Federal contractors get tips on surviving in budget-tightening era

November 02, 1990|By Ted Shelsby | Ted Shelsby,Sun Staff Correspondent

BETHESDA -- As the federal government wrestles to get the deficit under control, there are two things that seem fairly certain: Taxes will go up and federal contracts will be terminated.

While it may be hard to avoid paying higher taxes, two people associated with one of the Baltimore-Washington area's largest accounting firms advised a gathering of government contractors here yesterday on a number of survival tactics in dealing contract terminations.

The bulk of the tips presented by brothers Harry and Morton M. Ostrow, head of the government services department and a defense consultant, respectively, with Walpert, Smullian & Blumenthal, were aimed at prime contractors and their dealings with the government.

But there were lessons that could benefit smaller subcontractors, perhaps even learning to survive the loss of a major contract.

Although the federal government still spends a lot of funds in the region -- $11.8 billion last year -- the amount of spending has declined in recent years and this trend is expected to continue.

Don't be surprised if a termination notice shows up in the mail at any time, the pair told representatives of about a dozen regional contractors, including: AAI Corp., Fairchild Space and Defense Co., Hercules Aerospace, Electronic Data Systems and the Amecom division of Litton Industries.

The best advice they offered to speed the process of collecting payment for the portion of a contract fulfilled before termination was to keep careful and detailed records of cost associated with the project.

Be able to document all costs associated with the contracts, including any travel costs associated with the halt of a contract and the amount of hours, or even minutes, that executives devoted to dealing with a termination.

Have records of labor costs, any special tooling needed to perform the work, the hours of engineering that went into the project, legal expenses,

accounting expenses, any special storage or transportation costs, and even the costs associated with dealing the federal contract officer.

They also advised setting up a separate accounting category that tallied the costs associated with a project being terminated. "This increases your chances of being reimbursed by the government," Morton Ostrow declared.

The termination of most federal contracts with a value of more than $25,000 will be audited by a representative of the Defense Contract Audit Agency. Drawing on his 35 years of past service )) with DCAA, Morton Ostrow offered some advice on things to do to make the auditing experience more pleasant.

He suggested that company contract officials cooperate with the government termination officer. If it's an adversary relationship, he said, the inspector will likely respond by checking a company's records more closely. "They'll always find something," he said. "If they keep looking, they'll find something."

In answer to a question from the floor, Harry Ostrow advised against going to your congressional representative for help. "This can be a problem," he said. "You alienate your contract officer." He drew a round of laughs when he added: "All I can say is that when you contact your congressman, problems occur."

Mark Rottenberg, an operations manager with AAI in Cockeysville, and a veteran of at least three contract termination audits said that most contracts spell out the terms of a termination and advised contracting officers to read these sections carefully.

His advice: "Be reasonable. If you're reasonable, you won't have any problems. But without good records," he added, "you're dead."

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