Search This Blog

Tuesday, October 27, 2020

Remember the Small Business Instant Depreciation Tax Break


Image:  "CPA Tax Adviser"
"New York Times"

“Nearly all small businesses, even the very tiniest, should consider taking advantage of the deduction.

The deduction is essentially limited to small and midsize companies. It begins phasing out when a company spends more than $2 million a year on qualifying purchases, and is eliminated entirely for those that spend more than $2.5 million.

The deduction works like this: If a company has a $90,000 profit and decides to spend $50,000 of it on new computers, the company would normally write off the cost of the equipment gradually, deducting a portion of it each year over the span of the computers’ useful life. But Section 179 allows the business to deduct the entire $50,000 cost at once in the year the equipment is purchased, reducing the company’s taxable profit to $40,000. (The deduction cannot exceed a business’s total net income.)

Section 179 was once a fairly limited tax break, with an annual cap of $25,000 or less. But in 2003, Congress temporarily raised the limit to $100,000, and in 2008, as the recession set in, it raised the cap again to $250,000. In 2010, hoping to stimulate more spending, Congress increased the limit to $500,000, allowing businesses to use the deduction toward expensive items like factory machinery and trucks.

But each increase was a temporary measure requiring annual reauthorization to prevent the cap from returning to $25,000 — and Congress developed a habit of waiting until the very last days of the year to make a decision. In 2012, it missed the calendar deadline completely and passed legislation on Jan 1, 2013, retroactively raising the deduction limit for equipment business owners had purchased the previous year.

“The uncertainty drives my clients up a tree,” said Paul Neiffer, an accountant with CliftonLarsonAllen in Yakima, Wash., who specializes in the agricultural industry. “Not knowing each year if it will be extended prevents a lot of our farmers from pulling the trigger on buying equipment.”

From now on, they will know. Signed on Friday by President Obama, the 233-page tax deal includes in its myriad tax breaks one that permanently sets the Section 179 cap at $500,000, subject to inflation adjustments.

Mr. Kortesmaki said he was confident enough that Congress would once again lift Section 179’s cap to go ahead this year with his planned capital purchases, even before the legislation was passed. But other business owners held off — and this year, the deal came too late for some, Ms. Wuebben thinks.

“You can’t plan to spend that kind of money with just two weeks left in the year,” she said. “We might see some activity this year, but the real benefit for us will come next year, when customers can plan ahead for it.”

Some companies do try to jam in qualifying purchases before the calendar year ends. Last year, Congress raised the Section 179 limit for the year on Dec. 16. The next day, the prices farm machinery sold for at auctions increased compared with just a few days earlier, according to Greg Peterson, the owner of Machinery Pete, a site that tracks equipment auction prices.

“The response is nearly Pavlovian at this point,” he said. “The farm audience had grown so used to this annual silly dance of wait-and-see on our friends in Washington.”

Making Section 179’s higher limit permanent will cost taxpayers $77 billion in foregone revenue over the next 10 years, according to a government estimate. The tax break’s aim is to stimulate spending — but does it work?

An analysis by the Congressional Research Service found that expensing allowances like Section 179 appear to “have a minor effect at best” on how much businesses spend on capital goods. Expectations for future sales growth, not tax considerations, motivates most of the investment in the kinds of assets eligible for expensing.

The main advantage of expensing allowances, the report suggests, comes from simplifying the tax accounting business owners face on their capital purchases.

Still, owners like Mr. Kortesmaki see the tax break as a crucial one for helping their small business grow a bit bigger.

“I’d rather invest that money in my business than pay taxes on it,” he said. “Having this become permanent makes my business planning for the next few years a whole lot easier.”

Small Business Gets Tax Break

Thursday, October 15, 2020

10 Common Traits Among Successful Small Business Government Contractors


As a volunteer counselor over the last 14 years, I have noted common traits among the most successful small business federal government contractors.  The following are 10 of the most prominent traits and tips on how successful small companies developed them
Commercial success before entering government contracting.  From maintaining buildings to keeping the lights on, from grounds maintenance to flight maintenance, look for niches that can be pursued based on successful past performance, transitioning via industry teaming via subcontracts, partner roles with larger companies or in small business set aside orders for minor items and simpler services provided directly to the government.  Your Entry Points
Willingness to concede there were things they did not know and seeking advice early.   You may download the book, SmallBusiness Federal Government Contracting and its supplement from the "Box" in the right margin of this site.  You may also benefit from the free "Reference Materials". Contract agreements, incorporation instructions for all the US states, guidance on marketing and business planning are also included.   Free Books and Supplements
Recognition of the value in industry teaming. 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. Small Business Teaming in Government Contracting 
Strong capability statement (CAPE) development, networked prudently among government agencies and large government contractors. Your CAPE targets contracting officers and prime contractor buyers who are seeking to fulfill their small business buying goals. It is a way to get you in the door and speak to, or correspond with, the management and technical personnel who are the decision makers in sourcing small business buys.  A good quality CAPE is the spearhead of your marketing campaign and your visual image;  focused and direct, it must be informative, concise and a snapshot of the very best you can offer. Your Capability Statement
Maximizing set-aside qualifications in seeking both prime and subcontract opportunities. 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.  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 dollarsMarketing to Achieve a Small Business Set-aside Contract
Prudent bid/no bid decisions. Government contract proposal preparation is time consuming and can be costly. Meeting agency Request for Proposal (RFP) requirements with a responsive proposal can be well worth the effort if a winning strategy can be formulated.  When considering a proposal to a given government solicitation, conduct a bid/no bid exercise. By going through that process you will begin formulating your win strategy or you will discover that you should not bid the job for lack of such a strategy. Making an Astute Bid/No Bid Decision
Ethical business conduct and avoidance of conflicts of interest. 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.  Maintaining an Ethical Company Image
Excellence in risk analysis. The challenges and difficulties for the small business in government contracting are not so much in the areas of barriers as  they are in lack of knowledge (which I concede is a form of barrier but one that can be dealt with) Large business and government agencies take advantage of the small enterprise lack of knowledge or make poor assumptions regarding what a small business knows about the Federal Acquisition Regulation (FAR) and associated Cost Accounting Standards (CAS). This leads directly to abusive practices. Managing Small Business Risk
 Solid long range planning and plan maintenance. The time to consider separating government from commercial work and/or establishing new cost centers for bidding, accounting and billing purposes is when the enterprise is generating a long range marketing plan to determine rates for bidding new long term contracts. The location of the work (both geographic location and whether performance is in or out of a government facility, its duration, skill set requirements, government-mandated fringe benefits for workers and the competition are all factors to consider).Strategic Planning for Small Business
Excelling in meeting the past performance challenge, building a performance record with solid customer service and sensitivity.  How can a new organization or one that is new to government contracting muster a response to the past performance challenge? The answer lies in historical projects that may be similar in the commercial arena and a high quality proposal that clearly demonstrates an understanding of the requirement at hand, a unique and cost effective project plan and high performing personnel and/or products tailored to the statement of work to offset an interim, light past performance record. Meeting the Past Performance Challenge

A Look Back Over 14 Years at The "Small To Feds" Volunteer Foundation

PLEASE CLICK ON IMAGE TO ENLARGE
It has been a pleasure serving the Micro Mentor and SCORE Small Business Communities as well as many other venues through the Small To Feds Foundation over the last 14 years. 

We appreciate the many Woman-Owned, Minority-Owned, Veteran-Owned and Hub Zone located startups who have contacted us for support, as well as the many other entrepreneurs and teaming partners who have visited our site, downloaded our books, conversed with us on social media and shared our concerns for the welfare of the small business community. 

Thank You,











Ken Larson
Founder 



Thursday, October 8, 2020

Your Rights and Obligations Under a Government Contract Stop Work Order


                                                   Photo Courtesy Eyebeam dot Org

During government shutdowns or other circumstances where the government reserves the right to order a cease work, actions must be taken recognizing receipt of the stop work order and the relationship of the order to resumption of effort, funding constraints, contract terminations and associated business risk.

PURPOSE

The purpose of a stop work order is to immediately bring to a halt the effort on a contract and any further performance and related cost against that contract. 

It is usually necessary when unforeseen circumstances necessitate the action, such as the government shutdown or similar exigencies. An example of a clause that appears regularly in most government contracts, reserving the government's rights to stop work, is as follows:

"Stop-Work Order (Aug 1989)
(a) The Contracting Officer may, at any time, by written order to the Contractor, require the Contractor to stop all, or any part, of the work called for by this contract for a period of 90 days after the order is delivered to the Contractor, and for any further period to which the parties may agree. The order shall be specifically identified as a stop-work order issued under this clause. Upon receipt of the order, the Contractor shall immediately comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage. Within a period of 90 days after a stop-work is delivered to the Contractor, or within any extension of that period to which the parties shall have agreed, the Contracting Officer shall either—
(1) Cancel the stop-work order; or
(2) Terminate the work covered by the order as provided in the Default, or the Termination for Convenience of the Government, clause of this contract.
(b) If a stop-work order issued under this clause is canceled or the period of the order or any extension thereof expires, the Contractor shall resume work. The Contracting Officer shall make an equitable adjustment in the delivery schedule or contract price, or both, and the contract shall be modified, in writing, accordingly, if—
(1) The stop-work order results in an increase in the time required for, or in the Contractor’s cost properly allocable to, the performance of any part of this contract; and
(2) The Contractor asserts its right to the adjustment within 30 days after the end of the period of work stoppage; provided, that, if the Contracting Officer decides the facts justify the action, the Contracting Officer may receive and act upon the claim submitted at any time before final payment under this contract.
(c) If a stop-work order is not canceled and the work covered by the order is terminated for the convenience of the Government, the Contracting Officer shall allow reasonable costs resulting from the stop-work order in arriving at the termination settlement.
(d) If a stop-work order is not canceled and the work covered by the order is terminated for default, the Contracting Officer shall allow, by equitable adjustment or otherwise, reasonable costs resulting from the stop-work order.
(End of clause) "

ACTIONS

A stop work order is to be taken literally.  Under a stop work order the government makes no guarantees it will take any further deliveries whatsoever, regardless of the contract type. A stop work order means just that.  Stop work and stop incurring cost. 

Upon receipt of a stop work order you have no guarantee of payment for any transaction date-stamped in your accounting system after the date of the stop work order (or the commencement date of a stop work order specified in a Contracting Officer's Letter).

 I suggest clients receiving these orders close the charge numbers applicable until the stop work order is lifted with an order to resume effort and immediately notify any effected suppliers and subcontractors to do the same.

To the degree the government has made progress payments or has any other form of payment invested in the product to date it has ownership rights in the product. If that is the case treat the physical material work-in-process as government owned, store it as such without performing any more effort on it and await further disposition.

To the degree the government has not paid anything on the contract or delivery order they have no ownership rights to the product and you are free to complete it and sell it to another customer (commercial or government) that has not stopped work. If the government recommences the order, quote a new price and delivery from ground zero.

At the bottom line a stop work is blunt and to the point.  Treat it as if you will never hear from this customer again to manage the risk.  

To the degree you do hear from the CO again and he or she has the funding to recommence work, be prepared to submit a proposal for what it will take to start the effort and a realistic delivery schedule to complete the it, but do not build any retroactive costs incurred during the stop work period into your logic and expect to bill them; they may not come to payment fruition. 

CONTRACT TERMINATIONS AND FUNDING CONSTRAINTS

Note that in the above cited clause the government discusses resumption of work and contract terminations as options.

Hypothetically at some future date the government could terminate the  contract without taking delivery and the contractor will then submit a termination proposal for recovery of costs and disruption. 


When a stop work order is lifted  the contract or the delivery order is open to negotiation on both price and delivery under the equitable adjustment and changes clauses in the FAR provisions of the contract.

At that time, you should inform the government that you are pleased to resume work, but under revised price and delivery conditions as specified in a proposal for equitable adjustment

You should not resume work until a contract or work order amendment is received granting the price and delivery relief to contract requirements commensurate with negotiation results under your proposal for equitable adjustment.

In short, time is money.

If your contract was adequately funded and remains so when work commences and assuming you negotiate acceptable terms and conditions you can proceed with low risk.  If the funding on the contract is low at the time of recommencement, it is recommended you request additional funding and handle that matter in accordance with the article linked below.


SUMMARY

Stop work orders are serious matters and require special handling to comply with government direction and to manage risk.  This article has discussed the principal options and equitable adjustment terms and conditions available to you if you undergo a stop work on a government contract.

Continuing effort on a contract after receipt of a stop work is high risk.

Astutely managing your options is a far better approach. 






Tuesday, October 6, 2020

Contract Line Item Structure - The Heart of Your Federal Government Business Deal


Contract Line Items (CLINs) specify products or services being procured and the negotiated prices for them. 

Carefully review (CLIN) relationships to other critical elements of your contract for consistency before proposing, accepting and signing your deal.

Housed in Section B of your contract, contract line items are critical for reporting and billing purposes in your accounting system. Invoices to the government for supplies or services delivered must reference the associated CLIN. 

For service contracts that are cost-based such as Time and Materials (T&M) or Cost Plus and for progress billings under fixed price contracts, your job cost accounting system must be able to track labor, material and other direct costs at the CLIN level or below to provide auditable details for payment approval.


Government requisition and appropriation data against the CLIN are carried throughout the government finance and accounting system that makes payment on your invoices. CLIN’s form the backbone upon which all the other contract sections are built. If the CLIN structure is defective, it is likely many other areas of the contract will also be deficient.


During the “Sources-Sought”, “Pre-solicitation” or “Draft RFP” stages of a procurement the government often invites industry to comment on the evolving solicitation. The CLIN structure should be evaluated in relation to such items as the Work Breakdown Structure (WBS), the Statement of Work (SOW) and the contract schedule from the perspective of visualizing the work underway, tracking and reporting the status and finances of deliverables, inspection and acceptance and accurately billing the deliveries on invoices.

If the agency is establishing a poorly integrated CLIN structure you should comment appropriately to the contracting officer, suggesting corrections and additions to establish a framework against which your enterprise can estimate effectively, operate efficiently, report accurately and bill without experiencing delays. Most agency contracting shops appreciate such contributions.


SECTION C - DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK
As you read the narrative in this section, carefully establish that it adequately covers all the CLIN's in Section B. During the proposal process it is wise to matrix each paragraph of the SOW to its associated CLIN so you are sure your CLIN level prices have adequately covered the scope described in the SOW and that the SOW addresses each of the CLIN's identified in Section B. If there appear to be omissions point them out. Note where the SOW conflicts with or does not adequately describe the applicable CLIN's in Section B. Also note where there may be missing CLIN's. Then offer either a revision to the CLIN structure, a revision to the SOW, or both.
SECTION D - PACKAGING AND MARKING
Insure that the instructions in this section cover each of the CLIN's in Section B and that your company can comply with any specifications referenced.
SECTION E - INSPECTION AND ACCEPTANCE
Review the criteria for accepting the products and services to be delivered by CLIN as well as the location where deliveries will take place. Insure your company can comply with the criteria for acceptance. A payment will not be made without government acceptance of your delivery.
SECTION F - DELIVERIES OR PERFORMANCE
This section will replicate Section B and specify the due dates for deliveries by CLIN. Insure you can comply with the dates indicated.
SECTION G - CONTRACT ADMINISTRATION DATA
The accounting and appropriation data in this section must be replicated where necessary in your bill to the government by CLIN. Please see the article at this blog entitled, "Government Contract Billing":
SECTION H - SPECIAL CONTRACT REQUIREMENTS
Check for any special requirements, such as Earned Value Management Systems, the requirement for a Work Breakdown Structure against which to report cost and schedule data and other clauses such as Design to Cost/Life Cycle Cost, Reliability, Safety and Failure Analysis reporting requirements and similar specifications. If you find such requirements, carefully review the reporting structure therein for consistency with the CLIN structure of the contract and point out any disparities to the Contracting Officer.
SECTION I - CONTRACT CLAUSES
Carefully review this section in the same manner as Section H.
SECTION J - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS
The Contract Data Requirements List (CDRL) will be in this section. Insure there is a separate CLIN for data items. Most contracts price data at zero cost and include the cost to prepare the data in other CLIN pricing. Determine which of the CLIN's will be affected by the data items required in this section and insure the pricing for those CLIN's includes that cost. Perform an identical review of any other documents contained in this section.
SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS
Insure that all information provided in this section is consistent with the data specified in each of the sections above.
SUMMARY
By conducting a thorough review of the CLIN structure against all other sections of your prospective contract you will establish a consistent framework and an integrated approach to tracking and reporting the status and finances of deliverables, inspection and acceptance of same and billings that will be promptly paid.  

The following is an example of a typical federal government contract CLIN structure:

SECTION B - SUPPLIES OR SERVICES AND PRICES

ITEM NO SUPPLIES/SERVICES
0001 SBIR RESEARCH AND DEVELOPMENT
Firm Fixed Price
The contractor shall perform research and development efforts in
accordance with Section C and the Contractor's SBIR Phase I
proposal dated September 2002 in response to SBIR Topic N02-140

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0001AA Monthly Status Report 1 LOT $11,000.00
The contractor shall perform research and development efforts and
provide the First Monthly Status Report in accordance with CDRL AO01.

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0001AB Monthly Status Report 1 LOT $11,000.00
The contractor shall perform research and development efforts and
provide the Second Monthly Status Report in accordance with CDRL A00I

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0001AC Monthly Status Report 1 LOT $11,000.00
The contractor shall perform research and development efforts and
provide the Third Monthly Status Report in accordance with CDRL A001.

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0001AD Monthly Status Report 1 LOT $11,000.00
Phase 11 Program plan
The contractor shall perform research and development efforts and
provide the Fourth Monthly Status Report in accordance with CDRL A001
and the Phase 11 Program Plan in accordance with CDRL. A002.

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0001AE Monthly Status Report/ 1 LOT $11,000.00
Preliminary Report
The contractor shall perform research and development efforts and
provide the Fifth Monthly Status Report in accordance with CDRL A001
and the Phase I Preliminary Report in accordance with CDRL A003.

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0001AF Contract Summary 1 LOT $13,587.00
Report
The contractor shall perform research and development efforts and
provide the Phase I Final Report in accordance with CDRL A004.

CLIN 0001 TOTAL $68,587.00

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0002 DATA 1 LOT *NSP *NSP
DELIVERABLES
Firm Fixed Price
The contractor shall provide the data deliverables in support of
CLIN 0001 in accordance with attached CDRLs.
* - Not Separately Priced

ITEM NO SUPPLIES/SERVICES
0003 OPTION CLIN
SBIR RESEARCH AND DEVELOPMENT
Firm Fixed Price
The contractor shall perform research and development efforts in
accordance with Section C and the Contractor's SBIR Phase I proposal
dated September 2002 in response to SBIR Topic N02-140.

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0003AA Monthly Status Report 1 LOT $9,000.00
The contractor shall perform research and development efforts and
provide the First Monthly Status Report in accordance with CDRL A001.

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0003AB Monthly Status Report 1 LOT $9,000.00
The contractor shall perform research and development efforts and
provide the Second Monthly Status Report in accordance with CDRL AOO1.

ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0003AC Contract Summary 1 LOT $11,490.00
The contractor shall perform research and development efforts and
provide the Phase 1 Final Report in accordance with CDRL A004.

CLIN 0003 TOTAL $29,490.00
-
ITEM SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
NO
0004 OPTION CLIN 1 LOT *NSP *NSP
DATA
DELIVERABLES
Firm Fixed Price
The contractor shall provide the data deliverables in support of
CLIN 0003 in accordance with attached CDRLs.
* - Not Separately Priced

CLINS 0001 - 0004 TOTAL $98,077.00


Thursday, October 1, 2020

"Great Non-Profits" Review for The Project On Government Oversight (POGO)

 

RATING  *****  - 5 STARS

By Ken Larson,  Founder  "Smalltofeds"  

Rating:5 stars      

"I am a two tour Vietnam Veteran and a retired aerospace contracts manager, who after 36 years in the Military Industrial Complex, assists small enterprises, veterans, minorities and women owned businesses to enter federal government contracting.

Having been on the inside of the workings of our defense industrial base, I have been constantly impressed with the objectivity, ethics and coverage of the PROJECT ON GOVERNMENT OVERSIGHT (POGO)" to surface issues in a clear, factual fashion that citizens must be made aware of. 

The issues range from waste, fraud and abuse, budgetary matters concerning our largest federal agency, ethics in government and our role on the world stage.

I was a whistle blower years ago when there were few protections for such individuals. I appreciate the support POGO lends these days to that vital function, particularly in the defense industry.

POGO's "Federal Contractor Misconduct Data Baseis an eye opener. It is maintained scrupulously with up to date public records of major corporation government judgments containing details of judicial proceedings and related fines.

The support of POGO for ethics in government has been around for decades. Its reputation is sterling, and its regular Congressional testimony is riveting.

I feature POGO articles regularly at my personal web site Rose Covered Glasses and will continue to do so in the future."

"Smallofeds"

Role:  Professional with expertise in this field