Business Ethics Feed Government Records of Past Performance

Previous discussions at this site have emphasized the importance of maintaining a solid past performance rating to meet award criteria used by every federal agency when granting small business contracts.

Your Past Performance Record

We have also highlighted the importance of maintaining solid ethical business practices in dealing with customers and industry partners.

Maintaining an Ethical Company Image

This article will discuss the practical aspects of achieving the above, the associated challenges and how not meeting them can jeopardize your industry reputation and business success.  

IGNORANCE ON POLICY AND REGULATORY MATTERS IS NOT AN EXCUSE

The small business faces a front-end-loaded and ongoing learning challenge in understanding the Federal Acquisition Regulation (FAR), Cost Accounting Standards (CAS), Unallowable Costs, Organization Conflict of Interest (OCI) many other similar policies the federal government invokes. 

A continuous learning process must include evaluating the impact of these requirements, developing consistent processes and systems to meet and maintain them or risk poor ratings on proposals, audits and performance; even the denial of an invoice payment.

In short, the government has the right to audit, examine and approve your internal operations for conformance to the law before granting a contract or paying a bill.  These are not preferences by contracting officers.  They are federal contracting laws.

The astute small business learns the law and incorporates compliance in its business practices.

CONTRACTING PERSONNEL IN ACQUISITION ROLES HAVE VARYING LEVELS OF KNOWLEDGE & PROFESSIONALISM

The US Government and its prime contractor cadre form a massive professional base.  Although they conduct training in policy and regulation to their acquisition professionals, these professionals are rotated frequently and/or encounter contracting authority as only one role among many in their principal professional endeavors.

Government Contracting Roles

Small business systems are unique to a company.  Documenting them and conveying their compliance to regulations in a clear, lucid way to auditors, agency buyers/contracting officers and other government customers is a vital part of avoiding misunderstandings regarding compliance issues.  

An additional concern with prime contractors is protecting intellectual and proprietary data, such as rates and factors, while participating in the assist audit process used by the government to avoid risk of undesirable disclosure from one firm to another.

If, during the course of marketing, proposing and negotiating government contracts with government and prime contractor personnel, a small business encounters lack of professionalism, misunderstanding of the regulations or defiance of them, the occurrence must be escalated to higher authority with tact, judgment and the long term objective of not only obtaining new business, but staying in business. 

Managing Government Teaming Relationships

DISCLOSURES ARE MANDATORY

Federal Acquisition Regulation (FAR)  52.203-13 in 2008 made mandatory that contractors must disclose past, present or pending violations of contract law to the government.   Not adhering to this requirement can be costly in terms of poor past performance records, legal expenses and financial judgments.

FAR 52.203-13 (3) - Mandatory Disclosure

The Truth in Negotiations Act

TRAINING IN GOVERNMENT REGULATIONS IS A GOOD INVESTMENT

As fast as things move these days if we don't train and communicate effectively we are running very high risks.  The modern era in which we live demands that training be sophisticated, interactive and responsive to changing times. It should evolve out of core company processes and contain feedback mechanisms.

Some training will be global, such as policy, corporate ethics and human relations. Other training will be specialized, such as changes in law, company policy or technology by functional areas.

Principal among the topics at the head of the list for generic training in the art of something would be "Communicating Effectively" to employees to customers, to regulators; both orally and in writing.

Small Business Company Trainng

SUMMARY

Small business must evaluate regulations then communicate and enunciate a company ethics policy and processes that insure compliance with laws and regulations, training personnel on them in the process.

In doing so, disclosures will then be positive and the business will not become the subject of negative press releases by a government agency. (Examples below)


Portrait of a Crooked Government Contractor

Star Power And The Military Industrial Complex

Baseline Management in Government Contracting

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 is 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.

Should You Consider Small Business Federal Government Contracting?

There has been a dramatic increase recently in counseling requests from small businesses inquiring about entering federal government contracting. This article will address some basic things for you to consider in testing that prospect.

YOUR BUSINESS PLAN

If you don't have a business plan in these changing economic times you need one and you should keep it a living document. It is the key vehicle to determine your path forward and convince people that can help you of your firm's potential. Loan officers and investors are interested in your business plan as a function of evaluating the thoroughness of your future vision and validating your funding forecast needs.

Please go to the SBA web site that guides you through the business planning process. I suggest you follow the site presentation and note the factors to consider. The link to the SCORE site business planning presentation is:

Business Planning Guide

The following site contains samples of business plans:

Sample Business Plans


Ask yourself some strategic questions, such as what competition you envision, what your marketing plan will be, etc. Addressing some of these questions may take some research and that is all part of the process of putting in place your plan. It is your road map for the future.

FEDERAL GOVERNMENT CONTRACTING

Your business plan should be a repository for research on the federal government marketplace and how you fit into it. There are many agencies and government prime contractors to whom you may be able to sell your products or services.

Like any other customer, the government expects you to finance your business, meet your payroll, pay your expenses and submit a bill for products and services delivered or rendered. The federal payment cycle is often 60 to 90 days, depending on whether or not you are a subcontractor to a prime corporation.

In federal government contracting you must also comply with the Federal Acquisition Regulation (FAR) and associated Cost Accounting Standards (CAS). Although these requirements are not "Rocket Science", they are different from commercial rules and generally accepted accounting practices (GAP). They have evolved over the years as the federal government has grown in the volume of goods and services it buys. Very few universities make FAR and CAS part of their curriculum and CPA's do not encounter them on a certification exam. Several articles at this site address the practical implications of FAR and CAS requirements for a small business.

The prudent, small businessperson reviews the potential impact of FAR and CAS on his or her business systems and processes before undertaking a government contract, particularly a cost plus or a time and materials contract. In many cases job cost accounting and long range budget planning are required to support pricing, overhead and general and administrative rates. Government contracts can run several months or even years.

Federal agencies form large-scale projects and use companies to service their needs by contracting specialized skills, sometimes bringing the contractors on site by labor category under time and material, cost plus or fixed rate contracts or by purchasing services or products at company facilities and remote sites.

In other cases, pre-established pricing and terms and conditions are negotiated with several suppliers in advance under omnibus contracts and separate delivery orders are issued competitively based on changing requirements. The General Services Administration (GSA) negotiates pricing and terms on multi-year schedules from which both federal and state agencies are permitted to buy.

REGISTRATION

One of the first steps that must be completed is registering your company to bid and become eligible for award of government contracts. Please visit the link below for the System for Award Management (SAM) registration and notice the tips to make sure your file is as complete as possible.

Government Contracting Registration

Also note the North American Industrial Classification System (NAICS) Codes. Please make sure your SAM registration has the maximum number of codes for which you qualify, since the whole federal procurement system rides on those codes.

Self-Certification as a Small Business, a Small/Disadvantaged Business, a HUB Zone-located enterprise, Woman-owned or Veteran-Owned Business is also part of the registration process. Also insure the narrative description of your services is complete.

MARKETING

You should develop a capability statement (CAPE) for government contracts that is short and hard-hitting. It should be 1 page and should highlight the salient points of your products and offerings, your personnel and your qualifications. It should also include the specific information a contracting officer needs to place an order, such as your D&B Number, your government registration numbers, your North American Industrial Classification System (NAICS) codes and the like. These items are selected or provided by you or determined by the system when you register your company for government contracting.

The purpose of the capability statement is to respond to government postings requesting industry interest in forthcoming procurement. They are normally posted at the state and local sites referenced above and at SAM Contract Opportunities, the federal government gateway to contracting:

What Small Business Should Know About SAM Contract Opportunities

A CAPE is useful in acquainting teaming partners with your expertise and government buyers with your small business designations and qualifications. It should be developed in PDF, JPG or similar formats that that can be emailed easily and readily opened.

The following link shows a typical capability statement by a small business government contractor: He may not be in exactly the same business as you are but you can get the idea of what a CAPE should look like and perhaps frame your own document by examining his:

Your CapabilityStatement

UNDERSTANDING THE PROCESS

To propose and win federal government contracts you must become familiar with federal contract marketing, proposal preparation, negotiations and terms and conditions. It is a huge market, but a competitive one. Part of developing the final version of your CAPE will be to examine the market and pinpoint what is out there in the way of typical government bid solicitations that fit your line of work and then frame your document presentation.

The following additional reading at this site will provide background for your research:

Government Contracting Customer Relations

Marketing A Small Business in the Government Environment

Government Contract Negotiation

Establishing Federal Government Compliant Small Business Systems

The Government Contracting Past Performance Challenge

PRIME CONTRACTORS

Regarding larger government contracting corporations to whom you could subcontract - cover the waterfront. Find out what they are bidding and aggressively market a piece of the action as a small business. Determine the locations for the largest government contractors nearest you and register at their supplier business sites. Everything they buy for their facilities, their personnel and their operations counts toward the small business goals required contractually of them by their enormous government contracts.

Research their web sites and locate their small business liaison officers. Make appointments and visit them. While visiting, seek the names and titles of managers internal to their companies who manage prime contracts involving expertise your business can supply. Go after those managers.

SUMMARY

Please check the table of contents on the right margin of this site for other topics that may be useful to you and consider downloading the free book from the BOX in the right margin as well.  Small business federal government contracting is different from the commercial marketplace in terms of business system requirements, marketing, teaming relationships, pricing and the duration of associated contracts. The topics in this discussion and further reading at this site may assist you in your decision whether or not to include the federal market in your business plan.

Seize The Moment In Small Business Federal Government Contracting

THE MOMENT

Trends on the horizon point to a bright future for small business in federal government contracting.

Federal government agencies have set a record in exceeding the legal requirement for small business contracting goals. 

FY 2024 Goal Attainment

Small business is uniquely qualified for work in the current economy, particularly in the services sector, due to lower overhead and G&A rates, as well as agility in work force development.

New industries in Robotics, 3D Printing, Energy, Environmental Protection, Security and Geo-spatial IT and AI Tools are creating fields for small enterprises to compete against bigger firms or lead teams involving larger businesses on large scale projects. 

Government small business set-aside procurement is on the rise and becoming recognized by many agencies as a way to remove stodgy, entrenched companies when long term contracts come up for renewal.  These agencies look to smaller firms for cost effective, vibrant management, while inheriting an existing, trained, incumbent work force available to the winner. The process can dramatically grow smaller firms. 

Managing Incumbent Work Forces

PREPARATION

A small business anticipating participation in the federal contracting market must make pursuing it part of a long term strategy.  Success in government contracting does not happen overnight. 

Like any other market venue, a niche must be located, market research must confirm the need for products and/or services and the competition; the customer and the potential sales must assessed.  Unlike many other fields, success relies on early requirements identification and strong marketing.

Marketing to Achieve a Small Business Set-aside Contract

5 Factors in Forming a Small Business Contracting Company

The government contracting market allows a small business to pass on the costs of operations at a project level as well as write off company-wide expenses if allocated in a defined manner to single government cost objectives (contracts).  

Small business can also operate in a lower risk environment with contract types suited to the challenges involved.  The trade-offs to these features are requirements for audits and job cost accounting that require verified consistency from cost estimating to billing and contract closeout. This does not occur without preparation. 

Small Business Sytems Development

Entering the market requires carefully sculpting commercial past performance into prospective government contract performance and accumulating strong customer satisfaction ratings.  The feds talk to each other. 

Meeting the Past Performance Challenge

Business Ethics and Past Performance

EXECUTION

With the right combination of planning, preparation and opportunity, a small enterprise can seize the moment with:

Identification of specific opportunities that fit company capabilities

SAM Contract Opportunities Replaces FEDBIZOPPS

Astute bid/no bid decisions

Making an Astute Bid/No Bid Decision

A solid team of resources both internal and external

Vital Tips for Project Management

Managing Industry Teaming Relationships

A Winning proposal, effective project start-up/execution and quality products and services

Government Contract Proposal Preparation

SUMMARY

The small business segment of the huge federal government contacting market is poised to grow exponentially due to advances in technology and the need for flexibility, mobility, agility and economic performance. 

Rule changes are being considered to enhance entrance of commercial enterprises into the government contacting venue. Congress and the federal agencies are looking hard at constructive changes to make the challenges we have discussed here easier to meet for the small enterprise.  

Seize the small business contracting moment by being diligent in learning about the market and pursuing it. Make your company well equipped to succeed:

• Define your niche
• Learn the rules
• Plan 
• Prepare 
• Execute 

Meeting 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 startup or a small business new to government contracting meet 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 System for Award Management  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.