Maintaining an Ethical Company Image In Small Business Federal Government Contracting

In the age of modern communications, lighting fast news, social media and exposure to world events, an ethical company image is vital.  

This article recommends several key actions in the small business contracting venue that you can take to favorably maintain your company ethics image.  

SERIOUSLY AVOID ORGANIZATION CONFLICT OF INTEREST (OCI)

OCI can lay waste to the best planned marketing strategies. Careful screening of new hires, procurement types and the business environment is necessary to preclude wasted time, expense and legal implications in the event such conflicts occur.  

OCI clauses in solicitations and contracts require that companies certify their organizations and personnel as not having a procurement integrity issue with regard to a pending contract award or disclose what may be deemed an issue and provide mitigating factors to still be considered.  For more on this matter please see the following article:

Organization Conflict of Intererst

UNDERSTAND DEFECTIVE PRICING (DP)

A reputation for defective pricing leads to accusations of waste fraud and abuse in government contracting.  DP is mostly about what a contractor knew regarding company prices at the time a bid was submitted and what the contractor did not disclose in the supporting data regarding the likely cost outcome of the contract. 

Actions taken by the government and litigation resulting from defective pricing become part of the contractor past performance record and must be disclosed during competition for other programs. Read more about defective pricing at:

Defective Pricing - A Short Course

USE PROTESTS SPARINGLY

There are occasions when protests are warranted.  However, in recent years they have become a culture within federal contracting and a costly disruption to procurement.  

Reduce the likelihood of a protest being filed against your winning proposal effort at award by carefully scrutinizing conflict of interest, ethics and small business qualification credentials. Do not maintain you are what you are not. You will be audited and discovered. 

Do not develop a reputation within the contracting community for filing protests.  It may work against you indirectly during source selection and directly in terms of companies not wishing to team with you. No one likes a sore loser. 

COMPLY WITH NON-DISCLOSURE AND TEAMING COMMITMENTS

Companies seek industry partners who know the rules and who keep their commitments.

In addition to technical, management and product synergism, astute and valuable teaming partners respect and understand your intellectual property rights. They expect the same knowledge and respect from you. 

Negotiate thorough and well understood non-disclosure agreements and teaming arrangements.   Perform in accordance with your obligations; your reputation for doing so will follow your small business.  

For more on this factor please see the below links:

Small Business Teaming

Practical Intellectual Property Management

CONDUCT EFFECTIVE CUSTOMER RELATIONS AND SURVEYS

Stay attuned to your customer's perception of your business.  Insure your top management visits and stays in contact with your most important customers, accompanied by your project managers and marketing personnel. 

Process a survey to your key clients requesting feedback and constructive suggestions.  Review your past performance data base information regularly and take corrective action where you have been rated low or received negative marks.  Demonstrate improvement and broadcast the achievement to the functional heads of the agencies you serve.  Please see the below articles for more details in this vital area:

Your Past Performance Record

PRACTICE CORPORATE SOCIAL RESPONSIBILITY (CSR)

Your management and employees are your emissaries to the public.  Convey your behavioral expectations and, to the extent you can budget for them, encourage  participation in community charitable events to increase company visibility.

If you can technically support social services organizations, do so and seek contracts where your technical expertise may be brought to bear on their challenges. You company will be recognized for it. 

CONTROL PRESS RELEASES AND SOCIAL NETWORKING

Establish policies and focal point control for review and approval of announcements on the Internet of a public relations nature.  Never release a press announcement regarding a contract award until you have signed the deal. 

Insure employees in the social networking, marketing/sales and customer relations venue understand the line between regular communications in their jobs and making an enterprise business commitment or formal announcement.  Errors in this area are hard to retrieve. 

CONDUCT ETHICS TRAINING

Company ethics go beyond decrees to personnel regarding professional conduct and honest business practices.  Business ethics must be tailored to the company service or product venue, relationships with clients, industry partners and suppliers. 

Training in company ethics is vital. It is a form of communication. It is not an academic pursuit, although elements of it may include learning new information. Still, it is not schooling in the sense of personal improvement as much as it is communication of company policy and expectations on the topics discussed here and others like them.

The best organizations make sure everyone from the chairman of the board to the janitor understands that training is a privilege, a right and a requirement and that it will be conducted as a matter of record for everyone.

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 implications by functional areas.

Training must be sophisticated, interactive, and responsive to changing times and contain feedback mechanisms to gauge effectiveness.

SUMMARY

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. 

Pricing Service Contracts With Credibility in Small Business Federal Government Contracting

 

Introduction

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

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

Pricing Service Contracts

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

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

Certified Cost or Pricing Data

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

Truth In Negotiations Act (TINA)

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

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

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

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

Contract Negotiation

Remember Historical Data is Precedent Setting

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

Educate Your Auditor

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

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

Develop a Comprehensive Basis of Estimate (BOE)

A good BOE should have the following principal attributes:

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

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

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

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

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

Insure Compliance with Cost Accounting Standards (CAS) Requirements

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

What Small Business Should Know About FAR and CAS

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

FAR And CAS Compliant Business Systems

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

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

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

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

* Performance risk

* Contract type risk

* Facilities capital employed

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

Weighted Guidelines

Summary

A reputation for defective pricing leads to accusations of waste fraud and abuse in government contracting and is mostly about what a contractor knew regarding company prices at the time a bid was negotiated and what the contractor did not disclose in the supporting data regarding the likely cost outcome of the contract.  

Actions taken by the government and litigation resulting from defective pricing become part of the contractor past performance record and must be disclosed during competition for other programs. 

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

Managing Risk Under 'The Truth In Negotiations Act (TINA)'

THE RISKS ASSOCIATED WITH DEFECTIVE PRICING 

INTRODUCTION:

 
We have previously discussed at this site the development of credible cost and pricing data. That data is the product of not only estimating and pricing but also job cost accounting for managing contracts, business system design to meet Cost Accounting Standards (CAS) and the integrated aspects of the company business system demonstrating regulatory compliance:

Pricing With Credibility

Pricing Small Business Federal Government Contracts

Small Business Systems Development

DCAA Audits and Small Business Job Cost Systems

The purpose of this article is to cite the specifics of the “Truth in Negotiations Act” and recommend  management techniques to comply with this law and avoid defective pricing claims by the US Government. 

THE TRUTH IN NEGOTIATIONS ACT (TINA)

Public Law 87-653 (codified by 10 USC 2306a) was originally enacted in 1962 to place the Government on equal footing with the contractor during contract negotiations.  The following are the principal features of the law:

• Defines requirements for obtaining cost or pricing data

•  Requires certification that data are current, accurate, and complete

• Delineates exceptions to the requirement

• Addresses data submission for pricing of commercial items, below threshold contracts, and “other information”

•  Provides right of Government to examine contractor records

• Defines cost or pricing data

• Provides rules governing defective pricing

• Downward Contract price adjustment

• ·Recovery of overpayment (cost & profit) & interest (as of 1985)

• 2 M Threshold for contract actions (DOD recently increased from 750 K) Recent Procurement Reforms

• Contract actions include contracts, subcontracts, and modifications

•  TINA applicability is not affected by contract type

•   For subcontracts, the $2M threshold applies to the submission of data from the subcontractor to the prime contractor.

 
FIVE POINTS THE GOVERNMENT UTILIZES FOR ESTABLISHING DEFECTIVE PRICING

 
1)    The information in question fits the definition of cost or pricing data.

(2)    Accurate, complete, and current data existed and were reasonably available to the contractor before the agreement on price.

(3)    Accurate, complete, and current data were not submitted or disclosed to the contracting officer or one of the authorized representatives of the contracting officer and these individuals did not have actual knowledge of such data or its significance to the proposal.

(4)    The Government relied on the defective data in negotiating with the contractor.

(5)    The Government’s reliance on the defective data caused an increase in the contract price.

MANAGING THE RISK OF A DEFECTIVE PRICING CLAIM

 
A government auditor relates to TINA and defective pricing whether or not it is required contractually and uses the TINA provisions as a frame of reference in how he or she views trend analysis of your company. Even if you do not have the TINA requirement in your bid or your contract, be aware the auditor is forming his or her opinion of your compliance with the law against the TINA framework.

Post award audits can be ordered at any time by a PCO. During such audits your proposal is juxtaposed to your incurred cost and historical data on a given contract. During such juxtapositions, defective pricing stands out glaringly.  If you become aware of an anomaly, cover your tracks by immediately assessing the impact and deciding whether or not a disclosure should be made.  

Integrate your system from pricing to billing to close out utilizing a consistent cost structure template and be aware you are putting audit history in place and that historical trends are what auditors follow.
 

Keep all subsequent disclosures under proposals to the government well documented, serialized and current at the prime and subcontract level, reflecting them in a detail record of negotiation.  

If you have commenced work prior to final negotiations under a letter contract or similar interim arrangement, conduct a sweep of actual costs and commitments and reflect them in an updated proposal to the government prior to negotiation of a final price.  Reassess quotes, escalation factors, indirect costs and related factors in the same manner if a proposal expires and you are asked to extend your pricing. 

If substantive conditions in an open proposal estimate change, document them thoroughly and disclose them to the government based on an astute analysis of your risk if they can be misconstrued as defective pricing by an auditor.  Carefully convey the impact on the prospective contract and its pricing to the contracting officer if you decide to disclose. 

Consistency with CAS and your CAS disclosure statement as well as your latest negotiated forward pricing rates is mandatory. Any departure from these baselines will attract audit attention.
In many defective pricing instances what you knew and when you knew it becomes a factor.  Continually assess changing conditions that may dramatically impact your cost performance and manage them by taking corrective actions, developing workarounds and carefully communicating requirements to your subcontractors and suppliers. 

Remember under TINA you are required to perform cost/price analysis of your subcontractors if their work scope exceeds the $700k threshold. You must submit the results with your proposal to the government.  If a disclosure becomes necessary, make it sooner rather than later when the data may be under the cloud of a negative audit finding.

SUMMARY

 
Defective pricing actions by the government can have a severe impact on your past performance rating.  They must be cited by you with any new business proposal in which you are asked if your company has been accused or convicted of a violation of the law or has open or pending government adjudications regarding legal violations. 

Sculpt and educate your auditor, contracting officers and government analysts on the specifics of your company business system and preserve its integrity over the long run to maximize your win potential and lower the risk of defective pricing claims by the government. 

A good rule of thumb is to consider every proposal as if it were under TINA compliance whether or not you must submit a “Certificate of Current Cost and Pricing” under TINA.  This will keep your business system sharp, your ethics and standards high and your past performance record clean.