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Tuesday, August 1, 2017

PRICING SMALL BUSINESS FEDERAL GOVERNMENT SERVICE CONTRACTS

Integrate Long-term Company Strategy
 With Short Term Proposal Pricing Objectives 
For Success





INTRODUCTION
Small businesses entering or growing into federal contacting often struggle with developing a pricing approach. They must design a pricing structure to pass an audit and win competitively. A winning strategy for federal services contracting must involve a view of the horizon as well as the instant bid on the table.
If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your pricing challenge is minimal. A service contractor faces a far greater challenge in understanding the nature of government contact pricing and winning at it.
Strategic thinking must therefore be applied to structuring a government service contracting cost center in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work.
LONG TERM COMPANY STRATEGY
Build a Business System With Pricing in Mind:
We have previously discussed the basics of small business government contracting business system design: Job Cost Accounting Basics
The structure or your pricing approach from the cost element level through burdens must use the same template as your job cost accounting and billing. The parallel mapping provides the consistency required to pass audits or get your billings approved on a service contract.
Please read the above article and its related references. Then design your processes recognizing the guidance there and applying it to your company organization, and the way you produce your supplies and services:
Sculpt the DCAA Auditor
As you begin submitting government contracting proposals you will encounter your local DCAA audit office. They learn about your company by auditing your cost proposal rates, job cost processes and systems, billings and contract closeouts.
Keep in mind that you are shaping opinions in these encounters on the part of these government personnel that will influence your future and be passed on in reports to contracting officers. Your unique company business system structure must be carefully explained to them against what they know best; their DCAA Audit manual and FAR Cost Accounting Standards:
Protect Rate Information
Your fully loaded rates will appear on your GSA schedule in the public domain, in subcontracts from prime contractors and in data acquired under the Freedom of Information Act (FOIA) by competitors.
It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.
Companies do not disclose the details of their rates to other companies and they do not expect to see another company’s proprietary rate information. So companies view each others rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.
If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, ‘Government Eyes Only’. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.
For further information on intellectual property protection and protective markings on government contract proposals please see the following article:
Recognize Overhead and G&A Rates Are Critical
Assuming your competition pays a generally similar labor rate to their employees as you do and that fringe costs about the same for everyone, then overhead and G&A are what wins and loses contracts.
Please read the following articles carefully with regard to long range planning and setting your overhead and G&A rates:
Keep in mind that if you are performing work inside a government facility the government will expect to be charged a lower overhead rate than if you were paying the space and occupancy costs and the light bill. This is normally achieved by establishing a separate cost center for “On site” (Internal to government quarters) work with lower overhead expenses applied to project direct labor dollars in that cost center.
Price Set Aside Contracts the Same as Full and Open Competitions
If you are a small business lucky enough to receive a sole source set aside contract under an 8(a) or Hub Zone award, or if you are participating in limited competition under a small business set aside designation, use the same sharp pencil you use on the full and open market. Your goal is to compete for the long haul and inflating estimates on particular jobs due to limited competition has an inflationary effect on your business as a whole.
Your company past performance is being constantly evaluated by the government and prime contractor community. Consistency attains and retains new business. You will eventually grow to the point where set asides and sole sourcing will no longer be available; prepare early.
Know the True Value of Your Proposal
Develop risk thresholds (ceiling and floor) for your bids. The ceiling is the price for which you can bid a job, perform to meet specifications and win. A floor is the lowest possible price for which you can accept a contract and survive.
Do not bid or be negotiated out of these thresholds. “Buying In” does not work and sacrificing the future of your company by “Low Balling” cost proposals and hoping to get well on scope changes later is dangerous.
In government contracting the only worse scenario than losing a contract is winning it, performing poorly (cost, schedule or technical) and getting a black eye on your company past performance record that takes a long time to go away.
Understand a Proposal is the Opening Chapter a Baseline for Your Contract
Your proposal represents an initial offer to a government agency or a prime contractor. Please read the following articles on how this baseline is initially set and controlled through the negotiation process and ultimately through careful contract management.
SHORT TERM PROPOSAL OBJECTIVES
Make Bid/No Bid Decisions Wisely
Conduct your bid/no bid decisions effectively. Please see the bid/no bid analysis process at the beginning of the following article:
Be Conservative in Rough Order of Magnitude Pricing
A common government planning technique in the early phases of marketing is to ask questions and review and approve a concept paper by a company then informally request for “Planning Purposes”, a rough order of magnitude cost estimate (ROM).
If you provide a ROM be very careful. It tends to get cast in concrete in the customer’s mind, even though it is not the final, formal proposal. Make it conservative in cost content and schedule duration, then plan to beat it with your formal proposal.
Make sure you caveat the ROM if you are asked for it with the statement in your cover letter that it is for planning purposes only and is not a commitment on the part of your company. State that you will be happy to make a full formal proposal/commitment upon receipt of a formal RFP from an authorized contracting officer. Keep in mind that contracting officers are the only people who can commit the government:
The government usually goes forward with the concept paper and the ROM for approval of the funding necessary for the job. The “Agency Higher Ups” either give the project personnel the approval to do a set aside or they require a competitive procurement.
You may want to read the following article on Statements of Work:
Know the Difference Between Firm, Fixed Price, Time and Materials and Cost Plus Contracting
During the solicitation and proposal process the contract type is specified.
Firm, Fixed Price (FFP) is the riskiest type of contracting and should be undertaken only when you have a definitive grasp of a precise statement of work with known variables and end products. You should have achieved similar work scope in the past or be delivering follow-on products and services that are mature in nature to undertake a firm, fixed price contract.
FFP is particularly risky in software development contracts or high technology program pressing the state of the art. You will receive no more in the form of funding than your bid price on a firm, fixed price contract.
Time and Materials (T&M) contracting places the risk on the government and is suited to long term service contracts of a development nature. T&M may be contracted with fixed labor rates, making the hours and pass through materials and other direct costs the only variables.
Cost Plus (CP) contracting is the least risky of all contract types and you are assured of receiving every dollar of cost incurred under this type of contract.
The lower the risk to the contractor the lower the expected negotiated profit rate you can expect, since the government considers risk the principal factor in profit negotiation.
For further explanation of contract types in more detail, please see the following article:
Develop a Price Profile of the Competition
Use a copy of your own forward pricing long range plan (LRP) to model your strongest competitors. Profile your best intelligence regarding their size, location, contract base and estimated overhead and G&A expenses. Then interpolate, from your knowledge of the market, their labor and fringe costs, as well as other direct costs as you prepare your proposal. Incorporate any unique approaches you estimate your competition may offer that impact cost.
Adjust your competitor cost model to perform “What If Analysis” during your risk assessment and proposal review process. For an example of an LRP cost model please see the Box Net Cube in the left margin of this site: Small Business Federal Government Contracting It is Appendix B to the book, “Small Business Federal Government Contracting” and is available as a free download in Adobe format from the BOX in the right margin of the site.
Understand “Best Value” Source Selection
When the government declares a “Best Value” proposal award process the agency will perform a weighted trade study of cost verses technical and management factors in reviewing proposals. They will announce the weight of each factor in relative terms within the solicitation so contractors can focus on the most important elements.
What best value means quite simply is that if you are the low price bidder you may not win. If a competitor proposes a superior technical and management approach, a higher weighted rating in those factors may offset an otherwise non-competitive bid price, resulting in an award. This is a fact you must keep in mind when preparing your own proposal. In short you must perform your own trade study on your own bid.
Past performance has also become a significant weight factor in proposal evaluations in recent years. To address this challenge, please see the following article:
A balanced proposal, with specific, heavy emphasis on government-designated weight factors and an economical, yet realistic cost/price usually wins. Offsetting weaknesses in any designated government weighted area by proposing excellence in other weighted areas is vital.
Beware of Unallowable Costs
Over the years the federal government has determined that certain costs cannot be allowed in prices, cost reimbursements or settlements under contracts with the US Government. The government is unwilling to pay for these costs as direct charges to federal government contracts or through indirect expense pools applied to federal government contracts.
A company is not prohibited from incurring unallowable costs, but they cannot be recovered either directly or indirectly under federal government contracts. To manage unallowable costs, separate accounts must be established for these type expenses and they must not be priced directly into federal government contracts during the proposal process.
Such costs cannot be made a part of the expense pools which are applied to federal government contracts through an overhead, material handling or G&A cost allocation at accounting period close or during forward pricing rate planning. For more detail on unallowable costs please see the following article:
Integrate Pricing With Technical and Management Approaches
Establish price targets as soon as possible for major tasks, evolve a program plan, or if you are bidding a T&M, IDIQ type program develop a sample work order for a typical representative effort.
As the technical and management proposal move toward completion, use established checkpoints to evaluate the efficiency of your cost estimate, escalation factors, labor, material and other direct costs. Then apply your indirect rates and subject your total proposal to a credibility check with regard to a believable cost estimate considering your solution and its time frame.
Run your competition price model and bring in some outside experts to review the end product proposal “Cold” before it is submitted.
Manage Best and Final Offers (BAFO) Carefullly
Most government solicitations require a format and terms and conditions with submission that permit contract award without further discussion. However, many involve a down-select process, briefings by those selected in the “Competitive Range”, a call for best and final offer (BAFO) or negotiation to achieve a final price.
The best and final offer period is a sensitive time. Most contracting agencies that call for a BAFO will cite weaknesses or concerns in the selected contractor proposals. They wish to hear about solutions to those weaknesses during BAFO briefings and require a re-submitted offer to correct them. The price may be adjusted as well and that is a key consideration. Pay particular attention to the way the BAFO instructions and concerns, specific to your down-selection, are worded. Look for hints that indicate critical opinion about your pricing, and then adjust your costs.
Consider the cost, schedule, technical and past performance implications of the BAFO request letter from the government and revise your proposal by the required submission date. Close the loop on all matters with your suppliers, subcontractors and prime contractors, and then conduct your briefing to the customer when it is scheduled. Present a united front to win. Your price should be your best. You will not be offered a chance to bid another competitively on that program.
On some procurements you may be asked to undertake additional discussions to determine final contract pricing. Please see the negotiation template at the following article for guidance on that process:
SUMMARY
This discussion has conveyed how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning.
We have further explained how your long and short term pricing factors should be integrated with the management and technical elements of any given proposal. Take the long and the short view of your business by integrating long-term company strategy with short term proposal objectives

Saturday, July 1, 2017

Marketing to Achieve a Small Business Set-aside Government Contract

Image: Storedge.com


INTRODUCTION

Marketing is one of the greatest challenges for the small business federal government contractor. We have previously discussed the federal government marketing process at the following articles:

Insights to Succeed




This posting will address sculpting a government contracting business opportunity to the point where it becomes a sole source or small business group-designated set aside procurement.

GENERAL CONSIDERATIONS

Small business group-designated procurements are far more frequent than sole source contract awards.  Agencies must prepare special justifications for sole sourcing and those most frequently approved are for Hub Zone and Small, Disadvantaged [8(a)] firms (see table below).
Small business group designations are beneficial to firms who hold them by enhancing the probability of an award through agency restrictions on prime contractor bidding to only those who hold the group designation. Others may bid as subcontractors to the prime but the prime small business contractor must be capable of performing at least 51% of the total effort in terms of work scope, hours and dollars.  
 
In either sole source or group-designated marketing, an agency making the buy must be convinced that sufficient capability exists in a single company or in the small business designated group community to set a contract aside. The agency must be convinced early – before a formal procurement announcement is published on FEDBIZOPPS. 

Marketing to achieve a limited competition under a small business group designation or eliminate competition under a sole source contract assumes the marketing enterprise has one or more of the following federal government set-aside designations:

DESIGNATION                                                         TARGET
Small Business                                           (Group Set Aside Potential)
Small Woman-Owned Business                 (Group Set Aside Potential)
Small Veteran-Owned Business                 (Group Set Aside Potential)
Small Disabled Veteran-Owned Business  (Group Designation Set Aside Potential)
Small Hub Zone Business                          (Sole Source and Group Set Aside Potential)
Small Disadvantaged Business 8(a)          (Sole Source and Group Set Aside Potential)

Federal government procurements are further classified under the SBA Small Business Size Standards in terms of North American Industrial Classification System (NAICS) Code, number of personnel and/or annual sales. To determine whether a firm qualifies for a given bid, note the NAICS for a given solicitation and download the SBA Small Business Size Standards the Box Net “References” Cube in the right margin of this site.

Part of the sole source or designated group set aside marketing task is to suggest to the agency the NAICS Code (hence the size standard) for a prospective procurement.
Registering to bid government contacts and establish sole source and group designations may be achieved using guidance in the below articles:
Hub Zone and Small Disadvantaged Business 8(a) designations are lengthy certification processes. The remaining designations in the above table are self-certifying at the above government contract registration web site, and are verified by site surveys and bid vetting for each solicitation prior to contract award. 


EARLY REQUIREMENT TARGETING IS THE KEY TO SUCCESS IN SET ASIDE MARKETING

Effective set aside marketing reaches the agency decision makers with technical, budget and schedule authority before a synopsis of the requirement is posted on FEDBIZOPPS. 
The objective of this form of targeted marketing is to get concurrence from the government to set the program aside sole source if the company has an 8(a), or Hub Zone Certification or reserve it by one of the above group designation classes to eliminate the prospect of full and open competition involving large business.

  • Become known to targeted agency personnel by visiting their program offices and meeting the decision makers.  Bring a capability statement:
  • Present your qualifications openly, objectively and specific to their needs.  You must determine what those needs are through market research, trade magazines, research on what they are buying on FEDBIZOPPS, as well as postings on their web site that are future-program oriented.

  • Subscribe to periodicals like "Washington Technology" and other trade magazines.  Observe agency trends and analysis that impact your market segment.  There have been set aside programs marketed by small companies through acquainting agency management and technical personnel with capabilities they were not aware existed in the small business community or fulfillment of needs they in fact did not know they had.

  • Pay particular attention to FEDBIZOPPS "Sources Sought" or “Requests for draft RFP Comment”  on programs that have yet to be formally solicited. Obtain an appointment to present your capabilities to the decision makers (not the gate keepers).  Be courteous to contracting officers but understand they are not the individuals who make source selections. Understand that once the requirement is formally published on FEDBIZOPPS the gate closes on informal visits to the customer and the competition begins in the form of proposals by competitors.  It is too late at that point to set the program aside for a sole source or a small business designation if it has not occurred by the publication stage.

  • Cultivate teaming relationships with other firms in your industry and look for early opportunities in agencies, not only to prime a program but to bring a team of qualified contractors in lesser roles to fulfill them with you or join a team being led by a more experienced firm:
  • Understand the small business start up past performance challenge and work to meet it:
  • Attend small business outreach events by agencies and prime contractors.  Stay attuned to who is attending and research their needs and requirements.

  • Make a point to be present at bidders' conferences for existing solicitations that you may not choose to bid but which may lend insight into the agency needs and prime contractor relationships in the future.      
SUMMARY

As a small business becomes known in the federal government contracting community, successful marketing of sole source or group-designated business becomes easier, but it is always a challenge due to the need for taking early action in windows of opportunity.  Find those windows and communicate capabilities to the decision makers and industry team members who can help you.  

If you are eligible for any of the designations discussed in this article, make small business set asides or sole source procurements key elements in your marketing plan. 







Thursday, June 1, 2017

What to Expect from Government Small Business Contracting Pre-Award Surveys and Fact Finding



INTRODUCTION

When a government contracting specific market target has been identified and a proposal has been submitted, pre-award surveys and fact finding by the buying agency or the prime contractor often follow. These processes take two forms:

1. A survey visit to the small company facility

2. Inquiries with respect to supplementary details for enhancing the customer perspective on a proposal submittal.

Undertaking the above processes with a government agency differs from that of undergoing them with a prime contractor. You are not required to disclose proprietary data to a prime contractor. Please see the following articles for further information in this vital area:

http://www.smalltofeds.com/2008/09/protecting-intellectual-property-and.html

This article will discuss each of the above processes and suggest measures to prepare for, conduct and succeed at pre-award surveys and fact finding.

PRE-AWARD SURVEY
A pre-award survey is a government or prime contractor visit to a supplier's facility. The Procurement Contracting Officer (PCO) or the Administrative Contracting Officer (ACO) and the Contracting Officer’s Technical Representative (COTR) as well as members of their respective staffs may attend.

In some instances the local Defense Contract Management Area Office (DCMAO) is involved. As you become a regular supplier to an agency, site survey visits will normally cease or occur only rarely.

For further explanation of the above government officials and their roles, please see the following article:

http://www.smalltofeds.com/2007/06/federal-government-contracting-customer.html

The site survey team is interested in establishing the physical presence of a new supplier, the technical capability and the human resources to perform the prospective work and the quality of the environment in which the effort will be performed. A "Pre-award Survey of Prospective Contractor" Forms are completed and become part of the contract file:

Pre-award Survey Forms

Pre-Award Survey of Prospective Contractor SF-1403 8/1997
Pre-Award Survey of Prospective Contractor (Accounting System) SF-1408 8/1997
Pre-Award Survey of Prospective Contractor (Financial Capability) SF-1407 8/1997
Pre-Award Survey of Prospective Contractor (Production) SF-1405 8/1997
Pre-Award Survey of Prospective Contractor (Quality Assurance) SF-1406 8/1997
Pre-Award Survey of Prospective Contractor (Technical) SF-1404 8/1997

Select the person who will lead the meeting with the government survey team. This person should be empowered to speak for the company and should be completely familiar with details of the solicitation and your company's offer.

If relevant, make available one or more technicians to answer questions. Identify any disparities that may exist between the solicitation and your company's offer that should be resolved during the initial meeting with the survey team. Think about how you can demonstrate actual technical capability or the development of technical capability on the proposed contract. Make sure your facilities and equipment are available and operable. If they are not, be prepared to demonstrate that they can be developed or acquired in time to meet proposed contract requirements.

Make sure that your labor resources have the proper skills or that personnel with the needed skills can be hired expeditiously. Gather and make available to the survey team documentation, such as previous government contracts or subcontracts or commercial orders, to demonstrate a past satisfactory performance record with regard to delivery, quality and finances. Gather financial documentation for the team financial analyst, including the company's current profit and loss summary, balance sheet, cash flow chart and other pertinent financial information. Make sure the plans are in place for vendor supplies and materials or subcontracts to assure that the final delivery schedule can be met. Make sure that these plans are verifiable.

Review any technical data and publications that may be required under the proposed contract and make sure you understand them. If the contract is a type other than a firm-fixed price or if you have requested progress payments, prepare adequate accounting documentation for review. Review your quality control program and make sure that it is workable and consistent with the quality requirements stated in the contract.

PROPOSAL FACT FINDING
Fact-finding usually involves the government requesting additional information to supplement that which was submitted by you in your proposal. These areas of interest are early indications of where the negotiator is looking for weaknesses in your cost justifications or disconnects between your technical approach and the cost you are estimating to do the job. If you have subcontractors or major material suppliers, the government may ask for copies of your vendor proposal evaluations. The government may wish to examine cost history for the last time you performed similar efforts.

Keep in mind that most government agencies put together an independent cost estimate of what they feel the item or service should cost. These are commonly called "Should Cost Estimates". The additional requests for information during fact finding are feeding the should cost estimate. The Procurement Contracting Officer (PCO ) typically has an end user for the product or service internal to his organization who will become the Contracting Officer's Technical Representative (COTR) when the contract is awarded.

The COTR has a strong influence on the negotiations and will usually be present when negotiations commence. On many occasions, the COTR is the real internal customer at the agency. He has fiscal, technical and schedule responsibilities to his management for the program you are servicing. He simply cannot sign for the government.

The PCO has the agency warrant to commit the government and knows the most about public law and the Federal Acquisition Regulation (FAR) as it is applied to contracts the agency undertakes. It is the COTR who is likely feeding the PCO requests for fact-finding data. Keep in mind that the COTR and the PCO are formulating their assessment of the cost and the risk associated with the program during the fact-finding process. Cost is the first item of negotiation and risk has a direct influence on the government's position on profit.

The contacting officer may order a Defense Contract Audit Agency (DCAA) audit. The Request for Proposal (RFP) to which you responded may in fact have ordered a copy of your proposal be submitted to the DCAA Office nearest your location. If you are a new supplier to the government, DCAA may ask for a copy of your long-range plan containing your direct and indirect rate structure. They will verify the rates utilized in your proposal against your LRP, evaluate escalation factors utilized for long term projects and check the math. For guidance on these matters, please see the following article:

http://www.smalltofeds.com/2008/02/dcaa-audits-and-small-business-job-cost.html

The auditor will ask for copies of major material and travel quotations and insure that government per diem rates are utilized for lodging and meals in the cost proposal. DCAA may also visit your facility to check compliance with Cost Accounting Standards insuring that the company sets up each new government contract on job cost accounting in the identical manner in which it was proposed; in effect identifying direct labor, direct material and other direct costs to each contract monthly and allocating overhead and G&A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

DCAA is paid by the PCO to perform the audit. The audit does not extend to negotiations and at the audit conclusion the auditor files a report with the PCO. The report will contain information on any errors uncovered and findings on the adequacy of the accounting and long range planning systems. DCAA will not express an opinion on the cost content of the proposal in terms of a value judgment regarding prices for prospective supplies and services. If the auditor does not offer an exit interview, ask for one. Better yet, ask for a copy of the audit report to the PCO. Many DCAA offices will provide a copy to audited contractors. DCAA does not have the authority to direct a proposal revision based on audit findings. An astute contractor will immediately correct any errors found by the auditor in the proposal and examine other audit findings in preparation for negotiations.

SUMMARY
With adequate preparation and an understanding of what the processes involve, the small enterprise can succeed in passing government agency or prime contractor site surveys and fact finding.

Remember that these encounters are extensions of your image as presented in your proposal. They are building block in nature and serve to establish, reinforce or change a customer’s view of your company and your proposal.


Monday, May 1, 2017

SMALL BUSINESS JOB COST ACCOUNTING BASICS





INTRODUCTION

Many clients in the start-up service contracting business to the federal government have recently experienced DCAA audit difficulties, suspended billings or negative marks on pricing proposals for not having addressed job cost accounting and business system issues involving Federal Acquisition Regulation (FAR) Cost Accounting Standards (CAS) requirements.  This article will address the basics of resolving those issues in a service contracting start-up environment.


"Small to Feds" has addressed the requirements of CAS and the associated business system design requirements previously in the following articles that are suggested for review as refreshers:


http://www.smalltofeds.com/2008/03/establishing-far-and-cas-compliant.html


http://www.smalltofeds.com/2009/09/federal-government-contracting-small.html


http://www.smalltofeds.com/2008/02/dcaa-audits-and-small-business-job-cost.html


http://www.smalltofeds.com/2008/08/provisional-indirect-rates-in-small.html


DEFINING YOUR COMPANY AND ITS COMPLIANT JOB COST ACCOUNTING - RULES OF THE GAME

Please view the below matters in the context of your business system design at the cost element and job description level:

You must consider the job cost accounting implications of the government contract environment; i.e how do the individual labor charges every day on time cards for the company employees and management get booked to the correct accounts or expense pools and do they or do they not become part of the labor distribution directly to contracts or indirectly though overhead and G&A applications at month end (in effect is the government billed for the cost?).


In most small start-ups the best way to handle this is to write job descriptions for every position, including the owners and executives as well as other employees. Each job description is declared chargeable as direct only, indirect only or in rare exceptions, both direct and indirect chargeable.


Job descriptions are also declared salaried or hourly, exempt and non-exempt under the Fair Labor Standards Act,  which drives eligibility for time and one half for overtime.  All company personnel are furnished copies of job descriptions and informed of their direct or indirect, salaried or hourly status as a function of their employment offers. (You should generate retroactive offer letters for everyone in the company, have all personnel accept them in writing and put the letters and the job descriptions in the company personnel files for audit purposes)


Job descriptions are assigned to labor cost element codes in the job cost system (as opposed to other codes for materials, subcontract, travel and other direct costs that may require separate cost element codes to distinguish them for accounting purposes.


A direct charge job description will always have a contract charge number every day for every hour of work (typically technical performers) This usually drives the employee eligibility for overtime pay for hours in excess of 40. A company policy should be established early for this matter. Most companies pay straight time for hours in excess of 40 for salaried direct charge personnel.  Exceptions are hourly non-exempt personnel who must be paid time and one half under the law.


An indirect job description performer will charge every day on a time card to an overhead or G&A account and the associated labor cost will become part of expenses that are distributed at month end to all contracts, based on the direct labor dollar content of each contract for the accounting period (typically secretaries, administration personnel and the like charge to overhead and the owners and executives charge to G&A (unless an executive is working exclusively in an individual overhead cost center - that person would then charge the overhead charge number for that cost center or directly to a project if performing project-direct effort).


Exceptions to the above would be where a direct charge employee has no contract home and his labor must be charged somewhere. In that instance he would charge to a company overhead account or G&A account outside the overhead pool and his or her labor would not become part of the allocation to contracts, effectively making it come out of the company bottom line (profit). This situation normally drives layoffs or finding the person a contract home to charge.


Labor donated to the company as a form of loan must also be charged in the exceptions manner discussed above (loan labor liability account) and may not be charged or recovered via a contract bill to the government directly or as part of an overhead allocation. DCCA really goes looking for this type of thing.


Where an executive normally charging to an overhead or G&A pool, is a key person on a contract or performing direct effort on a contract for parts of his or her day, that person would charge the contract charge numbers for those efforts and the overhead or G&A accounts for company business of an indirect nature.


CHECKLIST
The above rules of the game (disclosure practices in DCAA parlance) normally force several business system tangibles.  It is suggested that you generate the following as a minimum in your startup preparations for demonstration during a proposal or fact finding audit:


1. Time Cards with a time card policy requiring they be filled out daily and turned in and approved by a supervisor weekly, then booked into the accounting system weekly.


2. Expense Reports bearing charge numbers for accounting as direct or indirect expenses.


3. Written Purchase orders to suppliers bearing charge numbers for accounting as direct or indirect purchases


4. Labor Job Descriptions - specially ear marked in the manner discussed above.


5. Cost element assignments for accounting purposes for 1-4, above.


6. Charge numbers for 1-4 above. A charge number is the combination of an employee number, supplier number, expense report number and a cost element, charged to a unique direct charge contract number, an overhead pool expense account or a G&A expense account.


7. Consider hiring a payroll service company  to support salaries and regular paychecks plus tax and withholding for EVERYONE IN THE COMPANY.


8. A monthly closing where direct costs are burdened with indirect costs and billings are generated to customers creating accounts receivable for that which can be billed and liabilities for that which cannot.


9. Revenue accounting upon receipt of a payment from a customer directly to the contract against which a bill was generated with offsetting receivable reductions at the contract level.


10. The discipline and attention to set up 1-9 and demonstrate its operation to a DCAA auditor.


CONCLUSION

Every successful small business in federal government service contracting has gone through the above; some proactively and others when they have had difficulties with a DCAA audit during a proposal or cannot get paid when they are under contact. The choice is yours.  It is not rocket science but it is different and it is a serious matter and must have your attention.

Saturday, April 1, 2017

What Small Business Should Know About FAR and CAS




Federal Acquisition Regulation & Cost Accounting Standards

      Rules of the Game
       Developing Your Game Plan
INTRODUCTION

Small businesses consistently encounter FAR and CAS requirements upon entering or growing into federal government contracting.   The purpose of these standards is to supply uniform regulatory guidance to all companies doing business with the government and to the agencies that buy from them.

This article will discuss a basic understanding of FAR and CAS as well as the methods to design approaches to meeting them. 

OVERVIEW

The below table contains the principal FAR chapter titles and each of the 19 CAS clause titles (CAS 419 was never written).  Linked below the table are the web sites that can be utilized to explore these documents. 



PLEASE CLICK ON IMAGE TO ENLARGE
The FAR applies to the full acquisition cycle for all supplies and services the federal agencies buy.  The CAS apply to consistency in estimating, pricing, job cost accounting, billing and closeout of financial data under the contracts for supplies and services regulated by the FAR. 
FAR and CAS are not "Rocket Science" but they are different than the commercial business sector.  
HOW TO DETERMINE WHAT FAR AND CAS MEAN TO YOU

No one ever reads the full body of FAR and CAS from cover to cover.  They are reference documents, maintained by the government to oversee the contracting process.  From time to time changes to the regulations are offered for public comment at the FAR web site.  Such changes are more common in the FAR than in CAS.  The CAS have been constant for several years and are not as dynamic as the detail processes in the FAR. 

FAR

Determine the regulation basics that apply to any given job considered for bidding.  Examine a few solicitations in your area of expertise at the FEDBIZOPPS web site:


Use the FAR and CAS links to determine the basic terms and conditions and examine the solicitation source documents to read in detail the clauses you must understand to effectively bid federal work.  

CAS

Small businesses are generally required to meet modified CAS coverage.  A business system meets Modified Cost Accounting Standard (CAS) Coverage defined by the government when it it satisfies the following:

Standard 9904.401, Consistency in Estimating, Accumulating, and Reporting Costs
 
http://edocket.access.gpo.gov/cfr_2005/octqtr/pdf/48cfr9904.401.pdf

Standard 9904.402, Consistency in Allocating Costs Incurred for the Same Purpose
 
http://edocket.access.gpo.gov/cfr_2004/octqtr/pdf/48cfr9904.402-50.pdf

Standard 9904.405, Accounting for Unallowable Costs
 
http://www.smalltofeds.com/2007/04/unallowable-costs-under-federal.html

Standard 9904.406, Cost Accounting Standard―Cost Accounting Period
The following article contains practical business system guidance regarding building a Modified CAS Coverage Small Business System for federal government contracting:

HELP
 
When you have confusion regarding interpreting a requirement, seek assistance in the table of contents to the free book at this site offering guidance under the topic in question:


PLEASE CLICK ON IMAGE TO ENLARGE

You may also set up a free counseling connection at Micro Mentor:


Search for Mentor Kenneth Larson 

SUMMARY

While assessing the impact of FAR and CAS on your company educate yourself on that what directly affects your company first in making the transition to federal government contracting and growing into the field.

Carefully  maximize your existing business processes and systems first before making changes and do not jump to instant fixes with exotic software tools a supplier or consultant has told you will make you compliant or competitive overnight in government contracting.
FAR and CAS are generally logical bodies of regulation that have come about due to the need to control and make consistent the government and industry approaches to meeting prudent and sound contracting objectives with the necessary  transparency to govern. 

FAR and CAS do not impose business systems.  They do require that you disclose the way you meet regulatory requirements in the way you operate with your processes and tools. Plan the approach and learn to convey it to auditors, contracting officers and industry partners.


Grow into the business by exploring the venue and having it grow into you.