Government Contracting Consulting 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.

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.

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.

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.

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.

Regardless of the size of your company a Strategic Plan can be a valuable tool. I provides a plan to achieve the goals of your company. It’s hard for a company to be successful when they don’t even know what success looks like. A Strategic Plan provides guidelines on where the company is headed and how it will get there. Tactical Plans support your Strategic Plan and provide the plan for very specific portions of your long-term goals.

It doesn’t matter how small your company is. A Strategic Plan will help you achieve your long-term goals and set a course for you company.

I see this question a lot. People ask “where should they start” or “how do they get started”. That’s a hard question to put a direct answer to, but if I had too I’d say start with research.

There are two areas of research to that you need embark on. 1st,how does the government processes work. Apex is a good place to get the basics. Unfortunately, I have learned the Apex Accelerator program is not the same “quality” in every state. I have also learned that you can sign up for online classes even if you’re out of state. So if you don’t think your getting good information of your local Apex office try the Georgia office.

The 2nd area of research is what are you going to provide to the government. What are you going to provide to the government at a competitive price. People tell me all the time they want to be a supplier to the government buying and re-sailing Commercial Off The Shelf (COTS) products. That’s fine, there is nothing wrong with that plan. So my question is “what suppliers do you have a relationship with”. That’s when their plan falls apart. You have to be able to provide your product at a lower cost than your competitor. How are you going to do that? Let use an example:

If the Government wants to purchase 100 torque wrenches. 1st question is where are you going to get 100 torque wrenches? Lowes and Home Depot probably don’t have that many in stock. 2nd question is how will you price them? If you pay full price, say $100 each. You need to add your margin (profit), Overhead (OH), General & Admin (G&A), shipping & handling. So you unit cost ends up being $150.

Your competitor talked directly to a torque wrench manufacturer and got the same wrenches 20% cheaper than you can. So his price is automatically lower than yours. You lost before you started. So we’re back to the original question. “What are you going to provide to the government at a competitive price?” Remember, there are 1000’s of others out there trying to do the same thing you’re trying to do. How do you beat them?

There is a common misunderstanding that you can hire a proposal writing consultant that will write you a winning proposal and you don’t have to do anything except provide some information. A GOOD consultant won’t promise to write a winning proposal for you. What they will do is guide you through the proposal process and help your team develop a winning proposal. Along the way they should teach your team some of the processes related to developing a proposal.

A consultant will guide your team through the capture process (if hired early enough), Win Strategy Session, PWin Calculations, Color Reviews, Outline the Proposal, and yes they can help write the proposal. Especially the “boilerplate” parts of the proposal. There is a lot more to writing a proposal than just writing a good story. Remember, what you promise in the proposal you will be expected to deliver when the contract is awarded. Do you really want someone who is not part of your company committing your company to the Government? The responsibility for executing the contract they way your proposed it is the responsibility of the company’s leadership.

Be careful letting a consultant write your proposal for you. He is probably taking someone else’s winning proposal and editing it for you. He may also be committing you perform tasks you didn’t consider in your pricing and many not be prepared to deliver.

The challenge of selling services is selling a product that can’t be seen or touched or held. Selling a product can be just as challenging because you can’t always pull one out of your bag for the customer to see. The only thing a customer can see is you. So, you must sell yourself before you can sell the company’s services or capabilities. This is where the Art of Business Development begins. Viewing yourself as the “product” being sold is a new concept to many people, but a vital concept to understand. You are what’s being sold.

As you build your network of customers and contacts you want them to view you as a source of solutions to their biggest problems, not a business development rep working for a company, just another salesman. It is difficult to tell you how to accomplish this because the techniques that work for you may not work for somebody else. In addition, every person you talk to has different concerns and problems they need a solution for. They also have different personalities which must be approached in different ways to earn their trust and respect. You need people to feel comfortable talking to you and not feeling like you’re just there to “pump them for information”. People know why you are there. You’re there to find new opportunities or get more information about upcoming projects they may be involved with. If they are comfortable with you in many cases they will tell you what they know without you having to ask. They know you want to help them so they want to help you. Its that simple.

Treat people with respect and courtesy and you’ll get the same in return. Patience is a big part of the Art of Business Development.

Pwin (Probability of Win) is a common tool used in Government Contract Capture Management. Unfortunately it’s a very misunderstood tool. Pwin is your probability of winning a specific opportunity you’re evaluating. Methods of calculating Pwin vary from company to company and system to system. Paid pipeline tracking systems and proposal management systems frequently calculate a Pwin for you, but their methodology is usually proprietary. Manual methods for calculating Pwin are available, but must be applied consistently. If Pwin is not applied consistently it loses its value. Finally, there is the “Gut Check” method. The Capture Manager makes a guess at the probability. Of course, this
isn’t a very scientific method of estimating Pwin, but it shouldn’t be discounted either. A good Capture Manager should have a pretty good idea of what Pwin should be. One use of PWin people frequently fail to utilize is it’s ability to track the progress of you Capture Efforts. As you progress through the Capture Process your PWin value should increase. So recalculate your PWin often to see if it is trending upward. If your PWin is not improving you may need to revisit your Capture Processes or your Capture Plan.