Increased scrutiny by governmental agencies like municipalities, school districts, transit agencies, and housing authorities, creates burdensome challenges for prospective contractors. Compliance requirements, contractor disclosures, data security provisions, and agency due diligence efforts require that vendors, especially construction companies, expend extraordinary efforts to obtain and maintain government contracts. An unwitting mistake can send a red flag and expose a company to unwanted and expensive inquiries.
1. Prepare for Possible Oversight
Taxpayers who bear the burden of rising property assessments, increased sales taxes, and fare hikes pass on their frustration to local government agencies, requiring more efficient use of tax dollars. Misuse of the public treasury, mere allegations of ethical lapses, or conflicts of interest place elected officials and department managers in a bad light, even causing some to lose their jobs. Contractors must be aware of government oversight, prepare for it, and lower the red flags.
2. Frequently Perform Informal Audits
An army of interested parties, in many cases media outlets, often serve as additional government watchdogs. Freedom of information and “sunshine” laws provide for transparency of government documents, including email communications, telephone messages, and appointment calendars. Public contractors are also required to maintain records pertaining to work for a public agency, including expense reports, support for billing records, and communication records. In addition, vendors are often required to comply with audits and investigations conducted by the agency. These reviews do not have to be based on allegations of wrongdoing and could be part of continued due diligence and control testing performed by the agency.
Contractor disclosure forms, usually submitted along with bids or proposals, require that contractors disclose ownership interests, past and pending civil litigation, past indiscretions, and even the criminal histories of key personnel. Falsification of disclosure documents, even an innocuous mistake, can result in a vendor being deemed not responsible and disqualified from bidding.
3. Make Invoice Review a Common Practice
After vendor invoices are approved by a user department or onsite foreman, accounts payable staff play a fraud prevention role. They are trained to review invoices and ensure quantities, pricing, and freight are appropriately charged and that invoices don’t have math errors. Reviewers also make sure invoices reference the right contract, work order, and/or purchase order numbers and include necessary waivers of lien. Invoices should be easy to read and understand, especially when listing past due amounts and retainage when applicable. Invoices and supporting documents for public work contracts are required to include certified payrolls and must also pass scrutiny of the local official and other potential reviewing labor agencies. Errors can be simple mistakes that give reason for further review and additional inquiries, costing the company unnecessary compliance resources.
Contractors should also be aware of unscrupulous government employees who play fast and loose with their agency’s rules. An agency employee may find it easier to have a vendor split invoices below spending thresholds so the employee can avoid internal processes that would require more oversight and approvals. Or perhaps, the employee may find it easier to approve two incremental payments instead of seeking supervisor approval for the more accurate invoice. Complying with a dishonest agency staffer only increases the chances of the contractor getting caught up in an internal investigation or audit.
4. Re-think Gift Giving
Many state and local governments have enacted ethics and gift ban acts, attempting to control employee relationships with vendors and prospective vendors. Progressive government agencies have enacted contractor codes of conduct that apply similar proscriptions to vendors, threatening contractors with disciplinary action for improper relationships with their agency’s employees. It is not acceptable to “wine and dine” with a government employee, especially those with contract management authority. Receiving gifts, even those with a seemingly nominal value, is frowned upon. And if the gift exceeds a pre-determined value–usually between $50 and $75–the employee receiving the gift is required to disclose receipt to the agency (a red flag that contractors should avoid). Doing business in the public sector differs substantially from private sector relationships.
5. Update Your Cybersecurity Practices
Many agencies now allow vendor access to otherwise secure agency portals, but with access comes additional compliance requirements. Contractors are contractually obligated to implement appropriate controls to secure agency data, often requiring that the contractor has system controls in place to minimize intrusion risk to its own network. Hackers may target a vendor with access to a government portal to penetrate the agency’s networks, creating liability issues that could prevent the contractor from engaging with the agency in the future.
Finally, don’t become a pass-through for other government expenditures. Procurement rules are an effective control that also make the agency employees work a little harder. A lazy or deceitful employee seeking to circumvent the rules is just another way for the contractor to get caught up in a web of unnecessary oversight.
Government contracting includes hurdles that are easy enough to overcome. With a little diligence and an effective internal control structure, contractors can also reduce the risk of exposure to unwanted and unwarranted agency scrutiny; in the long run, saving the contractor from wasting resources on expensive compliance efforts.