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Tuesday, October 12, 2021

Security Clearances Federal Government Contracting

Image Source MGN
While exploring the federal government marketplace the small business will encounter programs and potential contracts that involve security clearances. This is common in the Departments of Defense, Energy, Homeland Security and many other agencies.

"FedTeDs" (Federal Technical Data Solutions) is a password-protected, web-based tool designed to safeguard the distribution of sensitive, unclassified, acquisition-related information for all federal agencies. FedTeDS allows Contracting Officers (COs) to use the internet to disseminate sensitive information in a secure way and eliminate the need to create and distribute CDs or paper documents. On some programs access to bid documentation may require a company and/or individual registration to acquire access.

Small business must grow into federal government classified programs. Individual and company clearance designations exist at various levels, depending on the relative risk to national security if unauthorized disclosure occurs. Clearances for key management are necessary to achieve a company clearance and all clearances are expensive. Either your company or a sponsor in the form of a prime contractor or government agency must pay for the process; the higher the security clearance the more costly the clearance. For facility clearances involving housing classified material, a building itself may require modifications for classified storage, communication devices or meeting accommodations (Sensitive Compartmented Information Facility or SCIF).

Becoming involved in the classified contract venue requires that you budget the time, the expense and the processes necessary and that you expense them in your forecasted overhead rate budgets so the costs can be appropriately priced and recovered via government contract billing. You must also carefully research government regulations such as the "National Industrial Security Program" (NISP) which governs the classified environment across all federal agencies:


The US Government security clearance process is based on two major principles:

1. A "Need to Know"

2. A requirement to perform a job on a specific government contract containing classified work.

Initial clearances are obtained by developing a business relationship with an agency or a prime contractor performing classified work and then getting assigned to a contract effort which is classified. Thereafter, clearances at certain lower levels can be carried by your employees or your company to other contracts at the same level of clearance requirement or even to a different agency within certain time constraints. At higher levels of clearances every employee is "Read On" and "Read Off" each and every contract on a singular basis after extensive background checks and in certain instances a polygraph. The process can involve lifetime nondisclosure commitments by an individual.

So you need a sponsor, a prime contractor company or an agency that will process your clearance based on your need to know classified information to participate in classified government contracts. Naturally they must be convinced via your marketing campaign that you can add value to the program involved. If it seems like a "Chicken and Egg" process - it is; but every business working in the venue has to go through the gates discussed in this article and maintain a vigilant program of compliance with associated regulations.

NOTE:  Comments at this post have been maintained from previous discussions on this topic at "Small to feds" in the interest of demonstrating the often complex and confusing nature of the clearances process. 

As one anonymous commentor (not published due to anonymity)  pointed out, some of the published comments are wrong and ill advised.  It pays to read the latest issue of the NISPOM, linked above. 

The anonymous commentor also maintained that clearances no longer cost the company.  I do not agree. The indirect costs of maintaining training programs to keep company and individual clearances is an ongoing tangible cost that must be planned for. The government considers  that cost allowable through the overhead on contracts, much the same way they are now considering a similar allowability for cyber-security certification.  

Wednesday, September 29, 2021

What Small Business Should Know About FAR and CAS




Federal Acquisition Regulation & Cost Accounting Standards

      Rules of the Game
       Developing Your Game Plan
INTRODUCTION

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

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

OVERVIEW

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



PLEASE CLICK ON IMAGE TO ENLARGE
The FAR applies to the full acquisition cycle for all supplies and services the federal agencies buy.  The CAS apply to consistency in estimating, pricing, job cost accounting, billing and closeout of financial data under the contracts for supplies and services regulated by the FAR. 

FAR and CAS are not "Rocket Science" but they are different than the commercial business sector.  

HOW TO DETERMINE WHAT FAR AND CAS MEAN TO YOU

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



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

CAS

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

Standard 9904.401, Consistency in Estimating, Accumulating, and Reporting Costs
 
https://www.acquisition.gov/chapter_99/part-9904-cost-accounting-standards#d1e2710

Standard 9904.402, Consistency in Allocating Costs Incurred for the Same Purpose
 
https://www.acquisition.gov/chapter_99/part-9904-cost-accounting-standards#d1e2966

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

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

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


PLEASE CLICK ON IMAGE TO ENLARGE

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



SUMMARY

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

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

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


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








 

Saturday, September 25, 2021

Pricing Service Contracts With Credibility in Small Business Federal Government Contracting




Introduction

Assuming a proposal to a government agency has an acceptable technical solution and past performance and management factors that convince the customer it is a viable candidate, then pricing may be the winning element in the source selection equation.

The mechanics of government contract pricing have been discussed previously at this site. The discussion relates how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning:


The above article also explains how long and short term pricing factors should be integrated with the management and technical elements of any given proposal and that a total view of the business is best presented by integrating long-term company strategy with short term proposal objectives. 

The purpose of this article is to augment the above discussion with tips on establishing and maintaining credibility in pricing to a government customer.

Certified Cost or Pricing Data

Certified cost or pricing data under the “Truth in Negotiations Act” (10 U.S.C. § 2306a) or TINA statute is proposal pricing, which for procurements greater than $750,000, is certified by the contractor as accurate, complete and current as of the date of agreement on price. (Section 811 of the fiscal year 2018 NDAA includes a provision that increases the threshold up to $2,000,000). 

The absence of a certificate does not eliminate defective pricing liability.

The statement underlined above is a key principle in relationships with the government and its auditors. TINA influences a government auditor’s thinking and it is in the back of the mind of every contract negotiator. They are taught and learn by experience to look for TINA faults.  

Thus, even if your procurement does not meet the above threshold for TINA certification you should price to establish a similar credibility with your customer, even though you may not have to sign a TINA “Certificate of Current Cost or Pricing”. Doing so is simply good risk management in business.

You may read more about cost and pricing data and the negotiation process at the following link:


Remember Historical Data is Precedent Setting

All auditors, negotiators and pricing analysts are preconditioned to utilize historical data. The last or most favorable price offered a customer for a commercial off-the- shelf product is strong support for what is currently being quoted. This is particularly true of GSA Schedule negotiations, product updates or repetitive buying situations.  If you are a commercial supplier, a quantity factor will also enter into play.  In general, orders of higher quantity than historical pricing quantities undergo downward pricing pressure by the buyer unless some other factor such as a non-recurring tooling charge, learning curve interruption, obsolescent material or other upward factors can be offered as support for a higher unit price on a higher quantity buy.

Educate Your Auditor

An auditor who is familiar with your forward pricing rates, your business system and your product lines will understand your proposal cost and pricing data better than one who has not been briefed on the big picture of your company business operation.  Take the time to conduct briefings at that level and acquaint new government personnel with your operations.  Do not assume he or she has read prior audit reports.  They may have done so but a face to face courtesy briefing is much more effective than reading some other auditors view of a specific proposal. 

This factor can be a double edged sword, however. An auditor who knows the operation extremely well can also spot deviations in cost and pricing data and require explanations for anomalies in pricing based on observed trends.

Develop a Comprehensive Basis of Estimate (BOE)

A good BOE should have the following principal attributes:

* Clear identification of the products, services, skills, materials and performance factors required to complete the contract and material/subcontract quotes, labor categories and skill sets to perform the effort.

* A description of the conditions under which the contractor will be required to perform and any related environmental or location factors that affect the hours or dollars quoted

* Specific references to product specifications that govern an acceptable product or services performance outcome and delivery acceptance so that the cost data has boundaries.

* A schedule for the contract that identifies discrete delivery dates for products and specific start and end dates for supporting labor so that escalation and price expiration are established. 

* A precise description of government/customer furnished material or facilities required and when it will be made available to the contractor to bound the expectations of the client with respect to elements your company cannot or will not control. 

Insure Compliance with Cost Accounting Standards (CAS) Requirements

Small businesses are generally required to meet modified CAS coverage for service contracts. This requires consistency in the manner in which a small business quotes a proposal and the manner in which costs and billings are accounted after award.  You can read about these requirements at the following link:


Insure your proposal contains no unallowable costs and that your direct labor as well as your overhead and G&A rates are applied in accordance with your latest forward pricing agreement. If you do not have a forward pricing agreement, explain precisely how your rates were developed from a CAS compliant business system perspective:


Utilize Weighted Guidelines as a Check to Prepare Support for the Profit Rate Quoted

Although policy in FAR Part 215-404-4 states that contracting officers ….” do not perform a profit analysis when assessing cost realism in competitive acquisitions”, it is wise to understand the contracting officer and his representatives are indirectly forming opinions of the risk to the contractor and the mix of cost elements in the proposal. That opinion directly effects profit negotiations and judgments.

Contractors should be aware that the Weighted Guidelines Method is mandatory for all negotiated procurements except Cost-Plus Award Fee Contracts and exceptions as approved by a higher authority. Contracting officers are to prepare their position using DD Form 1547 with associated backup and file it at the conclusion of negotiations.

Understanding the weighted guidelines method can assist in achieving a higher profit on a negotiation because a contractor can present a position at the table that logically supports the following elements required by FAR Part 215-404-4:

* Performance risk

* Contract type risk

* Facilities capital employed

Read more regarding the Weighted Guidelines Method at the following link:


Summary

A reputation for defective pricing leads to accusations of waste fraud and abuse in government contracting and is mostly about what a contractor knew regarding company prices at the time a bid was negotiated 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. 

Avoid defective pricing accusations by establishing credibility with your customer through consistent, regulatory-compliant, cost and pricing in your proposal submissions and negotiations.





Monday, September 20, 2021

Work Authorization Is Key To Your Contract Management Process




The execution of your contract (signing by both parties) is a key benchmark in government contracting. It triggers several events such as the start of the period of performance and the delivery schedule time period. Execution begins a billing period start date, and contractual obligations by the government and the contractor.

You should establish an internal document to your company that contains the pertinent data for the contract and assigns it a unique contract identifier in your business system. This is necessary for billing and cost collection purposes as well as government audits. 

Astute government contractors do not allow effort to proceed or cost to be incurred on a particular contract until such a document is generated, signed, approved and distributed by a company official assigned the duty of releasing the contract for performance. 

Such documents are commonly called "Work Authorizations", "Release Orders" "Production Release Orders" or a similar term to benchmark the new business and begin performance, accounting, and time and materials accumulation on the contract. 

Any cost or supplier commitments prior to a signed contract are considered pre-contract costs by the government under FAR and require special authorization by the PCO under the contract. They cannot be billed until the contract is signed. Incurring pre-contract costs without authorization is high risk for the contractor. 

Any work or supplier commitments outside the scope of the current contract documentation are also high risk without a negotiated contract amendment adding the scope of work to the contract or government authorization for the use of designated management reserve.

Sarbanes Oxley regulations and other recent government laws regarding corporate responsibility have made control of work authorization and record keeping an important factor in recent years. Keep in mind that a small business past performance record is generated when a contract is signed and this record is maintained by the government and is updated as deliveries and performance occur. 

You should begin your internal project management record on each contract by attaching all the necessary information for your performing organizations and support functions to begin doing their jobs. 

A copy of the contract should accompany the internal release to key functions in your enterprise. The master should be filed in your central files. Some companies perform work authorization electronically. The government is moving in the direction of electronic record keeping as well.

Tuesday, September 14, 2021

Women Owned Small Business (WOSB) Federal Contracting Program Certification Process




"SBA"

"New ED/WOSB certification rules took effect Oct 15th, 2020. 

Read this FAQ on the changes and then visit beta.certify.SBA.gov to submit your initial application. 

The new site makes it easy for you to understand the changes to the certification process to ensure you remain eligible.

Becoming certified for the WOSB Federal Contracting Program means your business is eligible to compete for contracts that are set aside for WOSBs and economically disadvantaged WOSBs and sole-source federal contracts within eligible industries. 

New WOSB Federal Contracting Program regulations were published in the Federal Register on May 11, 2020, detailing changes to the certification process. DON’T MISS OUT! 

Visit beta.certify.SBA.gov to submit your initial application. The new site makes it easy for you to understand the changes to the certification process to ensure you remain eligible. 

On the homepage, you can: 

• Access checklists that provide guidance prior to applying

• Explore your company’s eligibility 

• Find answers to questions regarding your firm’s eligibility in the program
 
• Request information from SBA program experts 

• Create an account and proceed with your application (Note: when you create an account, you will be automatically prompted to a new screen to access login.gov. This is a secure platform for creating new account logins.)"






Monday, September 13, 2021

Managing Risk In Small Business Federal Government Contracting Business System Development


INTRODUCTION

Most small enterprises must undertake some form of business process augmentation when entering federal government contracting.


The natural inclination for small business is to immediately jump to buying computer software tools or services in an effort to expedite the business system growth process. That propensity is often enhanced by suppliers who maintain their product or service is “DCAA Compliant”, has been “Validated by the Government as an Earned Value Management System (EVMS)” and other similar claims.

This article will address cautions and tips regarding an immediate jump to software or services as a means of growing a government contract business system. It will recommend some rules of thumb to insure wise business system development decisions, specific to your company, for managing the associated risks.   


UNDERSTANDING THE REQUIREMENTS


The US Government learned decades ago that it cannot impose specific business systems on contractors.  One of the last great attempts to do so was the Program Evaluation and Review Technique (PERT).  It was abandoned in the late 1950’s and early 1960’s and replaced by a set of industry criteria now known as Earned Value Management Systems (EVMS). 


Similarly, the Federal Government Cost Accounting Standards Board (CASB) determined that job cost accounting systems could not be imposed on contractors. Over the years they have developed and maintained a set of Cost Accounting Standards (CAS) which governs requirements for accounting on government contracts. 


The GSA and similar agencies maintain policies on travel, human resources and wage/rate determinations that are not specific systems, but minimum standards as well.  A small business entering federal government contracting should research the above and similar requirements in such areas as quality assurance, inspection and acceptance and export management.


PROCESS COMES FIRST – MAXIMIZE WHAT YOU HAVE


Given a thorough understanding of the requirements for a government contract business system that fills the need for your specific product or service delivery, the next step is to examine existing processes to determine if they can meet the need or be minimally supplemented to do so.


Finding a need for major process changes or enhancements in the existing business system is the beginning of a requirements analysis to determine the labor, process change, planning, costs and eventual selection of new automated tools that fit the company and that need.


Many start-ups and small enterprises find they can crutch their existing job cost accounting system for service contracts with spread sheets instead of buying an expensive, data base oriented, software package or services initially.  As the company grows into government contracting and the number of transactions and associated revenue warrants the expense,  the firm can then evaluate more expensive packaged software tools or services and ease into them with a plan to minimize disruption.


A government contract award drives many things in government business, but small firms cannot wait until that event to position at least the minimal processes necessary to perform, price new business, function lawfully in the human resources area and submit supportable detail in billings. 


Please see the following articles for guidance on minimal business system requirements for small business federal government contacting.


What Is A Small Business Federal Government Contractor?


Pricing Small Business Federal Government Contracts


Small Business Job Cost Accounting Basics

Small Business Federal Government Contracting Business System Development


RULES OF THUMB FOR SELECTING AUTOMATED TOOLS


From strategic planning to marketing, from forward pricing to job cost accounting, from subcontracting and vendor/contractor management to human resources policies, the small firm finds itself undergoing a business system design project upon entering the government contracting venue.


Understand the requirements first, review existing processes and tools next, develop a thorough requirements statement of what must be done in the way of enhancements and then consider automating.  While performing your analysis keep the following 5 rules of thumb in mind:


1. An electronic computer software package or service is not a system. One cannot acquire a system by acquiring them. 


2. One acquires a system by conducting systems analysis, achieving a design and processes by working with the people who will run the system. This is hard work and time consuming. Processes are improved and made more efficient by modifying user behavior not by automating it.


3. Once system and analysis and system design are complete one can prudently choose tools to assist in running the system. The adequacy of a computer tool or service is driven by the requirements of the most efficient system design.


4. The biggest mistake implementation teams make is to believe they are buying a system when they buy a software tool or service or let the tools drive the systems analysis process. That is like asking a mechanic to drive a wrench from New York to St. Louis. It has resulted in millions of dollars wasted and plummeting efficiency in many organizations, large and small.


5. It is necessary to design a system and processes unique to the company to meet user requirements before going shopping for computer tools or services.  If you do not you will be pigeon-holing your company into becoming a slave to the company that owns the software source code or service. If you want anything changed it costs a big buck.



Thursday, September 9, 2021

A FREE Companion Supplement to "Small Business Federal Government Contracting" Guidebook


                                 Please Click Above Image to Enlarge

We are pleased to offer this supplementary material free of charge to small business. 

The basic guidebook has been available as a free download at this site and will remain so as a service to small business. 

The supplement offers 19 additional topics.

Like the basic book, the supplement is a free download from the BOX cube in the right margin of this site. 

Supplement topics are annotated in RED on the table of contents at the above  illustration. 

Although both the basic book and the supplement have been on the web for some time, the live links in both documents lead to the latest information on a given topic at this site.