INSIGHTS - Using Weighted Guidelines Profit Determination In Federal Government Contract Negotiations

                             

    Image: Skyway Acquisition Weighted Guidelines  

The accepted template for negotiated procurements with the government is as follows:

A. Audit

B. Fact-finding

C. Pre-award Survey

D. Cost Negotiations

E. Final Profit Negotiations

F. Contract Award

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 that during Steps A trough D above, 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 at Step E, above.

Although the above FAR clause allows for 3 methods of profit negotiation, the most common method contracting officers use is the Weighted Guidelines Method.

ELEMENTS

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 because a contractor can present a profit position in a contract proposal that logically supports the below elements required by FAR Part 215-404-4."Profit" during negotiation. 

• Performance Risk
• Contract Type Risk
• Facilities Capital Employed
• Costs Efficiency

It should be noted that the Facilities Capital Cost Employed (FCCM) factor (a separate DD Form 1861) does not always enter into small business negotiations, because many start-ups and smaller enterprises do not propose it as part of their allowable costs due to elements they cannot demonstrate in capital investment, land, buildings and similar items.

UTILIZING THE FORM FOR NEGOTIATION

A DD Form 1547 accompanies this posting. An Excel version with arithmetic formulas and a separate tab for DD Form 1861, FCCM, can be downloaded from the  Box “References” cube in the top right margin of this site.

Study the form and its guidelines at the above link. Apply it to your proposal. This puts your perspective on profit into the same structure as the contracting officer is required to develop his.

When profit discussions ensue and the contracting officer takes a position, ask for a copy of his weighted guidelines analysis form. If he does not provide it, or has not prepared one, give him yours with your position on profit, updated to reflect costs negotiated during steps A-D above.

A reasonable discussion can then occur on the elements of profit negotiation and offers, counter offers and ultimate agreement can be equitably reached with a known structure addressing risk and other required factors.

SUMMARY

The majority of negotiated cost proposal effort involves coming to an agreement with the government via audit, fact-finding, pre-award survey and cost realism. But keep in mind that the government is forming an opinion on the elements of weighted guidelines profit determination during those stages as well.

You can influence the government negotiator (s) on the weighted guidelines profit elements during the early stages of negotiations as you settle on cost factors. You do so by presenting the data and narrative basis of estimate in such a fashion as to identify risk and other key area of weighted guidelines analysis. Insure the technical, management and cost volumes of your proposal, if they are required, are consistent in that regard.

Update your DD Form 1587 in your working file and prepare to use it as you settle on profit to conclude negotiations. Relate your profit position to weighted guidelines cost elements, as agreed upon with the government, supported by your proposal and any other documented disclosures you have submitted during negotiations. Doing so will support your position on profit and give the contracting officer an opportunity to accept it.

10 Tips to Expand Your Small Business Client Base Mix For Stability In Government Contracting

1. A mix of commercial and government business is good. In fact, most small business federal government contractors who move from commercial to government work, remain in commercial business.  They separate government from commercial work in unique cost centers of the company for pricing and cost control purposes, recognizing the market and competitive differences in the two venues.

 Cost Center Strategic Planning 

2. Your marketing efforts must be sensitized to swings in world events, geopolitics, domestic priorities and technology trends. 

 

3. The over 100 federal government agencies all have the same small business contracting requirement under the law. Focus on government contacting applications for your core business by exploring agencies other than those with whom you have been doing business.

SAM Contract Opportunities
 
4. Industry partners are an excellent way to move into new fields.

Small Business Teaming 

5. Keep an eye on “USA Spends” and a close view of the domestic vs. foreign emphasis in the federal budget.  (War vs. bridge repairs). 

 USA Spends

6. Remember there is not much agencies of the federal government do not buy and they buy in huge quantities. 

 7. If your high-end navy IT customer requires support, security or related services, it is likely his or her counterpart in the Department of Agriculture or Health and Human services requires the same expertise.   This rule holds true for other services as well.

8. Maintain Your Capability Statement current with evolving trends and your growth. Seek to utilize it as a vital tool in your company marketing program.

Your Capability Statement

9. Preserve your credit rating and your finances in top shape to respond effectively when opportunities arise. Government contracting contains certain front-end loaded risks that must be anticipated and managed. Many of these are addressed in the following article.Managing Risk.  Federal government agencies do not always appreciate the cash cash flow and financing challenges for the small enterprise in the timing of awards and funding.The wise small business manages this risk with a solid credit rating and lines of credit to buffer those types of challenges.

10. Remember market research is a continuing and ongoing process.

 Values Based Market Research

Small Business Federal Government Contracting and You

 

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About Ken Larson  – Consultant, Counselor and Micro Mentor

Over 40 years in the Defense Industrial Complex. Veteran 2 tours US Army Vietnam. Subsequently spent 36 years in federal government program and contract management and 10 years in small business consulting.  As a Micro Mentor Volunteer Counselor,  Ken Larson assists many small businesses with their planning and operations processes. Receives many inquiries from small companies wishing to enter or enhance their position in federal government contracting. Volunteer time, books, articles, and resources are 100%  free, maintained exclusively for small business on the above subjects.

 

Meeting Veteran & Employer Challenges During Transition from Military to Civilian Work



Expectations and Reality are Far Apart on Both Sides of the Employment Spectrum

By Ken Larson 

Aside from the legal and moral obligations to employ returning veterans, there is a third, vital challenge in the employment transition equation: understanding the vast difference between the military and civilian work environments.  The expectations of both parties must be carefully assessed and communicated with realistic processes for effective transition from military to civilian employment by the veteran.

Civilian Knowledge of the Military Environment Has Diminished

As a country, America has been at war nonstop since 911. As a public, it has not. A total of about 2.5 million Americans, roughly three-quarters of 1 percent, served in Iraq or Afghanistan at any point in the post-9/11 years, many of them more than once.

The Tragedy of the American Military

War was much closer to home when the draft existed and military participation ran higher during WW II and the Vietnam Conflict.

The Nature of Today's Wars and a Cynicism with Regard to Their Outcome Impacts the Veteran and the Civilian Outlook

Ultimately, the military’s discontent may stem from dissonance between the commitment to, and pride in, the mission in Iraq and Afghanistan and the knowledge that these sacrifices have not yielded the desired results.

The wars in Iraq and Afghanistan arguably have prompted a crisis of confidence within the military itself.

Despite a six-year, $287 million effort to make troops more optimistic and resilient, an Army survey found that 52 percent of soldiers scored badly on questions that measured optimism, while 48 percent reported having little satisfaction or commitment to their job.

Understanding the Military's Morale Crisis

Veterans bring these issues home and find a civilian employment environment that does not have a focus on combat life and death, but rather an emphasis on long term thinking, collaboration, viewing actions with respect to the impact on internal and external customers and politically correct human resource considerations.

The assumption on the part of the employer is that the strength and training of the individual coming out of the military environment permits a reasonable transition. It does not.

We Must Educate and Develop Programs to Bridge the Gap from Both Ends.

A transition partnership between the veteran and the company is necessary. Expectations must be adjusted to reflect the differences in both venues.

Military core values such as – oaths, the Uniform Code of Military Justice (UCMJ), a culture of direct command, and a narrow focus on the task at hand are no longer available when the veteran leaves the military. 

In the civilian environment political correctness, strategic group awareness, tact, organization factors, and a broad view of mission and achievement are required.

A veteran is therefore is not so much entitled to a job as he or she is entitled to be understood, and to be allowed to understand the civilian job environment, growing into it.

Professional Roles are Vital

There are two important types of professional roles to consider when hiring and managing military veterans in the business venue.

As a veteran who made the transition to civilian professional work and ultimately owned a small enterprise, and as a counselor who supports veterans in becoming business owners, my experience over several decades indicates military men and women do well in Role 1 below. They have the most challenges with Role 2.

Role 1 Technical - Scientific, engineering, logistics, electronics, design and similar skill sets where direct supervision, team building, corporate policy compliance and human resource planning and utilization are not major factors.

VS

Role 2- Management - Functional process capacities responsible for hiring, evaluation, supervision, compliance with civilian law and department activities involving group dynamics, customer relations and sensitive human factors.

Image: The Military Wallet

I came out of the military having had a leadership role in engineering, base development planning and combat support. I served in war zones in Southeast Asia and on highly classified missions. I was not a manager. I was a military leader in specialized skill sets under Role 1 above.

I knew how to direct people who followed orders without question because the Uniform Code of Military Justice to which we swore an oath said they must do so.

I felt uncomfortable in jobs involving Role 2 above because they were foreign to me. I later adjusted, learned the venue and became skilled as a manager in the corporate world. I preferred staff assignments, however for most of my career.

The corporate venue seemed enormously political and bureaucratic to a former war fighter like me. I was not that tactful. I cut to the chase often and did not always take everyone with me when I made a decision.

Once I grew into a Role 2 performer, I found in interviewing, hiring, evaluating and managing young veterans, even seasoned ones, who had retired and joined the civilian work force, that almost all were better suited for Role 1. It took years and effort on my part to fit them into Role 2 and some never made it.

Management Analysis  and Moving Forward

The principal reason for the logic conveyed above is that the military environment may seem to be structured in a way that fits Role 2, but the military does not turn out individuals who are suited in the knowledge and experience necessary in the civilian environment and they are not very good at it without extensive training and adaptation.

Enterprises have multiple-faceted challenges and they require multiple- faceted people. Even though individuals may hold a specific position job title, success in the civilian work force demands avenues where the human resource can contribute in multiple ways.

If a contributor has experience and training in several areas the business can utilize, that makes him or her a valuable resource and it is likely they will be professionally fulfilled and rewarded from doing so. Military personnel have specialty training and focus; few have a wide view of what is in front of them, particularly with respect to military vs. civilian professional settings.

It all comes down to the workers having an element of control in the future success for both themselves and the company and having the opportunity to realize their potential in that regard.

If the professional is in a narrow, technical discipline and his or her expectations are to have others support them in that role or if they are more comfortable in a "Stove-piped" professional setting and not attuned to group dynamics and the often politically correct nature of the civilian organization, they perhaps belong in technical roles and they do not belong in management roles at the onset of their employ.

Summary

In fairness to veterans and to our hopes for them in the future, we must understand these above distinctions, build on Role 1, understand the risk in Role 2 and assist wherever possible.Above all,  a respectful partnership and realistic expectations must evolve between the veteran and the company for success in transitioning  former military personnel into the civilian work force. This must be achieved through education, training, communication and assessment of both the veteran and the company personnel.

About the Author: 

Ken Larson is a 2 Tour US Army Vietnam Veteran, retired after 36 Years in the Defense Industrial Complex, having worked on 25 major weapons systems, many of which are in use today in the Middle East. He concluded his career with his own consulting firm. As a SCORE  Counselor Ken receives many inquiries from small companies wishing to enter or enhance their position in federal government contracting. 

Meeting Government-Owned Property Management Contract Requirements

For small businesses involved in development and manufacturing efforts under government contracts, or those who are pursing research and development involving large scale systems, the government property topic often arises.

In general, government contractors are required to provide all that is necessary to fulfill the scope of work on a government contract. However, under time and materials and cost plus contracts where the acquiring agency has made substantial investment in manufacturing aids, special test equipment or apparatus, title to such items will fall to the government.

Title falls to the contractor on firm, fixed price contracts where the cost is base lined at contract award and is assumed to include all that is required to produce the end item when it was bid.

Government property must be stored separately from contractor property when not in use, identified in the facility inventory system as government owned and have government property tags.

Rent – Free Use of government property accountable under one contract must be requested on a non-interference basis from the owning contracting officer before use on another contact and the using contract must reference the approval.

The government may elect to charge rent for use of government property under commercial or foreign contracts. The process for calculating and paying rent is specified in FAR 52.245-9.

The principal FAR Clauses for government Property are 52.245-1 and 52.245-2. If you are undertaking a contract involving government property please read these FAR Clauses. Within these clauses are requirements for inventory, disposal and disposition of government property.

FAR - Government Property Clauses

Government property may be furnished by the acquiring agency with a contract award and may be placed in the care of the contractor. In those cases accountability for the items, together with associated maintenance may be assigned to the contract and reassignment of the property must occur before the contract can be closed out at completion.

The Difference Between A Free Lancer And A Small Business Federal Government Contractor

 INTRODUCTION

Talented free lancers often wish to grow independently as individuals in the government contracting market and face difficulties in doing so. Many have service and product development skills of value to federal agencies, but few succeed without forming a company and beginning to view their objectives as an enterprise instead of a single person entity. 

This article will examine the principal differences between free lancing and small business contracting from the perspective of the market realities that drive success in the venue.

DEFINITIONS:

We have previously discussed the organization entities that are involved in federal government contracting:

WHAT IS A SMALL BUSINESS FEDERAL GOVERNMENT “CONTRACTOR”?

Free Lancer:

A particular type of individual – the “Free Lancer”, finds his or her way to the federal market via established companies and performs single person services while not on a company payroll as an employee, having no taxes, benefits or deductions taken from their pay and not covered by any form of insurance.

The company issues a purchase order to the individual at an hourly rate and submits a Form 1099 to the US government reporting what is paid for services. The free-lance contractor must self-insure during the contract period and pay taxes on the money earned at the end of the tax year. Little, if any intellectual property protection exists for the individual and the larger firm may require non-disclosure, exclusivity and noncompete agreements that may limit the future efforts of the free-lancer.

Contractor

The term “Contractor” in government parlance refers to businesses, not individuals. To become a contractor to a government agency, you must therefore form you own business. Government agencies rarely engage individual contractors or free-lancers.  If they want individuals to perform services they put them on the agency payroll. If they want to acquire specialized outside services they contract with companies. 

Subcontractor

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

The Necessity to Grow From a Free Lancer to a Contractor and/or a Subcontractor

Although talented professions may believe there is growth in the market for high performing individuals, the government contracting industry has very little room for them except in specialty roles and then usually only temporarily.  Prime contractors also view Free Lancers as interim performers of a short term variety and usually offer them the option of joining the company or moving on.  The government tends to view them as “Roosting” and not long term in reliability.

No past performance record is kept on individual Free Lancers by the government or prime contractors under FAR.  Such records pertain only to incorporated entities.  Companies bringing free lancers on board cannot claim their historical work as credible under government past performance guidelines until the individual has contributed to the company success as an employee, losing his free -lancer status in the process except for resume and organization chart purposes on future projects. 

With federal agencies there is a strong movement to issue umbrella, multiple year, long- term contracts, many to multiple sources for qualification and then order services as required with bundled capabilities in teams of companies.  Free Lancers do not qualify for such efforts without a company identity.

On cannot acquire a GSA schedule as a Free Lancer.  Once must form a company and apply as a business entity to achieve that form of marketing vehicle. 

Further, the government hesitates to become involved in contracting with individuals unless they are heavily insured and such insurance costs heavily for individuals and in many cases cannot be achieved at all.  

Therefore, to progress economically and independently the Freelancer must incorporate, form an enterprise and begin to thinking in terms of a company entity in lieu of a single person image for the future.  This can be achieved by adding personnel via incumbent work forces, using contingent hire agreements or engaging in product development with industry partners and government financing.  The following articles at this site provide details:

Acquiring An Incumbent Work Force As An Element Of Winning A Government Contract

Utilizing Contingent Hire Agreements to Strengthen Workforce Depth

Techniques for Small Business Product/Services Development in Government Contracting

SUMMARY

For stability, growth, cash flow, industry reputation and partnering, past performance consideration and economics, consider the transition from a single individual free-lancer to a company.  Brand your company and not yourself and think bigger than you are in terms of involving others in your operations to best position your supplies and services in the federal contracting market.