Bill Wiseacre, CEO of Uh-Oh Enterprises, LLC, recently attended a conference for small business owners. One of the speakers spoke about how small business owners could ramp up their businesses by providing services to the Federal government. When Bill returned from the conference, he began researching what it would take to expand into the world of government contracting.
While he knew that Uh-Oh Enterprises offered an outstanding service and would have no trouble meeting the quality requirements of any government contract, Bill was unsure about the technical aspects of government contracts. Bill called a business contact of his, Paul, who he knew did a lot of work with government contracts. Paul informed Bill that while it was true that government contracts could be very technical, he could get his feet wet by being a subcontractor on a government contract and letting a larger business with more government contracting experience take the lead as the prime contractor. As a subcontractor, Paul continued, Bill wouldn’t be the primary point of contact with the government as he would were he the prime, and he would only have to deal with the other business involved in the contract. Paul then gave Bill a handful of names of businesses that worked in government contracting that may be looking to work with a subcontractor like Uh-Oh Enterprises.
Bill was ultimately successful in finding a business who was preparing to bid on a government contract, but whose subcontractor of choice was unavailable for this particular project. The project was a large one—and although Bill was confident that Uh-Oh Enterprises could handle it, he would have to hire two additional employees in order to complete it within the timeframe allowed. The business who would serve as the prime contractor on the government contract, Widgets, Inc., sent over a stack of papers for Bill to review, including some notes on the “rules” for Uh-Oh to follow to be eligible for government contracts and a Teaming Agreement, which stated that if the contract was awarded to Widgets, Inc., then Uh-Oh Enterprises would serve as a subcontractor. Excitedly, Bill executed the Teaming Agreement and then waited to hear whether they were awarded the contract.
Finally, Bill received an email from his contact at Widgets, letting him know that they had, in fact, been awarded the contract and that more details would be forthcoming. Bill scrambled to hire two additional employees and one administrative assistant, knowing that he did not currently have the manpower to fulfill the subcontractor’s role. After hiring additional staff, Bill received an email from the owner of Widgets, which contained a two-page form titled “Statement of Work.” The work it required was a fraction of what Bill had anticipated after reviewing the potential contract with Widgets a few weeks prior. As it turns out, the other subcontractor that Widgets normally worked with had come through at the last minute, and as a result, Widgets had decided to use them also. Now, after hiring additional staff and turning away other clients, Bill realized that Uh-Oh’s portion of the project was nowhere near the scale he had predicted and that at the end of the day, the profit would not come close to offsetting the cost to him to perform the work.
The Momentum Law Perspective:
- Government contracts are complex and technical; it’s definitely worth ensuring that you are clear as to the terms of a potential bid.
- Whether you are the prime or the subcontractor on a government contract, the Teaming Agreement is a key document which outlines who does what. Make sure that you know what each party is responsible for.
- As a subcontractor, an exclusivity clause in a Teaming Agreement can protect you in the event that the prime contractor you are working with decides to divert work you expected to another subcontractor.