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Wednesday, November 30, 2022

10 Golden Rules For Small Business Success


1. Do not promise what you cannot deliver

2. Do not overextend your resources and get a reputation for poor performance.

3. Do not tell the customer what he or she wants to hear. Tell them what they need to know. They will respect you for it.

4. Network constantly on professional sites such as Linked InQuora, Alignable and others.  Use Groups and Q&A 
features to accumulate an "Expert" rating from  peers in your field. 

5. Blog like there is no tomorrow. 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.

6. 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.

7. Quote and bill what the client can afford and grow with them (in content and resources).

8. Be dedicated to working yourself out of a job with a specific customer and having your client take over by training. They will remember you and recommend you to 10 others.

9. Remember growth is a function of persistence and foresight. Know where your market is headed and get their first - then write and speak about your success indirectly by helping others. Demonstrate humility and a satisfaction in helping others succeed. They will find ways to give you credit. There are ways of tooting your horn without making peoples' lights go out.

10. Word of mouth advertising from pleased clients is a sure ticket to success.

Sunday, November 20, 2022

10 Common Traits Among Successful Small Business Government Contractors






As a volunteer counselor over the last 14 years, I have noted common traits among the most successful small business federal government contractors.  The following are 10 of the most prominent traits and tips on how successful small companies developed them
Commercial success before entering government contracting.  From maintaining buildings to keeping the lights on, from grounds maintenance to flight maintenance, look for niches that can be pursued based on successful past performance, transitioning via industry teaming via subcontracts, partner roles with larger companies or in small business set aside orders for minor items and simpler services provided directly to the government.  Your Entry Points
Willingness to concede there were things they did not know and seeking advice early.   You may download the book, SmallBusiness Federal Government Contracting and its supplement from the "Box" in the right margin of this site.  You may also benefit from the free "Reference Materials". Contract agreements, incorporation instructions for all the US states, guidance on marketing and business planning are also included.   Free Books and Supplements
Recognition of the value in industry teaming. Synergism is paramount in teaming with any size company, whether in a lead or subcontracting role. There should be technical, management and market segment similarities between you and any company with whom you are considering teaming. Your prospective team member ideally will not be a direct competitor; rather a business in a related field with whom you share a mutual need for each other's contributions in pursuing large-scale projects. Small Business Teaming in Government Contracting 
Strong capability statement (CAPE) development, networked prudently among government agencies and large government contractors. Your CAPE targets contracting officers and prime contractor buyers who are seeking to fulfill their small business buying goals. It is a way to get you in the door and speak to, or correspond with, the management and technical personnel who are the decision makers in sourcing small business buys.  A good quality CAPE is the spearhead of your marketing campaign and your visual image;  focused and direct, it must be informative, concise and a snapshot of the very best you can offer. Your Capability Statement
Maximizing set-aside qualifications in seeking both prime and subcontract opportunities. Small business group-designated procurements are far more frequent than sole source contract awards.  Agencies must prepare special justifications for sole sourcing and those most frequently approved are for Hub Zone and Small, Disadvantaged [8(a)] firms.  Small business group designations are beneficial to firms who hold them by enhancing the probability of an award through agency restrictions on prime contractor bidding to only those who hold the group designation. Others may bid as subcontractors to the prime but the prime small business contractor must be capable of performing at least 51% of the total effort in terms of work scope, hours and dollarsMarketing to Achieve a Small Business Set-aside Contract
Prudent bid/no bid decisions. Government contract proposal preparation is time consuming and can be costly. Meeting agency Request for Proposal (RFP) requirements with a responsive proposal can be well worth the effort if a winning strategy can be formulated.  When considering a proposal to a given government solicitation, conduct a bid/no bid exercise. By going through that process you will begin formulating your win strategy or you will discover that you should not bid the job for lack of such a strategy. Making an Astute Bid/No Bid Decision
Ethical business conduct and avoidance of conflicts of interest. A small business ethics image is different than a product or service "Brand Identity". The latter focuses on that which the customer receives from you in the way of products and/or services. A company ethics image is how the organization is viewed in general from a public perception as positive or negative.  That view is held by customers, your industry partners or prospective partners, regulators and the average citizen. If carefully sculpted your public ethics image can be a vital element in business success; if neglected it can pose a high risk to your enterprise.  Maintaining an Ethical Company Image
Excellence in risk analysis. The challenges and difficulties for the small business in government contracting are not so much in the areas of barriers as  they are in lack of knowledge (which I concede is a form of barrier but one that can be dealt with) Large business and government agencies take advantage of the small enterprise lack of knowledge or make poor assumptions regarding what a small business knows about the Federal Acquisition Regulation (FAR) and associated Cost Accounting Standards (CAS). This leads directly to abusive practices. Managing Small Business Risk
 Solid long range planning and plan maintenance. The time to consider separating government from commercial work and/or establishing new cost centers for bidding, accounting and billing purposes is when the enterprise is generating a long range marketing plan to determine rates for bidding new long term contracts. The location of the work (both geographic location and whether performance is in or out of a government facility, its duration, skill set requirements, government-mandated fringe benefits for workers and the competition are all factors to consider).Strategic Planning for Small Business
Excelling in meeting the past performance challenge, building a performance record with solid customer service and sensitivity.  How can a new organization or one that is new to government contracting muster a response to the past performance challenge? The answer lies in historical projects that may be similar in the commercial arena and a high quality proposal that clearly demonstrates an understanding of the requirement at hand, a unique and cost effective project plan and high performing personnel and/or products tailored to the statement of work to offset an interim, light past performance record. Meeting the Past Performance Challenge

Sunday, November 13, 2022

Baseline Management in Government Contracting

Image:  UCI 


INTRODUCTION

It is in the long term interests of astute contractors to assist in contract baseline management. The only way to achieve such an objective is through sound technical, cost and schedule definition and control via an iterative process with the government. This article will address that process.

SOLICITATION AND STATEMENT OF WORK BASELINE

If you are selling a straight commercial product off the shelf, the problem of baseline management is minimal, assuming your product meets the specifications required and you deliver on time. Is it during development programs for new products or service contracts involving labor supplied to the government that lack of definition and poor communication are high risks. The initial benchmark for managing this risk is in the government solicitation and statement of work.

A wise customer farms the preliminary draft solicitation and statement of work out to prospective bidders and requests comment. A wise supplier is constructive, yet critical in pointing out weaknesses in the document.

Part 1, Section C, is where the technical specifications and statement of work are located in the solicitation and will reside in your negotiated contract.Without a well written Statement of Work (SOW) and associated supplies and services specifications there is unacceptable risk in the future contract and is it exceptionally high risk to bid or contract the job. Both the contractor and the government must come to an understanding regarding the scope of effort to be performed. That understanding is conveyed in the SOW and confirmed in the specifications referenced therein. A good SOW should have the following principal attributes:

* Clear identification of the products, services, skills, materials and performance factors required to complete the contract

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

* Specific references to product specifications that govern an acceptable product or services performance outcome and delivery acceptance

* A schedule for the contract that identifies discrete delivery dates for products and specific start and end dates for supporting labor.

* A precise description of government furnished material or facilities required and when it will be made available to the contractor.

If your customer does not provide the above, offer a revision to the document during the comments period, during your proposal or during negotiations that represents a version to which your company will commit. Do not let the fact the program is competitive sway you from the facts. Signing off on a poorly written SOW results in a difficult contract to manage, a high probability for disputes during the contracting period and a poor past performance record you will have to deal with in the future on other jobs.

You should also do a complete review of the Contract Line Item (CLIN) Structure in the solicitation and cross foot SOW requirements to insure the scope is covered by the CLIN'S.

Please see the following article on how to perform this analysis:

Contract Line Items - The Heart of Your Contract

NEGOTIATION BASELINE

The following article discusses the standard template for negotiations through which government contracts generally pass:

Government Contract Negotiation

During the audit, fact-finding and subsequent negotiation steps, a growing definition of the contract occurs and a clear understanding between you and your customer evolves. If you find the process slow and unknowns frequently surfacing, that is a barometer of future difficulty unless the issues are resolved. Technical work scope, schedule, cost and terms and conditions regarding inspection and acceptance as well as payment provisions are especially sensitive.

CONTRACT AWARD BASELINE

Signing the contract represents full agreement on the proposal and conclusion of negotiations. Award is the benchmark baseline for contract performance.

BASELINE MAINTENANCE - THE CHANGES CLAUSE

During the period of performance on a development or services contract, effort does not always go as planned. The article on Earned Value Performance Measurement (EVMS) at this site is one technique to control this situation:

Earned Value Mangagment

Not all programs warrant EVMS or have the funding to perform that type of control. The simple rule of thumb is that the changes clause in your contract allows you to request additional funding and schedule relief, as well as a modification to the SOW if you are being driven by customer directed work scope change events to depart from the baseline to which you committed at contract award.

To the extent you do not remain sensitive to this provision, on a firm fixed price contract you will lose money. On a cost plus and time and materials type contract you will consume funding at a higher rate and faster than the contact baseline anticipated and your customer may or may not be able to provide additional monies when the ceiling amount on the contract is reached. At that point in time it is too late and everyone is disappointed.

The above occurrences are collectively known as "Scope Creep" in project management circles.

THE DIFFERENCE BETWEEN BUDGET AND FUNDING - (Limitation of Funds and Funding Exposure)

Many federal contracts are funded incrementally, usually based on the government fiscal year that runs from 1 October to 30 September. Although the government may negotiate dollar price ceilings for cost plus and time and materials contracts or firm, fixed total price arrangements, the contracts themselves may be incrementally funded, particularly if they extend over two government fiscal years.

A contract may contain negotiated prices or a cost ceiling but also specify an incremental funding value. The contractor is required to inform the government when actual costs incurred plus obligations to suppliers or payroll on a specific contract reach certain thresholds of the current incremental funding specified in the contract (usually 80%). The government is then obligated to further fund the contract. In the event the contract is not funded further, the contractor has the right to stop work before he exceeds the incremental funding.

Some contractors choose to operate on "risk," continuing to perform on a contract while exceeding the incremental funding in booked cost and obligations. The government is under no obligation to reimburse the contractor for amounts exceeding incremental funding.

Nearing the end of a government fiscal year, a contractor may find delays in funding reaching all the way to congress. This situation must be managed with the government contracting officer.

If a contract is not funded to continue and the contractor has performed to date in accordance with all required terms, the government retains the right to terminate the contract for the convenience of the government. This requires a special notification to the contractor from the government and usually occurs due to changes in government priorities. The contractor may then bill the government for all costs and obligations to date, plus any direct and indirect extraordinary costs associated with business disruption, termination administration, employee layoff cost and the like. Terminations for convenience are very expensive for the government. Nevertheless, limitation of funds and funding exposure must be carefully monitored by an astute small business.

To properly manage incremental funding, the business system must be capable of accounting monthly for all direct and indirect costs on each contract, plus commitments to suppliers and employees in the form of open purchase orders and unpaid or un-posted payroll.

Your internal release document should specify the current incremental funding if your contract is not fully funded at award. Further revisions to your release documentation should convey receipt of contact amendments from the government that supply additional required funding to the contract as performance proceeds. Requests for increases in incremental funding are required when the actual booked cost plus commitments to suppliers reaches 80% of the current funding on the contact.

In the event the contact is not adequately funded incrementally by the government, a revision to your internal release documentation should specify a stop work order after you have notified your customer that you plan to cease performance on the contract due to lack of sufficient funding. Notification should be provided to suppliers under your contract with a stop work to avoid their incurring additional costs for which you are not receiving funding from the government. Be specific with a stop work date to these suppliers.

IN SUMMARY - KNOW WHERE YOUR ARE AND WHEN TO SAY "NO"

"Scope Creep" can kill a contract, a customer relationship and a past performance record, all of which are important to your business. Stay in front of "The Scope Creep" by communicating positively with your customer to control your baseline, keeping cost, schedule and technical performance integrated and synchronous.


Six rules of Thumb to control "Scope Creep":

1. KNOW - The contract value and its ceiling amount

2. KNOW - The incurred cost to date and commitments

3. KNOW - The scope of work and whether or not your current efforts are supporting it or some other objectives

4. KNOW - The estimated cost at completion based on where you are at today

5. KNOW - Your customer and who among the customer population is prone to direct out of scope effort.

6. KNOW - WHEN TO SAY "NO" to "Scope Creep" and say it officially in writing to the contracting officer specified in your contract.

Sunday, November 6, 2022

Managing Teaming Relationships in Small Business Federal Government Contracting


Most small businesses, particularly those selling services, will encounter the need to team with industry partners in small business federal government contracting. 

As a prime contractor, a supplier or a subcontractor, the need to carefully develop stable relationships is a prime driver for success in the government contracting venue. 




HARD FACTS ABOUT THE ENVIRONMENT

Be prepared to encounter challenges in the areas discussed below. They are presented because they occur enough that you should be aware of them.  It is astute to manage the associated risks.

Initial challenges for the small business in government contracting are not so much in the areas of barriers as they are in lack knowledge (which I concede is a form of barrier but one that can be dealt with). In short, be aware of what you do not know you do not know.

Lack of knowledge goes all the way from local and state employment law to federal  contracting rules. Enough small businesses have succeeded in the venue that it has proven small enterprise education, with trained personnel in government and prime contractors to do so, greatly enhances success.

Contracting officer's, either government or corporate, and their staffs are often not equipped in the skills necessary to guide the small business. 

Large business and government agencies often inadvertently take advantage of the small enterprise lack of knowledge or make poor assumptions regarding what a small business knows. This can lead directly to abusive practices.

A prime example of an abusive practice is large corporations signing teaming agreements during proposal efforts and then not awarding subcontracts to the small enterprise as agreed, keeping the majority of work for themselves.  They then recruit the help away the small enterprise.

Agencies often take extended time frames to put in place prime contracts after source selection and award to a small business. They do not realize that a small enterprise does not have deep pockets and must have cash flow to sustain a new program with new employees.

Funding levels on programs are often insufficiently committed and the small enterprise is not adequately informed about limitation of funds and funding exposure


One of the most common traumatic situations is newly established enterprises having no job cost government compliant business system in place. The industry partner(s) or the government have assumed that capability will materialize and when it does not the government audits the bills, finds no backup and shuts down the cash flow until the system is fixed. At that point the business can fail. The company should have become educated much earlier in the process about these requirements.


The number of poorly performing SETA contractors in roles not suited to them in government contracting officer support is increasing in federal agencies. These firms need to be vetted and better managed for the omissions and commissions they contribute to the above. 

Not every small enterprise can get into a class on government contracting at George Washington University, The Defense Acquisition University or send their personnel to lengthy and costly seminars conducted by organizations like the National Contract Management Association. These are all great education sources but do not come close to filling the complete requirement and cost time and money.

PROTECT INTELLECTUAL PROPERTY, RATES AND PERSONNEL

The nature of the government contracting venue is that you may very well find yourself teaming with a company on a major, long term project and competing against them on another project where the team makeup is different. It is therefore essential to protect your intellectual property, your rates and your personnel.


VET PROSPECTIVE INDUSTRY PARTNERS CAREFULLY

Not every company that approaches you with a suggested teaming arrangement will be ethical, straight forward and honest. Vet them carefully through the Better Business Bureau, a Dunn and Bradstreet Report, references and searches on their prior business arrangements, contract awards, business activities, subsidiaries and history. 


ACQUIRE ADVISERS AND SPECIALIZED HELP WHEN YOU NEED IT

There are free or very low cost resources through local government organizations who can assist the small business in understanding the government contracting venue.





REMEMBER:

Be straight-forward and honest with your industry teaming partners.

Do not violate share arrangements, teaming agreements or non-disclosure agreements. Such violations are a death knell for your reputation in the business.

Do not become known as a resource raider by hiring away from other firms with whom you have teamed.

Give it your best shot as a prime or a sub but involve the government contracting officer if you must resolve industry teaming disputes that may damage your past performance record.

Exclusivity is the practical way to go on any given program. Team early and exclusively then give it your all and be a winner. Your reputation is key, ethics count and your customers as well as your industry are observing you.

Tuesday, November 1, 2022

YOUR CAPABILITY STATEMENT (CAPE) FOR SMALL BUSINESS FEDERAL GOVERNMENT CONTRACTING




INTRODUCTION

Federal government contracting is all about relationship development.  Marketing to influential agency personnel, industry partners, prospective team members, employees, associate contractors and others who can help you requires a hard hitting synopsis of what your firm brings to the table.

Place into a capability statement (CAPE) the specific information others need to know for a sound decision about your company qualifications. This information includes such items as a D&B Number, government registration numbers, North American Industrial Classification System (NAICS) codes and the like. These items are elected or determined when you register your company for government contracting.

KEEP IT SHORT

An electronic capability statement (CAPE) for government contracts should be short and hard-hitting. It should be 1 -2 pages and should highlight the salient points of products and offerings, personnel and qualifications.

Below are examples of two good capability statements in the public domain.  The first is a services company, the second example is for a company selling off-the-shelf products.



CLICK ON IMAGES OR DOWNLOAD TO ENLARGE

CLICK ON IMAGES OR DOWNLOAD TO ENLARGE 

MAKE IT PROMOTIONAL

A good CAPE  will be a promotional brochure that on paper and through the electronic media advertises who you are, what you do and why the government or prime contractors should buy from you. Major elements of your capability statement, in addition to your small business designation and certifications, are as follows: 


(1) Company overview

(2) Supplies and services description couched utilizing your marketing ideas and strategy.

(3) Past performance of your enterprise or your personal background and qualifications 
(experience, education, etc.).

(4) Facilities or capabilities overview (How you perform your service couched in a manner that will appeal to your target market).

(5) Explanation of the positive results the client should expect.

(6) Points of contact and ways to contact you for meetings, placing an order and contracting your services. 

INCLUDE GRAPHICS

The document itself should be created with graphics, photos, themes and sales pitches. A picture of your product and your personnel adds dynamics. 

DISTRIBUTION

Your capability statement should be distributed on paper to your target market as a brochure, emailed as an attachment and linked into related industry web sites or partner marketing to get the word out about your product or service. Your CAPE targets contracting officers and prime contractor buyers who are seeking to fulfill their small business buying goals. It is a way to get you in the door and speak to, or correspond with, the management and technical personnel who are the decision makers in sourcing small business buys. 

SUMMARY
A good quality CAPE is the spearhead of your marketing campaign and your visual image;  focused and direct, it must be informative, concise and a snapshot of the very best you can offer.

Friday, October 28, 2022

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.



Monday, October 24, 2022

PRICING SMALL BUSINESS FEDERAL GOVERNMENT SERVICE CONTRACTS

Integrate Long-term Company Strategy
 With Short Term Proposal Pricing Objectives 
For Success



INTRODUCTION
Small businesses entering or growing into federal contacting often struggle with developing a pricing approach. They must design a pricing structure to pass an audit and win competitively. A winning strategy for federal services contracting must involve a view of the horizon as well as the instant bid on the table.
If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your pricing challenge is minimal. A service contractor faces a far greater challenge in understanding the nature of government contact pricing and winning at it.
Strategic thinking must therefore be applied to structuring a government service contracting cost center in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work.
LONG TERM COMPANY STRATEGY
Build a Business System With Pricing in Mind:
We have previously discussed the basics of small business government contracting business system design: Job Cost Accounting Basics
The structure or your pricing approach from the cost element level through burdens must use the same template as your job cost accounting and billing. The parallel mapping provides the consistency required to pass audits or get your billings approved on a service contract.
Please read the above article and its related references. Then design your processes recognizing the guidance there and applying it to your company organization, and the way you produce your supplies and services:
Sculpt the DCAA Auditor
As you begin submitting government contracting proposals you will encounter your local DCAA audit office. They learn about your company by auditing your cost proposal rates, job cost processes and systems, billings and contract closeouts.
Keep in mind that you are shaping opinions in these encounters on the part of these government personnel that will influence your future and be passed on in reports to contracting officers. Your unique company business system structure must be carefully explained to them against what they know best; their DCAA Audit manual and FAR Cost Accounting Standards:
Protect Rate Information
Your fully loaded rates will appear on your GSA schedule in the public domain, in subcontracts from prime contractors and in data acquired under the Freedom of Information Act (FOIA) by competitors.
It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.
Companies do not disclose the details of their rates to other companies and they do not expect to see another company’s proprietary rate information. So companies view each others rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.
If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, ‘Government Eyes Only’. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.
For further information on intellectual property protection and protective markings on government contract proposals please see the following article:
Recognize Overhead and General and Administrative Expense Rates Are Critical
Assuming your competition pays a generally similar labor rate to their employees as you do and that fringe costs about the same for everyone, then overhead and general administrative expense are what wins and loses contracts.
Please read the following articles carefully with regard to long range planning and setting your overhead and general  administrative  rates:
Keep in mind that if you are performing work inside a government facility the government will expect to be charged a lower overhead rate than if you were paying the space and occupancy costs and the light bill. This is normally achieved by establishing a separate cost center for “On site” (Internal to government quarters) work with lower overhead expenses applied to project direct labor dollars in that cost center.
Price Set Aside Contracts the Same as Full and Open Competitions
If you are a small business lucky enough to receive a sole source set aside contract under an 8(a) or Hub Zone award, or if you are participating in limited competition under a small business set aside designation, use the same sharp pencil you use on the full and open market. Your goal is to compete for the long haul and inflating estimates on particular jobs due to limited competition has an inflationary effect on your business as a whole.
Your company past performance is being constantly evaluated by the government and prime contractor community. Consistency attains and retains new business. You will eventually grow to the point where set asides and sole sourcing will no longer be available; prepare early.
Know the True Value of Your Proposal
Develop risk thresholds (ceiling and floor) for your bids. The ceiling is the price for which you can bid a job, perform to meet specifications and win. A floor is the lowest possible price for which you can accept a contract and survive.
Do not bid or be negotiated out of these thresholds. “Buying In” does not work and sacrificing the future of your company by “Low Balling” cost proposals and hoping to get well on scope changes later is dangerous.
In government contracting the only worse scenario than losing a contract is winning it, performing poorly (cost, schedule or technical) and getting a black eye on your company past performance record that takes a long time to go away.
Understand a Proposal is the Opening Chapter a Baseline for Your Contract
Your proposal represents an initial offer to a government agency or a prime contractor. Please read the following articles on how this baseline is initially set and controlled through the negotiation process and ultimately through careful contract management.
SHORT TERM PROPOSAL OBJECTIVES
Make Bid/No Bid Decisions Wisely
Conduct your bid/no bid decisions effectively. Please see the bid/no bid analysis process at the beginning of the following article:
Be Conservative in Rough Order of Magnitude Pricing
A common government planning technique in the early phases of marketing is to ask questions and review and approve a concept paper by a company then informally request for “Planning Purposes”, a rough order of magnitude cost estimate (ROM).
If you provide a ROM be very careful. It tends to get cast in concrete in the customer’s mind, even though it is not the final, formal proposal. Make it conservative in cost content and schedule duration, then plan to beat it with your formal proposal.
Make sure you caveat the ROM if you are asked for it with the statement in your cover letter that it is for planning purposes only and is not a commitment on the part of your company. State that you will be happy to make a full formal proposal/commitment upon receipt of a formal RFP from an authorized contracting officer. Keep in mind that contracting officers are the only people who can commit the government:
The government usually goes forward with the concept paper and the ROM for approval of the funding necessary for the job. The “Agency Higher Ups” either give the project personnel the approval to do a set aside or they require a competitive procurement.
You may want to read the following article on Statements of Work:
Know the Difference Between Firm, Fixed Price, Time and Materials and Cost Plus Contracting
During the solicitation and proposal process the contract type is specified.
Firm, Fixed Price (FFP) is the riskiest type of contracting and should be undertaken only when you have a definitive grasp of a precise statement of work with known variables and end products. You should have achieved similar work scope in the past or be delivering follow-on products and services that are mature in nature to undertake a firm, fixed price contract.
FFP is particularly risky in software development contracts or high technology program pressing the state of the art. You will receive no more in the form of funding than your bid price on a firm, fixed price contract.
Time and Materials (T and M) contracting places the risk on the government and is suited to long term service contracts of a development nature. Time and Material may be contracted with fixed labor rates, making the hours and pass through materials and other direct costs the only variables.
Cost Plus (CP) contracting is the least risky of all contract types and you are assured of receiving every dollar of cost incurred under this type of contract.
The lower the risk to the contractor the lower the expected negotiated profit rate you can expect, since the government considers risk the principal factor in profit negotiation.
For further explanation of contract types in more detail, please see the following article:
Develop a Price Profile of the Competition
Use a copy of your own forward pricing long range plan (LRP) to model your strongest competitors. Profile your best intelligence regarding their size, location, contract base and estimated overhead and G&A expenses. Then interpolate, from your knowledge of the market, their labor and fringe costs, as well as other direct costs as you prepare your proposal. Incorporate any unique approaches you estimate your competition may offer that impact cost.
Adjust your competitor cost model to perform “What If Analysis” during your risk assessment and proposal review process. For an example of an LRP cost model please see the Box Net Cube in the left margin of this site: Small Business Federal Government Contracting It is Appendix B to the book, “Small Business Federal Government Contracting” and is available as a free download in Adobe format from the BOX in the right margin of the site.
Understand “Best Value” Source Selection
When the government declares a “Best Value” proposal award process the agency will perform a weighted trade study of cost verses technical and management factors in reviewing proposals. They will announce the weight of each factor in relative terms within the solicitation so contractors can focus on the most important elements.
What best value means quite simply is that if you are the low price bidder you may not win. If a competitor proposes a superior technical and management approach, a higher weighted rating in those factors may offset an otherwise non-competitive bid price, resulting in an award. This is a fact you must keep in mind when preparing your own proposal. In short you must perform your own trade study on your own bid.
Past performance has also become a significant weight factor in proposal evaluations in recent years. To address this challenge, please see the following article:
A balanced proposal, with specific, heavy emphasis on government-designated weight factors and an economical, yet realistic cost/price usually wins. Offsetting weaknesses in any designated government weighted area by proposing excellence in other weighted areas is vital.
Beware of Unallowable Costs
Over the years the federal government has determined that certain costs cannot be allowed in prices, cost reimbursements or settlements under contracts with the US Government. The government is unwilling to pay for these costs as direct charges to federal government contracts or through indirect expense pools applied to federal government contracts.
A company is not prohibited from incurring unallowable costs, but they cannot be recovered either directly or indirectly under federal government contracts. To manage unallowable costs, separate accounts must be established for these type expenses and they must not be priced directly into federal government contracts during the proposal process.
Such costs cannot be made a part of the expense pools which are applied to federal government contracts through an overhead, material handling or G&A cost allocation at accounting period close or during forward pricing rate planning. For more detail on unallowable costs please see the following article:
Integrate Pricing With Technical and Management Approaches
Establish price targets as soon as possible for major tasks, evolve a program plan, or if you are bidding a T&M, IDIQ type program develop a sample work order for a typical representative effort.
As the technical and management proposal move toward completion, use established checkpoints to evaluate the efficiency of your cost estimate, escalation factors, labor, material and other direct costs. Then apply your indirect rates and subject your total proposal to a credibility check with regard to a believable cost estimate considering your solution and its time frame.
Run your competition price model and bring in some outside experts to review the end product proposal “Cold” before it is submitted.
Manage Best and Final Offers (BAFO) Carefullly
Most government solicitations require a format and terms and conditions with submission that permit contract award without further discussion. However, many involve a down-select process, briefings by those selected in the “Competitive Range”, a call for best and final offer (BAFO) or negotiation to achieve a final price.
The best and final offer period is a sensitive time. Most contracting agencies that call for a BAFO will cite weaknesses or concerns in the selected contractor proposals. They wish to hear about solutions to those weaknesses during BAFO briefings and require a re-submitted offer to correct them. The price may be adjusted as well and that is a key consideration. Pay particular attention to the way the BAFO instructions and concerns, specific to your down-selection, are worded. Look for hints that indicate critical opinion about your pricing, and then adjust your costs.
Consider the cost, schedule, technical and past performance implications of the BAFO request letter from the government and revise your proposal by the required submission date. Close the loop on all matters with your suppliers, subcontractors and prime contractors, and then conduct your briefing to the customer when it is scheduled. Present a united front to win. Your price should be your best. You will not be offered a chance to bid another competitively on that program.
On some procurements you may be asked to undertake additional discussions to determine final contract pricing. Please see the negotiation template at the following article for guidance on that process:
SUMMARY
This discussion has conveyed how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning.
We have further explained how your long and short term pricing factors should be integrated with the management and technical elements of any given proposal. Take the long and the short view of your business by integrating long-term company strategy with short term proposal objectives