Contracts dictate what a business does, and most companies have to execute and enforce many different kinds of contracts. Only some businesses will be subject to government contracts, and these businesses often face unique concerns when compared with those who only contract with private individuals or other companies.
Contracts generally outline the obligations of two or more parties to each other and create expectations for a transaction or business relationship. How are government contracts unique when compared with other kinds of business contracts?
They involve a complex bidding process
Many large contracts are subject to bidding requirements. If a large company is about to hire a construction firm to remodel their oldest factory, their board of directors will likely look at submissions from numerous different companies before selecting the right one.
Government contracts typically have to include a public bidding process, although sometimes government contracts involve sealed bids. Companies hoping to secure a government contract will have to provide information about what services they will provide and what final costs they will charge. The agency or department granting the contract will then pick a company based on the terms of the different bids submitted.
Contract enforcement is much different
If you fail to follow through with contractual obligations to a single client or another business, the worst that you might face would be a breach-of-contract lawsuit. Companies that fail to perform as promised in a government contract could potentially face much more serious enforcement consequences, including federal fraud charges in rare cases.
Additionally, issues with a government contract could have a much longer-lasting and broader impact on your company’s success than minor contract disputes with another company or a business.
Government contracts rarely create enforceable obligations for them
Typically, both parties signing a contract are on equal footing, but that is not true when you have an agreement with the government. They can sever their contract with you at any point for as simple of a reason of convenience. You will have very little recourse in the event of a cancellation unless you’ve negotiated specific terms for that exact scenario prior to finalizing the contract.
Understanding how government contracts are different than other business contracts can help you make informed decisions about business opportunities.