Search This Blog

Wednesday, June 13, 2018

Important June Update Notices From GSA on Initially Establishing and Maintaining Government Contracting Registrations

GSA. GOV SAM Update

GSA has taken action to address fraudulent activity in the System for Award Management (SAM). The measures GSA already put in place to help prevent improper activity in SAM include masking specific data elements in the entity registration even for authorized entity users; requiring “parent” approval of new registrations for their “child” entities; and requiring the formal appointment of the Entity Administrator by original, signed notarized letter.
Additional enhanced controls will be deployed at the end of June. These controls include implementing multi-factor authentication using Login.gov and notifying Entity Administrators when there is a change in the entity’s bank account information. As a result of these and other measures, GSA is modifying the current notarized letter review process in two phases.

NOTARIZED LETTER PROCESS CHANGES

How is the notarized letter review process changing on June 11, 2018?

  • Effective June 11, 2018, entities who create or update their registration in SAM.gov to apply only for federal assistance opportunities such as grants, loans, and other financial assistance programs no longer need to have an approved Entity Administrator notarized letter on file before their registration is activated.
    • Hint: This applies to you if your SAM.gov Purpose of Registration is Federal Assistance only. Check SAM.gov to find your Purpose of Registration.
  • Federal Assistance entities still must mail the original, signed copy of the notarized letter to the Federal Service Desk. Failure to do so within 30 days of activation may result in the registration no longer being active.

How is the notarized letter review process changing on June 29, 2018?

  • Effective June 29, 2018, all non-Federal entities who create or update their registration in SAM.gov will no longerneed to have an approved Entity Administrator notarized letter on file before their registration is activated.
    • Hint: This applies to you if your SAM.gov Purpose of Registration is either Federal Assistance or All Awards. Check SAM.gov to find your Purpose of Registration.
  • All non-Federal entities still must mail the original, signed copy of the notarized letter to the Federal Service Desk. Failure to do so within 30 days of activation may result in the registration no longer being active.

Where can I find the notarized letter templates?

Does the notarized letter requirement apply to U.S. Federal Government entities registering in SAM?

  • No.

NEW LOGIN PROCESS FOR SAM.GOV COMING JUNE 29, 2018!

What is the new login process for SAM.gov?

  • Effective June 29, 2018, when you go to SAM.gov and log in, you will be asked to create a Login.gov user account. Your current SAM.gov username and password will no longer work.

What is the most important thing I need to do before June 29th?

  • Make sure you know the email address associated with your current SAM.gov user account.

Why do I need my current SAM.gov user account email address?

  • Using the same email address allows SAM.gov to automatically migrate your roles. If a different email address is provided, your roles will need to be reassigned. This could cause delays updating your existing registrations.

How do I find the email address for my SAM.gov user account?

  • If you don’t know which email is associated with your SAM.gov user account, take action now. Go to www.SAM.gov → My SAM → My Account Settings → Edit User Information. As of June 29, 2018, your current username and password won’t work, so take steps now to confirm your email!

What do I need to create my Login.gov user account?

  • You will need to:
    1. know the email address associated with your SAM.gov username and password
    2. have access to that email to receive a confirmation email from Login.gov, and
    3. have a working phone (cell phone or landline) to receive a security code from Login.gov.

Why is SAM.gov making these user account changes on June 29, 2018?

  • To further increase security and deter fraud, SAM.gov is partnering with Login.gov to implement multi-factor authentication for registered SAM.gov users.

Will this change impact public users who do not log in to SAM.gov?

  • No. There is no change for users who search and view public data on SAM.gov without logging in to the system.

Will I be able to get help for this new login process?

BACKGROUND

GSA's System for Award Management (SAM) continues to support an active investigation by the GSA Office of Inspector General (OIG) into alleged, third-party fraudulent activity in SAM. Only a limited number of entities registered in SAM were suspected of being impacted by this alleged fraudulent activity. In March 2018, GSA took steps to address this issue and notified affected entities. GSA continues to work with the OIG and law enforcement agencies to take additional action, as appropriate.

What has GSA been doing to address the problem?

GSA took a number of proactive steps to address this issue, including system modifications, to prevent improper activity going forward. In addition, GSA expired, then deactivated any entity registrations that appeared to have been affected. These entities were advised to validate their registration information in SAM, particularly their financial information and points of contact, before reactivating the entity registrations. Further, GSA has begun implementing additional reviews during the registration process to prevent future issues.

What interim changes were made to the SAM registration process?

These proactive steps include requiring submission of an original, signed notarized letter identifying the authorized Entity Administrator for the entity associated with the Data Universal Numbering System (DUNS) number. GSA posted instructions for domestic entities and instructions for international entities for easy reference. This requirement went into effect on March 22, 2018, for new entities registering in SAM and went into effect on April 27, 2018, for existing registrations being updated or renewed in SAM. Changes are coming to this process on June 11, 2018, for Federal Assistance only entities and on June 29, 2018, for all entities.

Who was impacted?

Entities with registrations that appeared to be impacted were notified. Instructions were provided explaining how to validate registration information and how to reactivate the registration. In addition, entities whose bank account information for Electronic Fund Transfer (EFT) changed within the 12 months prior to March 2018 were notified. Although not associated with suspicious activity, these entities are required to validate their registration information, particularly their EFT information.

What is an entity?

In SAM, you, your company, business, or organization is referred to as an “entity.” Individuals register themselves or their entity to do business with the U.S. Federal Government by completing the registration process in SAM.

What should entities registered in SAM do to protect themselves and confirm that their bank account information has not been changed?

Entities registered in SAM are advised to log into SAM and review their registration information, particularly their bank account information for Electronic Funds Transfer (EFT) on the financial information page. Contact the supporting Federal Service Desk at www.fsd.gov, or by telephone at 866-606-8220 (toll free) or 334-206-7828 (internationally) Monday through Friday from 8 a.m. to 8 p.m. (ET), for FREE assistance. Entities are responsible for ensuring that their information is current and correct in SAM in accordance with paragraph (b) of Federal Acquisition Regulation (FAR) clause 52.232-33 or Title 2 of the Code of Federal Regulations Part 25 (2 CFR § 25.310 and Appendix A), as applicable, and should routinely review such information for accuracy.

Who should entities contact if they find that payments due them from Federal agencies have been paid to a bank account that other than their own?

If an entity suspects a payment due them from a Federal agency was paid to a bank account other than their own, they should contact the Federal Service Desk at www.fsd.gov, or by telephone at 866-606-8220 (toll free) or 334-206-7828(internationally), Monday through Friday from 8 a.m. to 8 p.m. (ET), for FREE assistance.

Where can an international entity find information about the notarized letter process?

Entities not located in the U.S. or its outlying areas should read the international entity instructions posted at the Federal Service Desk that outline procedures and provide links to letter templates. If they have additional questions, international entities should contact the Federal Service Desk at www.fsd.gov, or by telephone at 866-606-8220 (toll free) or 334-206-7828 (internationally), Monday through Friday from 8 a.m. to 8 p.m. (ET), for FREE assistance.


GSA’s Office of the Inspector General (OIG) is actively investigating alleged, third party fraudulent activity in the System for Award Management (SAM).  At this time, only a limited number of entities registered in SAM are suspected of being impacted by this fraudulent activity. GSA is in the process of notifying these affected entities.
IMPORTANT NOTE:  In a proactive step to address this issue, GSA is now requiring an original, signed notarized letter identifying the authorized Entity Administrator for the entity (company) associated with the DUNS number before a new SAM.gov entity registration will be activated. GSA has very specific requirements for this notarized letter—click here for Federal Service Desk (FSD) guidelines.  A template has been developed by Procurement Technical Assistance Center (PTAC) experts that can serve as the starting point for this document.  It must be completed with the specified information, printed on company letterhead, notarized, and mailed to the Federal Service Desk at the address indicated. Download Template here.
Who is impacted? Entities who may have been impacted are those whose financial information has changed within the last year. GSA began notifying affected entities on March 22, 2018.
All entities registered in SAM are advised to log into SAM and review their registration information, particularly their financial (bank account) information. GSA reminds everyone that entities are responsible for ensuring that their information is current and correct in SAM.
Any entity finding that a payment due to them from a federal agency has been paid to a bank account other than their own should contact their Federal agency awarding official.
How is GSA addressing this situation?  In addition to the above, GSA has expired – then deactivated – any entity registrations that appeared to have been affected. These entities are being advised to validate their registration information in SAM, particularly their financial information and points of contact. Further, GSA has begun implementing additional reviews during the registration process to prevent more issues.

_____________________________________________________________________


FURTHER GUIDANCE FROM SMALL TO FEDS:

You have worked hard establishing your small business in the commercial market; or you have succeeded in your profession working for large enterprises. You have established yourself and you are recognized as a success by your superiors, your peers and your subordinates. Someone or something one day attracts your attention with the suggestion that the federal government may be in the market for your skills, products or services. This article will address the path to expanding your existing business or initially undertaking a business involving federal government contracts.


 GETTING STARTED


The best way to explore federal government contracting possibilities is to expand your business plan to include a sector for that type of business or develop your start up plan including a federal government business sector. Doing business with the Federal Government is not "Rocket Science" but it is different. It embodies a set of regulations entitled, "The Federal Acquisition Regulation" or FAR, which contain the rules by which the government and industry abide in contracting for supplies and services. The FAR had its genesis during World War II and has evolved since that time to control and regulate the ever-expanding amounts of goods and services which the federal government buys.


The following are the most important "Mechanical Steps" necessary in positioning your business to begin selling to the federal government. They are listed in the necessary sequence for becoming a supplier entity in the government system. A link to appropriate web sites is provided at each step.


A. Dunn &Bradstreet (D&B) Number Go to Small Business Tab At:


http://www.dnb.com/us/


If you do not have one a D and B Number is necessary before you can complete a Registration (CCR) which is required for all companies who aspire to sell to the federal government. A D and B Number is also required for your Small Disadvantaged Business (SDB) application if you intend to pursue minority- owned business certification. If you are not already incorporated you may wish to incorporate before you set up your D and B number. Incorporation is fairly inexpensive these days and can be done via the WEB for either a non-profit or a for-profit business. Try search mechanisms, such as "Incorporate.com", or "Incorporate Now". It is best to do a check with the Better Business Bureau before using the results. Establishing your D and B is free.


B. For Central Contractor Registration:





C. For application in the SBA Small, Disadvantaged Business (SDB) Program:


http://sba8a.symplicity.com/applicants/guide


If you qualify as a minority, follow the directions closely. Note there is a preview section which will acquaint you with the application and the types of information that will be necessary when you start the process.


D. For Historically Under-Utilized Business (HUB) Zone Information:




Note that Hub Zone qualification is based on where the business is located and where the personnel in the business reside as well.

E. For Searches on Federal Buys:


http://www.fedbizopps.gov/


FEDBIZOPS is the gateway for all federal business. The search tool there is a very powerful engine with many filters that are useful. It is well worth the time to learn the filters. Every federal agency is required by regulation to advertise there and you will be amazed at the products and services the federal government buys.


F. For an example of a small business capability statement check the following web site:




A capability statement is always a good idea for marketing. The link above as an example. It was found on the web in the public domain Note that the site is a SDB. Later you will get into proposal preparation and the regulations governing the types of grants and contracts, as well as billing the government for your work and other factors.


G. Questions for you:


Are you planning to produce a deliverable, distinct, end product such as software, hardware, a commodity, a report, a conference, a survey or a study, sell it to meet the government's statement of work and bill for the end product when delivered?


OR


Are you planning to price your services at an hourly rate, sell them by labor categories with professional job descriptions to perform the government's statement of work and bill by the hour for labor and at cost for material and travel?


Answers to the above questions are key factors in how you set up your business and price your work in proposals to federal agencies. The answer to the above questions is "Yes" in both cases for some businesses. Some small businesses sell their product commercially, but contract for product implementation and support on a service contract basis.

The next topic in this series of articles will deal with avenues for marketing a small small business in the federal government environment.

Friday, June 1, 2018

Are Startups Missing Out By Not Bidding On Federal Contracts?

Image credit: FedBizOpps

By Kayleigh Alexandra


If you run a startup, the thought might never have crossed your mind to seek out contract work with the government. After all, it isn’t the conventional way forward, and you might well figure that federal contracts will invariably go to companies with well-established government links.

But are you missing out by not making an effort to seek out federal contract work? Let’s go through some reasons why you might want to give it more consideration.

You can’t get what you don’t apply for

The notion that government contracts will always go to giant corporations is something of a self-fulfilling prophecy, as it spurs small enterprises to hold back from applying for them. Despite this impression, it’s generally quite viable, especially since the Federal Government sets a goal every fiscal year for contracting a percentage of its work to small businesses.

In 2017, the Federal Government awarded 60 billion dollars in contract work to small businesses, with the yearly goal agreed for 22% but set as 23% by Congress. The goal for 2018 is similar at 22%, so they should achieve a financial figure not far off that 60 billion dollars.

Given this ongoing commitment to diversifying the awarding of government work, now is as good a time as any to pitch for available contracts. If you succeed in getting one, you may be able to parlay it into an ongoing working relationship.

The field is becoming more open

The main difficulties with landing federal contracts are not technical but procedural and organizational, and the problem with high-level bureaucracy is that it’s incredibly difficult to dislodge. The flexibility in approach, then, must stem from the applicants.

While this is undoubtedly a frustrating notion to small businesses everywhere, consider that it also wards off a lot of possible competition, and that the benefits of securing federal work are extensive. In addition, the incumbent win rate for federal contract proposals dropped 21% from 2015 to 2016, going from 75% to 54%, so the playing field has become a lot more open.

Another thing worth noting for programs set aside for small business is that medium and large businesses are both precluded from assuming prime roles and limited in their participation as subcontractors. The government’s mandate for a small business set-aside contract caps participation by firms other than the small business prime awardee at 49% of the project effort (factoring in work scope, cost, and time). While this does mean that a small business must demonstrate (during the proposal and site survey phases) the ability to carry out 51% of the work internally to win a contract, it does ensure that a majority of the work genuinely goes to small business workers.

The advantages of government work

Even disregarding the intimidating process involved in securing government work, a lot of startups may well think that it isn’t the right fit for them, particularly given the common perception that federal contracts are dull, expensive, or overly complicated. Brand image is very important in the social media age (and more important than people think for contract bidding), and pitching to popular brands might feel like a better option.

The big advantage to working on government contracts is that it lends your company a great deal of credibility and cache. People understand that it’s a difficult marketplace to operate in, and will view your ability to do so as an indication of your professionalism.

Here are some more advantages:

     Scheduling Consistency
     A lot of contract work extends to substantial periods of time, meaning you plan your financial year around it and allocate your resources efficiently.
     Industry Networking
     You’ll have the chance to meet people in very important positions in your industry, providing you with the opportunity to network and establish useful contacts.
     Financial Certainty
     Government payments will always be issued on time and in accordance with the agreed terms. You will never face the prospect of chasing them for payment.

Meeting the requirements for contractors

There are specific requirements that prospective contract work suppliers must meet in order to be granted consideration, and meeting those requirements is the most challenging part of the process (with the possible exception of formulating the pitch).

Typically, you’ll need to ensure that your business system meets government standards for job cost accounting (each job is unique and must be costed accurately), be fully prepared to deal with thorough audit requests, and have the capacity to produce project proposals of a sufficiently-high quality and that your business system meets government standards

You’ll also want to make sure your company has adequate insurance. Basic commercial insurance likely won’t cut it— you should pursue a suitable custom policy that covers everything needed, such as Defense Base Act insurance if you use overseas employees. The government is very risk-averse in awarding contracts and you won’t stand a chance if your proposition seems a little rocky.

To navigate those murky waters, it’s generally best to consult a specialist. This website offers a great deal of information for free, but there are also paid consultants you can hire to help get your business ready to be viable for contract bidding. Here are a couple of you can consider:

     Mark Amtower: https://www.linkedin.com/in/markamtower/

Working with a prime contractor

Given the complexity and expense involved in becoming a government contractor, it’s often worth considering the option of working as a subcontractor for a prime contractor. A prime contractor is a business that has been granted full control of a government contract, allowing it to delegate parts of the work should it wish to.

If your startup isn’t ready to battle with much larger companies for huge contracts, subcontracting work could be a great first step to take. Most of the advantages we covered earlier still apply, as well, so it gives you the chance to make some influential contacts.

In summary

It isn’t easy to acquire a government contract, especially if your business is just getting started, but it isn’t impossible, and the benefits can be substantial.

If it’s an option you’d like to pursue in the future, make an effort to begin preparing your organizational structure to meet federal requirements, and seek out subcontracting work to help you establish the connections that could help you in the right direction.

ABOUT THE AUTHOR:


Kayleigh Alexandra is a content writer for Micro Startups — a site dedicated to giving through growth hacking. Visit the blog for your latest dose of startup, entrepreneur, and charity insights from top experts around the globe. Follow us on Twitter @getmicrostarted.

Tuesday, May 1, 2018

Is Federal Government System Engineering and Technical Assistance (SETA) Contracting for You?



INTRODUCTION

The commercial, start up or growing entrepreneur may have specialized skills, products and services that could be marketable to the government but a window of opportunity or an entrance niche is sometimes difficult to locate in the very large and competitive federal contracting venue.

System Engineering and Technical Assistance (SETA) contracting may provide an avenue for the small business in gaining the momentum necessary for building a government contracting past performance record. It does not require an off-the-shelf product or capital intensive facilities.

SETA contracting is often utilized by the government to enhance agency statistics requiring firms that hold small business designations and who can offer quality services in support of the internal agency facilities or operations.

Set Aside Designations

DEFINITIONS

FAR Sub-part 37.2 defines advisory and assistance services and provides that the use of such services is a legitimate way to improve the prospects for program or systems success:

Advisory and Assistance Services

FAR 16.505(c) provides that the ordering period of an advisory and assistance services task order contract, including all options or modifications, may not exceed five years unless a longer period is specifically authorized in a law that is applicable to such a contract:


DFARS Part 237.2 provides very important information applicable to advisory and assistance contracts:


The contracting officer and requiring activity must also be aware of FAR Subpart 9.5 when considering the potential for organizational and consultant conflicts of interest:


THE NATURE OF THE WORK 
   
Typical SETA efforts may involve long term contracts to perform acquisition assistance, project management, price or program analysis, independent estimates, administrative support, computer and data base operations, technical and security services, facilities maintenance functions or similar tasks. The typical SETA contractor rarely interacts with other government contractors and if interaction occurs it is only with other SETA contractors and subcontractors performing in similar roles at the same agency or in the presence of a government contracting officer/authorized representative. They are generally behind the scenes and cannot directly represent the US Government. 
 
SETA contracting requires skilled management and labor resources capable of performing a scope of work for which the government has identified a need and for which outsourcing to an industry contractor has been selected as the means to fulfill that need. The venue demands strong human resources management and an enhanced business system to price, account and bill on a job cost basis under government service contracts.
  
INCUMBENT WORK FORCES

SETA contractors often target incumbent work forces where an agency plans to offer a small business the opportunity to assume an existing services program formerly run by a larger firm or a small business that has grown beyond the size limit designated for the procurement.

In these instances the winner will have solid plans for recruiting and retaining the existing work force executing a transition plan and insuring that the government does not encounter an interruption in services.

Contingent hire agreements and sophisticated human resources processes are necessary to position the company during the proposal effort and as the contract proceeds. Contingent personnel are well aware of their market value among the SETA contractors competing for the work.


MARKETING APPROACH

As budgets become tighter, the government agencies will be looking for solid performance at the lowest possible price, stability in performance and contractors adept at learning government processes and systems as well as working with the agency to improve them.
Find opportunities well in advance of their being formally solicited on FEDBIZOPPS. Look for existing services and support contracts in their last year or self-market a services contract to an agency whose mission requires your expertise. 
 
Propose and price to win using the following guidance:

Proposal Preparation


UNDERSTAND ORGANIZATION CONFLICT OF INTEREST (OCI) RESTRICTION

 If you are considering becoming a SETA contractor, determine what portion of the market in your industry will be unavailable to you in that role with the agency to whom you contract. As a SETA contractor you will not be allowed to compete for the programs being procured by the agency other than the SETA support contacts. You knowledge of the inside workings of the government agency would be a conflict of interest in bidding other projects.
You should target for SETA exploration only those agencies to which you do not intend to market other services. 
  
SUMMARY
 
Consider SETA contracting if your marketing plan contains elements of support and assistance that an agency may be willing to outsource. If you hold small business designations, seek marketing opportunities to foster government set aside procurements for the designations you hold and understand that SETA contract will be the only programs you will hold with that agency due to OCI restrictions.

 

 

Sunday, April 1, 2018

The Small Business Federal Government Contracting "Past Performance" Challenge



As a small business begins the proposal submission process to federal government agencies or to prime contractors the past performance requirement is a major challenge. By definition a start-up company in government contracting has no direct government agency past performance projects to site in meeting the requirement in requests for proposals (RFP’s) for historical references to similar projects in terms of size, duration and complexity.

Past performance data must be specific to the enterprise bidding a contract. It cannot site historical references to performance of individuals now in the company when they were with other firms, achievements by predecessor companies or successful projects that the current company did not perform as its current entity. The purpose for this rigid perspective by the government is to avoid "Fronting" a new enterprise with misleading information to obtain a high past performance rating.

So 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.

A past performance reference sheet usually accompanies an agency RFP. It normally requires the bidder to fill it out with references to historical projects the company has performed and the contact points for confirmation. The government may request these forms in advance of the main body of the proposal to allow enough time to send them to the references. The past performance form is sent by the government to the references and you never see the result. The input goes directly from your past performance references back to the government.

For details on past performance formats and records processes please see Your Past Performance Record 

Many small businesses work through prime contractors to "Grow" past performance history (subcontracts count). By teaming with a sizable firm a small entity can relate its participation to larger projects and ultimately graduate to a good library of references, carefully maintained and kept as a living, growing data base of good customer service records that can be sited again and again in proposals.

It is wise to keep customer perceptions of your professionalism and products or services alive by constant vigilance, visits, surveys and other feedback mechanisms so that you are not surprised at a proposal debriefing when you find that a client you thought rated you highly did not.

The major services maintain past performance records by contract that you can access. Inquire with them as to a membership at the appropriate web site and review them regularly. The GSA utilizes service companies to rate contractors. You can get your rating by inquiring with them, much like a credit rating, except pertinent to cost, schedule and technical performance. Monitor your D&B report. It is always out there for prime contractor and government assessment of your financial health, your vendor payment history, your organization profile and your rating.

The U.S. Federal Contractor Registration USFCR  has a narrative to profile your company. Check your registration and insure you have a current and complete description of your supplies and services available to all who use the Dynamic Search Mechanism Dynamic Small Business Search (DSBS)

Insure your web site, your capability statement and your marketing plans are maintained current alive and dynamically reflective of your successes as you pursue new business and carefully develop your library of past performance records by project with accessible profiles to use in your government proposals.

Thursday, March 1, 2018

Establishing Federal Government Compliant Small Business Systems

Image: Blogs.aspect.com



I. INTRODUCTION

To effectively market a federal government contract a small business must sell on the basis of having a business system as well as technical performance infrastructure ready to run the job when a contract proposal is submitted. This dual requirement is where many small businesses fall short in their federal government contract start up planning.

Parallel thinking is required to plan for government project technical effort against a template of necessary business process infrastructure, driven by introducing Federal Acquisition Regulations (FAR) into the company. Key elements of the necessary business system infrastructure are discussed in this article which assumes that your are in the federal government services contracting business, that you plan to price your services at an hourly rate and sell them by labor categories with professional job descriptions to perform the government's statement of work and bill by the hour. This article also assumes that you are not contracting under FAR Part 12, "Commercial Contracting".

A. Labor Categories

Each skill set in the company must be specified and defined as chargeable directly to a contract, or indirectly to a cost center overhead, a material handling pool or a general and administrative pool. Each labor category must have a job description and a prospective salary range for proposal purposes.

B. Cost Center

A Cost Center is a single business entity within the company, organized for a group of business lines and clients with close similarities for technical and business management purposes. Cost centers are also driven by geographic location and the requirement to separate commercial from federal government business. Projects performed in government facilities may also require a separate cost center, since many of the associated expenses for such operations are born by the government. Cost centers usually have individual subsidiary ledgers, balance sheets and profit and loss statements and are summarized monthly to a company total. Each cost center must have job cost accounting for the contracts residing there and a cost center unique overhead rate.


Examples:

Commercial Cost Center

Federal Government Cost Center

Government Site Unique Cost Center

C. Annual Overhead Rate

An overhead pool is made up of individual Cost Center indirect expenses projected for a given year divided by the projected Cost Center direct labor dollars for that year to determine a rate. Typical Cost Center Overhead general ledger expenses are those which cannot be effectively charged direct to contracts. These include Cost Center management, building lease, telephone, fringe benefits, electricity, capital equipment, depreciation, and the like.

THUS: 2018 Overhead (OH) =

2018 Gen Indirect Exp for cost center =          $459,800
____________________________________ ______ = 110% OH Rate
2018 Projected Dir. Labor $for cost center = $418,000

The estimated annual Cost Center Overhead Rate is applied to direct labor cost estimates to price labor cost through overhead for 2018 for the Cost Center. When a contract is awarded, actual overhead expenses are allocated monthly to direct labor by contract on the basis of direct labor dollars incurred. Projected overhead rates are adjusted based on actual total cost center experience as the year progresses.

D. Annual Material Handling Rate (if required) - Corporate wide expenses specifically associated with buying, storing and shipping material for a given year divided by the projected direct material dollars projected company-wide for that year. Not all companies have business that is material intensive enough to warrant a separate pool for material handling. Where extensive buying or subcontracting is conducted out of the corporate headquarters and inventory and shipping labor are high, a material handling pool is permitted by the government when it is not administratively possible to charge these expenses directly to contracts.

The estimated annual Corporate Material Handling Rate is applied to direct material cost estimates to price material for all Cost Centers. When a contract is awarded, actual material handling expenses are allocated monthly to direct material by contract on the basis of direct material dollars incurred. The projected material-handling rate is adjusted based on actual total company experience as the year progresses.

E. Annual General and Administrative Rate (G and A) is corporate indirect expenses projected for a given year divided by the total projected direct cost plus overheads for all cost centers for that year. Typical G and A general ledger expenses include costs which cannot be charged direct to contracts or to cost center overhead expenses such as corporate executive management, headquarters building leases, legal expenses, company wide insurance, corporate advertising, and the like.

II. MANAGEMENT FACTORS

A. Success will be determined by managing the numerator in each of the above equations and winning or maintaining the projected direct cost programs in the annual denominator. If expenses increase due to unforeseen events or if the company loses more projects than planned in the annual denominator base, the associated rate will go up for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also increase. Existing fixed price contracts under these circumstances will become less profitable. Pricing for future fixed price contracts must reflect the increased rates being experienced to avoid further losses.

B. Correspondingly, if expenses decrease due to unforeseen events/good management or if the company wins or grows more projects than planned in the annual denominator base, the associated rate will decrease for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also decrease. Existing fixed price contracts will become more profitable. Pricing for future fixed price contracts must reflect the decreased rates being experienced.

C. For time and material and cost plus contracts, monthly billing rates utilized are "Provisional Rates" that the contractor is free to change based on experience as long as he informs contracting officers and the local Defense Contract Audit Agency (DCAA) of the changes and reasons for the changes can be demonstrated. Before time and material and cost plus contracts can be closed out, provisional rates must be adjusted to reflect actual rates experienced. The contractor will owe the government if provisional billings have been higher than actual cost history. Correspondingly, if the actual rates for cost plus or time and materials contracts have been higher than the provisional rates billed by the contractor, the government will owe the contractor at closeout. Firm, Fixed Price Contracts are not billed based on provisional or actual rates. They are billed at negotiated fixed prices by line item at contract award and paid upon final delivery and acceptance or through monthly progress payments based on incurred cost with a percent of payment retention by the government until deliveries are complete. Fixed rate contracts are billed on a monthly basis through hours incurred. The hourly rates are fixed for the contract term and do not change.

COST ESTIMATING/COST ACCOUNTING EXAMPLE

A. Consider an 12-month project priced in a hypothetical small business utilizing forward pricing "Provisional Rates." The contract begins in July of 2018 and continues to July of 2019. Direct labor rates are escalated between 2018 and 2019 by 3.5% based on the Consumer Price Index. The company decides to keep the indirect rates for Overhead and G&A the same for pricing purposes in 2018 and 2019. The company has no Material Handling Pool and charges purchasing, inventory and shipping costs direct to contracts.

B. This government contractor maintains Overhead and G&A rate databases in Excel by month by year to forward price projects such as the one in this example. The databases all utilize the same generic chart of expense accounts as a template for the Cost Center Overhead and G and A monthly expense forecasts (equation numerators). The project is priced in cost center 1 at an overhead rate of 110% and a corporate G and A rate of 10%.

C. Cost Center Direct Labor forecasts in the databases are projected by hours and salary dollars for each existing and anticipated project and then summarized to determine the equation denominator which when divided into the Cost Center Numerator B, above) yields the Cost Center Overhead forecast by month by year. Direct Labor is then burdened by the projected Cost Center Overhead and added to Material and Travel to yield a total Cost Center business summary through Overhead.

D. The G and A rate data base summarizes total direct labor through overhead, material and travel cost for all cost centers (equation denominator) and divides it into the total corporate G and A expense (equation numerator) The equation result yields the projected 
G and A rate by month by year. All cost center labor through overhead, material and travel are then summarized and burdened through G and A to forecast a total cost projection by Cost Center at "Provisional Overhead and G and A Rates.

E. A copy of the annual baseline projected rate database is adjusted with actual expense data each month in the numerator after closing. The denominator for the month is also updated with actual existing and new business developments at the cost center level and G&A monthly actuals at the corporate level. The resulting actual rate experience is then analyzed for trends as the year proceeds and utilized for making potential adjustments in provisional rates. When provisional rate changes are necessary, the government is notified in advance and provided with trend information justifying the rate change. Upon approval by the government, the baseline forecast is adjusted and utilized for billing on T&M and Cost Plus Contracts. The adjusted rates are also utilized to price all future projects. DCAA does not audit management decisions. They simply check the math.

F. Rate databases are usually fully detailed by month for the current year and 1-2 years into the future. Years 3-5 typically have summarized assumptions through use of escalation factors. Bids for out years 5-10 if required by the government definitely utilize escalation factors. Very few government contractors are willing to bid on a firm, fixed price basis beyond out year 5.

G. To comply with Cost Accounting Standards 401 and 402, this company must set up each new government contract on job cost accounting in the identical manner in which it was proposed; in effect identifying direct labor, direct material and other direct costs to each contract monthly and allocating overhead and G&A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

H. The larger the direct cost incurred on a contract in this company the greater the share of the cost center overhead and corporate G and A it will incur.

I. The entire content of this company's business system is subject to audit and verification by the Defense Contract Audit Agency (DCAA) against Cost Accounting Standards 401 and 402. DCAA validates company records by requiring "Incurred Cost Submissions" from this contractor. The submissions validate final rates for cost plus and time and material contract closeouts. Fixed price contracts are closed out when final delivery is received and accepted. Retention on monthly progress payments under fixed price contracts is released at closeout.

SUMMARY:

The software tools discussed in the December, 2017 posting at this blog DCAA AUDITS AND SMALL BUSINESS JOB COST ACCOUNTING SYSTEMS are designed to assist you in running the above process from a job cost accounting perspective. However, these tools must be set-up to reflect the unique way you are organized and they must reflect your specific business plans as discussed in this article. They will not do that for you.

Illustrations of the the rates, pricing and the long range plan utilized in the above example are available in Chapters 45 and 51 through 53 of my free book, "Small Business Federal Government Contracting" and appendices A and B. You may download the book and related documents from the "Box Net" Cube in the right margin of this site.