Handling Government Contract Work

Government work is its own strange world, so learn the ropes and be careful. October 8, 2005

I've had a government job on my books for some time, with a few interesting caveats that I want to run past you. First, I find out after the fact (after I've bid the job) from the GC, that I'm supposed to finance this job in its entirety. In other words, I can't submit an app for payment until the stuff is installed. Have any of you run across this before?

Second, we've had this open contract on our books since February of 2004. What's the validity of passing price increases along based on the passage of time?

Forum Responses
(Business and Management Forum)
I do a lot of public contracts. Working with GCs is always tough. Hopefully, in your proposal and contract, you laid out your payment terms. If you signed the GCs contract, you may have agreed to what's called a "paid if paid clause." This means you won't get paid until the GC does, if ever. If the GC screws up and can't get paid or other problems arise, your money could be held up until the problem has been resolved. It is correct that you can't get paid until your materials are on the job unless you have a payment schedule in your contract, so you're not tied to the owner's payments to the GC. Also, be aware that prevailing wages must be paid to your employees for the installation. For the reasons above, we do very little of this work unless we are the prime contractor. In the end, however, there must be a bond on the job which will help you get paid, but again it takes time. The moral of this story is to make your own contract with your terms. Don't be so hungry that you sign the GC's contract without reading it through and demanding good payment terms and deleting the clauses that enable the contractor to delay your pay. If you have done this and you're not paid, you can make a bond claim. I learned this the hard way.

You should be able to bill for stored materials. You will need to insure it. If the job was delayed, then you may be due some price escalation, but generally you need to include it in your bid. Pay if paid shouldn't matter on a government job - the job should be bonded, and if you don't get paid, you go after his bond.

We did two government jobs (universities) this last year. When we tried to set the terms at net 30 plus interest after 30 days, we were told both times it was illegal to collect interest payments from the government. We added to our handling fees with an incentive to pay within 30 days. Payment was late on both. Can someone tell me more about getting a bond? Our work is not considered construction, as it is not built in.

In California, you cannot place a lien on public property if the GC/prime contractor does not pay you. Watch for legit bonds, as some small school districts/public entities get excited over low bids and refuse to make a phone call to confirm. Watch for stalls and complain to owner's rep if GC/prime gets behind. Timeframes are important!

We generally won't bid to GCs due to their late payment schemes. It doesn't much matter to them that you modify their contract terms. As for bonds, there are always limits on the amount a bonding company will pay out, so get in line quick. If there are any lawsuits involved, expect long delays (years). The next GC game is back charges, so carefully document everything. Have a contractor's official (not a laborer) sign for anything delivered to the site, be sure they verify the delivery (things walk off from commercial sites at a fast pace). If you install, be aware that you will have to pay union wages (prevailing) and usually "health and welfare" and other fees to the union. You also may find that on-site work stoppages may occur if your work doesn't display a union-made label. The GC may back charge you for time lost due to these stoppages.