Government Contractor Training pt 2

In the previous post I gave an example of how I’ve seen people start out being a broker for products to the government. Not all of them have failed, but most don’t last doing broker work alone. The successful companies that start out as a broker quickly expand into A&AS or other contract areas.

There are a lot of training sources available that promise to show you how to get rich being a broker for companies selling to the Government. They don’t all call it being a broker, but that’s what it amounts to in the end. Consider this…if they are making so much money as a parts broker why are they selling the training service at such a high price. I would venture to say that most companies who claim they have got rich selling to the Government and are now offering to teach you how for a fee are making more money from their training programs than they are selling to the Government. Teach people how to get rich quick is a big industry. I have considered jumping into the training market, but I’m afraid the honest real life training I would want to offer would discourage a lot of people new to the defense industry.

Before you start paying for “How to Sell to the Government” training checkout all the free training that is available. The Government wants to support small businesses so they have a lot of free training available. Start with the Apex Accelerator. It used to be called PTAC. I took several of their classes. I have even been a guest speaker at some of their classes. Its good training to learn the basics. Keep in mind, it’s being taught by Government employees most of who have never worked as a defense contractor. They are teaching a lesson plan. So if you don’t feel you learned much from a class you attend, find the same class taught by another instructor. Another source of reading material is Defense Acquisition University (DAU). This is training for Government contracting officers and is not open to everyone, but you can find articles discussing specific contracting topics. I actually found some good information using SCORE when I started my consulting company. It’s worth looking at.

The Government wants your small defense company to be a success, but they are not going to just give you money. Defense is very competitive so you have to do your part and offer something the government needs. Don’t just chase any Government contract you think will make you money. You’ll just end up in trouble and out of business. Focus on your areas of expertise. If you’re not an expert in your area of interest, become an expert.

A lot of people ask about mentors. There is a Government Mentor/Protégé program. Each department of the Government had their own program, but they were finally all consolidated under SBA. As far as I know the program is still out there. However, Joint Ventures (JV) (not an SBA program) has taken the place of the Mentor/Protégé program in most cases because it’s easier to initiate. It’s your responsibility to find your mentor. You can’t just jump up and say I want to be mentored. You have to offer something to your mentor, not just paying a fee. Offer your expertise in exchange for their expertise. Whether your expertise is logistics, engineering, management or whatever, find a company that needs help in your areas of expertise. That’s where you’ll find a good mentor/protégé relationship.

Government Contractor Training

I see a lot of people on YouTube, LinkedIn and Reddit promising if you pay for their training course you’ll start winning Government contracts right away and make a ridiculous amount of money each month. Be cautious. I’ve been a Government contractor with large companies, small companies and my own company. There is no “get rich quick” scheme in Government contracting. There are companies who get lucky and win a contract quickly so lets walk through what usually happens based on my observations and experience. You win a contract to deliver 100 Flux Capacitors as a “broker”. So you sign the contract with the government. Your supplier quoted a 90 lead time for delivery so you quoted the Government 120 day lead time. That sounds reasonable. So you contact your supplier to issue the PO. Your a one person company so you don’t have a lot of the company infrastructure established yet because it cost money, but now you need to create a PO so you invest in Quickbooks or something similar. Now you’re ready to issue the PO to your supplier. Lets say that process took 3 days to resolve. So you supplier reviews your PO and about a week later they tell you they have issue with your Terms & Conditions (Ts&Cs). So you spend another 2 days negotiating and resolving your Ts & Cs. So now we’re 12 days into your lead time. Its common for a supplier to require an upfront deposit or full payment upfront for a new supplier. So they send you an invoice for $150k stating they’ll start work as soon as they receive payment. So now you have to go to the bank and ask for a lone to pay your supplier. The bank wants your house as collateral, but your not real happy about that. Or maybe you don’t have enough collateral for the bank to give you a lone. Now you’re stuck and your 19 days into your lead time. Let’s say you got lucky and found someone to put up the $150k for you. So you pay your supplier and he gets started. Now his 90 day lead time clock starts counting. Let’s assume your supplier is ready to deliver on time. So you’re at 109 days. Your supplier gets the parts shipped and at 112 days you have delivered everything, but you still haven’t made a dime. Now its time to invoice the Government, but you didn’t know you need an account in Wide Area Work Flow (WAWF) to invoice the Government. So you spend a couple days getting the account set up and submitting your invoice. So now you’ve worked 115 days without pay, your $150k in the hole and waiting for your invoice to be paid by the government. Government payment terms area usually 30-45 days. With a small business they usually give 30 day payment terms. So for 115 days work you have made about $30k minus expenses. That’s assuming a 20% markup. That doesn’t sound too bad, but remember 15% of that goes to Small Business taxes which you have to pay quarterly. Now its time to start again and find your next order. You were so busy fill you last order you didn’t have time to find your next one. Hopefully you can win another order before the money runs out.

I know how people think. I’ve had a hundred people tell me they will do things differently and won’t be that unprepared. I don’t care how prepared you are you will run into something you didn’t know about or weren’t prepared for. I have seen a lot of company win a contract and when that contract is over they go out of business. The gap between one contract ending and starting the next kills most small businesses.

I’ll do another post soon that gives an example of an IT or Engineering company that falls into a similar trap.

Finding Opportunities

One of the top questions I hear is “where do you find opportunities?” Generally those asking have no idea what they want to sale to the government they just want to find an easy contract. I’m going to make the assumption that you have an established business that generates a product or service already. Say a machine shop, or engineering services, or IT services. For those who are an established company, lets look at several common sources of opportunities.

Sam.gov. You’ll see a lot of people complain about sam.gov and I agree with every complaint. It’s not user friendly at all, but it does have a lot of information once you learn to navigate it. There are services like GovWin, EzGovOpps and others that provide a more user friendly system, but they get their info from sam.gov. GovWin would be the exception which has a team of consultants that contract government sources to provide updates. I don’t know if their added information is worth the very high annual subscription fee they charge. Learn to use sam.gov. It’s free and it provides a lot of valuable information.

Conferences are another good way to find opportunities. Unfortunately, I believe most people approach conferences with the wrong goals in mind. They go to a conference hoping to come home with a contract. In the defense community that doesn’t happen very often. Your goal should be to make friends. Find companies that have some experience working with the government that you can work with to enhance their capabilities. For example; if you meet and IT company that primarily handles hardware and communication software and your company focuses primarily on cloud computing maybe your companies can work together. Build a relationship with them beyond the conference.

Study DoD programs related to your market. If you’re a drone company study the DoD Replicator Program, if you’re an IT company know about the Kessel Run program, if your a machine shop know about DMSMS issues. That’s what your competitors are looking at so you need to be able to talk about them. Every market has a program trying to make it better.

Finally networking. Be open to teaming. two small businesses have a lot more capability than one. Also when you build a relationship with a large company they may offer you some subcontracting opportunities. People are impatient. These things take time and effort. You have to build your network and become a trusted partner to your peers. What would it take for someone to convince you to allow them in your house alone to do a job for you. You would have to be confident they are trustworthy, reliable and will accomplish the work you’re paying them to do.

Reading Solicitation Documents

Remember, it’s your responsibility to read and understand every word of every document. It’s not the Government’s responsibility to make sure you understand. If you sign a contract that has a requirement that you didn’t understand when you priced it you are still responsible to fulfill that requirement without additional funding. Here is one trick I use to identify every requirement of a solicitation. Do a word search for the word “shall”. Most of the time it will state something similar too “contractor shall…”, copy and paste that statement into an excel spreadsheet. Repeat the process for the word “will”. You should get similar results. When you copy the statement be sure you get enough context so later you understand what it means. I also add the paragraph number next to each statement so I can find them again it I need. This process will help you identify 95% of the requirements, but there still may be more that are not as clearly defined so you still need to READ everything.

The spreadsheet you create in this process is the start of building your requirements matrix. I compare the requirements matrix to Section L (Instructions to Offeror) and highlight all the requirements that are listed in section L. These are the subject you must write about in your proposal.

A requirements matrix is an important tool when getting ready to develop a proposal. What I point out to many of the small businesses I work with is it’s a tool all your large business use. They may have different names for it, but they have a version of it. Many of your large defense companies started out as small businesses, but won large contracts. This is one of the tools that will help you win a large contract.

Mentoring/Training

I have seen a lot of people asking about mentoring or training services. I know PTAC training is basic and those conducting the training are usually government employees who have never worked on the contractor side of the business. I have also seen a lot of YouTube videos of people saying I can show you how to make $100,000 with this simple trick. I’ve been in government contracting for over 20 years and there are not simple tricks to winning a contract. I do have experience providing training. I have been considering developing a training program people can enroll in that will teach the basics of government contracting. Unfortunately, due to the time involved developing the training programs I would need to charge an enrollment fee. I’m not trying to make this a full-time business because I still work as a government contractor myself, but there would be expense and a lot of time involved in getting it up and running. I still need to do some calculations, but I would love to hear your opinion about this type of training (I’m thinking of live zoom training) and what you think the value may be. Would you pay $200 for a basic live “How to Get Started Class”?

Pricing Your Products and Services

This is a subject I think a lot of people are not sure about but are afraid to ask so I’ll point out a few things to consider when building your pricing.

Overhead – Overhead is pretty common so I’m not going to discuss it too much. The one thing I will point out is overhead should not be an arbitrary percentage you add to all your pricing. It would be calculated based on operating costs and forecasting. It should be re-calculated at least annually.

General & Administrative (G&A) – Small businesses generally lump G&A into their Overhead calculations. Some companies choose to separate G&A and OH. G&A is your cost of doing business such as rent, utilities and insurance. OH typically covers your staff positions that don’t charge directly to a contract, such as receptionist, CEO and other overall positions.

Margin (Profit) – Margin is the percentage you add to the overall project. I have seen markup on products as high as 50%, but those are usually achievable when you have the market cornered and the government has no choice but to buy from you. For services, a typical margin is about 15%. Remember, bidding is competitive so you need your price to be lower than your competitor’s.

Price Breakdown – Depending on the type of the contract, the government can ask you to provide a breakdown of your pricing. You don’t have to get overly detailed in the price breakdown, but they are general interested in 2 parts of your pricing. 1. They are typically looking to see what material is driving the cost and lead-time. 2. They want to see you margin. That is the only part of your pricing the government can really ask you to negotiate. If you’re providing services they have an unwritten target of negotiating your margin down to 15%.

Management Reserve – Management Reserve is a small fund that most sr. managers and company executive would not like me talking about. Management Reserve is a small percentage or fixed amount of funding a manager at the execution level of the project sneaks in to give himself a small cushion if something goes wrong and he gets into a price overrun situation. If you don’t use it your company will enjoy increased margin and you’ll be a hero for completing the project underbudget.

Of course you could spend a lot of time discussing pricing. Just remember government contracting is very competitive so Low-Price-Technically-Acceptable (LPTA) is who will win so you need to make sure your pricing is accurate and complete. You can’t afford to forget to include something in your pricing. A big mistake small businesses make is underestimating the level of effort for program management and the requirements for the data package. Be careful.

Advisory & Assistance Services (A&AS)

I hear a lot of talk about wanting to start a company to be a Broker. Resell stuff to the government. A&AS could be an alternative to the Broker idea, but it’s just as competitive.

A&AS is what I generally refer to as “butts in seats”. It’s providing qualified labor to fill government positions as a contractor. These contracts are generally awarded as 5 year (1 year with 4 options) contracts. The way they work is the government will provide a list of positions they need filled. It may be anything from a pest control person to an aircraft engineer. You provide the bodies. The people will be employees of your company, but will generally work at a government location and report directly to the government. What you are is a staffing agency for the government. You generally provide the bodies for a minimum of 5 years.

If you think about it, it’s easy money if you can win one. They frequently require you use the fair labor rates established for the location so competition comes down to markup. Who is willing to accept the lowest markup rates. The same thing happens when you’re looking to be a reseller for the government. You and all your competitors are getting quotes from your suppliers. The quotes are generally fairly close to each other. So it comes down to who will accept the lowest markup with those as well.

One downside to competing for A&AS contracts. They are frequently set aside for ANC 8(a) companies. However, you can find some that are not. You occasionally find some difficult requirements related to security. I recently spent 2 months writing a proposal for a $70mil A&AS opportunity only to have the government make a change requiring we have a secret security clearance before the proposal was submitted, which disqualified me. So you have to be careful when reviewing the requirements.

I just wanted to point this type of contract out as an alternative to those looking at becoming a broker company.

Parts Broker (middleman)

I have seen a lot of discussion on reddit lately about becoming what I call a parts broker. I know it doesn’t always apply to aircraft or vehicle parts, but it’s the same process.

People seem to believe being a broker for the government is an easy “get rich quick” scheme that doesn’t take much effort to be successful. There are companies that are successful doing this type of work. I have known a few be very successful, but I have seen a lot of them fail. So the question becomes why to so many fail? There are all kinds of specific reasons for their failure, but the primary cause is they don’t have a strong executable business model to start with. They just jump in and start losing bids.

Here are a couple thoughts you should consider when creating your business model.

  • What are you going to sell? – Many people want to jump in and sell anything the government will buy from them. So let me make a very simple example. Your company finds a solicitation to buy flux capacitors, so you call a flux capacitor company and get a quote for 10 units. Which is the solicitation quantity. You add say 25% OH, 10% GA, 15% Profit Margin on top of the price you were quoted. So lets say your price comes out to $100 per unit, or $1000 total contract value. Everything sounds good. You competitor company A also calls the same flux capacitor company and gets the same quote, add similar markups and submits a quote. So now your competition comes down to who is willing to accept the lowest markups. Now company B takes a different approach. They have done some research and estimated the quantity of flux capacitors the government buys in an average year (this is public information). They contract the same supplier in advance of the solicitation being release by the government and negotiate a 15% discount if they agree to quote their parts exclusively to the government. So now their starting price is already 15% less than your company and company A’s. They win the bid, because they have a price advantage.
  • How do you verify your supplier maintains a quality product? – remember you’re the seller, so if the government has a quality issue they come to you to resolve it not your supplier. If your supplier refuses to honor a warranty you are still obligated to honor any quality requirements within the solicitation. That is a common area for companies to get in trouble with the government.
  • Can you support your price? – The government in accordance with the Federal Acquisition Regulations (FAR) can require certified pricing.
  • You’re putting a lot of trust in your supplier. How strong is your relationship with them?

I could continue on with this list, but this post is getting longer than I intended. You can be successful being a broker or middleman, but it’s not as easy as people seem to think.

Preparing For a Conference

Networking and making contacts within the defense industry can be challenging for someone just starting a new defense business or moving their existing business into the defense market. Conferences are a good way to build your network. I spent last week at the Quad-A conference in Denver so I thought I would explain how I prepare for a conference.

I have a list of key companies and people I always try to talk to because they are current customers or I want to make them customers. Usually, the conference website or app will show how the attendees are by company and name. I review the list to see if my key list of companies and people will be there. If I have a good relationship with them I usually email them and ask if they will be there. Setting up a scheduled meeting is much better than just stopping by.

Second I go through the attendee list and look for possible new contacts. Find companies that could support your business as a supplier and companies you could support. Make a list of these companies. These are your secondary targets to visit.

Finally, I make a list of talking points to discuss. If it’s one of my key contacts, I want to discuss future business that has a benefit to them. That may sound a little odd, but you should know what kind of business they are in so go to sam.gov and find some opportunities they may be interested in bidding. When you talk to them ask, are you looking at this opportunity? That’s a good way to lead them into a discussion about the projects they are looking at. Also have talking point for possible supplier and potential new customers. Know what your company needs and what you can provide to another company.

A final tip is I always carry a notebook. Don’t write while your talking to someone unless they are giving you contact info or something to write down immediately. As soon as you walk away from a good conversation stop and make notes about the discussion and what you need to do to follow up. I don’t like to make notes during the discussion because it makes people feel like you’re going to use what they say against them in the future. Wait to make you notes until after you walk away.

Attending Conferences

A frequent question I get is “how do you build relationships with companies that could subcontract your company?”. Conferences is a good way to network and make connections. Remember it is a sales event. Everyone there is either looking for new opportunities or looking for a new source of supply. Keep that in mind when planning for a conference. Don’t just walk into conference without a plan. When you sign up for a conference you usually are allowed to see who will be exhibiting. Look at the companies and identify companies you feel your company can support as a subcontractor. Don’t just walk up and tell them you want to be their subcontractor. Have an opportunity to discuss. Look at some sources soughts and RFIs that are listed that you could support. Ask them if they plan to pursue them. Let them know if they pursue this particular opportunity you could provide support for this area of the contract.

You have to get them interested in talking to after the conference. So you need to research companies, research opportunities for them with you as a subcontractor, and be able to talk a good business strategy that benefits them and you. Make a list of targets and be sure you have a plan to get them interested in you. Once you have hit your targets look for what I call targets of opportunity. Companies which are not on your target list, but may have some interest, based on their exhibit, in what you have to offer. Most importantly, follow-up with companies after the conference is over. Again continue a conversation of interest to them. Remember you’re selling yourself to them. So know how you can expand their capabilities or support them in an area they may be struggling.

Conferences are an important tool to building your network.