For small business owners, contracting with a local, state, or federal government agency can be a potentially lucrative opportunity.
In 2013 alone, federal contracts awarded to small businesses resulted in more than $83 billion in revenue. But there are, of course, potential bad sides to contracting with government agencies.
Here are three ways a government contracting deal can go sour:
- Political setbacks. A government project can often be halted in its tracks if the law that allows it or the tax that funds it is struck down. In San Diego, a $520 million renovation of the city's convention center was recently put on hold after the special tax levied to fund it was found unconstitutional. Although the city is still hoping to find a way to fund the project, in the meantime, any local contractors who may have been counting on that business are out of luck.
- Budget shortfalls. Unlike government employees, whose wages are guaranteed even during a government shutdown, contractors may not be afforded the same luxury. During the 2013 government shutdown, many government contractors were forced to try to find other work for their employees, give them paid time off, or lay them off altogether, reports Bloomberg. And much like personal injury claims against the government, breach of contract claims against government agencies are subject to different rules than typical contract disputes. For example, contract disputes against the federal government are subject to the Contract Disputes Act, which provides specific steps contractors must follow in order to pursue their claim.
- Violation of discrimination/harassment rules. Government contractors may also be subject to more stringent rules regarding harassment and discrimination against employees. In many states, employers can still fire employees based on their sexual orientation. But an executive order recently signed by President Obama prohibits federal government contractors in any state from discriminating against gay, lesbian, bisexual, and transgender employees.
If your business is considering becoming a government contractor, a business lawyer can help guide you through the process.
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