Termination of Government Contracts: Settlement Proposals for Fixed Price Contracts

Whether you are starting a small business or running an established company, it is vital to understand business laws and regulations. But that is easier said than done. My goal is to provide business-related legal services so that you can spend more time dealing with the actual business and less time with legal intricacies of operating your business. My services include:

Business formation

You have a new and innovative product or service and you are interested in forming a new business. You may have concerns about liability, taxes, investors and other considerations. As your small business lawyers, we will assist you in deciding whether your startup business should organize as a limited liability company (LLC), partnership, S corporation or C corporation. We will form the most appropriate business organization for your new business and register the business in all jurisdictions in which it will conduct business.

Mergers and acquisitions

If your business is fortunate to thrive and become a merger or acquisition target, we can represent you as the seller; or if you are on the other side and looking to acquire a business, we can assist with the due diligence in purchasing a business. We will review various approaches in purchasing a business through merger or acquisition. We will discuss with you various structures in purchasing the stock or purchasing the assets of an acquisition target. In either case, your business will need thoughtful and comprehensive representation in all aspects of a merger or acquisition.

Government contracting

Government contractors face numerous issues when contracting with the government. And with a hands-on approach and substantial experience, we will help you navigate those legal issues. We prepare teaming agreements, subcontracts and joint venture agreements and can handle a variety of other government contract matters. As government contract lawyers for your small business, we can assist you in applying for programs for HUBZones, service-disabled veteran-owned small businesses or women-owned businesses. If your company is facing debarment or suspension because of allegations of corruption or bribery, we can assist in your defense before the U.S. government or the World Bank.

Business transactions

Once you have an ongoing business, however organized, you will have a host of various commercial transactions. We prepare agreements with lenders, lessors, partners, customers, employees, and consultants. We provide business legal services for your company, preparing confidentiality agreements, nondisclosure agreements, licensing agreements, distribution, employment agreements, independent contractor agreements, lease agreements, and many others. We will help you understand what each part of these agreements require and make sure that these agreements provide protection to you and your business.

Corporate law

Once your startup business has been created, your company will have ongoing requirements to maintain its separate status. We will assist in guiding you on how to prepare corporate minutes or resolutions of the company to maintain the corporate form and other steps to protect the limited liability of your company. You will also have to make sure that your bylaws or operating agreement continues to reflect the needs of the business organization. We are available to assist you in addressing these issues. And once your company is ready to raise additional capital from investors, we can work with you to determine whether you are subject to securities laws or fall within one of the exemptions.

Business disputes

Few businesses are immune to business disputes. If your small business was well-advised, you have an agreement that will provide guideposts on how to resolve your business dispute. If you are unable to settle your dispute, you may have a dispute resolution mechanism such as mediation or arbitration in the agreement. An alternative dispute resolution mechanism such as arbitration or mediation generally can provide a relatively quick resolution of your business dispute. If not, then you may have to consider litigation. We handle business disputes, including pre-litigation matters, mediation, arbitration and litigation.

Anti-corruption compliance

Every company should have procedures and policies to minimize its exposure to allegations of corruption or bribery. An integrity compliance program (ICP) is essential for businesses doing work internationally for the United States government or work financed through one of the development banks. We can assist in reviewing or preparing an ICP to assure that is consistent with the anti-bribery and anti-corruption guidelines from the World Bank. If your company is facing debarment or suspension because of allegations of corruption or bribery, we can assist in your defense before the U.S. government or the World Bank.

Non-profit law

We work with organizations to obtain their tax exempt status under Section 501(c)(3) of the Internal Revenue Code. There have been recent changes to obtaining 501(c)(3) status and we have worked with organizations in submitting successful applications on the simplified track by filing a 1023-EZ and the more rigorous 1023 application for larger organizations. Nonprofits also face similar legal challenges to assure that they comply with business requirements and additional requirements to assure that they do not jeopardize their tax exempt status. As a law firm for nonprofits, we work with nonprofit organizations to guide them through these issues.

FAQ Small Business Attorney in DC

What is considered a small business?

Almost all our clients fall within the definition of small business/startup as determined by the Office of Advocacy of the U.S. Small Business Administration. Under this definition, a small business has fewer than 500 employees. Small businesses encompass about 99.9% of all business organizations in the United States.

Which industries do you serve as a small business attorney?

Most of our clients are service providers such as consulting companies, law firms, accounting and bookkeeping services, cybersecurity consultants, video production companies, and lobbyists, just to name a few. We also represent foreign and domestic manufacturers and software developers.

As a small business lawyer in DC, we represent some retail operations, such as bookstores and restaurants. We also represent numerous nonprofits with varying missions. Our government contractors clients hold various IDIQs (Indefinite Delivery, Indefinite quantity Contracts) and GSA schedules.

In which areas of the law does a small business or startup need legal assistance?

Most times, small businesses/startups need the services of outside general counsel. As outside general counsel for small businesses, we can handle most matters as a small business attorney that small businesses generally encounter. Usually, anything with the word agreement or contract is within our practice areas. This includes operating and shareholder agreements, which are used for small businesses and startups that are formalizing their relationships with their owners. Once a business is formed, then we prepare and review a host of other agreements, such as service agreements (which may be referred to as client agreements or consulting agreements), independent contractor agreements (which may be referred to as subcontracting agreements), employment agreements, teaming agreements, purchase and sale agreements, merger agreements, option agreements, license agreements, lease agreements, and the list goes on.

What factors should a small business and startup look for in retaining the services of a lawyer for small businesses?

With our extensive experience of working as a small business attorney in DC for decades now, background and experience should come right at the top of the list when looking for a small business lawyer. We think that accessibility and communication are essential for a successful relationship between an attorney and a client. Hourly rate is important but not as important as quality of service.

What kind of experience do you have in advising small businesses as an attorney?

Keith Rosten has not only legal experience but also business and practical experience that allows him to relate to the trials and tribulations of a small business owner. Keith has BigLaw experience before working for small and medium-sized businesses, first at his own law firm focused on small businesses and then with Berliner Corcoran & Rowe LLP.

Keith has substantial business experience. He received an MBA from the Tuck School at Dartmouth College. During his business studies, he worked on several group projects with small businesses, including a furniture manufacturer, a manufacturer of leak location precision equipment, real estate developer. After business school, Keith operated a successful real estate business in California and overcame numerous issues, such as asbestos abatement and underground storage tank remediation.

Keith worked as a legal adviser to a government contractor and was a legal adviser to a major initiative in Russia. Keith ran another small business, selling and marketing solar energy equipment. The business had an e-tailer component, hosted the largest solar energy forum online, and sold solar energy equipment to the government. Keith negotiated two GSA schedules for the business and obtained HUBZone certification for the business. Keith was also president of the Dartmouth Entrepreneurial Network – Washington, a networking organization for small businesses in the greater Washington, DC community.

Keith has also volunteered for Compass Pro Bono, working with local business professionals to conduct long-term consulting engagements for local nonprofits in fundraising, governance, and strategy.

With this breadth of legal and business experience, Keith is attuned to some of the challenges facing small businesses, which allows him to provide effective advice and guidance.

As a small business lawyer, do you take in-person meetings only?

Yes. We are located in downtown Washington DC and host many of our clients. For those clients who cannot come into our offices, we usually meet over Zoom or by telephone.

How do you charge for your services as a small business attorney?

We charge our clients based on hourly fees. We usually provide a budget of how much certain matters cost so that startups and small businesses know in advance the ballpark cost of the matter.

What if a client does not like our services?

Clients can terminate our services anytime if they don’t find it satisfactory.

Should my small business lawyer or startup lawyer be in the same state as me?

No, not always necessary and may depend on multiple factors. For example, though we are an expert small business lawyer in DC, we have also provided consultation to other cities’ clients.

The U.S. Government has taken drastic and sometimes disorienting steps to cancel a broad swath of government contracts.

Related article: Government Contractors: Stop-Work Orders

Often, the Government achieves this goal by using its sweeping right to terminate contracts “for convenience.” These terminations include both fixed-price contracts in which the price is set in advance regardless of actual costs, and cost-plus contracts in which the Government reimburses the government contractor for all costs incurred, plus an additional agreed fee.

jd8 © 123RF.com

When a contract is terminated for convenience, the terminated contractor is entitled to payment for work completed up to the termination date, plus reasonable costs incurred both in (1) preparing for the contract at the outset and (2) in shuttering services upon termination.

Termination costs are much more readily subject to calculation for a cost-plus contract than a fixed price contract, because the contractor may be compensated for costs up to the time that the contract is terminated.

If your contract with the government was fixed-price, then it may be difficult to itemize or calculate how much the Government owes you for your partial performance. This article discusses the steps in preparing a Termination Settlement Proposal (TSP) when the government has terminated your contract for convenience.

Fixed-price contracts turn to cost-based upon early termination

When a firm-fixed-price contract is terminated, it essentially shifts to a cost-based framework for settlement purposes. This change means your business will no longer receive the agreed-upon lump sum at the end of the performance period. Instead, compensation will be based on the proportion of work completed prior to termination.

Calculating a fair settlement requires understanding the nature of firm-fixed-price contracts. These contracts are designed for scenarios where the exact hours required to complete the work are uncertain. For example, a project expected to take a year of part-time work might be finished in just a couple of months. On the flip side, unforeseen challenges could extend the work to full-time for an entire year.

This transformation underscores the importance of accurately documenting work progress and costs to ensure a fair settlement that reflects the value of the completed portion of the contract.

How to calculate a fair settlement for terminated fixed-price contracts

When it comes to settling a terminated fixed-price contract, knowing how to calculate a fair proposal is crucial. Here’s a step-by-step guide to help you navigate the process:

Track Your Time and Costs. Start by documenting the hours spent winding down operations and preparing your settlement—yes, even reading articles like this counts! You’re entitled to compensation for reasonable costs associated with both starting and closing the contract. Keep detailed records to ensure nothing is overlooked.

Check for CLINs in Your Contract. Many contracts are divided into discrete Contract Line Item Numbers (CLINs), each representing a specific deliverable or milestone. If your contract includes CLINs, you can request compensation for completed deliverables, even if the final output was never handed over to the government. Essentially, any fully completed work is compensable, regardless of delivery status.

Determine a Reasonable Hourly Rate. For incomplete work, propose a fair hourly rate. Use labor rate data from reliable sources like the General Services Administration (GSA) or Bureau of Labor Statistics (BLS) to estimate what your rate would have been if the contract weren’t fixed-price. Multiply this rate by the estimated hours spent on incomplete CLINs and any administrative tasks tied to closing operations and preparing your settlement.

By following these steps, you can create a well-documented and reasonable settlement proposal that accurately reflects the work you completed and the costs incurred.

Something wrong with my arithmetic?

Additional complications may remain, though, and data gaps may exist that inhibit the above calculations. For example, perhaps you did not record the hours you worked, or perhaps you are unsure what a reasonable billing rate would be. Perhaps you performed substantial ‘preparatory work’ at the outset of the contract that impacted all CLINs, including those you never properly began work on in specific. If you have physical capital (i.e., inventory, tangible assets), a lease, or subcontractors, your proposal will be further complicated. This article assumes you are a sole laborer; if you have employees, that is yet an additional layer of complexity.

A government contracts lawyer can assist in your settlement proposal

Sometimes, your calculations might result in a number that feels either too high or too low. That’s where an experienced government contracts lawyer can step in to provide invaluable assistance. Here’s how they can help:

Refining Your Calculation: A lawyer can ensure your figures are accurate and align with regulatory expectations.

Navigating Standard Forms (SFs): The required forms for settlement proposals can be complex and frustrating, but a lawyer will guide you through them seamlessly.

Crafting a Persuasive Narrative: Justifying your proposal is just as important as the numbers themselves. A lawyer can help you articulate your case effectively and handle the filing process with precision.

Don’t leave your settlement to chance—partnering with a professional ensures your proposal is both compliant and compelling.