One of the advantages to selling commercial items and services to the government is that you avoid complying with many government rules. Unfortunately, the government still tries to impose many commercially unacceptable terms and conditions in its contracts.
The Federal Acquisition Regulation (FAR) instructs contracting officers to consider commercial practices in contracts for commercial items. Contracting officers are supposed to listen to company objections and accommodate actual private-sector practices in contracts. Do they? Not always.
Here we look at contractual clauses found in FAR Section 52.212-4. You should have your version of these clauses available to attach as addenda in commercial-item contracts.
Acceptance: The government accepts commercial items based on an open-ended clause that "reserves the right to inspect or test any supplies or services that have been tendered for acceptance," without specifying a time period.
In practice, the government almost never inspects or tests a commercial item. The only proof of acceptance a company may ever get is a paid-up invoice.
The solution: Make contractual acceptance contingent on satisfactory delivery, and allay government fears about receiving a damaged or defective product by promising to make things right under the warranty provisions. Stipulate that the government has a right to inspect items for damage or defects, but that once the government signs a delivery receipt, the inspection is over. You're not asking the government to give up its right to remedy for defects -- you're simply clarifying that defects revealed after delivery are to be addressed by the warranty.
The government-written contract clause suggests this is correct. The clause says that "the government must exercise its post-acceptance rights (1) within a reasonable time after the defect was discovered or should have been discovered; and (2) before any substantial change occurs in the condition of the item, unless the change is due to the defect in the item." In plainer English, it seems government says that remedy of defective items is a matter of post-acceptance, which is a matter for the warranty.
Acceptance Of Services: With a time-and-materials contract, companies can often tie acceptance for purposes of revenue recognition to submission of an invoice for hours worked. Problems arise under fixed-price services contracts when the government insists on hourly invoices. When responding to a fixed-price solicitation for services over a long period of time, incorporate milestones that trigger government acceptance upon completion.
The more complex a services contract, the more finesse you'll need in defining when delivery and acceptance occur. The contract language can get dense and will often not map neatly to generally accepted accounting practices given the government's orientation toward its unique cost accounting standards.
NEXT: Warranties, Damages and The SAFETY Act