% to the prime in these types of programs but you need to convey strength as a prime in terms of resources to be deemed a winner by the government source selection board.

If the program you are bidding is a negotiable procurement it is preferable to negotiate subcontracts with team members before you negotiate your final contract with the government. Going into negotiations with the government having definitized your subcontracts reduces your risk in terms of unknowns contractually at the supplier level. It also eliminates the subcontractor wanting to know the result of your prime contract negotiations so that he can use it as a frame of reference for his negotiation position with you. The baseline when you go to the table with your subcontractor is your teaming agreement specifying his statement of work and your collective proposal to the government containing the prospective cost and price for his effort as part of the total proposal.


There are many subsidiary forms of the above basic teaming approaches. You can join multi-company teams under a major prime on IDIQ umbrella contracts of long duration. You can bid a team effort using your GSA Schedule.

Although the Federal Mentor-Protégé Program is a fine vehicle, keep other options open at the same time you pursue a long term teaming partner in that venue.

Joint ventures are difficult for small and start-up companies. They are made up of resources from both companies, yet a JV exists as separate legal entity and is complex to administer. A joint venture agreement is a special form of teaming agreement subject to approval by the government agency with whom the JV is contracting. JV's are usually managed by a JV Board and include administrative costs and billing nuances associated with a "3rd Entity" that many firms find difficult to manage.

If you are in a prime contractor role you have an additional management challenge in being accountable for the performance of your subcontractors and flowing down the terms, conditions and performance requirements under which you are being contracted by the government. Your customer expects effective subcontractor management. Proposal preparation imposes a substantial burden on the prime contractor because the prime must integrate, assemble, package and deliver the final submission after receipt of data from the subcontractor(s).

Keep in mind that you may be exclusively teaming with a company on certain procurements and competing against them on others. Protect your intellectual property, only exchange fully loaded rate information and keep the relationship professional at all times.
Your reputation as a reputable team member in the small business federal government contracting community is important. Be selective and high performing in this area. Agencies, past performance data bases and other companies will be observing you, recording your performance and passing the word along to others directly and indirectly.

Wednesday, August 8, 2018



This article will address 10 misleading or erroneous impressions that small enterprises commonly hold regarding doing business under federal government contracts.  It is our hope that correcting these misconceptions will assist companies considering entering the venue and help those who are already in the field to improve.


1. It is easy to become established in the federal marketplace by founding a start up in small business contracting to the federal government

Very few do so. The principle reason for this is lack of past performance records either commercially or as a registered government contractor.  Past performance is a major factor in awarding government contracts:

Small enterprises who succeed in federal government contracting usually have a sustaining commercial business as ongoing support while they learn federal contracting bid, proposal, and pricing, industry teaming and marketing techniques.

2. Federal government contracting is just like local and state contracting

It is not.  Every local and state government agency has their own set of rules and contracting techniques.  Although states must meet federal law with regard to interstate trade, EEO and similar matters, they are given wide latitude by the federal government. Most state and local or municipal agencies are very dissimilar in the specifics of how they conduct procurements and are strongly influenced by community ordinances and state law. 

Federal government contracting has its own set of specific rules (The Federal Acquisition Regulation (FAR) and  Cost Accounting Standards (CAS) which cross all agencies.  Small business must understand how these rules affect their doing business at the federal level.

3. Business can be conducted at the federal level without significant process changes from commercial practices

To succeed in federal contracting the small enterprise must implement processes such as GSA pricing, job cost accounting, forward pricing rates and related matters that are not common in the commercial venue. This takes research, time and process/business systems implementation that many firms overlook until they realize, through hard experience, that they must develop them on the fly to succeed.  Federal government contracting is not rocket science but it is different than commercial contracting.

4. Federal government contracting can begin immediately after registration

This is a hypothetical possibility but not realistic.  Registration simply self-certifies a small business to compete, establishes a Central Contractor Registration (CCR) Number and a Federal CAGE Code for the firm.  Agencies do not go looking for registered firms to do business with them.  A niche must be located by the prospective contractor in the form of an agency requirement that fits the company. Or the company must locate industry team member (s) that can use capabilities available from the newcomer.  Very small enterprises achieve these objectives to a large scale degree within their first year of pursuing contracts with the federal government.

5.  All federal government contracting agencies are the same

Not so. Department of Defense (DOD)  contracting, for instance is very different than contracting with  civil agencies like the FAA.  The technical requirements, environment and security factors vary dramatically even though they use the same contracting rule book. The seller must market to the agency that has the greatest need for the product or service offered and team with industry partners who can enhance the potential of the small business in collaborative efforts. Section I, “Contract Clauses” at the below link illustrates some of the FAR Agency Supplements that apply overall FAR guidance within specific agencies.

6. Small Business set aside designations will yield immediate business

Self-certifying as a minority-owned,  woman-owned, veteran-owned or disabled, veteran- owned business allows a firm to compete with other companies who have the same designation. At times this involves substantial competition.   Achieving a government certification as a small-disadvantaged 8(a) or HUB Zone enterprise may allow set-aside contracts without competition, but such awards are becoming rare, harder to justify by the government and are monitored closely for competitive possibility by oversight functionaries.

7. Federal government contracting can be undertaken by a company on a stand-alone basis

This is only true for companies with very unique, off the shelf products involving small buys.  Even then, knowledge of the industry and networking with other firms dramatically increases the possibility of expanding sales.  Relationships must be developed with primes and other small businesses that can help the small firm, team with with it and keep it in mind as they search for success. That takes time, patience and open-minded, out of the box thinking.

Synergism is paramount in teaming with any size company, whether in a lead or subcontracting role. There should be technical, management and market segment similarities between the small business and any company with whom it  is considering teaming. A prospective team member ideally will not be a direct competitor; rather a business in a related field with whom the small enterprise shares a mutual need for each others contributions in pursuing large-scale projects.

8. Small Businesses receiving set aside contract awards from the federal government can subcontract all the work to other, larger and established enterprises

Companies obtaining small business set aside awards must be capable under the law of performing a minimum of 51% of the required effort internal to their organization.The quantitative measurements the government uses to gauge this rule are the work scope, hours and dollars content of the prospective contract.

9. Obtaining a GSA schedule guarantees new business

A GSA schedule permits a quick ordering process for  federal and state clients. In dealings with prime contractors to which the small firm aspires to subcontract a GSA schedule is valid pricing which can be readily included in proposals to government agencies. A GSA schedule facilitates teaming with other synergistic small companies in proposing large scale efforts.

However, a GSA schedule does not guarantee new business will come. Very few companies await government agencies to find them by searching the GSA data base. To succeed, small businesses must actively market their schedule to targeted agencies as an expedient way to contract with them or as a qualification criterion for new business awards.

10.  FEDBIZOPPS is the best way to identify, bid and obtain federal government business 

Often misunderstood, is that much has occurred in the way of marketing activities by companies in advance of notices formally published by the government on FEDBIZOPPS. By the time the formal, solicitation is published it is too late to market for setting a procurement aside for a small business designation if it has not already been established as such. In addition, formal solicitation publication closes the window on self-marketing by HUB Zone and 8(a) firms for set asides to them individually without competition. In short, businesses have been marketing for a requirement long before it became formally announced at FEDBIZOPPS.

Finding a solicitation that is ideal for a company for the first time on FEDBIZOPPS is excellent market research insight into what the agency publishing the requirement is buying. However, a careful bid/no bid analysis should be conducted as to whether it is prudent to go through the expense of a proposal if the opportunity has not been a new business target for the firm earlier in the game.


Federal government contracting is not a quick process; but for many it can provide a steady cash flow and potential growth.  

To succeed, a carefully constructed, relationship-driven, marketing and business operations program must be developed, tailored to the federal environment. The program must include adequate research and preparation with respect to bid decisions, teaming, proposal preparation pricing and business system requirements.

Tuesday, August 7, 2018

Acquiring An Incumbent Work Force As An Element Of Winning A Government Contract

Opportunities and Challenges for the Small Business


During the course of marketing to the federal government the small business will encounter opportunities involving potential for acquiring an incumbent work force as an element of winning a contract.  The acquisition of existing personnel already performing on a service contract is a way to exponentially grow a small enterprise. 

The purpose of this article is to discuss the acquisition of an incumbent work force and effectively managing the associated potential and challenges.


We have previously discussed planning and business systems for service contracting at the following postings:

The above articles discuss basic business organization and systems necessary to support the service contracting environment and bring an incumbent workforce into a company.


Your market research into future acquisitions in the service contracting industry to the federal government will lead you to existing work forces subject to assumption by a winning contractor.
Base operations contracts, long term service contracts of an IDIQ nature and similar programs have competitive phases or are re-designated for a small business prime contractor if the government deems a pool of qualified companies is available to compete. Researching potential programs of this nature and marketing them is discussed in the following article:

In some instances a larger contractor holding the existing work force is displaced from a program to meet agency statutory requirements for contracting to small business or because the existing contractor has grown to exceed the size standard for a small business on the program.  

Under these conditions a teaming arrangement may be possible with the departing contractor,resulting his assuming a lesser role in the effort (we suggest no more than 40%) as a subcontractor to you.  Do so only if the company is highly regarded by the customer from a past performance perspective and when you can negotiate an exclusive arrangement with him during the proposal phase of the program. Teaming arrangements are discussed at the following posting:

If a teaming arrangement cannot be achieved with the existing incumbent you must gain access to the incumbent personnel salary history and benefits to effectively bid the program for the out years in response to a solicitation.  Speculating on what the personnel make or relying on the government or the incumbent to provide the data is risky. Although some solicitations will provide a government “Wage/Rate Determination”, that document is the minimum and seldom represents the actual salaries of the employees. The only other meaningful document commonly provided is a union bargaining agreement still in force. 

Some companies will publish a help wanted advertisement in the local paper and invite the incumbent personnel to attend an off site open house, asking for sign offs on contingent hire agreements for use in the proposal, together with resumes:

It is important to remember that although the RFP may go so far as to say incumbent personnel have first rights of refusal for future positions, you are not legally obligated to hire what you feel are poor performers. You will, however, have to specify your criteria for personnel selection in your proposal and, especially for personnel the government has listed as “Key” in the RFP, explain how you intend to utilize existing people or bring in new ones. 

The competitive environment on a given procurement will drive how much you disclose in the way of openness in terms of publicly announcing your intentions to bid and acquire the personnel data you need to do so effectively.  You must conduct effective research and propose a winning wage and fringe package that appeals, not only to the personnel you wish to retain, but also to your customer.
Do not count on gaining access to incumbents through the government or being able to go on government property to interview them.  In most instances you will not be allowed to do
so or it would compromise your proposal from a conflict of interest perspective if you did. 


A winning proposal will have solid plans for recruiting and retaining the existing work force, executing a transition plan and insuring that the government does not encounter an interruption in services.

 Carefully analyze the solicitation requirements for elements for which the government expects to see a response pertinent to incumbent personnel. Prepare a graphic schedule and specific set of activities to transition the incumbent personnel to your company after contract award. Make sure the activities are overlaid upon the technical and management schedules elsewhere in your proposal and supports them. 

Your transition plan topics should address administrative, human resources, training and similar factors to insure a seamless process.  


Acquiring an incumbent work force poses both opportunities and risks for a small enterprise.  Understanding the above factors and assessing your ability to manage the challenge will best prepare you for the decision whether or not to bid such a program. 

Sunday, August 5, 2018


1. Do not promise what you cannot deliver

2. Do not overextend your resources and get a reputation for poor performance.

3. Do not tell the customer what he or she wants to hear. Tell them what they need to know. They will respect you for it.

4. Network constantly on professional sites such as Linked InQuoraOpen Forum , Alignable and others.  Use Groups and Q&A 
features to accumulate an "Expert" rating from  peers in your field. 

5. Blog like there is no tomorrow. A blog is quite different than a web site. Provide good, solid information free of charge and use blog searches for synergistic businesses to team with. Teaming is an absolute necessity these days.

6. Be prepared to provide information, samples and valuable service gratis as a marketing tool. Introduce yourself and then immediately engage the client with your presentation tools available to bring your expertise to whatever topic they are interested in. Let them take you where they want to go with their concerns and their needs. Apply your presentation tools and expertise dynamically on the fly in a sincere manner to those concerns and needs and you will be in demand for follow up business.

7. Quote and bill what the client can afford and grow with him (in content and resources).

8. Be dedicated to working yourself out of a job with a specific customer and having your client take over by training him. He will remember you and recommend you to 10 others.

9. Remember growth is a function of persistence and foresight. Know where your market is headed and get their first - then write and speak about your success indirectly by helping others. Demonstrate humility and a satisfaction in helping others succeed. They will find ways to give you credit. There are ways of tooting your horn without making peoples' lights go out.

10. Word of mouth advertising from pleased clients is a sure ticket to success.

Saturday, August 4, 2018

New Federal Fiscal Year - Have You Managed Contract Funding Risk?


As the federal fiscal year draws to a close and the new year opens on 1 October, an astute contractor will have examined the funding status of all government contracts for risk.

Limitation of funds and funding exposure must be a vital topic for every government contractor.


Many federal contracts are funded incrementally, usually based on the government fiscal year that runs from 1 October to 30 September. Although the government may negotiate dollar price ceilings for cost plus and time and materials contracts or firm, fixed total price arrangements, the contracts themselves may be incrementally funded, particularly if they extend over two government fiscal years. A contract may contain negotiated prices or a cost ceiling but also specify an incremental funding value.

The contractor is required to inform the government when actual costs incurred plus obligations to suppliers or payroll on a specific contract reach certain thresholds of the current incremental funding specified in the contract (usually 80%). The government is then obligated to further fund the contract. 

In the event the contract is not funded further, the contractor has the right to stop work before he exceeds the incremental funding. Some contractors choose to operate on "risk," continuing to perform on a contract while exceeding the incremental funding in booked cost and obligations. 

The government is under no obligation to reimburse the contractor for invoiced amounts exceeding incremental funding. Nearing the end of a government fiscal year, a contractor may find delays in funding reaching all the way to congress. This situation must be managed with the government contracting officer. Limitation of Funds and Funding Exposure


In the current political climate with Sequestration still in vogue and new fiscal year appropriations being incrementally approved by Congress, contractors may receive stop work orders from agencies unless their contracts were fully funded in the previous fiscal year.   Even then, the government reserves the right to de-obligate funding on contracts, which can effectively bring them to a halt. 

Stop work orders are serious matters and require special handling to comply with government direction and manage the associated financial risk. 

Upon receipt of a stop work order you have no guarantee of payment for any transaction date-stamped in your accounting system after the date of the stop work order (or the commencement date of a stop work order specified in a Contracting Officer's Letter).

Applicable charge numbers in the accounting system must be closed until the stop work order is lifted and any effected suppliers and subcontractors must be notified to do the same.

To the degree the government has made progress payments or has any other form of payment invested in a physical product to date it has ownership rights. If that is the case, treat the physical material work-in-process as government owned, store it as such without performing any more effort on it and await further disposition.

To the degree the government has not paid anything on the contract or delivery order they have no ownership rights to the physical product and you are free to complete it and sell it to another customer (commercial or government that has not stopped work). If the government recommences the order, quote a new price and delivery from ground zero.

At the bottom line a stop work is blunt and to the point.  Treat it as if you will never hear from this customer again to manage the risk.

To the degree you do hear from the Contracting Officer again and he or she has the funding to recommence work, be prepared to submit a proposal for what it will take to start the effort and a realistic delivery schedule to complete it, but do not build any retroactive costs incurred during the stop work period into your logic and expect to bill them; they may not come to payment fruition. 

Continuing effort on a contract after receipt of a stop work is high risk. Astutely managing your options is a far better approach.   What is a Government Contract Stop Work Order?


Having a limitation of funds and funding exposure process in the company should be a standard part of doing business.  A, shrinking, remaining funding level condition on incrementally funded contracts should trigger a risk analysis and government notification process throughout the year.  The federal fiscal year-end brings an additional element of risk to the process with the annual budgeting, approval and appropriations process required by law.