Federal Contracting Answer Book

Terrence M. O'Connor

• Publisher: Berrett-Koehler Publishers
• Year: 2009
• ISBN:
  9781567264258
• Edition: 3
• Topic: Volkswirtschaftslehre
• Subtopic: Wirtschaftstheorie

Thousands of contracting professionals have relied on the Federal Contracting Answer Book as their trusted guide to the highly regulated world of government procurement. In each edition the book has offered timely and accurate answers to the questions that arise daily in this complex field. Now in its third edition, this answer book is even more comprehensive. Written by experts who have extensive experience working in and teaching government contracting, the book includes all the latest changes and requirements. The question-and-answer format enables quick look-up and a concise presentation of the information. In this edition, new questions and answers have been added on avoiding proposal errors, debriefings, procurement vocabulary, regulatory changes, and best practices. In addition to these updates and revisions, the third edition includes new chapters on earned value management, GSA schedules, and contractor qualifications.

CHAPTER

1

INTRODUCTION TO THE FEDERAL MARKETPLACE

The U.S. federal government spends billions of dollars annually to meet its agencies’ missions; it offers opportunities for any business sector and provides a stable business base for companies interested in working with the federal government. But what exactly is the federal government marketplace? How does it differ from the commercial marketplace? What makes it so appealing to pursue? A company interested in doing business with the federal government needs to understand the components of the government marketplace and the legislation that defines the various elements of that market. The techniques for entering the government marketplace are important for both large and small businesses.

What is the federal government market?

The federal government market consists of the sellers—contractors—who provide products and services to buyers— people working in the federal government. The sellers in this marketplace include individual entrepreneurs, small businesses, and large businesses. The buyers work for civilian agencies, such as the departments of Education, Energy, and Transportation, as well as Department of Defense (DoD) service branches such as the Navy, Army, and Air Force. The goods and services that are exchanged in this marketplace include

• Normal consumer goods, such as socks, pastries, computers, and cleaning supplies

• Services, such as information technology, biometric scanning, consulting, and teaching

• Government-unique items, such as F-22s, missile guidance systems, and M1 tanks.

How is conducting business with the federal government different from conducting business with commercial companies?

In addition to the sheer size difference between the federal government and a commercial company, there are several distinctions between conducting business with a federal agency versus a commercial company:

• Use of federal acquisition regulation

• Types of purchases

• Socioeconomic objectives

• Government authority

• Close monitoring.

Use of Federal Acquisition Regulation

Most federal agencies (other than the Central Intelligence Agency and the United States Postal Service, for example) use the Federal Acquisition Regulation (FAR) to provide direction and govern their federal procurements. The FAR is managed by the FAR Council as part of the Office of Federal Procurement Policy. The FAR provides direction on items such as the underlying principles of federal procurement, appropriate behavior for government and contractor personnel, applicable contract clauses based on contract type, dispute procedures, and recommendations for how government personnel should evaluate contractor proposals. The government regularly reviews the regulations and relies on industry to help define and update outdated regulations to keep them in line with best business practices. The FAR is developed with contractor input, but it is finalized, interpreted, and designed to protect the government’s interests. The Federal Acquisition Streamlining Act (FASA), enacted in 1994, lessened the regulations and paperwork required to conduct business with the government.

By contrast, a commercial company may select its business partners in any manner it chooses. Contracts between two commercial entities use the Uniform Commercial Code (UCC). The UCC is designed to protect the buyer and seller equally.

Types of Purchases

One similarity, of course, is that, like commercial companies, the government buys commercially available items or products and services that are available for sale on the open marketplace. In fact, the Federal Acquisition Reform Act (FARA), also known as the Clinger-Cohen Act, further mandated the government’s use of commercial items to meet contractual requirements. FARA exempted commercial off-the-shelf (COTS) items from certain FAR requirements and simplified the procedure for acquiring them. Although the government procures a large number of COTS items, there is still a tremendous market for research and development, defense, and civilian products and services that commercial companies do not need.

Socioeconomic Objectives

The government focuses on two perspectives as it awards contracts. The first is that it wants to protect the taxpayers’ money, so it works hard at securing the best-possible-value contract. To accomplish this, it enforces strict guidelines to keep competition open. Specifically, through the Procurement Integrity Act, the government punishes companies suspected of trying to get an “inside track” on a procurement. Second, the government tries to meet socioeconomic objectives through its procurement actions. To accomplish this, it establishes set-aside programs designed to give small businesses the opportunity to compete for federal business. These set-asides target, for example, small disadvantaged businesses, labor surplus area businesses, and veteran-owned businesses. Through programs like these, the government encourages and helps small businesses obtain federal business even though procuring goods or services from these smaller companies may be more expensive for the government.

A commercial company can award contracts in any manner it chooses and may choose not to run a competition at all. Furthermore, a company pays attention to the socioeconomic objectives only through its own beneficence, not because it was mandated by Congress or an executive agency.

Government Authority

Another important difference in contracting with the federal government versus a commercial company is that the government has the right to know all. The federal government differs from a commercial company in that the government can audit all contractor pricing, costing, and invoicing documents for noncommercial items. When bidding on a government contract, a contractor must detail the costs for direct, overhead, general and administrative (G&A) expenses, and profit amounts on the proposal cover sheet. The government reserves the right to audit any documentation to determine whether the price is fair and reasonable. This is not the norm in the commercial marketplace. The government has relaxed these requirements significantly in the FARA for commercial items. In a commercial contract between two companies, typically only the line item and total price are given.

Close Monitoring

Finally, government contracts require close monitoring. Skillful contract management is required for success and profit in the regulated government environment. A contractor’s management team must constantly monitor the project to ensure strict adherence to the stringent government requirements. For example, if a company performs work in a manner different from the proposal, it must obtain contracting officer (CO) approval. (The CO is the only person who can bind the government in a contract action.) If a company changes the dials on the widget it is making for the government, the CO must approve that change. Commercial contracts often maintain the same level of monitoring and thus can cause significant problems downstream between the two organizations. Furthermore, any government funding expenditure is subject to scrutiny.

Something as innocuous as paying for lunch at a contractor and government function falls within the realm of procurement law. For these reasons, a contractor management team must understand the government regulations and contractual obligations, and clearly communicate these requirements to the people working for the government.

Why do business with the federal government?

Doing business with the federal government pays off for many reasons:

• Government contracts can be profitable.

• Government contracts allow a company’s skill base to broaden.

• Government contracts build a solid financial base.

• Government contracts provide employment opportunities.

• Government contracts help small businesses.

Government Contracts Can Be Profitable

Profit margins on federal contracts are low compared with the profit margins that can be realized in the private sector. Profit is handled differently depending on the contractual relationship between the contractor and the government. Some contracts do not allow the contractor to receive any more than a ten percent profit. In firm-fixed-price contracts, the contractor determines up front how much the entire contract will cost. Once the amount is agreed upon with the government, the contractor will receive that much money. A contractor could make more than ten percent profit in a firm-fixed-price contract if it manages the contract well. Cost plus award fee contracts allow the government to assess a contractor’s performance throughout the life of the contract and to make decisions periodically on the amount of fee or profit the contractor receives.

Although profit may not seem like a motivator to get into the government marketplace, it is considered a positive reason to pursue government business because of the size of government contracts. Ten percent of ten million dollars is a lot of money. Once a company becomes proficient at bidding and running a government contract, the profit associated with government business can become the financial foundation for a company.

Government Contracts Allow a Company’s Skill Base to Broaden

Many skills are required on government contracts. The technology required on government programs can allow companies and their employees to broaden their skills. Often, skills that are required on government deals can be transferred to the company’s commercial side. The airline industry, for example, has used many of the parts developed for DoD aircraft on its commercial planes.

Government Contracts Build a Solid Financial Base

Government contracts may last up to ten years or longer if permitted by the FAR. The longevity of contracts builds a solid financial base of backlog business for the company.

Government Contracts Provide Employment Opportunities

In today’s scaled-down workforce, new government contracts represent jobs for employees. Federal government contracts are relatively secure. Regulations are in place requiring government personnel to have funds appropriated and obligated before they give a contractor a contract or delivery order. This guarantees a contractor payment for acceptable goods or services and provides a steady revenue stream.

Government Contracts Help Small Businesses

Employing small businesses (SBs), small, disadvantaged businesses (SDBs), and women-owned businesses helps all parties concerned. The federal government meets its socioeconomic objective to decrease unemployment rates by helping small businesses succeed and grow. Small companies get the expertise of a new marketplace and the opportunity to grow their businesses through government contracting. Finally, when small companies team with large companies, the large companies have the opportunity to meet the requirements placed on them by the federal government to subcontract federal work to SBs and SDBs.

Have any changes occurred in the government marketplace?

The 2013 “fiscal cliff” and the subsequent “sequester” have had an impact on government spending. It remains to be seen how Congress will agree to implement the spending cuts required to balance our federal budget. Government agencies and contractors are currently working together to determine how they can cut budgets without sacrificing agency missions. Some jobs that formerly were done by contractors will now be performed by federal employees. Similarly, jobs that can be done more cost-effectively by the private sector will be contracted out. Program duplication will be eliminated. Work will be done by the most efficient organization that can accomplish the work. For example, many agencies procure goods and services through the General Services Administration (GSA) under the Schedules program. By doing so, individual agencies remove the need to set up their own procurements and can buy needed products and services through contract vehicles already established by GSA. (See Chapter 4 on the GSA Schedule program.)

Other changes involve the president’s emphasis on doing government tasks more efficiently. Barack Obama set up the White House Innovation Fellows program to bring in private sector individuals to work with key government innovators in pushing an agenda of change. Existing projects worked on by these industry-government teams include (1) determining easier ways to get niche technology vendors interested in government contracting and (2) developing more outreach programs so that the government workings are transparent to private citizens. These initiatives offer new ways for contractors to secure government business. For example, government agencies are trying to streamline doing business with high tech organizations so that more of these types of companies would be willing to do business with the government. (To see other initiatives now under way, visit www.whitehouse.gov/innovationfellows.)

What are the roles of each branch of the government in federal procurement?

Each branch of the federal government—executive, legislative, and judicial—plays a unique role in the procurement of goods and services.

The executive branch consists of agencies (e.g., National Aeronautics and Space Administration, DoD, Department of Health and Human Services) that develop requirements for what they plan to procure, conduct the source selection process (the way in which the agency will select a procurement winner), and use the goods and services procured.

The legislative branch consists of Congress and the Government Accountability Office (GAO), which maintain the funding authority. The legislative branch ensures that government money is spent appropriately through its oversight function. Executive agency representatives present their annual procurement plans at congressional hearings. The agency budgets either are approved and become part of the authorization bill or are disapproved and not funded. A bill is introduced into the House and Senate appropriations committees for a final review. These comm...