Commercial and Government Contracting

Commercial and Government Contracting
The Differences Between the Formation of Commercial and Government Contracts
When a business moves from the commercial contracting marketplace to the government procurement world it must ensure a clear understanding of the specific rules and regulations to which it will be a party (Manos, 2004; Oyer, 2005). There are inherent risks in working with the government, but businesses that are careful with what they do can mitigate those risks and manage them effectively and efficiently (Barnett, 2003). There are four distinct areas where government and commercial contracting differ, and these are: kickbacks, false statements, false claims, and antitrust issues (Murphy, 2005; McKendrick, 2005). It is important to address all four of these in order to ensure that the differences between the two types of contracting are more easily understood.
In the commercial market, kickbacks are not illegal. For example, a subcontractor can offer to kickback a payment to another, higher-up subcontractor or the prime contractor in exchange for getting the contract (Barnett, 2003). While some people might find that unsavory, there is no law that says it is unacceptable. However, the government is very strict about that type of behavior, and the use of kickbacks in government contracting is strictly forbidden (Manos, 2004). Because kickbacks are a criminal offense, contractors and subcontractors generally avoid them. It may be tempting to try to get away with a kickback, but it is usually not worth the risk that the contractors take in setting up a kickback. They should save that behavior for the commercial contracting arena.
Submitting false statements to the government is a criminal offense (Oyer, 2005). This kind of behavior can get commercial contracts into trouble as well, but not as severely as if they engage in that kind of behavior with the government. Any false information that the contractor provides can make that contractor subject to criminal penalties, so it is very important that government contractors are extremely careful about the information they provide. Double- and triple-checking is a good idea and can save a lot of heartache and financial difficulty down the road.
Another serious issue for government contractors is the submitting of false claims for payment. While this happens in the commercial contracting world, contractors who engage in that behavior in dealings with the government can be subject to both criminal and civil penalties (Murphy, 2005). Contractors can also be liable for penalties if they substitute products or services intentionally without first getting consent from the government (Manos, 2004). This is designed to protect the government from getting inferior products or services that are not acceptable, and also to keep costs down. In commercial contracting, penalties for this type of behavior are not as severe and may be specific to the type of contract signed (McKendrick, 2005; Barnett, 2003).
The Sherman Antitrust Act is another regulation with which government contractors must deal. Bid rigging is covered under the Act, as is collusive pricing (Manos, 2004). Antitrust issues are very important to address, and the government is willing to prosecute contractors who do not take the Act seriously. That is something to consider carefully before doing business with the government. It is not so much that contractors would deliberately try to be dishonest, but more that they would not realize that something they normally do in their commercial contracts would not be acceptable to the government. Ignorance of the law is no excuse, so contractors cannot plead ignorance and avoid penalties. Doing business with the government can be extremely rewarding, but it is also important to remember that there are many risks, and the rules and regulations are a significant part of the process. Patience, understanding, and care are all valuable assets for government contractors.
References
Barnett, R.E. (2003). Contracts New York: Aspen Publishers
McKendrick, E. (2005). Contract Law – Text, Cases and Materials London: Oxford University Press
Manos, K.L. (2004). Government Contract Costs