You might think having a contract with the federal government is just like any other contract. Well, federal governments contracts are highly regulated. And that affects you as a business owner or business executive when evaluating the liability of a contract and when you’re looking to get paid from the contract.

Many clauses in federal government contracts come from the Federal Acquisition Regulation (“FAR”) and other Acts. I’m not going to go over all the regulations or statutes that apply to federal government contracts or that you should know about. I’m going to go over the major differences in federal government contracts that would impact your business.  

One large difference compared to ordinary contracts is that government contracts have "mandatory clauses", meaning the clause is read into the contract even if it's not written in the contract. These mandatory clauses can have a large impact on your business as well. The government can termination the contract for convenience. All the government needs to show is that terminating the contract is in the government's interest, not even best interest! It's a low bar for the government. Your business would still get paid for the expense of the work completed and the profit for the work completed but would not be able to receive anticipated profits. Another mandatory clause gives the government the unilateral authority to change the contract as long as the work remains in the scope of the contract.

Secondly, if there is a regulation to determine payment rates, government agents don't have the authority to agree to a higher payment rate. If the agent does agree to a higher payment rate, the government will not be bound by the contract. The court may even decide to void the entire agreement as illegal rather than make it subject to the rate in the regulation.

These are all factors to consider when you’re bidding for a federal government contract and the risk that your business is willing to take on. For questions, contact one of our attorneys in our Sioux Falls, Sioux City, or Omaha office today!


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