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Ninth Commandment of Government Contracting: Thou shalt be prepared to reciprocate

December 10, 2014

(This article is part of a 10-part series for the blog of Public Contracting Institute called, “A Government Contractor’s Ten Commandments.”)

By Tim Sullivan

It would be wonderful if everything in a Government contractor’s life were black and white: Both parties could live by the language in the contract and there would be no need to stray from that language. But that does not happen. In fact, a Government contractor’s life is filled with dealing with people, on both sides of the fence, who either don’t like what the contract says or want to ignore it. One of the most difficult things to learn is when and where to be flexible in terms of performing or administering the contract. Many times the ability to make the right decision boils down to the relationship between the parties.

The two parties to a contract have a peculiar relationship. On the one hand, it is adversarial because they represent different interests and have different goals. On the other hand, any experienced contractor or contracting officer will be quick to admit that successful contract performance requires the cooperation of both parties from beginning to end. Without that cooperation, failure will always be a possibility.

Lawyers and judges often preach about the sanctity of contract and how important the language of the contract is, and they are correct. But it is also true that Murphy’s Law plays as significant a role in Government contracting as it does in every other walk of life; if that is the case, the parties need to be prepared to deal with the twists and turns they will likely encounter during contract performance.

Let’s look at a typical example: The contractor gets a call from the contracting officer one day in June. The C.O. says that she knows that deliveries are not due until July, but she is wondering if the contractor might be able to ship five units right away — it would make the admiral very happy. Could the contractor argue that this would be an “acceleration” under the contract and demand consideration in exchange for doing it? Of course. But should he? That is a judgment call. Maybe the five units are sitting on the factory floor and sending them early is not a problem at all. As a general rule, contractors should leap at opportunities to do favors for their customers, because you never know when you might need one in return. In a situation like this, if management approves, a smart contractor is probably going to send the five units early without asking for anything in return.

Fast forward one month: The contract says that the delivery date is July 30, and the hardware is ready to go a few days before that. But the instruction manuals that are to accompany the hardware are not in the format the Government personnel had expected. The contractor assures the C.O. that the corrections can be readily made and asks for another week to get everything done. Faced with this situation, a C.O. has a number of options, including a default termination for failure to deliver acceptable products on time. But that is where the relationship between the parties can come into play. Without needing to be reminded of the favor the contractor did a month earlier, the C.O. is likely to accept the contractor’s proposal without amending the contract.

This is the kind of give-and-take that goes on all the time between contracting parties, and it reminds me of advice I got from one of my bosses in my early days as a contracting officer: People live up to commitments made to other people better than institutions do.  If someone you trust tells you that you have a deal, you have a deal. But you don’t get to that point in a relationship until you have built a bond of trust. Regardless of your position and on which side of the table you sit, you need the other side to cooperate with you, and they need you to do the same. Understanding when and where to ask for and grant favors is one of the unwritten rules of our business. Taking a different approach — demanding strict compliance with the terms of the contract on all matters large and small — is going to cause more problems than it solves.

The importance of a business relationship is not parceled out on a contract-by-contract basis. If you think about it, you will realize that our business relationships are on a continuum; they are comprised of many different contracts, deals and negotiations between the parties over a period of time. In some cases one party has the upper hand; in others, the reverse is true.  That should not affect the basic trust the parties have developed over time.

I learned this from a total stranger on an airplane more than 35 years ago. We were eating breakfast on a flight south, and we started to talk about what we had to do that day. He was going to Atlanta to meet with the executives of a major airline for the negotiation of a deal that he was under great pressure to close that same day. When he described the situation, I remarked that it didn’t sound like he had much leverage because, in effect, the other company was a sole-source and could demand a huge price. He agreed, but he then told me that he had been doing favors for this company in the New York airports for years, and he intended to call in every I.O.U. he had that afternoon. That was a lesson I will never forget.

Tim Sullivan is the chair of Thompson Coburn’s Government Contracts Group. He can be reached at tsullivan@thompsoncoburn.com or (202) 585-6930. Tim previously authored a series of articles on the “10 Myths of Government Contracting.”