5 Principal Factors in Forming a Small Business Federal Government Contracting Company

Individuals and groups often ask what conditions drive the right time to form a small business federal government contracting enterprise. 

They may be working in the venue for someone else. Perhaps they have discovered a need in the civil agencies or defense markets they can fill with a product or service being provided in the commercial sector and feel they could expand into the government marketplace.

A contractor moving from project to project in government contracting as an individual often asks, “Are conditions right to form an enterprise?" 

Starting a government contacting company may seem a logical extension of the work one has done previously so the transition appears easy enough.  What must be learned very quickly is the business planning, marketing and competitive analysis aspects of operating an enterprise, as opposed to single person efforts. 

Industry teaming, having others work for us and dealing as a company instead of a person are all challenges. The adjustments in outlook and in the development of a client base as a company progressing to profitability pose challenges.

This article will suggest factors to consider in determining if the time is right for you to form a small business federal government contracting company. 

1. EXPERIENCE

Small business federal government contracting is not rocket science - to succeed one must take what one does well in the commercial marketplace or what experience leads one to believe one can plan successfully as a commercial enterprise and then apply it in a slightly different manner from a business perspective to accommodate federal government contracting requirements.

Very few companies enter federal government contracting without some commercial experience and success or prior professional employment.  Very few start ups entertain initially contracting exclusively to the federal government without commercial work or other employment to sustain operations while the more lengthy government procurement process is being pursued.

Introducing Federal Government Contracting

2. DEFINITION

There is often confusion regarding the definition of the term, “Contractor” in government work. The term is used in a conflicting manner to describe companies, individuals and business relationships. It has different connotations within corporations as opposed to government agencies, and is often confused with terms like “Subcontractor”, “Supplier” or “Vendor”. 
The article linked below defines the term, “Contractor” and discusses the regulatory factors and practical considerations related to use of the term from a small business federal government contracting perspective:

What is a Small Business Federal Government Contractor

3. STRATEGY

Consider carefully a product or service area in which you have experience and talent as well as for which there is a demand.  Make it in a field in which you would enjoy a long term involvement.  Then give your small business company concept the following test:

1. Do you have a product or service niche in mind?

2. Do you believe you have a market for 1 above and the means to reach it?

3. Are you willing to develop a business plan using the tool kit linked below to validate 1 and 2 above before you launch?

How to Write a Business Plan

Business Plan Samples

If the answer to the above questions is “Yes”, take the actions indicated above, observe the results, and make an informed decision on whether or not to proceed.

4. FORMATION

Executing the below process establishes the firm officially on paper and commits the owner(s) to the enterprise:

For the majority of individuals who are starting single person or no more than 2 or 3 person operations, a Limited Liability Company (LLC) registered with the state and with the federal government is recommended.

It will separate personal assets from company assets and protect them. When product or services sales begin generating revenue an LLC has many tax advantages.  It can be registered as Sub Chapter 'S' for tax purposes and revenue and the expenses can be passed through to personal tax returns, paying no taxes as a company. The double taxation issue prevalent with many of the other types of incorporation is avoided with a Sub chapter “S” LLC. An LLC assists in limits your personal liability for debt and court judgments that may not fall in your favor.

Representing the business as a company allows pursuing financing as an enterprise. You can think of a creative name for your LLC and you can complete the articles of incorporation necessary to bring your enterprise into existence. The term, "LLC" must conclude the name of your company if you decide to form such an organization.

Free instructions for registering in your state and federally with the IRS are available at the Box Net "References" cube in the right margin of this site. You will receive tax and employer identification numbers by registering your business.

A very common mistake is not generating and executing an operating agreement among the founders if there is more than one person involved in forming the company. An operating agreement, is a separate document, not controlled or required by the state or the federal government, but very important to your company.

It should be a simple,  straightforward document  you and the prospective partner(s) can draft  yourselves addressing such  matters as % of ownership, how revenue will  be distributed and other  general matters, as well as who can commit the  company in the form of  credit cards, employment offers and who signs  checks on the company  account and other administrative matters. Buying out a partner should also be covered as well as adding new members if the need arises down the road.

I have seen many enterprises fail or go through terrifically hard times   due to lack of an operating agreement. The parties should sign it after a review by a lawyer. It should then be notarized and made an official   part of the company file. You can download a generic operating agreement at the Box Net "References" cube in the right margin of this site.

It is for an LLC but you could modify it for other types of corporations.  You can feel free to borrow from the sample or supplement it as you see fit. It is fairly comprehensive in order to cover most business situations and there may be elements of the example you feel are not necessary.

5. TEAMING

You will not be able to go it alone.

Evolving niches and industry teaming leading to larger projects as part of multiple company efforts is a necessity in forming a small government contracting business, particularly in the services venue.

Synergism is paramount in teaming with any size company, whether in a lead or subcontracting role. There should be technical, management and market segment similarities between you and any company with whom you are considering teaming. Your prospective team member ideally will not be a direct competitor; rather a business in a related field with whom you share a mutual need for each other’s contributions in pursuing   large-scale projects.

Relationships must be developed with primes and other small businesses that can help you, team with you and keep you in mind as they search for success. That takes time, patience and open-minded, out of the box thinking. It also takes more than a   Non-Disclosure Agreement (NDA), a teaming agreement (TA) and a proposal   to succeed. It takes dynamic marketing and communication with strong   partners and hard, innovative work. Nice buzz words you say - but it is the truth and you have to find what that truth means to you.

Small Business Government Contract Teaming

SUMMARY

Carefully consider the 5 factors noted above when evaluating the formation of a small business government contracting company. For additional details on any of the factors, please see the free book in the BOX at the right margin of this site.  

What Is A Small Business Federal Government Contractor?

There is often confusion regarding the definition of the term, “Contractor” in government work. The term is used in a conflicting manner to describe companies, individuals and business relationships. It has different connotations within corporations as opposed to government agencies, and is often confused with terms like “Subcontractor”, “Supplier” or “Vendor”.

This article defines the term, “Contractor” and discusses the regulatory factors and practical considerations related to use of the term from a small business federal government contracting perspective. 

DEFINITIONS

 1. Contractor (As Used In Corporations)
The term “Contractor” in corporations often refers to an individual, performing work for a company while not on the payroll as an employee, having no taxes, benefits or deductions taken from their pay and not covered by any form of insurance. The company issues a purchase order to the individual at an hourly rate and submits a Form 1099 to the US government reporting what the contractor is paid for services. The contractor must self-insure during the contract period and pay taxes on the money earned at the end of the tax year.

The use of individuals as contractors in large government contracting corporations has been limited due to class action law suits brought by contracting individuals who maintained they were utilized as employees without the associated benefits. As a result, in many companies the existing contractor work force was either offered permanent positions or released. Since that time, the use of contractors by large government prime contractors has been principally in specialty roles.

Corporations may also utilize the term “Contractors” when referring to companies in the manner defined by Definition 2, below. It is common for large prime contractors to use the term to describe themselves, their competition or co-equal teaming partners in joint ventures. When this 2nd definition is used it refers to a company, duly registered with the state and the federal government.

2. Contractor (As Used In Government Agencies)
The term “Contractors” in government parlance refers to businesses, not individuals. To become a contractor to a government agency, you must therefore form your own business. Government agencies do not engage individual “Contractors” as defined in 1, above. If they want individuals to perform services they put them on the agency payroll. If they want to acquire specialized outside services they contract with companies. 

3. Subcontractor

A “Subcontractor" is a company that takes on a flow-down of liability from a prime contractor to complete a major portion of a large scale job for the prime contractor's customer. The subcontractor is obligated to the prime contractually in an identical fashion as the prime is obligated to the government agency. The prime contractor issues a subcontract with a statement of work and flow down terms and conditions from the prime contract to the subcontractor. In many instances the government requires review and approval of major subcontractor selections and holds the prime contractor accountable contractually at the prime contract level for the subcontractor(s) efforts.

4. Supplier (or Vendor)
The term, “Supplier” connotes basically commercial relationships with companies that supply off the shelf parts and materials or simple, generic services. The General Services Administration (GSA) and other federal agencies also use the term to describe companies in negotiating supply schedules or in buying items under the commercial sections in the Federal Acquisition Regulation (FAR), such as FAR Part 12. Supplier contracts generally emphasize, price, delivery and matters such as warranty and do not involve -complex terms and conditions or the flow down of liability from the ordering firm prime contract.

REGULATORY FACTORS

The Federal Acquisition Regulation (FAR) clauses governing small business state that a company undertaking a small business set-aside prime contract must be capable of performing 51% of the work scope under the terms of that contract and may not subcontract (as in 3, above) any more than 49% of the effort. These FAR clauses do not limit 1099 contractors (as in 1, above).

Many small enterprises use independent contractors on call to fulfill the manpower requirements of their contracts and specify these personnel in their proposals as qualified individuals. When these clients grow in long term contracts they make such personnel permanent party if the contractors are willing. Often contingent hire agreements are used for that purpose while proposing major programs. You can download a generic agreement from the "References" Box Net cube in the right margin of this site.

Contractors (as in 1 above) may be used to the extent they are necessary to win, but bear in mind the government prefers to see permanent party, since that implies stability (the government is conditioned to the perception that individuals , as contractors come and go).

Small business should propose work scope under set aside programs in teaming agreements so that the prime (small business) is performing at least 60% of the effort with employees or contractors to avoid the appearance of a front by a larger company (even though the statutory requirement is 51%).


In many cases it is preferable for a start-up small business to become a subcontractor, rather than a prime, building past performance associated with government contracting and developing beneficial teaming relationships with experienced government contracting firms.

SUMMARY
It is possible for a small business to perform, in tandem, one or more of the "Contractor" roles discussed in this article. Sometimes multiple roles are established with the same corporation or agency. Please use the search box at this site to view articles for information related to this topic.

It is vital to understand the "Contractor" role definition for each contractual commitment to insure suitable risk analysis, a good past performance record, conflict of interest avoidance and a solid reputation in the industry.

Job Cost Accounting Basics For Small Business Government Service Contractors

Small enterprises in the start-up service contracting business to the federal government often experience 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:

Establishing FAR and CAS Compliant Business

A Business System Framework

DCAA Audits and Small Business Job Cost Accounting

Provisional Indirect Rates

DEFINE YOUR COMPANY APPROACH AND ITS COMPLIANCE WITH GOVERNMENT REQUIREMENTS 

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.

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, it is different and it is a serious matter and must have your attention.

Maintaining an Ethical Company Image In Small Business Federal Government Contracting

In the age of modern communications, lighting fast news, social media and exposure to world events, an ethical company image is vital.  

This article recommends several key actions in the small business contracting venue that you can take to favorably maintain your company ethics image.  

SERIOUSLY AVOID ORGANIZATION CONFLICT OF INTEREST (OCI)

OCI can lay waste to the best planned marketing strategies. Careful screening of new hires, procurement types and the business environment is necessary to preclude wasted time, expense and legal implications in the event such conflicts occur.  

OCI clauses in solicitations and contracts require that companies certify their organizations and personnel as not having a procurement integrity issue with regard to a pending contract award or disclose what may be deemed an issue and provide mitigating factors to still be considered.  For more on this matter please see the following article:

Organization Conflict of Intererst

UNDERSTAND DEFECTIVE PRICING (DP)

A reputation for defective pricing leads to accusations of waste fraud and abuse in government contracting.  DP is mostly about what a contractor knew regarding company prices at the time a bid was submitted and what the contractor did not disclose in the supporting data regarding the likely cost outcome of the contract. 

Actions taken by the government and litigation resulting from defective pricing become part of the contractor past performance record and must be disclosed during competition for other programs. Read more about defective pricing at:

Defective Pricing - A Short Course

USE PROTESTS SPARINGLY

There are occasions when protests are warranted.  However, in recent years they have become a culture within federal contracting and a costly disruption to procurement.  

Reduce the likelihood of a protest being filed against your winning proposal effort at award by carefully scrutinizing conflict of interest, ethics and small business qualification credentials. Do not maintain you are what you are not. You will be audited and discovered. 

Do not develop a reputation within the contracting community for filing protests.  It may work against you indirectly during source selection and directly in terms of companies not wishing to team with you. No one likes a sore loser. 

COMPLY WITH NON-DISCLOSURE AND TEAMING COMMITMENTS

Companies seek industry partners who know the rules and who keep their commitments.

In addition to technical, management and product synergism, astute and valuable teaming partners respect and understand your intellectual property rights. They expect the same knowledge and respect from you. 

Negotiate thorough and well understood non-disclosure agreements and teaming arrangements.   Perform in accordance with your obligations; your reputation for doing so will follow your small business.  

For more on this factor please see the below links:

Small Business Teaming

Practical Intellectual Property Management

CONDUCT EFFECTIVE CUSTOMER RELATIONS AND SURVEYS

Stay attuned to your customer's perception of your business.  Insure your top management visits and stays in contact with your most important customers, accompanied by your project managers and marketing personnel. 

Process a survey to your key clients requesting feedback and constructive suggestions.  Review your past performance data base information regularly and take corrective action where you have been rated low or received negative marks.  Demonstrate improvement and broadcast the achievement to the functional heads of the agencies you serve.  Please see the below articles for more details in this vital area:

Your Past Performance Record

PRACTICE CORPORATE SOCIAL RESPONSIBILITY (CSR)

Your management and employees are your emissaries to the public.  Convey your behavioral expectations and, to the extent you can budget for them, encourage  participation in community charitable events to increase company visibility.

If you can technically support social services organizations, do so and seek contracts where your technical expertise may be brought to bear on their challenges. You company will be recognized for it. 

CONTROL PRESS RELEASES AND SOCIAL NETWORKING

Establish policies and focal point control for review and approval of announcements on the Internet of a public relations nature.  Never release a press announcement regarding a contract award until you have signed the deal. 

Insure employees in the social networking, marketing/sales and customer relations venue understand the line between regular communications in their jobs and making an enterprise business commitment or formal announcement.  Errors in this area are hard to retrieve. 

CONDUCT ETHICS TRAINING

Company ethics go beyond decrees to personnel regarding professional conduct and honest business practices.  Business ethics must be tailored to the company service or product venue, relationships with clients, industry partners and suppliers. 

Training in company ethics is vital. It is a form of communication. It is not an academic pursuit, although elements of it may include learning new information. Still, it is not schooling in the sense of personal improvement as much as it is communication of company policy and expectations on the topics discussed here and others like them.

The best organizations make sure everyone from the chairman of the board to the janitor understands that training is a privilege, a right and a requirement and that it will be conducted as a matter of record for everyone.

Some training will be global, such as policy, corporate ethics and human relations. Other training will be specialized, such as changes in law, company policy or technology implications by functional areas.

Training must be sophisticated, interactive, and responsive to changing times and contain feedback mechanisms to gauge effectiveness.

SUMMARY

A small business ethics image is different than a product or service "Brand Identity". The latter focuses on that which the customer receives from you in the way of products and/or services. 

A company ethics image is how the organization is viewed in general from a public perception as positive or negative.  That view is held by customers, your industry partners or prospective partners, regulators and the average citizen. 

If carefully sculpted your public ethics image can be a vital element in business success; if neglected it can pose a high risk to your enterprise. 

Are You Driving the Tools & Not the Car In Launching Your Small Business?

 

As a small business counselor I have noticed there seems to be a belief that automation, the Internet and social networking can make the business succeed when in fact the real design of the enterprise itself may be lacking (niche, market base, business plan, competitive analysis and financial forecasting)

I hear from many clients who ask, "What Now?" having launched an enterprise that is going nowhere because they are driving the tools and not the car.

I take them back to the garage; design the auto to see if it can run and then apply the wrenches retroactively if that is possible. It is usually a traumatic experience and could have been avoided with strategic and business planning before launch.

Below is a simple test to develop your potential idea for a business.

1. Do you have a product or service niche in mind?

2. Do you believe you have a market for 1 above and the means to reach it?

3. Are you willing to develop a business plan using the tool kit linked below to validate 1 and 2 above before you launch?

If the answer to the above questions is "Yes",use the below planning aids to design your business vehicle and the road map you intend to follow on your journey: 

General Planning Considerations

Free Sample Business Plans

When you have completed the above definition and planning process you will then be in a position to astutely select the tools you wish to use along the way and apply them successfully.

You will be able to network your vehicle, pick up riders as industry partners, and attract revenue fuel in the form of customers by marketing and social networking based on the thorough definition and content of your business plan.

In short, don’t let poor judgments on technology detract from your idea as well as raid your treasury before you launch.

Define your business vehicle and its journey first. Then pick the right technology tools to make a successful trip.

Federal Government Contracting Customer Relations

For government contracting success it is vital to understand the roles, responsibilities and authorities for the principal personnel with whom the contractor must do business. 

PROCUREMENT CONTRACTING OFFICER

During a federal government contract proposal you will come to know the Procurement Contracting Officer (PCO) assigned to the solicitation that runs the source selection process. 

Prime contractors have equivalent individuals, usually called, “Subcontract Administrators" or "Subcontract Managers". 

Behind the PCO is the agency source selection board made up of the end user and other experts in the government agency. In prime contractor organizations these individuals are usually knows as "Program Managers". 

It is not uncommon for a different PCO to be assigned to the contract once it is awarded. The government seems to evolve specialists in the ranks of procurement officials; some specialize in solicitations and source selections while others tend to be in charge of negotiating and running contracts once the winner is determined. 

PCO’s also have staff assistants, cost analysts and procurement specialists who support them. These personnel may interface with you on fact finding, quality and technical matters. 

Procurement Contracting Officers (PCO's) hold warrants to represent the federal government. PCO's must have internal approval of a contract within their respective agencies before they can sign it on behalf of the agency. 

Only a PCO is authorized to officially commit the government. Only a subcontract administrator or manager is authorized to commit a prime contractor.

DEFENSE CONTRACT MANAGEMENT AREA OFFICE (DCMAO) AND ADMINISTRATIVE CONTRACTING OFFICER (ACO)

As you begin government contracting you may encounter a DCMAO site survey team 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" Form is completed and becomes part of the contract file. This will hold true as well if you are a subcontractor to a prime. 

Select the person who will meet 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 of 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 plant 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.

For smaller contracts a PCO may delegate his authority to an Administrative Contracting Officer (ACO). This often occurs in larger industrial plants where the ACO is resident in the facility or in remote locations where the ACO is a member of the Defense Contract Management Area Office (DCMAO) in the city where the contract is being performed. ACO's run coordinative functions in geographically dispersed offices representing the government and coordinating inspection and acceptance functions, site surveys and related matters on behalf of the PCO. 

As you grow into the government contracting business you will find yourself interfacing more frequently with the DCMAO ACO nearest your location on functions various PCO's delegate or request be performed supporting contracts their agencies hold with your company. With appropriate delegation of authority from the PCO, an ACO can sign contracts and contact amendments on behalf of the government.

CONTRACTING OFFICER'S TECHNICAL REPRESENTATIVE (COTR)

The PCO typically has an end user for the product or service who will become the Contracting Officer's Technical Representative (COTR) when the contract is awarded. As discussed above, the prime contractor equivalent position is a Program Manager. 

The COTR has a strong influence on negotiations and contract performance as well as payment approval. Your 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. However, he cannot sign for the government. The PCO has the agency warrant for that function 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 during a proposal and it is the COTR with whom you will interface the most in terms of product acceptance or performance of services. Keep in mind that the COTR and the PCO will approve your deliveries, along with quality assurance inspectors for the government. 

A satisfied PCO and COTR mean expeditious billing approval and payment by the government. It can be generally stated that if the COTR is unhappy with contract technical performance the PCO will be unhappy as well. They are co-equals organizationally within an agency. A COTR has program executive management authority regarding decision making options. A PCO is a staff role with signature authority to promulgate decisions, once they have passed inter-agency legal and management reviews.

There are two important aspects of dealing with a COTR:

He or she is your most important government customer technically.

He or she does not have the authority to commit the government on contract changes in work scope, schedule, pricing or terms and conditions. Taking contract direction from a COTR and performing outside the scope of an existing contract without official sign-off on a contract amendment by a PCO is very high risk.

PURCHASING AGENTS

For micro-purchases  you may find yourself dealing with government personnel who are granted purchasing authority without being designated a PCO or an ACO. In most cases these officials are COTR's and are seeking to utilize a government- wide purchasing credit card. If any doubt exists about their authority to commit the government on a transaction, it is always a good idea to ask for their PCO or ACO contact information for verification of the transaction.


DEFENSE CONTRACT AUDIT AGENCY (DCAA)

The Request for Proposal (RFP) to which you responded may have ordered a copy of your proposal be submitted to the Defense Contract Audit Agency 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. 

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 and complete a "Pre-award Survey of Prospective Contractor Accounting System" form. 

The survey checks compliance with Cost Accounting Standards 401 and 402 to insure 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 and A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

DCAA is paid by PCO’s to perform audits. 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. 
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 
DCAA will not express an opinion on the cost content of the proposal in terms of a value judgment proposal and examine other audit findings in preparation for negotiations.

DCAA is also involved in rate approvals on an ongoing basis. When you elect to change your forward pricing rates DCAA will perform and audit of the reasons for the changes and inform the PCO and ACO of the results. DCAA also gets involved in auditing progress billings and incurred cost submissions in support of contract closeout documentation. GSA officials involve DCAA in auditing schedule application proposals and associated escalation factors for multiple year awards.

Import/Export Management And Small Business Federal Government Contracting

Because the world has become tightly wired technologically and the current economic situation ties us inexorably to foreign economies, it is likely small business will encounter the import/export process either on the selling or the buying end of federal government contracts involving foreign countries. This is particularly true with Foreign Military Sales (FMS) contracts through DOD and services contracts with civilian agencies such as USAID.

Key to your success will be the development of links to buyers or sources in other nations. You may have gotten the idea that it is a simple and perhaps easy enterprise to get into and successfully perform. It is not in my experience any such thing. Companies who are successful evolve contacts and product relationships in foreign countries and in the US that take careful and businesslike approaches. You will find yourself importing to this country by exporting from other countries and vice versa. There are laws and processes that apply in both domains governing taxes, duties and the import/export process.

It is recommend that you research thoroughly the answers to the following questions:

(a) What are the specifics of the equipment and supplies you are becoming involved in? (Manufacturer's part number, performance specification, unique qualities and market potential) What are the distribution channels that currently exist; is there a product warranty and are their spare and repair parts involved?

(b) Who buys the equipment and supplies in the United States and in countries you intend to sell to. (commercial consumer, government agency, large business, hospitals, military etc.) Do you plan to do market research on the potential demand for a product before you buy it? My advice is that you should - before you buy. I further advise that you research practical marketing, sales and distribution channels for a product before you buy it or import it. What are the possibilities of locally retailing it yourself?

(c) What are the laws and regulations regarding the movement of equipment and supplies? How are they taxed in the US and how are they taxed in foreign countries? Are they regulated by US or foreign countries? Are licenses required to either import or export the items? The answers to all these questions vary with the product and the US State Department and US Customs and Border Protection will have those answers once you identify the equipment and supplies. The links to the associated web sites are in the section below entitled 'THE REGULATORS'

(d) What service can you perform in (a)-(c) above? What value can you add to the process? Do you have special channels to either a customer or a source for the supplies and equipment? Do you have special knowledge or do you know others with special knowledge of these equipment and supplies, customers and sources which you could involve in creating or designing a niche no one else is filling or offer these items at a price attractive enough to generate volume and profit for your business and beat the competition.

(e) Who is your competition and how are they performing (a)-(d) above? Your business involves offering the service of importing equipment and supplies to fill the need in the US from sources out of the country and the other way around. You must develop an available niche that other companies do not fill, either by having lower prices, more and better sources, or a low overhead cost for handling the business; faster delivery, better product warranty, parts service and replacement, all play in the equation. Your market plan must address the reliability of your sources in other countries and the US, the quality of their product and how well they support their product in countries other than their own.

SHIPPING AND FREIGHT FORWARDERS

Along the way be particularly careful in your planning to research Freight Forwarders (FF). Use the Better Business Bureau (BBB) or other such government agencies to research the experience the buying public has had with stateside companies you deal with. BBB company research capabilities on the web are free to the public. Carefully review FF terms and conditions and assess the liability arrangements in the event of product theft or loss for goods coming in from overseas.

A freight forwarder is your paid agent to safeguard your property. He is also registered to handle clearing US customs. Certain other FF specialize in dealing with foreign countries. He is normally the individual to which your overseas manufacturer ships you product or through whom you ship product to foreign countries. Relying on the manufacturer himself to ship, insure, handle export and import requirements is not a safe bet and shipping directly to a foreign country has no assurances of delivery.

The foreign factory producer has too much conflict of interest in simply getting you to pay his bill and move on and your expertise in clearing customs in a foreign country may be limited. Freight forwarder expenses must be added to those of the product you buy from the factory source. These expenses should be included in your business plan and in your product pricing prior to going to market.

BE CAREFUL

Be wary of networks and exchange sites on the web that offer to make you rich and handle all the arrangements. This is seldom the case. Check them out with the Better Business Bureau:

Better Business Bureau

INSURANCE

On the subject of insurance, I assume you have looked into business insurance. A Limited Liability Company (LLC) is a form of Subchapter 'S' corporation that usually experiences the lowest rates for insurance. Have you looked into becoming an LLC? Insurance is a must in the line of business you are pursuing.

THE REGULATORS

For research regarding exporting and importing goods to and from foreign countries please see the web site for the Bureau of Industry and Security out of the Department Commerce. It is the keeper of export administrative regulations and classification numbers. It also has a commerce country chart that shows taxes and duties and license information by country. 

Bureau of Industry and Security

The Office of Foreign Asset Controls out of the Treasury Department is also a site you will have to visit to see if there are any specially designated nationals or targeted countries that the US has regulations against selling to:

Sanctions Programs and Country Information

The US State Department and the US Customs and Border Protection regulate and assist in import and export matters. I strongly suggest you visit their web sites. The State Department controls high technology items and weapons through the International Traffic in Arms Regulation (ITAR). Export licensing under the ITAR can be a lengthy process. Services and technical data as well as products of a weapons or high technology nature requiring licenses appear on a controlled items list in the ITAR. A company can unwittingly make an illegal export of technical data simply by conveying the wrong specifics regarding a controlled item to a foreigner over the phone. 

For an excellent article on ITAR compliance please see:

ITAR Compliance: What It Is, Who Needs It, and the Penalties for Ignoring It


The web site for the US State Department and US Customs and Border Protection respectively are as follows:

U.S. Department Of State

U.S. Customs and Border Protection

You will need to research the above regulatory sites as appropriate once you identify the specific products in which you intend to deal. It will be necessary to determine licensing, declaration, tariffs, taxes and trade implications. All these factors should be fully documented in your business plan before you undertake operations in a product area.

FINANCE AND CREDIT:

Finally your business plan will be your best long -term asset in establishing your credibility with the banking community and with prospective investors. My advice is to start small and slow, with minimal personal investment and begin dealing in products only after you have a well developed business plan and market research indicates they will be profitable. As the business establishes itself, a demonstrated cash flow and projected earnings statement can be used as leverage with a good business plan to achieve a small business loan, perhaps working with the SBA for a guarantee. Small business credit cards are a possibility if you can work the interest rates into your planned expenses and recover them in your product pricing.

Your planned banking arrangements should involve setting up accounts that involve automatic currency conversion features in the countries you plan to do business in.

I recommend being careful not to make your inventory a burden. Carrying excessive financed inventory without associated sales to pay the bills is one of the biggest traps you can fall into. Also remember many products have a shelf life which must be considered in the storage environment.