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Thursday, July 11, 2024

Managing Risk Under 'The Truth In Negotiations Act (TINA)'



THE RISKS ASSOCIATED WITH DEFECTIVE PRICING 

INTRODUCTION:
 
We have previously discussed at this site the development of credible cost and pricing data. That data is the product of not only estimating and pricing but also job cost accounting for managing contracts, business system design to meet Cost Accounting Standards (CAS) and the integrated aspects of the company business system demonstrating regulatory compliance:

The purpose of this article is to cite the specifics of the “Truth in Negotiations Act” and recommend  management techniques to comply with this law and avoid defective pricing claims by the US Government. 

THE TRUTH IN NEGOTIATIONS ACT (TINA)

Public Law 87-653 (codified by 10 USC 2306a) was originally enacted in 1962 to place the Government on equal footing with the contractor during contract negotiations.  The following are the principal features of the law:
  • Defines requirements for obtaining cost or pricing data
  •  Requires certification that data are current, accurate, and complete
  • Delineates exceptions to the requirement
  • Addresses data submission for pricing of commercial items, below threshold contracts, and “other information”
  •  Provides right of Government to examine contractor records
  • Defines cost or pricing data
  • Provides rules governing defective pricing
  • Downward Contract price adjustment
  • ·Recovery of overpayment (cost & profit) & interest (as of 1985)
  • Contract actions include contracts, subcontracts, and modifications
  •  TINA applicability is not affected by contract type
  •   For subcontracts, the $2M threshold applies to the submission of data from the subcontractor to the prime contractor.
 
FIVE POINTS THE GOVERNMENT UTILIZES FOR ESTABLISHING DEFECTIVE PRICING
 
1)    The information in question fits the definition of cost or pricing data.

(2)    Accurate, complete, and current data existed and were reasonably available to the contractor before the agreement on price.

(3)    Accurate, complete, and current data were not submitted or disclosed to the contracting officer or one of the authorized representatives of the contracting officer and these individuals did not have actual knowledge of such data or its significance to the proposal.

(4)    The Government relied on the defective data in negotiating with the contractor.

(5)    The Government’s reliance on the defective data caused an increase in the contract price.

MANAGING THE RISK OF A DEFECTIVE PRICING CLAIM
 
A government auditor relates to TINA and defective pricing whether or not it is required contractually and uses the TINA provisions as a frame of reference in how he or she views trend analysis of your company. Even if you do not have the TINA requirement in your bid or your contract, be aware the auditor is forming his or her opinion of your compliance with the law against the TINA framework.

Post award audits can be ordered at any time by a PCO. During such audits your proposal is juxtaposed to your incurred cost and historical data on a given contract. During such juxtapositions, defective pricing stands out glaringly.  If you become aware of an anomaly, cover your tracks by immediately assessing the impact and deciding whether or not a disclosure should be made.  

Integrate your system from pricing to billing to close out utilizing a consistent cost structure template and be aware you are putting audit history in place and that historical trends are what auditors follow.
 
Keep all subsequent disclosures under proposals to the government well documented, serialized and current at the prime and subcontract level, reflecting them in a detail record of negotiation.  

If you have commenced work prior to final negotiations under a letter contract or similar interim arrangement, conduct a sweep of actual costs and commitments and reflect them in an updated proposal to the government prior to negotiation of a final price.  Reassess quotes, escalation factors, indirect costs and related factors in the same manner if a proposal expires and you are asked to extend your pricing. 

If substantive conditions in an open proposal estimate change, document them thoroughly and disclose them to the government based on an astute analysis of your risk if they can be misconstrued as defective pricing by an auditor.  Carefully convey the impact on the prospective contract and its pricing to the contracting officer if you decide to disclose. 

Consistency with CAS and your CAS disclosure statement as well as your latest negotiated forward pricing rates is mandatory. Any departure from these baselines will attract audit attention.
In many defective pricing instances what you knew and when you knew it becomes a factor.  Continually assess changing conditions that may dramatically impact your cost performance and manage them by taking corrective actions, developing workarounds and carefully communicating requirements to your subcontractors and suppliers. 

Remember under TINA you are required to perform cost/price analysis of your subcontractors if their work scope exceeds the $700k threshold. You must submit the results with your proposal to the government.  If a disclosure becomes necessary, make it sooner rather than later when the data may be under the cloud of a negative audit finding.

SUMMARY
 
Defective pricing actions by the government can have a severe impact on your past performance rating.  They must be cited by you with any new business proposal in which you are asked if your company has been accused or convicted of a violation of the law or has open or pending government adjudications regarding legal violations. 

Sculpt and educate your auditor, contracting officers and government analysts on the specifics of your company business system and preserve its integrity over the long run to maximize your win potential and lower the risk of defective pricing claims by the government. 

A good rule of thumb is to consider every proposal as if it were under TINA compliance whether or not you must submit a “Certificate of Current Cost and Pricing” under TINA.  This will keep your business system sharp, your ethics and standards high and your past performance record clean.

 

Tuesday, July 9, 2024

Government Contract Negotiating For Success




INTRODUCTION

You have worked to establish your federal government contract business contacts. You have developed your company infrastructure and processes to accommodate the Federal Acquisition Regulation. Your company has effectively marketed and teamed on a prospective program. A proposal has been carefully prepared and submitted to the contracting officer. You have been selected as the apparent winner and you are ready for the next phase on the government contracting process - the negotiation.

 This article assumes that your are in the federal government services contracting business, that you plan to price your services at an hourly rate and sell them by labor categories with professional job descriptions to perform the government's statement of work and bill by the hour. This article also assumes that you are not contracting under FAR Part 12, "Commercial Contracting".

Unlike commercial business, many federal government contracts are subject to negotiation. The government may award a contract based on best value (a combination of technical, cost and other factors) not necessarily to the lowest price bidder. The final price paid by the government is then subject to negotiation. Under General Services Administration (GSA) Schedules and Indefinite Delivery/Indefinate Quantity (IDIQ) Contracts, terms and conditions and labor hour pricing are agreed upon in advance but individual delivery orders are negotiated separately regarding the labor hours, material and travel cost necessary to complete a discrete scope of work.

 Cost Plus and Time and Material contracts are also negotiated procurements on many occasions. Only small, fixed price purchase orders and items purchased under FAR Part 12, "Commercial Contracting", are awarded solely on the basis of price.

This document will address contract negotiations under three (3) different business scenarios:

Negotiations directly with a government contracting officer pursuant to a federal government contract

Negotiations with a prime contractor for a subcontract under the prime's federal government contract

Negotiations with a subcontractor to establish a price and flow down the terms and conditions of your contract with the federal government.

NEGOTIATION TEMPLATE

In federal government contracting each of the above scenarios pass through the following template of negotiation steps:

Audit

Fact-finding

Pre-award Survey

Cost Negotiations

Final Profit Negotiations

Contract Award

The above template is recognized throughout the Federal Acquisition Regulation (FAR) and in the Defense Contract Audit Agency (DCAA) Handbook. All government agencies and contractors utilize it.

RULES OF THUMB

Your proposal represents an initial offer to a government agency or a prime contractor. Correspondingly, a subcontractor's proposal represents his initial offer to you. Government contract and subcontract negotiation is an art, not a science. You will find the above negotiation template is applied with various degrees of expertise among government agencies, prime contractors and subcontractors. Like many other aspects of business, the intellect and experience of customer or supplier personnel will vary with the agencies and the companies with whom your are dealing.

Keep in mind that your client or your subcontractor is also developing his/her position against the above template. Confirm with the other party at which step the negotiation is located and the fact that the negotiation is moving from one step to the next. If you are dealing with an agency or company representative who is unfamiliar with the process, take the time at the beginning to convey in a tactful manner your understanding of how the negotiation will proceed. Keep a careful written record of events during each step, to include information provided, offers and counter-offers made and agreements reached.

Develop a negotiation with a "target" position and a "floor" position. Your objective is to conclude the negotiation achieving a price as close to the target position as possible while never going beneath the floor.

Courtesy and politeness are mandatory. Avoid confrontations. Do not reveal your strategy in front of the other party except to objectively explain your position in terms of an incremental offer or a counter offer. Excuse yourself for outside caucuses or adjournments whenever it is necessary to study an offer, assess a situation or develop your next move.

It is always best to look at negotiations from a win/win perspective. Be honest and forthright during the audit, fact-finding and site survey steps. Look for insights into the other party's negotiation position from the questions being asked, the data being requested or the responses being obtained. Defend your cost and performance position as conveyed in your proposal with documented facts. Look for openings in your subcontractor's proposal support documentation. When cost and profit negotiations commence, offer compromises and trade-offs of value to the other party in return for acceptance of your position.

NEGOTIATIONS DIRECTLY WITH A FEDERAL GOVERNMENT CONTRACTING OFFICER

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 a contract. Only a PCO is authorized to officially commit the government. 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.

Audit - Upon receipt of your proposal the contacting officer will 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. 

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&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.


Fact-finding - Assuming your proposal met the requirements specified in the RFP, fact-finding usually involves the PCO or his ACO requesting additional information. 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 your 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 mid that most government agencies put together an independent cost estimate of what they feel the item or service should cost. These s are commonly called "Should Cost Estimates". The additional requests for information during fact finding are feeding the should cost . 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. 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 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. 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.

Pre-award Survey - A pre-award survey is an extension of fact finding in the form of a visit to a new supplier's facility. The PCO or the ACO and the COTR usually 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. 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" Form is completed and becomes part of the contract file. 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  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.


Cost Negotiations - At the conclusion of audit, fact-finding and pre-award survey steps, the PCO and the COTR complete their should cost and open negotiations. They may make a counter offer to your price proposal at this time. Such a counter-offer reflects the government's initial position on cost and a reasonable profit. Assess how far from your negotiation target the counter-offer is and how close to your floor the government wants to take you. In the vast majority of cases you and the government determine that further negotiations are necessary. 

The profit issue is set aside and negotiations commence on the elements of cost, comparing the government's position to yours. This is perhaps the most important step in negotiations, since fully loaded cost makes up the vast majority of the prospective contract price. 

The parties address each direct and indirect cost element and factor in the cost proposal and attempt to come to an agreement on the total cost for the contract. As agreement is reached the government will adjust their cost to reflect the agreed upon amounts. You will do the same. The following discussion will address cost elements least and most likely to undergo negotiation and the associated reasons:

Cost Elements Least Subject to Negotiation

(1) Direct Labor Rate - The contractor can supply cost history, salary surveys or other documentation to support direct labor rates.

(2) Labor Overhead & Material Handling Rates - DCAA has reviewed the company forward pricing rates

(3) G&A Rates - DCAA has reviewed the company forward pricing rates

(4) Direct Material Cost - The contractor can supply vendor quotations and demonstrate competitive bidding

(5) Travel Costs - The contractor can supply airline and rental car quotes and government per diem rates are used for lodging and meals

(6) Terms and Conditions - All clauses required by the government and public law were contained in the RFP when the solicitation was provided for contractor response. In a competitive environment very few contractors take exception to these requirements. However, if the procurement is a HUB Zone or 8(a) Set aside to your compan there may be certain terms which the government is willing to negotiate. 

The FAR is written for protection of the contractor as well as the government. During the draft RFP stage when contractors are asked for comments it is wise to highlight any omissions.

Cost Elements Most 
Subject to Negotiation

 Labor Category - The government may choose to question or have an alternative assessment of the skill level and mix necessary to perform the statement of work. A mutual agreement on the labor skill mix must be achieved.

Labor Hours - The government may choose to question or have an alternative assessment of the quantity of labor hours necessary to perform the statement of
work. A mutual agreement on the labor hours to do the job must be achieved.

Number of Travel Trips - The government may choose to question or have an alternative assessment of the quantity of trips necessary to perform the statement of work. A mutual agreement on the number of trips must be achieved.

 Data Items - Some data item requirements are negotiable, such as the level of reporting in the product hierarchy for cost and schedule reporting. Agreement must be reached on these fields. Although data items are normally not quoted separately in the proposal, their preparation cost can be dramatically influenced by content requirements and heavily effect direct labor hours.

 Material and Labor Escalation - The government generally recognizes the Consumer Price Index (CPI) as a reasonable projection of annual labor and material cost increases. In the event the contractor proposes escalation values in excess of the CPI, compounded for multi-year contracts, the rationale must be supported and agreed upon.

At the conclusion of the cost negotiation, all elements of cost for the base price of the contract have been agreed upon. During the course of the cost negotiations this agreement can be reached by arriving at a fully negotiated amount for each of the above cost elements one by one, or offering and counter-offering at the total cost line until agreement is achieved. 

Contractors may find it difficult at times to accept negotiated changes in cost elements above because the nature of these cost elements is fixed across the company for all projects or is firm in quotations by vendors and suppliers.

Final Profit Negotiations - During the offer/counter-offer process the preliminary profit positions which may have been conveyed from one party to the other must be finalized. Under Federal Acquisition Regulations (FAR) a PCO must place in the negotiation file a memorandum on the derivation of the profit rate awarded to the contractor in the final price. 

The general rule of thumb from the government perspective is that once the costs for a contract have been agreed upon the profit rate is determined by the amount of risk to the contractor in the deal. 

In government contracting profit is rarely proposed at a higher rate than 25% and only at that level on firm, fixed price contracts where the risk to the contractor is the highest. 

In some time and material contracts, profit cannot be calculated on a cost base containing material, travel or subcontractor cost elements. Profit in these cases is only awarded on fully burdened labor through G&A. The following broad profit ranges apply in general to the various types of government contracts :

Contract Type

Firm, Fixed Price (FFP) - 15% to 20% profit on total cost

Time and Materials (T&M) - 5% to 15% profit on fully burdened labor cost

Cost Plus (CP) - 5% to 15% profit on fully burdened cost

The Federal Acquisition Regulation (FAR) prohibits profit awards above certain levels for certain types of contracts where the government is bearing virtually all the risk. The PCO has the authority to negotiate the profit rate with the contractor but his profit memorandum to the file must specify the logic he utilized. PCO's must therefor justify the profit by discussing risk and certain other factors in the memorandum. 

To assist PCO's the government has provided the "Weighted Guidelines Method" of profit determination for use by government representatives in developing a position on profit. Ask for a copy of the government's weighted guideline analysis. It lends structure to the profit negotiation process. 

As you will see when you analyze it the government assesses risk and certain other factors such as management/cost control, contract type, working capital and cost efficiency factors in determining the profit to award on the contact. 

Your job is to influence the government with regard to risk and other factors and obtain the highest possible profit considering the nature of the prospective contract and the risk involved in performing it. Remember that the PCO's opinion of the risk in the contract is being regularly influenced during all steps of the negotiation process.

Certain cost plus incentive fee and cost plus award fee arrangements are available to the government and are usually specified in the RFP. Contractors are required to provide proposal input to these arrangements. A base fee is negotiated and then an incentive fee range or an award fee pool is also negotiated. The contract requires regular awards of additional increments of fee based on the performance achievements negotiated in advance with the contractor. 

A "Best Value" performance fee arrangement proposed by a contractor may be a key discriminator in winning a competitive procurement.

Contract Award -. Agreement on a final price for the contract is determined by the total negotiated cost plus the negotiated profit. The negotiation result is documented by the contractor in the form of a letter to the PCO specifying the date negotiations were concluded and the agreed upon price. 

A Certificate of Current Cost and Pricing may be required if the solicitation and contract terms contain the FAR clause for Certified Cost and Pricing Data. The clause has serious implications with regard to avoiding defective pricing and should be carefully researched before a company or an individual signs the document.

Upon receipt of negotiation confirmation from the contractor and the Certificate of Current Cost and Pricing, if required, the PCO and his staff prepare the contract document. The document is forwarded to the contractor for review, approval and signature. The PCO then signs the contract and returns a copy of the fully executed document to the contractor. 

You are now authorized to commence work. The government is obligated for the full amount of the contract and will pay invoices up to the incremental funding level. Many contracts are fully funded at award. Other contracts, particularly multi-year programs, are incrementally funded by year.

You are obligated for delivery of the supplies and services specified in the negotiated and signed contract in accordance with the delivery schedule and terms and conditions contained therein.

NEGOTIATIONS WITH A PRIME CONTRACTOR FOR A SUBCONTRACT

You signed a teaming agreement with a prime contractor during the RFP stage of a solicitation. You prepared your proposal and submitted it to the prime contractor who incorporated it into the submission to the government. Your submission contained flowdown versions of terms and conditions from the prime's federal contract as well as a technical description of the effort you intend to perform. 

Your cost proposal contained fully loaded rates for the labor categories and material as well as the travel you will perform on the subcontract. The government has awarded the prime contract to our team member. You are now undertaking negotiations with the prime to convert your teaming agreement to a subcontract. The subcontract will replace the teaming agreement between you and your prime.

Most prime contractors prefer to negotiate subcontracts with their team members before they negotiate the final prime contract with the government. Therefore, you will likely be approached by your prime with a certain element of urgency to finalize your subcontract and enable him to negotiate his deal. Keep in mind that your prime contractor is preparing his cost for negotiations with the government and may be seeking to obtain cost benefits at your level which will offset elements of his proposal which he may have bid ambitiously.

A. Audit - Prime contractors do not have a right to your direct and indirect rate information. Subcontractors propose fully loaded labor and material through profit and do not disclose their rates to primes. Your teaming agreement may specify the profit rate your team member and you have agreed to apply. Other than profit, your prime does not know the make-up of your direct labor, overhead, material handling and G&A rates. Your proposal disclosed labor hours at a fully loaded rate and burdened material and travel cost. If your prime wants to audit any other cost element of your proposal he must request an assist audit through his PCO. 

If an assist audit is requested the PCO will get a copy of the audit report but the prime contractor will get only a general statement regarding the adequacy of rates and systems. Thus, the PCO on the procurement is in possession of more information than the prime contractor in terms of the cost elements in your proposal. 

This may seem a disadvantage, but it is the only way the federal government and its contractors have been able to protect proprietary information in an environment where a contractor is teaming with a company today and competing against the same company tomorrow in a different program.

Fact-Finding - Prime contractors have similar limitations to subcontractor proprietary data during fact-finding as they do during audit. However, as the government’s buying agent for the subcontractor supplies and services, the prime is expected by the government to conduct a thorough source selection, to include market surveys, competition, technical qualification and contract negotiation. 

However, prime contractors cannot demand access to what subcontractors deem proprietary data without first signing a non-disclosure agreement with that subcontractor during the teaming agreement phase. Even then, most subcontractors will not disclose closely held process information, software source code and market sensitive data to a prime. When such data are disclosed they are clearly marked company proprietary. 

Therefore, for fact-finding the prime will utilize end items specifications for products, warranty details, personnel resumes for labor, financial performance information from Dunn and Bradstreet and customer satisfaction information from other clients. The prime may also request a tour of your facility if you are a first time supplier. 

The business relationship with a prime contractor is formed during the teaming agreement stage when the parties determine that they have complimentary capabilities. Keep in mind that the teaming agreement is replaced with a subcontract when the program is awarded by the government.

Pre-Award Survey - The government PCO may request the Defense Contract Management Area Office (DCMAO) to complete the survey of a major subcontractor on a program where the subcontractor has a major portion of the effort and in cases where the subcontractor is new to the defense business. 

The PCO will always work through the prime contractor in arranging for the survey and the prime will receive a general statement when the survey is completed that the government either concurs or does not concur with your selection as a supplier. Once again, the relationship formed with a prime contractor during the teaming agreement stage is key in determining a selection as a source.

Cost Negotiations - You will be negotiating with a representative of the prime contractor, deemed a "Subcontract Administrator" or a "Subcontracts Manager" instead of the government. Only this person is authorized to commit the company and care should be taken not to undertake matters of negotiation with other members of the prime contractor organization without an authorized contracts representative present. 

The prime will not have access to subcontractor direct or indirect rates or the DCAA Audit Report or DCMA Fact-Finding Report. The prime contractor will be viewing your labor, material and travel cost from a fully loaded standpoint and will likely focus on labor categories, labor hours, number of travel trips, an material escalation in pursuing his negotiation target.

Final Profit Negotiations - The profit rate will be agreed upon with the prime as either a function of the teaming agreement or as a function of subcontract negotiations. You will be negotiating profit with your prime contractor instead of the government. Make use of weighted guidelines to support your proposed profit.

Contract Award - You will receive your subcontract from the prime contractor and the prime's subcontract manager instead of the government and the PCO.

NEGOTIATIONS WITH A SUBCONTRACTOR UNDER YOUR FEDERAL GOVERNMENT CONTRACT

You signed a teaming agreement with a subcontractor during the RFP stage of a solicitation. Your subcontractor prepared a proposal and submitted it to you. You incorporated it into the prime contract proposal to the government. You have negotiated flowdown versions of terms and conditions from your federal contract to the subcontractor as well as a technical description of the effort the subcontractor will perform. 

The subcontractor's cost proposal contained fully loaded rates for the labor categories and material as well as the travel he intends to perform on the subcontract. 

The government has awarded the prime contract to you. You are now undertaking negotiations with the subcontractor to convert your teaming agreement to a subcontract. The subcontract will replace the teaming agreement between you and your subcontractor.

It is preferable to negotiate subcontracts with team members before you negotiate your final contract with the government. Going into negotiations with the government having definitized your subcontracts reduces your risk in terms of unknowns contractually at the supplier level. It also eliminates the subcontractor wanting to know the result of your prime contract negotiations so that he can use it as a frame of reference for his negotiation position with you. 

The baseline when you go to the table with your subcontractor is your teaming agreement specifying his statement of work and your collective proposal to the government containing the prospective cost and price for his effort as part of the total proposal.

Audit - You do not have a right to subcontractor direct and indirect rate information. Subcontractors propose fully loaded labor and material though profit and do not disclose their rates to primes. Your teaming agreement may specify the profit rate you and your team member have agreed to apply. 

Other than profit, you do not know the specific make-up of your subcontractors direct labor, overhead, material handling and G&A rates. The subcontractors proposal has disclosed the labor hours at a fully loaded rate and burdened material and travel cost. 

If you wish to audit any other cost element of his proposal you must request an assist audit from DCAA through your PCO. If an assist audit is conducted, the PCO will get a copy of the audit report and you will get a general statement regarding the adequacy of the subcontractor's rates and systems. 

Thus, the PCO on the procurement is in possession of more information than you are in terms of the cost elements in our subcontractor's proposal. This may seem a disadvantage, but it is the only way the federal government and its contractors have been able to protect proprietary information in an environment where a firm is teaming with a company today and competing against the same company tomorrow in a different program.

Fact-Finding - You have similar limitations to access subcontractor proprietary data during fact-finding as you do during the audit. As the government's buying agent for the subcontractor's supplies and services, you are expected by the government to conduct a thorough source selection, to include market surveys, competition, technical qualification and contact negotiation. 

However, you cannot demand access to what subcontractors deem proprietary data without first signing a non-disclosure agreement with the subcontractor during the teaming agreement phase. Even then, most subcontractors will not disclose closely held process information, software source code and market sensitive data to a prime. When such data are disclosed they are clearly marked company proprietary. Therefore, for fact finding you will utilize end item specifications for products, warranty details, personnel resumes for labor, financial performance information from Dunn and Bradstreet and customer satisfaction information from other clients. 

You may request a tour of the subcontractor's facility, especially if he is a first time supplier. The business relationship with a subcontractor is formed during the teaming agreement stage when the companies determine that they have complimentary capabilities. Keep in mind the teaming agreement is replaced with the subcontract you are negotiating.

Pre-Award Survey - A government pre-award survey may be completed by the government and results will be supplied to the PCO. You will get a general statement that the government either concurs or does not concur with your subcontractor selection.

Cost Negotiations - You will be negotiating with a representative of the subcontractor, deemed a "Contract Administrator" or a "Contracts Manager" instead of the government. Only this person is authorized to commit his company and care should be taken not to undertake matters of negotiation with other members of the subcontractor's organization without an authorized contracts representative present. 

You do not have access the subcontractor's direct or indirect rates,  the DCAA Audit Report or DCMA Fact-Finding Report. You will be viewing your subcontractor's labor, material and travel cost from a fully loaded standpoint. Focus on labor categories, labor hours, number of travel trips, and material escalation in pursuing your negotiation target. Remember you are acting in the role of the government in this negotiation.

Final Profit Negotiations - The profit rate will be agreed upon with the subcontractor as either a function of the teaming agreement or as a function of subcontract negotiations. You will be in the contracting role instead of the government. Make use of weighted guidelines to support your proposed profit.

Contract Award - You will issue a subcontract to your partner.






Sunday, July 7, 2024

What Works And Does Not Work In Small Business Blogging

 

In the current business climate of high technology and Internet communications, very few small enterprises succeed without effective on-line networking.  Most grasp that reality and make it a part of the business routine.

Content can be developed to suit the target client profile. One of the shortest paths to demonstrating value to a target audience is to do so with good blogging content, networked to the max.  Much of the network blogging tools these days are free and only require some astute time to magnify a business to clients (regardless of who the clients are).

Blogging approaches can be developed as marketing brochures for multiple roles, communicated in a vast array of venues and promoted in the media ladder to the point where local and national readership and service subscription multiples very quickly. But one must open people’s eyes and make them understand what is offered and how it can benefit them.

I have seen hundreds of small enterprises gain a foothold by using the right combination of tools. 

In assisting small business concerns in government contracting and commercial enterprises via SCORE and Micro Mentor for the last 17 years. I began exploring blogging to determine what to recommend to clients. I found very quickly that it provided vast returns as a time saver once I established the platform and set up the network.

I found that one article,written informatively can be linked to many clients and networked to help others while building credibility in the small business community. I run the blog Smalltofeds in support of my volunteer efforts  

In order to manage high volume of inquiries in federal government contracting, I set up a Google blog as an extension of my volunteer work that blossomed into a web site. It has cost $10 a year to buy and convert it from a blog to a domain in my name and the rate has not changed in 17 years. The blog contains the basics of entering and succeeding in the venue as well my books and articles on the subject for download via "Box".

The idea is to refer clients to informative article links at the site to avoid repeating myself over and over to new business clients and still keep myself available for specific inquiries and problems.

I networked everything together and began answering questions at Q&A sites as well as registering at many of the free applications for networking on the Internet to see how that could benefit my work. Linkedin, Twitter, Pinterest,Tumblr, Wordpress, Mastadon and similar free platforms have served my site well. Roughly 30% of my clients began coming via blog networking.

The result has been heavy traffic, good efficiency in supporting in excess of 7,000 counseling cases over the last 17 years and virtually no expense to me as a volunteer working for non-profit organizations.

I also maintain a personal blog, Rose Covered Glasses  It does not receive any where near the traffic that Small to Feds receives because there is a vast difference between the two. I discovered very early that I had to separate my personal opinions from business subjects to be effective in the professional social networking venue.

Individuals who contact me or network at Small to Feds are after business advice and assistance; my books, my experience, a helpful form, insights into a fairly complex field and other problem solving information.  They are not particularly interested in my personal opinions; those who are can go to my personal blog. Not many do. Small to Feds has received sightly under 2 million views, statistically. Rose Covered Glasses just broke 300,000 -- point made.

I found networking constantly on professional sites such as LinkedIn and hitting the Q&A features assists in accumulating an "Expert" rating from peers and increases referrals.

A blog is quite different than a web site. Provide good, solid information free of charge and use blog searches for synergistic businesses to team with. Teaming is an absolute necessity these days. Use blog search capability and locate similar sites, then remark and back link to them. Develop reciprocity relationships, guest blogging opportunities and similar social networking techniques.

Be prepared to provide information, samples and valuable service gratis as a marketing tool. Introduce yourself and then immediately engage the client with your presentation tools available to bring your expertise to whatever topic they are interested in. Let them take you where they want to go with their concerns and their needs. Apply your presentation tools and expertise dynamically on the fly in a sincere manner to those concerns and needs and you will be in demand for follow up business.