- Pay attention to subcontractors and team members.With potential partial terminations and deductive changes, prime contractors are apt to face disputes among subcontractors and team members over remaining work share. Contractors who anticipate these scenarios and address them in teaming agreements and subcontracts will be in a better position to resolve such matters favorably. in addition, contractors should be aware that agencies are paying attention to the activities of their subcontractors, vendors, and suppliers, and exercise effective third-party due diligence to ensure that these team members meet expectations.
- Be ready for increased government oversight.Suspensions and debarments of contractors by government agencies reached an all-time high in 2011, with no signs of abating in 2012. It is likely that decreasing budgets and the increasing importance of contract integrity and performance will drive even more aggressive enforcement of Federal Acquisition Regulations in 2013. For its part, the defense Contract Audit Agency (DCAA) has more tools than ever to collect monies from contractors, including the ability to withhold payments if the agency finds a significant deficiency in the contractor’s business systems. Contractors will need to guard against unsupportable payment withholds by DCAA. Finally, the political discourse in 2012 indicated that declining taxpayer tolerance for waste, fraud, and abuse of public funds will continue to drive prosecutorial priorities in 2013 and beyond.
- Assess the opportunities and risks of international markets. With declining U.S. government budgets, many contractors are setting their sights overseas. While foreign governments and international markets present opportunities, contractors should be aware of potential pitfalls associated with international business, including the complexities of complying with export Control Laws and the Foreign Corrupt practices Act, which both the DOJ and SEC are vigorously enforcing.
- Expect a smaller, less-experienced government workforce. Several years of declining growth in the federal workforce, combined with pay freezes and proposals to change federal retirement and benefits, have taken a toll on many agencies’ senior staffs. Among those affected is the federal acquisition workforce, which has been predicting for years that inexperience will wreak havoc with the contracting system. Government contractors have already experienced fallout from a less skilled and experienced public contracting workforce. For example, many have received inappropriately disclosed acquisition-sensitive information from inexperienced agency officials, who increasingly rely on contractors to catch these mistakes and serve as their “internal control.”
- Tend to corporate ethics and compliance programs: you may need them. An already log-jammed legal system is likely to support the trend toward use of settlements and deferred/non-prosecution agreements to resolve both criminal and civil cases involving contractor misconduct. Many agreements will continue to contain ethics and compliance-related provisions, including requirements for remediation in areas of values-based ethics, internal controls, and ethical culture.
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