When government contractors face financial difficulties, they must follow specific rules that differ from typical bankruptcy proceedings. Although these regulations are essential in protecting government interests, they can also create possible roadblocks during bankruptcy.
Understanding how these rules work is important for contractors as they handle their finances and contracts. Here’s a basic overview of the process:
Notifying the government about the bankruptcy
If a contractor files for bankruptcy or has bankruptcy filed against them, they must notify the government quickly. They have five days to inform the contracting officer who manages their contract. The notice must include:
- The date they filed for bankruptcy.
- Which court they filed in.
- A list of all government contracts they are working on that haven’t been fully paid yet.
This makes sure that the government is promptly informed when a contractor faces serious financial trouble. It also helps them make quick decisions about how to manage ongoing projects and protect taxpayer interests. Note that even if contractors are in bankruptcy, they must continue working on their government contracts unless told otherwise.
Can your company transfer the contract to another party?
No. A contractor cannot pass off its responsibilities to another entity without approval. If transfers like these occur, the government can cancel them without paying for any work done by that other party or company. However, there are some exceptions:
- If your company merges with another, the contract can transfer to the new company.
- If you die and the contract is for personal services, the contracting officer can transfer it to your estate.
- Banks or other financing companies can receive payments from the contract if you owe them money.
Even in these cases, the government must still approve the transfer. This does not mean companies cannot hire subcontractors to help with the work, as long as they are still in charge of the contract.
Special regulations require special attention
These procurement regulations can add an extra layer of complexity to bankruptcy proceedings. Seek guidance from legal professionals who understand these processes and can help you stay compliant with all relevant regulations.