Contractors Seek Legal Recourse

But they must still answer a fundamental question: Can they recoup costs incurred during the shutdown?

P> Government contractors are treading untested waters while they try to recover costs incurred during work stoppages. The prolonged government shutdown and the corresponding lack of legal precedent make many contractors unsure how they should proceed.

"It's absolutely unprecedented," said Larry A. Davis, director of government contractor services at Aronson, Fetridge and Weigle, an accounting and management consulting company in Bethesda. Md., of the government shutdown's impact and the corresponding lack of legal case history.

Davis remains "pretty strong" in his conviction that contractors can recover some money from the government. "People are assessing the situation and trying to decide if they have suffered enough," during the shutdowns to request funding to cover costs -- or unabsorbed overhead such as rent and administrative staff costs -- incurred during the shutdowns. Davis' company represents more than 100 government contractors.

Bruce Shirk, legal counsel for the 6,700-member Information Technology Association of America in Arlington, Va., said that "if an agency feels that a contractor has been treated unfairly and they have the money allocated [to pay them] and they care about their contractors," they will try to make certain that contractors receive compensation. However, "I do not think it is automatic."

The government needs to resolve two important issues: whether government contractors will receive reimbursement for some of the expenses they incurred during the shutdowns and whether contractor employees will be paid for work they did do -- or didn't do -- during the shutdowns, just as government employees were paid or "made whole."

Many contractors may not know their options. "In many cases, [small and mid-sized contractors] may be entitled to financial restitution," said Barry Friedman, a partner at Friedman & Fuller CPA, in Rockville, Md. "However, many smaller firms either aren't aware that they can file claims for compensation, or they lack the expertise."

On Jan. 18, Friedman & Fuller announced it had established a legal fund with Washington, D.C.-based Dickstein Shapiro & Morin, LLP, to assess the legal issues involved in the shutdowns.

"Small and medium-sized contractors below $20 million in revenues are the hardest hit [by the shutdowns] and least able to afford legal assistance," said Friedman, whose firm serves approximately 50 government contractors. So far, his company has received 20 to 25 calls from contractors, according to Friedman. Friedman & Fuller charges each contractor between $2,500 and $4,700 for consultations; $1,000 of that amount goes into the legal fund.

By writing a letter notifying the government that they plan to request compensation, contractors can begin the process. But they must file this statement within 30 days after the end of the work stoppage. Friedman & Fuller has posted a sample letter at its World Wide Web site (http://www/ -- go to "what's new").

In the meantime, accountants, association executives, lawyers and politicians are rushing to defend government contractors. Representatives Thomas M. Davis III, R.-Va.; James P. Moran, D.-Va.; and Constance A. Morella, R.-Md., and Sen. John Warner, R.-Va., attended a Jan. 22 press conference. In response to local interests, the three Republicans broke ranks with their GOP colleagues in seeking a bipartisan end to the shutdowns.

Morella announced that she would support a resolution to pay contractor employees for work done -- or not done.

But Moran said, "I don't think there's any real hope of getting federal contractors made whole," due to the lack of support among other members of Congress.

"There's been a deliberate attempt to punish federal contractors" by the Republican-led Congress, said Moran. "The feeling is that they're employed by the enemy -- the federal government.... There's a lack of appreciation of the role of contractors." By outsourcing work that industry can do better, "the government has saved hundreds of millions -- if not billions." Moran said Congress had "grossly abused" a long-standing relationship.

Despite the politicians' support, contractors should assume the worst -- and prepare for it. The Professional Services Council's Julie Noufer, vice president of government relations, said contractors may not be paid until the end of the contract cycle. "If there are four and a half years left on a five-year contract, it will take four and a half more years. It typically takes two to seven years for the government to close out a contract. Contractors shouldn't expect immediate recovery" of money, she said.

One contractor didn't get paid for two months as a result of the shutdowns. Washington, D.C.-based Ecologic Corp., a 15-person integrator that specializes in multimedia databases, performs approximately 10 percent of its work with NASA. Mike Keeler, president, said his company received payments this month for invoices it had submitted in October. "It made it difficult to plan for the next three to four months," and make commitments to the three affected employees. Small companies have an acute problem because "they don't have loose credit arrangements and they don't have credit reserves" to draw upon, he said.

In fact, many small companies that have done a substantial part of their business with the government are now leaving the market, said Paul Murphy, president of Eagle Eye Publishers Inc., Vienna, Va. "They're feeling the government is too difficult" a customer.

Although some companies abandon the market, Murphy said many small companies "are feeling the pressure from larger ones that are 'bottom fishing' or pursuing smaller contracts" than before. Maintaining cash flow will help many companies through the crisis, said Murphy. Contractors also are increasing efficiency.

Ed Bersoff, chief of $205 million integrator BTG Inc., Vienna, Va., and chairman of the Fairfax County Chamber of Commerce, thinks the government will need legislation to enforce contractors' claims. "At a practical level, there is a great deal of confusion," he said. The unilateral action made by agencies such as the Environmental Protection Agency to stop work on practically every contract, "indeed can destroy [contracting] relationships."

Rep. Davis said he had heard many examples of agencies stopping contracts, even when they had no mandate to do so.

The president of a 325-employee $25 million contractor agreed with Davis. "Among the contractors I've spoken with, the agencies' determination that they will pay for already-funded work performed on the contractor's site during the shutdowns seems very subjective," she said. "It's very difficult for small companies like mine to fight this" with lawyers, she said.

A legal fight, based on Friedman's estimates, would cost at least $100,000.

Because of that, vendors have taken different stances in evaluating the compensation process.

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