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A Deplorable State Of Affairs

A friend of mine is in a bit of a jam. There's not a hell of a lot I can do for him, except perhaps -- perhaps -- publicize his situation. And even that, he has been reluctant to authorize.

My friend (let's call him "Sam") works for his state. (No, I'm not going to name the state, or the agency. Not yet.) Not as an employee, though, but as a contractor. And Sam's state is being extremely slow about paying his constantly-resubmitted bills.

To the tune of closing in on five figures.

Every time Sam mentions the money he's due to the people who are supposed to authorize the check cutting, he gets a bit of a runaround -- it's been held up in the capitol, the person who needs to approve it is on vacation, the legislature's imposed a freeze, and so on. In the meantime, though, would Sam mind taking on this assignment or that one?

I've been in a similar situation once, but in the private sector. And that case, I kept getting the runaround right up until the business folded.

That's not going to happen here, though. The state isn't going out of business. Nor are they about to shut down the department that uses (and uses and uses) Sam, and Sam's one of their preferred contractors -- he's damned good at his job.

Now, Sam is tempted to tell the state to cram it, to quit and file a claim in court, or go public with his situation. But the truth is, the state work is a good chunk of his family's income. (When the state bothers to pay). Further, there is limited demand for that kind of work in the private sector.

To me, the state workers know they have Sam over a barrel, and are giving him a thorough reaming.

How thorough a reaming? Sam's behind in some tax payments to his state. He actually won a temporary reprieve when he demonstrated that the money he was owed dwarfed the debt, and got a state official to admit that yeah, it was wrong for the state to demand a couple of hundred bucks now while it was in hock to Sam for several grand. (They wouldn't just take it off the balance due, though -- different departments might as well be different universes.)

And it ain't just Sam at the end of the boning. The state hires quite a few contractors to do these sorts of things, and they've gotten to know each other -- and apparently the state is being very non-discriminating: nobody's getting paid regularly.

It's got me wondering if someone fairly high in the agency is trying to show how good they are at saving the state money that they're cooking the books, "saving" money by just refusing to pay their bills. If so, I really, really hope it blows up in their face.

Now, recently, Sam mentioned that a neighbor of his is a member of his state's legislature, and a friend. I suggested that a word or two about Sam's predicament, whispered in the neighbor's ear, might be appropriate. After all, the neighbor is supposed to be running the state, providing some oversight and protecting her constituents, and Sam's case certainly applies here. And she's supposed to be sensible enough to do this subtly, so Sam's nominal bosses won't retaliate against him.

In a remarkable coincidence, almost immediately after Sam talked with the neighbor, he got another promise from the state agency that his check would be cut this week, and delivered this Friday. (This might have been a bit too quick to have been the handiwork of Sam's neighbor, though -- the impression I got was that he'd gotten the word almost immediately after he'd talked with his elected representative.)

As I said, there isn't a hell of a lot I can do to help Sam. But his story struck me as the kind of thing that might be happening in a lot of other states, and prompt those getting boned by their state to start pushing back. Also, some of you folks might have some suggestions for Sam.

Finally, if this latest "the check is in the mail" promise also falls through and Sam's state rep can't get Sam his money, I have the option of naming names -- publicizing that State X's Department of X isn't paying its bills, and e-mailing that information to the newspapers and TV stations and radio stations in State X.

I don't wanna do that, though. Too much chance of getting Sam informally blackballed.

So, any thoughts from you folks? Anything else you think Sam could do to get what he's owed, without risking future assignments? Or feeling motivated to see if your own state is trying to balance its books by not bothering to pay its bills?


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Comments (24)

Ho hum. The state of Illin... (Below threshold)
MrJimm:

Ho hum. The state of Illinois is about FIVE BILLION dollars behind in payments to hospitals, school districts (good grief), nursing homes and, I'm sure, private contractors, too.

This kind of story doesn't even make the newspapers around here any more.

"Sam" can find his safety i... (Below threshold)
Upset Old Guy:

"Sam" can find his safety in numbers. Not among the numbers of other contractors, the numbers of politicians he can enlist in coming to his aid. Being an election year it should be a cake-walk.

He has to dedicate some time and contact his federal Senators and Representative (local and DC offices). The Governor's office. According to your story his State Representative will be easy. Add any lobbyists he knows that deal with that department. Not knowing specifics it's hard to identify the other contacts that are appropriate, but basically you want the top of the political food chain all made aware of what this mid-level agency is doing... and making inquiries. Nothing more. It's a plus if those inquiries come from both sides of the aisle.

The pressure comes from the number of inquiries and their relative political clout, not any arm bending that they do. Safety comes from the perception somehow you're "connected." It works.

Slow pay is a common pract... (Below threshold)
hcddbz:

Slow pay is a common practice. When I worked for a bank they would try and do this to some of our Vendors. They can make more money by holding on to the money they need to pay out. When I found out about it I always pushed to make sure my vendors got paid as soon as the work was done or the equipment was delivered. Sometimes I made sure that the vendors increased their late fees, so it was no longer advantageous for the company to hold onto the money. Ultimately it worked in my favor, whatever I needed I would always get no questions asked because I took care of them they took care of me. (Funny how if you pay people on time for work you always get bette service)

Sam needs to document every interaction with these folks and create a a brief and show the state that delays in payment will cost them more money. Playing with taxes is short term as the fee, and penalties can increase to overshadow his account receivables

I would recommend getting some lawyers and accountants to start the process of protecting his assets.
My 0.01

Because as you said Sam can... (Below threshold)
Jeff:

Because as you said Sam can't refuse future work to force them to pay, well he's stuck ... when you can't move on to another job you are stuck with your eggs in that one basket ...

There is the possibility of going to a factor and selling the invoice off at a discount ...

Just remind Sam that burnin... (Below threshold)

Just remind Sam that burning bridges is never a good idea. particularly when it's one you are standing on.

Work on next contract will ... (Below threshold)
tomg51:

Work on next contract will begin within 3 days of receipt of payment for past due invoices invoices xxx- yyy.

Sadly, the automobile manuf... (Below threshold)
Libby:

Sadly, the automobile manufacturers and their subcontractors and other large corporations have been playing this game for years. I swear they train people how to evade payment. Fortunately, I fired two of our customers (both automobile related) when I decided it was no longer worth the risk or aggravation. I was lucky because shortly thereafter the automobile industry crashed...

On a side note, I think the ruling class is trying to do to the states what they have done to many people; make them dependent upon Uncle Sam, with strings attached, of course.

If the money Sam is being p... (Below threshold)

If the money Sam is being paid is coming from Federal Funds, he should contact the federal agency and tell them the state is now drawing funds from the feds timely and paying him. It may trigger a monitoring visit.

He may also see if he can have the state auditor look into it. If the agency thinks the auditor is going to pay them a visit, it may speed things up. The auditor's office should act in confidence and protect his identity.

@8 above, "now" should be "... (Below threshold)

@8 above, "now" should be "not"...

As a former state gov emplo... (Below threshold)
SCSIwuzzy:

As a former state gov employee, IMO his best bet is to go chum it up with someone in the legislature. Friends of congresscritters get reimbursed quicker than us among the hoi paloi.

My personal experience with... (Below threshold)

My personal experience with government contracts is 1) far less work than the contract stipulated, and 2) waiting 90 to 180 days to get paid. Fortunately the diminished workload meant that we did not have to invest much in the way of time or resources into the government work, so the wait to get paid didn't really hurt us.

And believe it or not, this is also true -- at the time our invoices noted a 1% discount offered for invoices paid within 10 days. The state government took the 1% discount even though they took 3 months to pay the first invoice! We removed that statement from all subsequent state invoices.

We learned a valuable lesson - unless you can afford to do the government work "for free" until you get paid, stay away from government contracts. Besides, record keeping and compliance requirements for government work are a real pain, and can add significant administrative costs to the work.

Good luck to your friend, JayTea.

I'm with Michael. In my ex... (Below threshold)
DJ Drummond:

I'm with Michael. In my experience, government contracts are a nightmare, front to back. In the first place, they impose their own terms on almost every contract they sign, they will assign contracts to third parties if they want to, even when prohibited by the terms, and as for payment - the government knows you have no leverage. In most cases you won't find a court willing to take the case (they'll say they lack jurisdiction), the contract will have clauses in it requiring arbitration, but by a government arbitrator and scheduled to suit the government (OK Mr. Drummond, your dispute against the Department of Obfuscation for unpaid invoices in 2008 has been recorded and will be heard by one of our arbitrators sometime in 2012).

The only way I would agree to a contract with government at any level, would be payment in advance and without warranty. Even then I'd be suspicious and paranoid, given the government's track record.

My advice is that your frie... (Below threshold)
iwogisdead:

My advice is that your friend should apply for some federal bail-out money.

To put a point on it, if Sa... (Below threshold)
GarandFan:

To put a point on it, if Sam LIKES being corn-holed on a monthly basis, keep working for the state.

Otherwise, start looking for other customers. Then he can tell the state to go get fucked.

Who knows, it might start catching on. Imagine when state legislators find there are CONSEQUENCES for their actions.

GarandFsn is right. Your f... (Below threshold)
jim m:

GarandFsn is right. Your friend Sam has to broaden his client base. He needs to decide whether the lucrative state contracts are worth risking his business to lack of cash flow.

Hopefully he is in a position where he can refuse to work for the state. As mentioned above some states are chronically shorting hospitals and other businesses who have no choice but to seek payments from the state for services. Illinois is issuing worthless IOU's with no due date. It's a promise to pay you something sometime in the future if the state ever gets its act together. Some counties have even had their Sheriff's patrol cars repossessed because the state is not supplying the promised funds to pay for them.

Have him do like most other... (Below threshold)
Myronhalo:

Have him do like most other businesses do.

If paid by certain date, there is a % discount.

If paid 30 days later than the agreed upon date, there is a 10% additional late fee.

Keep jacking this up until it gets to about 30% per year.

Make it an official agreement that the State representatives sign if they want Sam to do work for them.

Have the signature notarized, and then start letting the interest build up if they don´t pay as agreed.

My first reaction would be ... (Below threshold)
CoolRich59 Author Profile Page:

My first reaction would be for him to "quit" and not do business with these "looters" and "moochers". Of course, that's easier said than done.

My second thought would be that he adjust his fees to account for the "cost to carry" the receivable on his books for several months.

"The state isn't going o... (Below threshold)
John S:

"The state isn't going out of business..."

What make you think that?

No the state is not going o... (Below threshold)
jim m:

No the state is not going out of business, but it very well may effectively go bankrupt. I that case creditors may very well find themselves holding a lot of worthless debt. I would expect that when (certainly not if) obama bails out states like California and Illinois a lot of the debt to contractors, hospitals etc will be written off and never paid out. It will be just part of "sharing the wealth" and "spreading it around".

JT, if you alter the story ... (Below threshold)
epador:

JT, if you alter the story just a little bit to the woman who keeps getting beat up by her husband but keeps going back to him, what kind of advice do you think you'd be getting?

He may have a long wait. </... (Below threshold)
Rance:

He may have a long wait.

If his state is like Illinois, you have people up for re-election who don't want to raise taxes to pay for state programs, and they don't want to cut back any of the programs they can't pay for. Like Mr. Jimm pointed out, they are billion behind, agencies with state contracts are going out of business because of it.

Nobody there is going to do anything to even attempt to correct the problem until after their election.

My guess is that Sam is pre... (Below threshold)
Jim Addison:

My guess is that Sam is pretty well stuck - JT mentions there isn't really much of a private market for his services, and that government contracts are feeding his family. Playing hardball isn't possible, as the government can always find someone else to do the work.

Even using influence with elected officials isn't a solution - it would be if this were a one-time deal, but if Sam needs ongoing contracts and this is an ongoing problem, all he can do with influence is annoy the only people who might be able to help him.

He is stuck. It's quite common to delay paying as long as possible - companies and governments discovered long ago that if you can push the costs down the road a bit, it amounts to free money, BUT you can never then pay on time or it messes up the system.

All Sam can do is maximize his charges to compensate himself for the delays. Offering discounts for quick payment is thoroughly useless: as mentioned above, the practice is to take the discount and pay late anyway, and if you think just getting paid normally is a nightmare, try recouping an underpayment on work that's long been done.

"there is limited demand fo... (Below threshold)
jim m:

"there is limited demand for that kind of work in the private sector. "

OK. So there is limited demand and what demand there is won't pay you. Sounds like it's time to assess what your business really does. What capabilities does Sam have that can be used to meet a real demand? There has to be some crossover somewhere. It may be a related industry or he may only be using a portion of his expertise but it's worth thinking about. Given the current situation it would be wise to start developing additional markets for his services.

SCSIwuzzy has the right ide... (Below threshold)
Topjimmie:

SCSIwuzzy has the right idea, whipser in a senator or congress critter's ear and things will happen MUCH faster. I'm a current state employee and our fiscal plays three card monty with departments funds constantly. I travel quite a bit to do my job and the state's late payments got so bad at one point my favored hotels would no longer direct bill the state because they weren't getting paid. I've seen it many times, just a call from some senators of congress persons staff gets almost instant results. But you have to keep in mind when you dance with the devil he gets to pick the song.




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