Government Project - No 50% Up Front?
 

So I'm bidding on a nice sized state government project right now ($10-20k) and when I met with the agency the other day they pointed out on my estimate the part where I require 50% up front and 50% upon completion. They said that the state won't pay 50% up front, and that the total balance is just paid upon completion.

I think that's unreasonable, especially since the project will have a number of expenses that come right out of my pocket (music, voice over, stock images, travel, etc.). Has anyone else ever run into this, and have you found a way around it?

I have run into this on several small government contracts I have worked. One for photography and 2 for video. Fortunately my $ outlay to start the projects was not much. Couldn't find a way around it as federal contracts seem pretty iron-clad. I guess you could always turn them down.

Yeah, I don't really want to turn it down, but I'm also not very comfortable with shelling out a couple thousand dollars of my own money up front. I mean, what if something goes wrong with the funding half-way through the project and they no longer have the funds? Do I sue for payment? I'm not sure what to do about this.

Unless someone has some other experience I would not worry about them running out of funds. When at state or federal government contract is issued the funds must be obligated. What this means is that the funds are available for this purpose only. Also, you may also find that the contract protects you as far as the prompt payment section.

In the future remember to build into the total bid the cost of securing funds (borrowing) to complete the project.

Chris makes a good point - this is a good example of where a business would use OPM (Other People's Money, ie, a business loan from your bank) as the operating capital to fund the project. A signed government contract is just about the best collateral around.

Well, actually, my father-in-law was working on a project for the state of California about 10-15 years ago and ended up in a situation where he didn't get paid because the state ran out of funds. I don't know all the details, but I know he never got paid. I guess I'll call him and find out.

Good idea. Thanks!

As a video producer working for a State Agency, we often had to sub out some jobs and I know we never had the ability to pay a deposit. I would have preferred it, people in my agency would have preferred it, but it's just not the way the state government operates. Payment after the project ranges from a couple of weeks to a couple of months.

Also be aware that many states have strict procurement laws that change with the $ amount of the contract. Small projects you could go with the contractor of your choice - Medium projects need bids from at least 3 indipendent firms, Large projects would need a formal RFP, bidding process, contracting negotiation etc which takes months before the first inch of tape has moved.

I'm not defending it, but that is how it is. The states go to great lengths to protect public money from abuse or the perception of abuse. And they should. What is frustrating from both sides of the table is that something that is fluid and creative like video production is subject to the same procurement laws as ordering 1,000,000 rolls of toilet paper for the state prison.

Regarding Travis's post about his father-in-law not being paid, In my experience this is rare. Government agencies are slow, cumbersome, arcane, hard to understand etc., but they are honest and pay thier bills. My guess when you dig further was either: that some procedure wasn't followed either by the government or the vendor; or, he wasn't persistant in following up for payment.

Mike, is there any way to determine whether or not the funds in question are set aside for a project and can't be touched?

Also, on the projects you have experience with did the private sector contractors ever have to make cash expenditures up front?

I can only speak of my experience in one state so there are 49 other possibilities. Usually, the problem is not specifically segregated funds for a project, unless it is a big ($ millions) legislative initiative. The problem usually is that the staff person in charge, did not follow proper procedures in obtaining the contractor or contract itself. Unfortunately, in "exotic" things like video projects, this often means that someone at a staff level had a "really great idea" and started dealing with contractors before his/her bosses had a chance to OK the concept. That said, if the work was done in good faith and a suitable product was delivered, and there was a sufficient paper trail to show that the contractor was acting upon an agreement with the agency, then you (or your father-in-law) would be within your rights to take legal action to recover costs. Government's don't usually just "run out of funds" forever - they don't go bankrupt. Because money is appropriated from the state's budget on a year-by-year basis, they will occasionally run out of money in THAT AGENCIES, budget for THAT YEAR. In the new fiscal year, they get new money and start paying their bills again. The bad news is that if this bill is 10-15 old, you will probably have a hard time collecting.

- Almost all the time. Talent, equipment rental etc are usually part of the reason that an agency hires out instead of DIY. Since the project is not paid until completed, the contractor also has his/her own expenses up front also.

In your experience, is there anything I can ask for to help ensure that the funds are available and that everything has been handled properly?

Meet with them and get copies of any internal approvals they have. Make sure it is an official project, not the daydream of a bureaucrat who wants to play producer.

Even working internally (I had the in-house production unit) I was constantly meeting with well intentioned people who thought a video about their particular project or topic would be a great idea. Before I had someone spend much time on the concept or rolled the first inch of tape, I made sure that everyone up the chain also was in support of the concept, and sometimes, willing to transfer part of their budget to my budget to cover my units expenses.

The approved contract from the agency is your key. Once committed, you should be paid.

As I understand it, some municipalities have defaulted on their debts. Now that's a different level of government (and I also am not American), but I believe it has happened in the past that some government entities default on their obligations (e.g. Orange County).

I wouldn't know if there is any risk with the government entity that you're dealing with... but it might pay off to do your research and to see if the level of risk is acceptable for you (e.g. maybe other risks like theft overshadow any default risk).

Okay, thanks. I'm assuming by "approved contract" you mean that they have signed MY contract?

Yeah, that's what happened in California. The state basically declared bankruptcy and started over (to put things in a nutshell). I'm not really so much worried about that as I am about fronting money AND the possibility of the project getting the plug pulled on it midway through.

not quite
 

I worked in state government for a while...... what this means is a signed work order from the department heads / managers that officially give the go ahead, state what funds are available & dedicated, the funding time frame, project dates, etc etc. Don't forget that if money isn't spent at the end of a fiscal year, it sometimes is yanked back into the general budget, which means a project that gets delayed is a project that might not get paid.

Your signed contract is all nice and good, but if it was signed by someone that did not have the rights or proper permission to do so, it could be worth only the paper it is printed on.

So how do I figure out how high up the chain I need to go for this approval?

Depends
 

This depends on the department, and the levels of oversight. Some times you may be able to get a copy of the "work order" which may or may not exist depending on the budget for the project. Work orders come in all sizes; "install new plumbing for lawn sprinkler system" for $1000 to "buy, install, and maintain and new AC unit" for $80K. Some projects are chopped up into lots of smaller pieces and have individual work orders for each part (sometimes to get around work order monetary limits).

I would highly highly suggest that if working on a contract for the government to just hire a lawyer that has experience with government contracts and get him to give you a canned "government contract" and then build that cost into the contract. the lawyering part shouldn't run over $300-500. Then you have the lawyer approved contract part. Yes it is a huge outlay before the contract is approved. I don't know of any way around that.

Hope that helps
(Off Topic: Just sent a call in customer your way for late notice June 13th wedding)

Well, unfortunately I've already submitted my bid, so I can't adjust for lawyer costs at this point. Sounds like it's pretty vague as far as making sure the project is greenlit and has the funds set aside. Oh well. I still haven't been given a definitive "no" on the 50% up front, so I guess I'll just cross my fingers at this point.

Thanks for the referral. I hope she calls soon because my plate is pretty full and getting more full by the day.

Travis, my day job is that of a State Procurement Officer -- I spend thousands and thousands on outside vendors every day. We'd never pay anyone anything up front as a deposit. Even if we wanted to, state procurement law prohibits such a thing (at least in my state). I can only pay for satisfactory services rendered -- meaning done and finished. They're not being a hard ass, they are probably just following the letter of the law.

As for your getting paid, when I issue a letter of authorization to a vendor, those funds are put aside and locked for future payment of that bill. Those monies can't be touched until I go in and de-comit the funds. Procurement law here also requires that I pay that invoice within 30 days of receiving it. Again, that's in my state. Good luck.

Brian, thanks for the info. Sounds like I should be charging a bit more to cover the hassle for not getting an up front deposit.

Wow, so this whole thing turned out to be a pointless adventure. It turns out that the state has a 2-year contract with a local video company and HAS TO use them for this project. So I basically just invested a bunch of hours into a project I never had a chance of getting. My contact with the state just found out about the contract as well. Really crappy situation but it solves my dilema with getting 50% up front, lol.

Well, probably not completely pointless. A lot of us learned a few things from the posts on this subject. I am sure it will come up on dvinfo again.

No, I know. I guess I was just expressing my frustration that I put a lot of hours into getting this project and it turns out there was no way I could have gotten it in the first place. That was the "pointless" part. d;-)

But you now know that the competition has a 2 year contract that might just eventually run out <wink>, leaving an opportunity! That's IF you want to go after it and it's worth the hassle...

Totally agree. I'm actually having my contact find out how one goes about bidding for this contract to see if I want to go for it or not.

Right Hand.... meet Left Hand.

Yeah. Working in and with the government is kind of like that.

I definitely wasn't shocked at this, but I sure was frustrated that I wasted my time. Oh well, on to bigger and better things ... d;-)