#governmentcontracting — Public Fediverse posts

Establishing Compliant Small Business Systems For Federal Government Services Contracts

“SMALLTOFEDS” By Ken Larson

“To effectively market a federal government services contract a small business must sell on the basis of having a business system as well as technical performance infrastructure ready to run the job when a contract proposal is submitted. 

Parallel thinking is required to plan for government project technical effort against a template of necessary business process infrastructure, driven by introducing Federal Acquisition Regulations (FAR) into the company.“

_________________________________________________________________________________________________

“INTRODUCTION

Key elements of the necessary business system infrastructure are discussed in this article which assumes that your are in the federal government services contracting business, that you plan to price your services at an hourly rate and sell them by labor categories with professional job descriptions to perform the government’s statement of work and bill by the hour. This article also assumes that you are not contracting under FAR Part 12, “Commercial Contracting”.

Labor Categories Each skill set in the company must be specified and defined as chargeable directly to a contract, or indirectly to a cost center overhead, a material handling pool or a general and administrative pool. Each labor category must have a job description and a prospective salary range for proposal purposes.

Cost Center A Cost Center is a single business entity within the company, organized for a group of business lines and clients with close similarities for technical and business management purposes. Cost centers are also driven by geographic location and the requirement to separate commercial from federal government business. Projects performed in government facilities may also require a separate cost center, since many of the associated expenses for such operations are born by the government. Cost centers usually have individual subsidiary ledgers, balance sheets and profit and loss statements and are summarized monthly to a company total. Each cost center must have job cost accounting for the contracts residing there and a cost center unique overhead rate.

Examples:
Commercial Cost Center
Federal Government Cost Center
Government Site Unique Cost Center

Annual Overhead Rate An overhead pool is made up of individual Cost Center indirect expenses projected for a given year divided by the projected Cost Center direct labor dollars for that year to determine a rate. Typical Cost Center Overhead general ledger expenses are those which cannot be effectively charged direct to contracts. These include Cost Center management, building lease, telephone, fringe benefits, electricity, capital equipment, depreciation, and the like.

An example of a 2026 Cost Center Overhead Rate of 110%  is as follows: 

2026 Gen Indirect Expense for Cost Center  $459,800= 110%
2026  Projected Dir. Labor $ for Cost center $418,000

Annual Material Handling Rate (if required) – Corporate wide expenses specifically associated with buying, storing and shipping material for a given year divided by the projected direct material dollars projected company-wide for that year. Not all companies have business that is material intensive enough to warrant a separate pool for material handling. Where extensive buying or subcontracting is conducted out of the corporate headquarters and inventory and shipping labor are high, a material handling pool is permitted by the government when it is not administratively possible to charge these expenses directly to contracts.

The estimated annual Cost Center Overhead Rate is applied to direct labor cost estimates to price labor cost through overhead for the Cost Center. When a contract is awarded, actual overhead expenses are allocated monthly to direct labor by contract on the basis of direct labor dollars incurred. Projected overhead rates are adjusted based on actual total cost center experience as the year progresses.

The estimated annual Corporate Material Handling Rate is applied to direct material cost estimates to price material for all Cost Centers. When a contract is awarded, actual material handling expenses are allocated monthly to direct material by contract on the basis of direct material dollars incurred. The projected material-handling rate is adjusted based on actual total company experience as the year progresses.

Annual General and Administrative Rate (G and A) is corporate indirect expenses projected for a given year divided by the total projected direct cost plus overheads for all cost centers for that year. Typical G and A general ledger expenses include costs which cannot be charged direct to contracts or to cost center overhead expenses such as corporate executive management, headquarters building leases, legal expenses, company wide insurance, corporate advertising, and the like.

MANAGEMENT FACTORS

Success will be determined by managing the numerator in each of the above equations and winning or maintaining the projected direct cost programs in the annual denominator. If expenses increase due to unforeseen events or if the company loses more projects than planned in the annual denominator base, the associated rate will go up for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also increase. Existing fixed price contracts under these circumstances will become less profitable. Pricing for future fixed price contracts must reflect the increased rates being experienced to avoid further losses.

Correspondingly, if expenses decrease due to unforeseen events/good management or if the company wins or grows more projects than planned in the annual denominator base, the associated rate will decrease for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also decrease. Existing fixed price contracts will become more profitable. Pricing for future fixed price contracts must reflect the decreased rates being experienced.

For time and material and cost plus contracts, monthly billing rates utilized are “Provisional Rates” that the contractor is free to change based on experience as long as he informs contracting officers and the local Defense Contract Audit Agency (DCAA) of the changes and reasons for the changes can be demonstrated. Before time and material and cost plus contracts can be closed out, provisional rates must be adjusted to reflect actual rates experienced. The contractor will owe the government if provisional billings have been higher than actual cost history.

Correspondingly, if the actual rates for cost plus or time and materials contracts have been higher than the provisional rates billed by the contractor, the government will owe the contractor at closeout.

Firm, Fixed Price Contracts are generally billed at negotiated fixed prices by line item at contract award and paid upon final delivery and acceptance or through monthly progress payments based on incurred cost with a percent of payment retention by the government until deliveries are complete. 

Fixed rate contracts are billed on a monthly basis through hours incurred. The hourly rates are fixed for the contract term and do not change.

COST ESTIMATING/COST ACCOUNTING EXAMPLE

Consider a historical 12-month project priced in a hypothetical small business utilizing forward pricing “Provisional Rates.” The contract began in July of 2018 and continued to July of 2019. Direct labor rates were escalated between 2018 and 2019 by 3.5% based on the Consumer Price Index. The company decided to keep the indirect rates for Overhead and G&A the same for pricing purposes in 2018 and 2019. The company had no Material Handling Pool and charged purchasing, inventory and shipping costs direct to contracts.

This government contractor maintained Overhead and G&A rate databases in Excel by month by year to forward price projects such as the one in this example. The databases all utilized the same generic chart of expense accounts as a template for the Cost Center Overhead and G and A monthly expense forecasts (equation numerators). The project was priced in cost center 1 at an overhead rate of 110% and a corporate G and A rate of 10%.

Cost Center Direct Labor forecasts in the databases were projected by hours and salary dollars for each existing and anticipated project and then summarized to determine the equation denominator which when divided into the Cost Center Numerator B, above) yields the Cost Center Overhead forecast by month by year. Direct Labor was then burdened by the projected Cost Center Overhead and added to Material and Travel to yield a total Cost Center business summary through Overhead.

The G and A rate data base summarized total direct labor through overhead, material and travel cost for all cost centers (equation denominator) and divided it into the total corporate G and A expense (equation numerator) The equation result yielded the projected G and A rate by month by year. All cost center labor through overhead, material and travel were then summarized and burdened through G and A to forecast a total cost projection by Cost Center at “Provisional Overhead and G and A Rates.

A copy of the annual baseline projected rate database was adjusted with actual expense data each month in the numerator after closing. The denominator for the month was also updated with actual existing and new business developments at the cost center level and G&A monthly actual cost at the corporate level. The resulting actual rate experience is then analyzed for trends as the year proceeds and utilized for making potential adjustments in provisional rates. 

When provisional rate changes are necessary, the government was notified in advance and provided with trend information justifying the rate change. Upon approval by the government, the baseline forecast was adjusted and utilized for billing on T&M and Cost Plus Contracts. The adjusted rates were also utilized to price all future projects. DCAA does not audit management decisions. They simply check the math.

Rate databases are usually fully detailed by month for the current year and 1-2 years into the future. Years 3-5 typically have summarized assumptions through use of escalation factors. Bids for out years 5-10 if required by the government definitely utilize escalation factors. Very few government contractors are willing to bid on a firm, fixed price basis beyond out year 5.

To comply with Cost Accounting Standards 401 and 402, this company set up each new government contract on job cost accounting in the identical manner in which it was proposed; in effect identifying direct labor, direct material and other direct costs to each contract monthly and allocating overhead and G&A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

The larger the direct cost that was incurred on a contract in this company the greater the share of the cost center overhead and corporate G and A was incurred by that contract. 

The entire content of this company’s business system was subject to audit and verification by the Defense Contract Audit Agency (DCAA) against Cost Accounting Standards 401 and 402. 

DCAA validated company records by requiring “Incurred Cost Submissions” from this contractor. The submissions validated final rates for cost plus and time and material contract closeouts. Fixed price contracts were closed out when final delivery was received and accepted.  Retention on monthly progress payments under fixed price contracts was released at closeout.

SUMMARY:

The software tools discussed at the posting at the “Smalltofeds” blog DCAA Service Contract Audits And Small Business Job Cost Accounting  are designed to assist you in running the above process from a job cost accounting perspective. However, these tools must be set-up to reflect the unique way you are organized and they must reflect your specific business plans as discussed in this article. They will not do that for you.

Illustrations of the the rates, pricing and the long range plan utilized in the above example are available in Chapters 45 and 51 through 53 of my free book, “Small Business Federal Government Contracting” and appendices A and B. You may download the book and related documents from the “Box Net” Cube in the right margin of the below site.”

Establishing Compliant Small Business Systems For Federal Government Services Contracts

Establishing Compliant Small Business Systems For Federal Government Services Contracts

“SMALLTOFEDS” By Ken Larson

“To effectively market a federal government services contract a small business must sell on the basis of having a business system as well as technical performance infrastructure ready to run the job when a contract proposal is submitted. 

Parallel thinking is required to plan for government project technical effort against a template of necessary business process infrastructure, driven by introducing Federal Acquisition Regulations (FAR) into the company.“

_________________________________________________________________________________________________

“INTRODUCTION

Key elements of the necessary business system infrastructure are discussed in this article which assumes that your are in the federal government services contracting business, that you plan to price your services at an hourly rate and sell them by labor categories with professional job descriptions to perform the government’s statement of work and bill by the hour. This article also assumes that you are not contracting under FAR Part 12, “Commercial Contracting”.

Labor Categories Each skill set in the company must be specified and defined as chargeable directly to a contract, or indirectly to a cost center overhead, a material handling pool or a general and administrative pool. Each labor category must have a job description and a prospective salary range for proposal purposes.

Cost Center A Cost Center is a single business entity within the company, organized for a group of business lines and clients with close similarities for technical and business management purposes. Cost centers are also driven by geographic location and the requirement to separate commercial from federal government business. Projects performed in government facilities may also require a separate cost center, since many of the associated expenses for such operations are born by the government. Cost centers usually have individual subsidiary ledgers, balance sheets and profit and loss statements and are summarized monthly to a company total. Each cost center must have job cost accounting for the contracts residing there and a cost center unique overhead rate.

Examples:
Commercial Cost Center
Federal Government Cost Center
Government Site Unique Cost Center

Annual Overhead Rate An overhead pool is made up of individual Cost Center indirect expenses projected for a given year divided by the projected Cost Center direct labor dollars for that year to determine a rate. Typical Cost Center Overhead general ledger expenses are those which cannot be effectively charged direct to contracts. These include Cost Center management, building lease, telephone, fringe benefits, electricity, capital equipment, depreciation, and the like.

An example of a 2026 Cost Center Overhead Rate of 110%  is as follows: 

2026 Gen Indirect Expense for Cost Center  $459,800= 110%
2026  Projected Dir. Labor $ for Cost center $418,000

Annual Material Handling Rate (if required) – Corporate wide expenses specifically associated with buying, storing and shipping material for a given year divided by the projected direct material dollars projected company-wide for that year. Not all companies have business that is material intensive enough to warrant a separate pool for material handling. Where extensive buying or subcontracting is conducted out of the corporate headquarters and inventory and shipping labor are high, a material handling pool is permitted by the government when it is not administratively possible to charge these expenses directly to contracts.

The estimated annual Cost Center Overhead Rate is applied to direct labor cost estimates to price labor cost through overhead for the Cost Center. When a contract is awarded, actual overhead expenses are allocated monthly to direct labor by contract on the basis of direct labor dollars incurred. Projected overhead rates are adjusted based on actual total cost center experience as the year progresses.

The estimated annual Corporate Material Handling Rate is applied to direct material cost estimates to price material for all Cost Centers. When a contract is awarded, actual material handling expenses are allocated monthly to direct material by contract on the basis of direct material dollars incurred. The projected material-handling rate is adjusted based on actual total company experience as the year progresses.

Annual General and Administrative Rate (G and A) is corporate indirect expenses projected for a given year divided by the total projected direct cost plus overheads for all cost centers for that year. Typical G and A general ledger expenses include costs which cannot be charged direct to contracts or to cost center overhead expenses such as corporate executive management, headquarters building leases, legal expenses, company wide insurance, corporate advertising, and the like.

MANAGEMENT FACTORS

Success will be determined by managing the numerator in each of the above equations and winning or maintaining the projected direct cost programs in the annual denominator. If expenses increase due to unforeseen events or if the company loses more projects than planned in the annual denominator base, the associated rate will go up for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also increase. Existing fixed price contracts under these circumstances will become less profitable. Pricing for future fixed price contracts must reflect the increased rates being experienced to avoid further losses.

Correspondingly, if expenses decrease due to unforeseen events/good management or if the company wins or grows more projects than planned in the annual denominator base, the associated rate will decrease for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also decrease. Existing fixed price contracts will become more profitable. Pricing for future fixed price contracts must reflect the decreased rates being experienced.

For time and material and cost plus contracts, monthly billing rates utilized are “Provisional Rates” that the contractor is free to change based on experience as long as he informs contracting officers and the local Defense Contract Audit Agency (DCAA) of the changes and reasons for the changes can be demonstrated. Before time and material and cost plus contracts can be closed out, provisional rates must be adjusted to reflect actual rates experienced. The contractor will owe the government if provisional billings have been higher than actual cost history.

Correspondingly, if the actual rates for cost plus or time and materials contracts have been higher than the provisional rates billed by the contractor, the government will owe the contractor at closeout.

Firm, Fixed Price Contracts are generally billed at negotiated fixed prices by line item at contract award and paid upon final delivery and acceptance or through monthly progress payments based on incurred cost with a percent of payment retention by the government until deliveries are complete. 

Fixed rate contracts are billed on a monthly basis through hours incurred. The hourly rates are fixed for the contract term and do not change.

COST ESTIMATING/COST ACCOUNTING EXAMPLE

Consider a historical 12-month project priced in a hypothetical small business utilizing forward pricing “Provisional Rates.” The contract began in July of 2018 and continued to July of 2019. Direct labor rates were escalated between 2018 and 2019 by 3.5% based on the Consumer Price Index. The company decided to keep the indirect rates for Overhead and G&A the same for pricing purposes in 2018 and 2019. The company had no Material Handling Pool and charged purchasing, inventory and shipping costs direct to contracts.

This government contractor maintained Overhead and G&A rate databases in Excel by month by year to forward price projects such as the one in this example. The databases all utilized the same generic chart of expense accounts as a template for the Cost Center Overhead and G and A monthly expense forecasts (equation numerators). The project was priced in cost center 1 at an overhead rate of 110% and a corporate G and A rate of 10%.

Cost Center Direct Labor forecasts in the databases were projected by hours and salary dollars for each existing and anticipated project and then summarized to determine the equation denominator which when divided into the Cost Center Numerator B, above) yields the Cost Center Overhead forecast by month by year. Direct Labor was then burdened by the projected Cost Center Overhead and added to Material and Travel to yield a total Cost Center business summary through Overhead.

The G and A rate data base summarized total direct labor through overhead, material and travel cost for all cost centers (equation denominator) and divided it into the total corporate G and A expense (equation numerator) The equation result yielded the projected G and A rate by month by year. All cost center labor through overhead, material and travel were then summarized and burdened through G and A to forecast a total cost projection by Cost Center at “Provisional Overhead and G and A Rates.

A copy of the annual baseline projected rate database was adjusted with actual expense data each month in the numerator after closing. The denominator for the month was also updated with actual existing and new business developments at the cost center level and G&A monthly actual cost at the corporate level. The resulting actual rate experience is then analyzed for trends as the year proceeds and utilized for making potential adjustments in provisional rates. 

When provisional rate changes are necessary, the government was notified in advance and provided with trend information justifying the rate change. Upon approval by the government, the baseline forecast was adjusted and utilized for billing on T&M and Cost Plus Contracts. The adjusted rates were also utilized to price all future projects. DCAA does not audit management decisions. They simply check the math.

Rate databases are usually fully detailed by month for the current year and 1-2 years into the future. Years 3-5 typically have summarized assumptions through use of escalation factors. Bids for out years 5-10 if required by the government definitely utilize escalation factors. Very few government contractors are willing to bid on a firm, fixed price basis beyond out year 5.

To comply with Cost Accounting Standards 401 and 402, this company set up each new government contract on job cost accounting in the identical manner in which it was proposed; in effect identifying direct labor, direct material and other direct costs to each contract monthly and allocating overhead and G&A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

The larger the direct cost that was incurred on a contract in this company the greater the share of the cost center overhead and corporate G and A was incurred by that contract. 

The entire content of this company’s business system was subject to audit and verification by the Defense Contract Audit Agency (DCAA) against Cost Accounting Standards 401 and 402. 

DCAA validated company records by requiring “Incurred Cost Submissions” from this contractor. The submissions validated final rates for cost plus and time and material contract closeouts. Fixed price contracts were closed out when final delivery was received and accepted.  Retention on monthly progress payments under fixed price contracts was released at closeout.

SUMMARY:

The software tools discussed at the posting at the “Smalltofeds” blog DCAA Service Contract Audits And Small Business Job Cost Accounting  are designed to assist you in running the above process from a job cost accounting perspective. However, these tools must be set-up to reflect the unique way you are organized and they must reflect your specific business plans as discussed in this article. They will not do that for you.

Illustrations of the the rates, pricing and the long range plan utilized in the above example are available in Chapters 45 and 51 through 53 of my free book, “Small Business Federal Government Contracting” and appendices A and B. You may download the book and related documents from the “Box Net” Cube in the right margin of the below site.”

Establishing Compliant Small Business Systems For Federal Government Services Contracts

Establishing Compliant Small Business Systems For Federal Government Services Contracts

“SMALLTOFEDS” By Ken Larson

“To effectively market a federal government services contract a small business must sell on the basis of having a business system as well as technical performance infrastructure ready to run the job when a contract proposal is submitted. 

Parallel thinking is required to plan for government project technical effort against a template of necessary business process infrastructure, driven by introducing Federal Acquisition Regulations (FAR) into the company.“

_________________________________________________________________________________________________

“INTRODUCTION

Key elements of the necessary business system infrastructure are discussed in this article which assumes that your are in the federal government services contracting business, that you plan to price your services at an hourly rate and sell them by labor categories with professional job descriptions to perform the government’s statement of work and bill by the hour. This article also assumes that you are not contracting under FAR Part 12, “Commercial Contracting”.

Labor Categories Each skill set in the company must be specified and defined as chargeable directly to a contract, or indirectly to a cost center overhead, a material handling pool or a general and administrative pool. Each labor category must have a job description and a prospective salary range for proposal purposes.

Cost Center A Cost Center is a single business entity within the company, organized for a group of business lines and clients with close similarities for technical and business management purposes. Cost centers are also driven by geographic location and the requirement to separate commercial from federal government business. Projects performed in government facilities may also require a separate cost center, since many of the associated expenses for such operations are born by the government. Cost centers usually have individual subsidiary ledgers, balance sheets and profit and loss statements and are summarized monthly to a company total. Each cost center must have job cost accounting for the contracts residing there and a cost center unique overhead rate.

Examples:
Commercial Cost Center
Federal Government Cost Center
Government Site Unique Cost Center

Annual Overhead Rate An overhead pool is made up of individual Cost Center indirect expenses projected for a given year divided by the projected Cost Center direct labor dollars for that year to determine a rate. Typical Cost Center Overhead general ledger expenses are those which cannot be effectively charged direct to contracts. These include Cost Center management, building lease, telephone, fringe benefits, electricity, capital equipment, depreciation, and the like.

An example of a 2026 Cost Center Overhead Rate of 110%  is as follows: 

2026 Gen Indirect Expense for Cost Center  $459,800= 110%
2026  Projected Dir. Labor $ for Cost center $418,000

Annual Material Handling Rate (if required) – Corporate wide expenses specifically associated with buying, storing and shipping material for a given year divided by the projected direct material dollars projected company-wide for that year. Not all companies have business that is material intensive enough to warrant a separate pool for material handling. Where extensive buying or subcontracting is conducted out of the corporate headquarters and inventory and shipping labor are high, a material handling pool is permitted by the government when it is not administratively possible to charge these expenses directly to contracts.

The estimated annual Cost Center Overhead Rate is applied to direct labor cost estimates to price labor cost through overhead for the Cost Center. When a contract is awarded, actual overhead expenses are allocated monthly to direct labor by contract on the basis of direct labor dollars incurred. Projected overhead rates are adjusted based on actual total cost center experience as the year progresses.

The estimated annual Corporate Material Handling Rate is applied to direct material cost estimates to price material for all Cost Centers. When a contract is awarded, actual material handling expenses are allocated monthly to direct material by contract on the basis of direct material dollars incurred. The projected material-handling rate is adjusted based on actual total company experience as the year progresses.

Annual General and Administrative Rate (G and A) is corporate indirect expenses projected for a given year divided by the total projected direct cost plus overheads for all cost centers for that year. Typical G and A general ledger expenses include costs which cannot be charged direct to contracts or to cost center overhead expenses such as corporate executive management, headquarters building leases, legal expenses, company wide insurance, corporate advertising, and the like.

MANAGEMENT FACTORS

Success will be determined by managing the numerator in each of the above equations and winning or maintaining the projected direct cost programs in the annual denominator. If expenses increase due to unforeseen events or if the company loses more projects than planned in the annual denominator base, the associated rate will go up for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also increase. Existing fixed price contracts under these circumstances will become less profitable. Pricing for future fixed price contracts must reflect the increased rates being experienced to avoid further losses.

Correspondingly, if expenses decrease due to unforeseen events/good management or if the company wins or grows more projects than planned in the annual denominator base, the associated rate will decrease for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also decrease. Existing fixed price contracts will become more profitable. Pricing for future fixed price contracts must reflect the decreased rates being experienced.

For time and material and cost plus contracts, monthly billing rates utilized are “Provisional Rates” that the contractor is free to change based on experience as long as he informs contracting officers and the local Defense Contract Audit Agency (DCAA) of the changes and reasons for the changes can be demonstrated. Before time and material and cost plus contracts can be closed out, provisional rates must be adjusted to reflect actual rates experienced. The contractor will owe the government if provisional billings have been higher than actual cost history.

Correspondingly, if the actual rates for cost plus or time and materials contracts have been higher than the provisional rates billed by the contractor, the government will owe the contractor at closeout.

Firm, Fixed Price Contracts are generally billed at negotiated fixed prices by line item at contract award and paid upon final delivery and acceptance or through monthly progress payments based on incurred cost with a percent of payment retention by the government until deliveries are complete. 

Fixed rate contracts are billed on a monthly basis through hours incurred. The hourly rates are fixed for the contract term and do not change.

COST ESTIMATING/COST ACCOUNTING EXAMPLE

Consider a historical 12-month project priced in a hypothetical small business utilizing forward pricing “Provisional Rates.” The contract began in July of 2018 and continued to July of 2019. Direct labor rates were escalated between 2018 and 2019 by 3.5% based on the Consumer Price Index. The company decided to keep the indirect rates for Overhead and G&A the same for pricing purposes in 2018 and 2019. The company had no Material Handling Pool and charged purchasing, inventory and shipping costs direct to contracts.

This government contractor maintained Overhead and G&A rate databases in Excel by month by year to forward price projects such as the one in this example. The databases all utilized the same generic chart of expense accounts as a template for the Cost Center Overhead and G and A monthly expense forecasts (equation numerators). The project was priced in cost center 1 at an overhead rate of 110% and a corporate G and A rate of 10%.

Cost Center Direct Labor forecasts in the databases were projected by hours and salary dollars for each existing and anticipated project and then summarized to determine the equation denominator which when divided into the Cost Center Numerator B, above) yields the Cost Center Overhead forecast by month by year. Direct Labor was then burdened by the projected Cost Center Overhead and added to Material and Travel to yield a total Cost Center business summary through Overhead.

The G and A rate data base summarized total direct labor through overhead, material and travel cost for all cost centers (equation denominator) and divided it into the total corporate G and A expense (equation numerator) The equation result yielded the projected G and A rate by month by year. All cost center labor through overhead, material and travel were then summarized and burdened through G and A to forecast a total cost projection by Cost Center at “Provisional Overhead and G and A Rates.

A copy of the annual baseline projected rate database was adjusted with actual expense data each month in the numerator after closing. The denominator for the month was also updated with actual existing and new business developments at the cost center level and G&A monthly actual cost at the corporate level. The resulting actual rate experience is then analyzed for trends as the year proceeds and utilized for making potential adjustments in provisional rates. 

When provisional rate changes are necessary, the government was notified in advance and provided with trend information justifying the rate change. Upon approval by the government, the baseline forecast was adjusted and utilized for billing on T&M and Cost Plus Contracts. The adjusted rates were also utilized to price all future projects. DCAA does not audit management decisions. They simply check the math.

Rate databases are usually fully detailed by month for the current year and 1-2 years into the future. Years 3-5 typically have summarized assumptions through use of escalation factors. Bids for out years 5-10 if required by the government definitely utilize escalation factors. Very few government contractors are willing to bid on a firm, fixed price basis beyond out year 5.

To comply with Cost Accounting Standards 401 and 402, this company set up each new government contract on job cost accounting in the identical manner in which it was proposed; in effect identifying direct labor, direct material and other direct costs to each contract monthly and allocating overhead and G&A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

The larger the direct cost that was incurred on a contract in this company the greater the share of the cost center overhead and corporate G and A was incurred by that contract. 

The entire content of this company’s business system was subject to audit and verification by the Defense Contract Audit Agency (DCAA) against Cost Accounting Standards 401 and 402. 

DCAA validated company records by requiring “Incurred Cost Submissions” from this contractor. The submissions validated final rates for cost plus and time and material contract closeouts. Fixed price contracts were closed out when final delivery was received and accepted.  Retention on monthly progress payments under fixed price contracts was released at closeout.

SUMMARY:

The software tools discussed at the posting at the “Smalltofeds” blog DCAA Service Contract Audits And Small Business Job Cost Accounting  are designed to assist you in running the above process from a job cost accounting perspective. However, these tools must be set-up to reflect the unique way you are organized and they must reflect your specific business plans as discussed in this article. They will not do that for you.

Illustrations of the the rates, pricing and the long range plan utilized in the above example are available in Chapters 45 and 51 through 53 of my free book, “Small Business Federal Government Contracting” and appendices A and B. You may download the book and related documents from the “Box Net” Cube in the right margin of the below site.”

Establishing Compliant Small Business Systems For Federal Government Services Contracts

Establishing Compliant Small Business Systems For Federal Government Services Contracts

“SMALLTOFEDS” By Ken Larson

“To effectively market a federal government services contract a small business must sell on the basis of having a business system as well as technical performance infrastructure ready to run the job when a contract proposal is submitted. 

Parallel thinking is required to plan for government project technical effort against a template of necessary business process infrastructure, driven by introducing Federal Acquisition Regulations (FAR) into the company.“

_________________________________________________________________________________________________

“INTRODUCTION

Key elements of the necessary business system infrastructure are discussed in this article which assumes that your are in the federal government services contracting business, that you plan to price your services at an hourly rate and sell them by labor categories with professional job descriptions to perform the government’s statement of work and bill by the hour. This article also assumes that you are not contracting under FAR Part 12, “Commercial Contracting”.

Labor Categories Each skill set in the company must be specified and defined as chargeable directly to a contract, or indirectly to a cost center overhead, a material handling pool or a general and administrative pool. Each labor category must have a job description and a prospective salary range for proposal purposes.

Cost Center A Cost Center is a single business entity within the company, organized for a group of business lines and clients with close similarities for technical and business management purposes. Cost centers are also driven by geographic location and the requirement to separate commercial from federal government business. Projects performed in government facilities may also require a separate cost center, since many of the associated expenses for such operations are born by the government. Cost centers usually have individual subsidiary ledgers, balance sheets and profit and loss statements and are summarized monthly to a company total. Each cost center must have job cost accounting for the contracts residing there and a cost center unique overhead rate.

Examples:
Commercial Cost Center
Federal Government Cost Center
Government Site Unique Cost Center

Annual Overhead Rate An overhead pool is made up of individual Cost Center indirect expenses projected for a given year divided by the projected Cost Center direct labor dollars for that year to determine a rate. Typical Cost Center Overhead general ledger expenses are those which cannot be effectively charged direct to contracts. These include Cost Center management, building lease, telephone, fringe benefits, electricity, capital equipment, depreciation, and the like.

An example of a 2026 Cost Center Overhead Rate of 110%  is as follows: 

2026 Gen Indirect Expense for Cost Center  $459,800= 110%
2026  Projected Dir. Labor $ for Cost center $418,000

Annual Material Handling Rate (if required) – Corporate wide expenses specifically associated with buying, storing and shipping material for a given year divided by the projected direct material dollars projected company-wide for that year. Not all companies have business that is material intensive enough to warrant a separate pool for material handling. Where extensive buying or subcontracting is conducted out of the corporate headquarters and inventory and shipping labor are high, a material handling pool is permitted by the government when it is not administratively possible to charge these expenses directly to contracts.

The estimated annual Cost Center Overhead Rate is applied to direct labor cost estimates to price labor cost through overhead for the Cost Center. When a contract is awarded, actual overhead expenses are allocated monthly to direct labor by contract on the basis of direct labor dollars incurred. Projected overhead rates are adjusted based on actual total cost center experience as the year progresses.

The estimated annual Corporate Material Handling Rate is applied to direct material cost estimates to price material for all Cost Centers. When a contract is awarded, actual material handling expenses are allocated monthly to direct material by contract on the basis of direct material dollars incurred. The projected material-handling rate is adjusted based on actual total company experience as the year progresses.

Annual General and Administrative Rate (G and A) is corporate indirect expenses projected for a given year divided by the total projected direct cost plus overheads for all cost centers for that year. Typical G and A general ledger expenses include costs which cannot be charged direct to contracts or to cost center overhead expenses such as corporate executive management, headquarters building leases, legal expenses, company wide insurance, corporate advertising, and the like.

MANAGEMENT FACTORS

Success will be determined by managing the numerator in each of the above equations and winning or maintaining the projected direct cost programs in the annual denominator. If expenses increase due to unforeseen events or if the company loses more projects than planned in the annual denominator base, the associated rate will go up for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also increase. Existing fixed price contracts under these circumstances will become less profitable. Pricing for future fixed price contracts must reflect the increased rates being experienced to avoid further losses.

Correspondingly, if expenses decrease due to unforeseen events/good management or if the company wins or grows more projects than planned in the annual denominator base, the associated rate will decrease for estimating purposes and under cost plus or time and material contracts the rate billed to the government will also decrease. Existing fixed price contracts will become more profitable. Pricing for future fixed price contracts must reflect the decreased rates being experienced.

For time and material and cost plus contracts, monthly billing rates utilized are “Provisional Rates” that the contractor is free to change based on experience as long as he informs contracting officers and the local Defense Contract Audit Agency (DCAA) of the changes and reasons for the changes can be demonstrated. Before time and material and cost plus contracts can be closed out, provisional rates must be adjusted to reflect actual rates experienced. The contractor will owe the government if provisional billings have been higher than actual cost history.

Correspondingly, if the actual rates for cost plus or time and materials contracts have been higher than the provisional rates billed by the contractor, the government will owe the contractor at closeout.

Firm, Fixed Price Contracts are generally billed at negotiated fixed prices by line item at contract award and paid upon final delivery and acceptance or through monthly progress payments based on incurred cost with a percent of payment retention by the government until deliveries are complete. 

Fixed rate contracts are billed on a monthly basis through hours incurred. The hourly rates are fixed for the contract term and do not change.

COST ESTIMATING/COST ACCOUNTING EXAMPLE

Consider a historical 12-month project priced in a hypothetical small business utilizing forward pricing “Provisional Rates.” The contract began in July of 2018 and continued to July of 2019. Direct labor rates were escalated between 2018 and 2019 by 3.5% based on the Consumer Price Index. The company decided to keep the indirect rates for Overhead and G&A the same for pricing purposes in 2018 and 2019. The company had no Material Handling Pool and charged purchasing, inventory and shipping costs direct to contracts.

This government contractor maintained Overhead and G&A rate databases in Excel by month by year to forward price projects such as the one in this example. The databases all utilized the same generic chart of expense accounts as a template for the Cost Center Overhead and G and A monthly expense forecasts (equation numerators). The project was priced in cost center 1 at an overhead rate of 110% and a corporate G and A rate of 10%.

Cost Center Direct Labor forecasts in the databases were projected by hours and salary dollars for each existing and anticipated project and then summarized to determine the equation denominator which when divided into the Cost Center Numerator B, above) yields the Cost Center Overhead forecast by month by year. Direct Labor was then burdened by the projected Cost Center Overhead and added to Material and Travel to yield a total Cost Center business summary through Overhead.

The G and A rate data base summarized total direct labor through overhead, material and travel cost for all cost centers (equation denominator) and divided it into the total corporate G and A expense (equation numerator) The equation result yielded the projected G and A rate by month by year. All cost center labor through overhead, material and travel were then summarized and burdened through G and A to forecast a total cost projection by Cost Center at “Provisional Overhead and G and A Rates.

A copy of the annual baseline projected rate database was adjusted with actual expense data each month in the numerator after closing. The denominator for the month was also updated with actual existing and new business developments at the cost center level and G&A monthly actual cost at the corporate level. The resulting actual rate experience is then analyzed for trends as the year proceeds and utilized for making potential adjustments in provisional rates. 

When provisional rate changes are necessary, the government was notified in advance and provided with trend information justifying the rate change. Upon approval by the government, the baseline forecast was adjusted and utilized for billing on T&M and Cost Plus Contracts. The adjusted rates were also utilized to price all future projects. DCAA does not audit management decisions. They simply check the math.

Rate databases are usually fully detailed by month for the current year and 1-2 years into the future. Years 3-5 typically have summarized assumptions through use of escalation factors. Bids for out years 5-10 if required by the government definitely utilize escalation factors. Very few government contractors are willing to bid on a firm, fixed price basis beyond out year 5.

To comply with Cost Accounting Standards 401 and 402, this company set up each new government contract on job cost accounting in the identical manner in which it was proposed; in effect identifying direct labor, direct material and other direct costs to each contract monthly and allocating overhead and G&A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

The larger the direct cost that was incurred on a contract in this company the greater the share of the cost center overhead and corporate G and A was incurred by that contract. 

The entire content of this company’s business system was subject to audit and verification by the Defense Contract Audit Agency (DCAA) against Cost Accounting Standards 401 and 402. 

DCAA validated company records by requiring “Incurred Cost Submissions” from this contractor. The submissions validated final rates for cost plus and time and material contract closeouts. Fixed price contracts were closed out when final delivery was received and accepted.  Retention on monthly progress payments under fixed price contracts was released at closeout.

SUMMARY:

The software tools discussed at the posting at the “Smalltofeds” blog DCAA Service Contract Audits And Small Business Job Cost Accounting  are designed to assist you in running the above process from a job cost accounting perspective. However, these tools must be set-up to reflect the unique way you are organized and they must reflect your specific business plans as discussed in this article. They will not do that for you.

Illustrations of the the rates, pricing and the long range plan utilized in the above example are available in Chapters 45 and 51 through 53 of my free book, “Small Business Federal Government Contracting” and appendices A and B. You may download the book and related documents from the “Box Net” Cube in the right margin of the below site.”

Establishing Compliant Small Business Systems For Federal Government Services Contracts

READY REFERENCE UPDATE – Free pictorially illustrated, direct links to topics on the military industrial complex, government contracting and veterans affairs.
https://rosecoveredglasses.wordpress.com/2026/09/21/ready-reference-library-update-military-small-business-and-veterans-affairs/
#MIlitaryIndustiralComplex #GovernmentContracting #SmallBusiness #VeteransAffairs

READY REFERENCE UPDATE – Free pictorially illustrated, direct links to topics on the military industrial complex, government contracting and veterans affairs.
https://rosecoveredglasses.wordpress.com/2026/09/21/ready-reference-library-update-military-small-business-and-veterans-affairs/
#MIlitaryIndustiralComplex #GovernmentContracting #SmallBusiness #VeteransAffairs

READY REFERENCE UPDATE – Free pictorially illustrated, direct links to topics on the military industrial complex, government contracting and veterans affairs.
https://rosecoveredglasses.wordpress.com/2026/09/21/ready-reference-library-update-military-small-business-and-veterans-affairs/
#MIlitaryIndustiralComplex #GovernmentContracting #SmallBusiness #VeteransAffairs

READY REFERENCE UPDATE – Free pictorially illustrated, direct links to topics on the military industrial complex, government contracting and veterans affairs.
https://rosecoveredglasses.wordpress.com/2026/09/21/ready-reference-library-update-military-small-business-and-veterans-affairs/
#MIlitaryIndustiralComplex #GovernmentContracting #SmallBusiness #VeteransAffairs

Pentagon Tweaks Accounting Regime Amid Industry Worry

The Pentagon is shaking up its accounting rules, embracing commercial practices in a move that could bring big changes to government contracts. Deputy Secretary Stephen Feinberg says the department will now accept GAAP-based accounting across all contracts to the fullest extent allowed by law.

https://osintsights.com/pentagon-tweaks-accounting-regime-amid-industry-worry?utm_source=mastodon&utm_medium=social

#GovernmentContracting #AccountingStandards #Gaap #Pentagon #DefenseIndustry

Federal Agencies Adopt Outcomes-Based Contracting to Mitigate Risk

Federal agencies are turning to outcomes-based contracting to eliminate risk and ensure successful project delivery. By tying payments to actual results, agencies can align incentives with contractors and guarantee that they only pay for value delivered.

https://osintsights.com/federal-agencies-adopt-outcomes-based-contracting-to-mitigate-risk?utm_source=mastodon&utm_medium=social

#OutcomesbasedContracting #FederalAgencies #GovernmentContracting #RiskMitigation #Healthcare

SBA plans to REPLACE 1,000 SMALL BUSINESS INDUSTRY-SPECIFIC SIZE STANDARDS WITH 338 BROADER ONES that could unintentionally weaken a decades long commitment to Veterans.
https://rosecoveredglasses.wordpress.com/2026/09/15/sba-to-replace-1000-small-business-industry-specific-size-standards-with-338-broader-ones/
#GovernmentContracting #VeteranOwnedBusiiness #SBAChanges

SBA plans to REPLACE 1,000 SMALL BUSINESS INDUSTRY-SPECIFIC SIZE STANDARDS WITH 338 BROADER ONES that could unintentionally weaken a decades long commitment to Veterans.
https://rosecoveredglasses.wordpress.com/2026/09/15/sba-to-replace-1000-small-business-industry-specific-size-standards-with-338-broader-ones/
#GovernmentContracting #VeteranOwnedBusiiness #SBAChanges

SBA plans to REPLACE 1,000 SMALL BUSINESS INDUSTRY-SPECIFIC SIZE STANDARDS WITH 338 BROADER ONES that could unintentionally weaken a decades long commitment to Veterans.
https://rosecoveredglasses.wordpress.com/2026/09/15/sba-to-replace-1000-small-business-industry-specific-size-standards-with-338-broader-ones/
#GovernmentContracting #VeteranOwnedBusiiness #SBAChanges

SBA plans to REPLACE 1,000 SMALL BUSINESS INDUSTRY-SPECIFIC SIZE STANDARDS WITH 338 BROADER ONES that could unintentionally weaken a decades long commitment to Veterans.
https://rosecoveredglasses.wordpress.com/2026/09/15/sba-to-replace-1000-small-business-industry-specific-size-standards-with-338-broader-ones/
#GovernmentContracting #VeteranOwnedBusiiness #SBAChanges

GOVERNMENT CONTRACT PRE-AWARD SURVEYS AND PROPOSAL FACT FINDING. With adequate preparation and understanding of the process, the small enterprise can succeed in passing them.
https://rosecoveredglasses.wordpress.com/2026/09/14/what-to-expect-from-government-pre-award-surveys-and-proposal-fact-finding/
#GovernmentContracting #PreAwardSurveysAndFactFinding

GOVERNMENT CONTRACT PRE-AWARD SURVEYS AND PROPOSAL FACT FINDING. With adequate preparation and understanding of the process, the small enterprise can succeed in passing them.
https://rosecoveredglasses.wordpress.com/2026/09/14/what-to-expect-from-government-pre-award-surveys-and-proposal-fact-finding/
#GovernmentContracting #PreAwardSurveysAndFactFinding

GOVERNMENT CONTRACT PRE-AWARD SURVEYS AND PROPOSAL FACT FINDING. With adequate preparation and understanding of the process, the small enterprise can succeed in passing them.
https://rosecoveredglasses.wordpress.com/2026/09/14/what-to-expect-from-government-pre-award-surveys-and-proposal-fact-finding/
#GovernmentContracting #PreAwardSurveysAndFactFinding

GOVERNMENT CONTRACT PRE-AWARD SURVEYS AND PROPOSAL FACT FINDING. With adequate preparation and understanding of the process, the small enterprise can succeed in passing them.
https://rosecoveredglasses.wordpress.com/2026/09/14/what-to-expect-from-government-pre-award-surveys-and-proposal-fact-finding/
#GovernmentContracting #PreAwardSurveysAndFactFinding

The DIFFERENCE between a FREELANCER and a small business federal government CONTRACTOR from the perspective of market realities that drive success in the venue.
https://rosecoveredglasses.wordpress.com/2026/09/12/the-difference-between-a-free-lancer-and-a-small-business-federal-government-contractor/
#GovernmentContracting #FreeLancing

The DIFFERENCE between a FREELANCER and a small business federal government CONTRACTOR from the perspective of market realities that drive success in the venue.
https://rosecoveredglasses.wordpress.com/2026/09/12/the-difference-between-a-free-lancer-and-a-small-business-federal-government-contractor/
#GovernmentContracting #FreeLancing

The DIFFERENCE between a FREELANCER and a small business federal government CONTRACTOR from the perspective of market realities that drive success in the venue.
https://rosecoveredglasses.wordpress.com/2026/09/12/the-difference-between-a-free-lancer-and-a-small-business-federal-government-contractor/
#GovernmentContracting #FreeLancing

The DIFFERENCE between a FREELANCER and a small business federal government CONTRACTOR from the perspective of market realities that drive success in the venue.
https://rosecoveredglasses.wordpress.com/2026/09/12/the-difference-between-a-free-lancer-and-a-small-business-federal-government-contractor/
#GovernmentContracting #FreeLancing

Get OUT FRONT in small business GOVERNMENT CONTRACTING by finding windows of opportunity & communicate capabilities to the decision makers & industry team members who can help you.
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#SmallBusiness #GovernmentContracting #GettingOutFront

Mastering the SPOKEN AND UNSPOKEN RULES of government contracting. A quick overview of eight basic (and true) rules to gain your first foothold with the customer.
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#GovernmentContracting #SpokenAndUnspokenRules

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#GovernmentContracting #SpokenAndUnspokenRules

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#GovernmentContracting #SpokenAndUnspokenRules

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#GovernmentContracting #SpokenAndUnspokenRules

Mastering The Spoken And Unspoken Rules Of Government Contracting

“WASHINGTON TECHNOLOGY” By Alan P. Balutis And Dennis Lucey

“There seems to be a few common “truths,” some “givens,” and a whole lot of conventional wisdom spoken as to how to get into the door of government. A quick overview of eight basic (and true) rules to gain your first foothold with the customer.”

_________________________________________________________________________________________________________

• “Know what the agency does and what it’s looking for.
• Bring specific ideas, not a panoply of promises.Show specific examples of applications that have worked in similar situations (government examples are best, but private sector ones are helpful too).
• Send a senior executive who can connect with the federal IT professional.
• Network, network and do more networking.
• Partner with other companies.
• Make strategic hires, especially those who know government from the inside.
• Use government contract vehicles and know which one(s) your customer turns to.
• Winning presents its own guidelines to go by in order for that run of success to continue, however.

Here is another set of seven rules for what continues that positive cycle:

• Read the procurement, re-read the procurement.
• Read the contract, re-read the contract.
• Get competent assistance at the beginning.
• EXECUTE — Be prepared to implement what you win.
• Be prepared for change after you win.
• Know who wanted the contract awarded.
• Communicate continually.

But there are also some unwritten/unspoken rules, less often discussed but equal in importance as those noted above.

Let’s start with one expert that could be seen as slightly left-of-field, but surely had GovCon in mind.

“He who does not lay his foundation beforehand may by greater abilities do so afterwards — although with greater trouble to the architect and danger to the building” — Machiavelli, The Prince, 1532.

When a government customer is interested in working with your company, one of the first questions s/he will ask is “How do I reach you?,” meaning what contracting vehicle could our agency use to acquire your products or services.

So know what government-wide contracting vehicle(s), schedule or agency-specific contract is most convenient, available and more often used? Do they give priority to one or more small or disadvantaged business categories (veteran-owned, HUBZone-certified etc.).

Be ETDBW = Easy To Do Business With. Deliver MVA = More Value Add.

Companies usually deliver a product or a service. Think of that as the first rung of a ladder. Now start climbing the ladder, rung by rung.

What do your customers do with your product or service after receiving it? Distinguish between what you are selling and what your customers are buying. What are the broader problems those customers have?

Take a broad view of your customer’s underlying problems that go beyond you and your product or service. What more can your company do to help them solve those problems? See what your customers do with what you give them, and either do it for them or help them with it.

As you answer those questions, you’ll be able to add more value. You’ll be delivering a solution, not just a product or a service. You will be able to price in terms of value rather than cost.”

Mastering The Spoken And Unspoken Rules Of Government Contracting

ABOUT THE AUTHORS

Alan Balutis is the president of APB Ltd and managing partner with the CIO Collective. He’s also a former senior director and distinguished fellow at Cisco Systems Inc. 

Dennis Lucey is a vice president with TKC Global, part of the Akima family of companies. He has over 40 years of business development experience in the federal market.

Mastering The Spoken And Unspoken Rules Of Government Contracting

“WASHINGTON TECHNOLOGY” By Alan P. Balutis And Dennis Lucey

“There seems to be a few common “truths,” some “givens,” and a whole lot of conventional wisdom spoken as to how to get into the door of government. A quick overview of eight basic (and true) rules to gain your first foothold with the customer.”

_________________________________________________________________________________________________________

• “Know what the agency does and what it’s looking for.
• Bring specific ideas, not a panoply of promises.Show specific examples of applications that have worked in similar situations (government examples are best, but private sector ones are helpful too).
• Send a senior executive who can connect with the federal IT professional.
• Network, network and do more networking.
• Partner with other companies.
• Make strategic hires, especially those who know government from the inside.
• Use government contract vehicles and know which one(s) your customer turns to.
• Winning presents its own guidelines to go by in order for that run of success to continue, however.

Here is another set of seven rules for what continues that positive cycle:

• Read the procurement, re-read the procurement.
• Read the contract, re-read the contract.
• Get competent assistance at the beginning.
• EXECUTE — Be prepared to implement what you win.
• Be prepared for change after you win.
• Know who wanted the contract awarded.
• Communicate continually.

But there are also some unwritten/unspoken rules, less often discussed but equal in importance as those noted above.

Let’s start with one expert that could be seen as slightly left-of-field, but surely had GovCon in mind.

“He who does not lay his foundation beforehand may by greater abilities do so afterwards — although with greater trouble to the architect and danger to the building” — Machiavelli, The Prince, 1532.

When a government customer is interested in working with your company, one of the first questions s/he will ask is “How do I reach you?,” meaning what contracting vehicle could our agency use to acquire your products or services.

So know what government-wide contracting vehicle(s), schedule or agency-specific contract is most convenient, available and more often used? Do they give priority to one or more small or disadvantaged business categories (veteran-owned, HUBZone-certified etc.).

Be ETDBW = Easy To Do Business With. Deliver MVA = More Value Add.

Companies usually deliver a product or a service. Think of that as the first rung of a ladder. Now start climbing the ladder, rung by rung.

What do your customers do with your product or service after receiving it? Distinguish between what you are selling and what your customers are buying. What are the broader problems those customers have?

Take a broad view of your customer’s underlying problems that go beyond you and your product or service. What more can your company do to help them solve those problems? See what your customers do with what you give them, and either do it for them or help them with it.

As you answer those questions, you’ll be able to add more value. You’ll be delivering a solution, not just a product or a service. You will be able to price in terms of value rather than cost.”

Mastering The Spoken And Unspoken Rules Of Government Contracting

ABOUT THE AUTHORS

Alan Balutis is the president of APB Ltd and managing partner with the CIO Collective. He’s also a former senior director and distinguished fellow at Cisco Systems Inc. 

Dennis Lucey is a vice president with TKC Global, part of the Akima family of companies. He has over 40 years of business development experience in the federal market.

Mastering The Spoken And Unspoken Rules Of Government Contracting

“WASHINGTON TECHNOLOGY” By Alan P. Balutis And Dennis Lucey

“There seems to be a few common “truths,” some “givens,” and a whole lot of conventional wisdom spoken as to how to get into the door of government. A quick overview of eight basic (and true) rules to gain your first foothold with the customer.”

_________________________________________________________________________________________________________

• “Know what the agency does and what it’s looking for.
• Bring specific ideas, not a panoply of promises.Show specific examples of applications that have worked in similar situations (government examples are best, but private sector ones are helpful too).
• Send a senior executive who can connect with the federal IT professional.
• Network, network and do more networking.
• Partner with other companies.
• Make strategic hires, especially those who know government from the inside.
• Use government contract vehicles and know which one(s) your customer turns to.
• Winning presents its own guidelines to go by in order for that run of success to continue, however.

Here is another set of seven rules for what continues that positive cycle:

• Read the procurement, re-read the procurement.
• Read the contract, re-read the contract.
• Get competent assistance at the beginning.
• EXECUTE — Be prepared to implement what you win.
• Be prepared for change after you win.
• Know who wanted the contract awarded.
• Communicate continually.

But there are also some unwritten/unspoken rules, less often discussed but equal in importance as those noted above.

Let’s start with one expert that could be seen as slightly left-of-field, but surely had GovCon in mind.

“He who does not lay his foundation beforehand may by greater abilities do so afterwards — although with greater trouble to the architect and danger to the building” — Machiavelli, The Prince, 1532.

When a government customer is interested in working with your company, one of the first questions s/he will ask is “How do I reach you?,” meaning what contracting vehicle could our agency use to acquire your products or services.

So know what government-wide contracting vehicle(s), schedule or agency-specific contract is most convenient, available and more often used? Do they give priority to one or more small or disadvantaged business categories (veteran-owned, HUBZone-certified etc.).

Be ETDBW = Easy To Do Business With. Deliver MVA = More Value Add.

Companies usually deliver a product or a service. Think of that as the first rung of a ladder. Now start climbing the ladder, rung by rung.

What do your customers do with your product or service after receiving it? Distinguish between what you are selling and what your customers are buying. What are the broader problems those customers have?

Take a broad view of your customer’s underlying problems that go beyond you and your product or service. What more can your company do to help them solve those problems? See what your customers do with what you give them, and either do it for them or help them with it.

As you answer those questions, you’ll be able to add more value. You’ll be delivering a solution, not just a product or a service. You will be able to price in terms of value rather than cost.”

Mastering The Spoken And Unspoken Rules Of Government Contracting

ABOUT THE AUTHORS

Alan Balutis is the president of APB Ltd and managing partner with the CIO Collective. He’s also a former senior director and distinguished fellow at Cisco Systems Inc. 

Dennis Lucey is a vice president with TKC Global, part of the Akima family of companies. He has over 40 years of business development experience in the federal market.

Mastering The Spoken And Unspoken Rules Of Government Contracting

“WASHINGTON TECHNOLOGY” By Alan P. Balutis And Dennis Lucey

“There seems to be a few common “truths,” some “givens,” and a whole lot of conventional wisdom spoken as to how to get into the door of government. A quick overview of eight basic (and true) rules to gain your first foothold with the customer.”

_________________________________________________________________________________________________________

• “Know what the agency does and what it’s looking for.
• Bring specific ideas, not a panoply of promises.Show specific examples of applications that have worked in similar situations (government examples are best, but private sector ones are helpful too).
• Send a senior executive who can connect with the federal IT professional.
• Network, network and do more networking.
• Partner with other companies.
• Make strategic hires, especially those who know government from the inside.
• Use government contract vehicles and know which one(s) your customer turns to.
• Winning presents its own guidelines to go by in order for that run of success to continue, however.

Here is another set of seven rules for what continues that positive cycle:

• Read the procurement, re-read the procurement.
• Read the contract, re-read the contract.
• Get competent assistance at the beginning.
• EXECUTE — Be prepared to implement what you win.
• Be prepared for change after you win.
• Know who wanted the contract awarded.
• Communicate continually.

But there are also some unwritten/unspoken rules, less often discussed but equal in importance as those noted above.

Let’s start with one expert that could be seen as slightly left-of-field, but surely had GovCon in mind.

“He who does not lay his foundation beforehand may by greater abilities do so afterwards — although with greater trouble to the architect and danger to the building” — Machiavelli, The Prince, 1532.

When a government customer is interested in working with your company, one of the first questions s/he will ask is “How do I reach you?,” meaning what contracting vehicle could our agency use to acquire your products or services.

So know what government-wide contracting vehicle(s), schedule or agency-specific contract is most convenient, available and more often used? Do they give priority to one or more small or disadvantaged business categories (veteran-owned, HUBZone-certified etc.).

Be ETDBW = Easy To Do Business With. Deliver MVA = More Value Add.

Companies usually deliver a product or a service. Think of that as the first rung of a ladder. Now start climbing the ladder, rung by rung.

What do your customers do with your product or service after receiving it? Distinguish between what you are selling and what your customers are buying. What are the broader problems those customers have?

Take a broad view of your customer’s underlying problems that go beyond you and your product or service. What more can your company do to help them solve those problems? See what your customers do with what you give them, and either do it for them or help them with it.

As you answer those questions, you’ll be able to add more value. You’ll be delivering a solution, not just a product or a service. You will be able to price in terms of value rather than cost.”

Mastering The Spoken And Unspoken Rules Of Government Contracting

ABOUT THE AUTHORS

Alan Balutis is the president of APB Ltd and managing partner with the CIO Collective. He’s also a former senior director and distinguished fellow at Cisco Systems Inc. 

Dennis Lucey is a vice president with TKC Global, part of the Akima family of companies. He has over 40 years of business development experience in the federal market.

BEST MARKETING PRACTICES to drive your brand to the future. Government marketing has been slow to change, but increasingly, contractors are adopting best practices from the private sector.
https://rosecoveredglasses.wordpress.com/2026/09/03/5-marketing-best-practices-to-drive-your-brand-to-the-future-2/
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BEST MARKETING PRACTICES to drive your brand to the future. Government marketing has been slow to change, but increasingly, contractors are adopting best practices from the private sector.
https://rosecoveredglasses.wordpress.com/2026/09/03/5-marketing-best-practices-to-drive-your-brand-to-the-future-2/
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BEST MARKETING PRACTICES to drive your brand to the future. Government marketing has been slow to change, but increasingly, contractors are adopting best practices from the private sector.
https://rosecoveredglasses.wordpress.com/2026/09/03/5-marketing-best-practices-to-drive-your-brand-to-the-future-2/
#GovernmentContracting #BestMarketingPractices

BEST MARKETING PRACTICES to drive your brand to the future. Government marketing has been slow to change, but increasingly, contractors are adopting best practices from the private sector.
https://rosecoveredglasses.wordpress.com/2026/09/03/5-marketing-best-practices-to-drive-your-brand-to-the-future-2/
#GovernmentContracting #BestMarketingPractices

SBA TRANSFORMS 8(a) PROGRAM to be race neutral but did it go too far? Concerns experts have about the new 8(a) regulations and questions about the program’s long-term viability.
https://rosecoveredglasses.wordpress.com/2026/09/01/sba-transforms-8a-program-to-be-race-neutral-but-did-it-go-too-far/
#SmallBusiness #GovernmentContracting
#SmallDisadvantagedBusinessProgram

SBA TRANSFORMS 8(a) PROGRAM to be race neutral but did it go too far? Concerns experts have about the new 8(a) regulations and questions about the program’s long-term viability.
https://rosecoveredglasses.wordpress.com/2026/09/01/sba-transforms-8a-program-to-be-race-neutral-but-did-it-go-too-far/
#SmallBusiness #GovernmentContracting
#SmallDisadvantagedBusinessProgram

SBA TRANSFORMS 8(a) PROGRAM to be race neutral but did it go too far? Concerns experts have about the new 8(a) regulations and questions about the program’s long-term viability.
https://rosecoveredglasses.wordpress.com/2026/09/01/sba-transforms-8a-program-to-be-race-neutral-but-did-it-go-too-far/
#SmallBusiness #GovernmentContracting
#SmallDisadvantagedBusinessProgram

SBA TRANSFORMS 8(a) PROGRAM to be race neutral but did it go too far? Concerns experts have about the new 8(a) regulations and questions about the program’s long-term viability.
https://rosecoveredglasses.wordpress.com/2026/09/01/sba-transforms-8a-program-to-be-race-neutral-but-did-it-go-too-far/
#SmallBusiness #GovernmentContracting
#SmallDisadvantagedBusinessProgram

The SMALL BUSINESS GOVERNMENT CONTRACTING SYSTEM helps uplift small businesses. You can offer the lowest cost, highest value to the government without losing your shirt.
https://rosecoveredglasses.wordpress.com/2026/08/29/5-things-every-first-time-bidder-for-federal-contracts-should-know-2/
#SmallBusiness #GovernmentContracting #ThingsToKnow

The SMALL BUSINESS GOVERNMENT CONTRACTING SYSTEM helps uplift small businesses. You can offer the lowest cost, highest value to the government without losing your shirt.
https://rosecoveredglasses.wordpress.com/2026/08/29/5-things-every-first-time-bidder-for-federal-contracts-should-know-2/
#SmallBusiness #GovernmentContracting #ThingsToKnow

The SMALL BUSINESS GOVERNMENT CONTRACTING SYSTEM helps uplift small businesses. You can offer the lowest cost, highest value to the government without losing your shirt.
https://rosecoveredglasses.wordpress.com/2026/08/29/5-things-every-first-time-bidder-for-federal-contracts-should-know-2/
#SmallBusiness #GovernmentContracting #ThingsToKnow

The SMALL BUSINESS GOVERNMENT CONTRACTING SYSTEM helps uplift small businesses. You can offer the lowest cost, highest value to the government without losing your shirt.
https://rosecoveredglasses.wordpress.com/2026/08/29/5-things-every-first-time-bidder-for-federal-contracts-should-know-2/
#SmallBusiness #GovernmentContracting #ThingsToKnow

Pricing Small Business Federal Government Service Contracts

Integrate Long-term Company Strategy With Short Term Proposal Pricing Objectives

‘SMALTOFEDS’ By Ken Larson

“Small businesses entering or growing into federal contacting often struggle with developing a pricing approach. They must design a pricing structure to pass an audit and win competitively. A winning strategy for federal services contracting must involve a view of the horizon as well as the instant bid on the table.“

_______________________________________________________________________________________________________

“If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your pricing challenge is minimal. A service contractor faces a far greater challenge in understanding the nature of government contact pricing and winning at it.

Strategic thinking must therefore be applied to structuring a government service contracting cost center in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work.

LONG TERM COMPANY STRATEGY

Build a Business System With Pricing in Mind:

We have previously discussed the basics of small business government contracting business system design: Job Cost Accounting Basics

The structure or your pricing approach from the cost element level through burdens must use the same template as your job cost accounting and billing. The parallel mapping provides the consistency required to pass audits or get your billings approved on a service contract.

Please read the above article and its related references. Then design your processes recognizing the guidance there and applying it to your company organization, and the way you produce your supplies and services:

Sculpt the DCAA Auditor

As you begin submitting government contracting proposals you will encounter your local DCAA audit office. They learn about your company by auditing your cost proposal rates, job cost processes and systems, billings and contract closeouts.

Keep in mind that you are shaping opinions in these encounters on the part of these government personnel that will influence your future and be passed on in reports to contracting officers. Your unique company business system structure must be carefully explained to them against what they know best; their DCAA Audit manual and FAR Cost Accounting Standards:

DCAA Audits and Job Cost Accounting Systems

Protect Rate Information

Your fully loaded rates will appear on your GSA schedule in the public domain, in subcontracts from prime contractors and in data acquired under the Freedom of Information Act (FOIA) by competitors.

It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.

Companies do not disclose the details of their rates to other companies and they do not expect to see another company’s proprietary rate information. So companies view each others rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.

If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, ‘Government Eyes Only’. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.

For further information on intellectual property protection and protective markings on government contract proposals please see the following article:

Protecting Intellectual Property

Recognize Overhead and G&A Rates Are Critical

Assuming your competition pays a generally similar labor rate to their employees as you do and that fringe costs about the same for everyone, then overhead and G&A are what wins and loses contracts.

Please read the following articles carefully with regard to long range planning and setting your overhead and G&A rates:

FAR and CAS Compliant Systems

Provisional Indirect Rates

Keep in mind that if you are performing work inside a government facility the government will expect to be charged a lower overhead rate than if you were paying the space and occupancy costs and the light bill. This is normally achieved by establishing a separate cost center for “On site” (Internal to government quarters) work with lower overhead expenses applied to project direct labor dollars in that cost center.

Price Set Aside Contracts the Same as Full and Open Competitions

If you are a small business lucky enough to receive a sole source set aside contract under an 8(a) or Hub Zone award, or if you are participating in limited competition under a small business set aside designation, use the same sharp pencil you use on the full and open market. Your goal is to compete for the long haul and inflating estimates on particular jobs due to limited competition has an inflationary effect on your business as a whole.

Your company past performance is being constantly evaluated by the government and prime contractor community. Consistency attains and retains new business. You will eventually grow to the point where set asides and sole sourcing will no longer be available; prepare early.

Know the True Value of Your Proposal

Develop risk thresholds (ceiling and floor) for your bids. The ceiling is the price for which you can bid a job, perform to meet specifications and win. A floor is the lowest possible price for which you can accept a contract and survive.

Do not bid or be negotiated out of these thresholds. “Buying In” does not work and sacrificing the future of your company by “Low Balling” cost proposals and hoping to get well on scope changes later is dangerous.

In government contracting the only worse scenario than losing a contract is winning it, performing poorly (cost, schedule or technical) and getting a black eye on your company past performance record that takes a long time to go away.

Understand a Proposal is the Opening Chapter a Baseline for Your Contract

Your proposal represents an initial offer to a government agency or a prime contractor. Please read the following articles on how this baseline is initially set and controlled through the negotiation process and ultimately through careful contract management.

Project Baseline Managment

Contract Negotiation

SHORT TERM PROPOSAL OBJECTIVES

Make Bid/No Bid Decisions Wisely

Conduct your bid/no bid decisions effectively. Please see the bid/no bid analysis process at the beginning of the following article:

Contract Negotiation

Be Conservative in Rough Order of Magnitude Pricing

A common government planning technique in the early phases of marketing is to ask questions and review and approve a concept paper by a company then informally request for “Planning Purposes”, a rough order of magnitude cost estimate (ROM).

If you provide a ROM be very careful. It tends to get cast in concrete in the customer’s mind, even though it is not the final, formal proposal. Make it conservative in cost content and schedule duration, then plan to beat it with your formal proposal.

Make sure you caveat the ROM if you are asked for it with the statement in your cover letter that it is for planning purposes only and is not a commitment on the part of your company. State that you will be happy to make a full formal proposal/commitment upon receipt of a formal RFP from an authorized contracting officer. Keep in mind that contracting officers are the only people who can commit the government:

Customer Relations

The government usually goes forward with the concept paper and the ROM for approval of the funding necessary for the job. The “Agency Higher Ups” either give the project personnel the approval to do a set aside or they require a competitive procurement.

You may want to read the following article on Statements of Work:

Contract Statement of Work and Technical Specifications

Know the Difference Between Firm, Fixed Price, Time and Materials and Cost Plus Contracting

During the solicitation and proposal process the contract type is specified.

Firm, Fixed Price (FFP) is the riskiest type of contracting and should be undertaken only when you have a definitive grasp of a precise statement of work with known variables and end products. You should have achieved similar work scope in the past or be delivering follow-on products and services that are mature in nature to undertake a firm, fixed price contract.

FFP is particularly risky in software development contracts or high technology program pressing the state of the art. You will receive no more in the form of funding than your bid price on a firm, fixed price contract.

Time and Materials (T&M) contracting places the risk on the government and is suited to long term service contracts of a development nature. T&M may be contracted with fixed labor rates, making the hours and pass through materials and other direct costs the only variables.

Cost Plus (CP) contracting is the least risky of all contract types and you are assured of receiving every dollar of cost incurred under this type of contract.

The lower the risk to the contractor the lower the expected negotiated profit rate you can expect, since the government considers risk the principal factor in profit negotiation.

For further explanation of contract types in more detail, please see the following article:

Government Contract Types

Develop a Price Profile of the Competition

Use a copy of your own forward pricing long range plan (LRP) to model your strongest competitors. Profile your best intelligence regarding their size, location, contract base and estimated overhead and G&A expenses. Then interpolate, from your knowledge of the market, their labor and fringe costs, as well as other direct costs as you prepare your proposal. Incorporate any unique approaches you estimate your competition may offer that impact cost.

Modeling Your Competition

Adjust your competitor cost model to perform “What If Analysis” during your risk assessment and proposal review process. For an example of an LRP cost model please see the Box Net Cube in the left margin of this site: Small Business Federal Government Contracting It is Appendix B to the book, “Small Business Federal Government Contracting” and is available as a free download in Adobe format from the BOX in the right margin of the site.

Understand “Best Value” Source Selection

When the government declares a “Best Value” proposal award process the agency will perform a weighted trade study of cost verses technical and management factors in reviewing proposals. They will announce the weight of each factor in relative terms within the solicitation so contractors can focus on the most important elements.

What best value means quite simply is that if you are the low price bidder you may not win. If a competitor proposes a superior technical and management approach, a higher weighted rating in those factors may offset an otherwise non-competitive bid price, resulting in an award. This is a fact you must keep in mind when preparing your own proposal. In short you must perform your own trade study on your own bid.

Past performance has also become a significant weight factor in proposal evaluations in recent years. To address this challenge, please see the following article:

Past Performance Challenge

A balanced proposal, with specific, heavy emphasis on government-designated weight factors and an economical, yet realistic cost/price usually wins. Offsetting weaknesses in any designated government weighted area by proposing excellence in other weighted areas is vital.

Beware of Unallowable Costs

Over the years the federal government has determined that certain costs cannot be allowed in prices, cost reimbursements or settlements under contracts with the US Government. The government is unwilling to pay for these costs as direct charges to federal government contracts or through indirect expense pools applied to federal government contracts.

A company is not prohibited from incurring unallowable costs, but they cannot be recovered either directly or indirectly under federal government contracts. To manage unallowable costs, separate accounts must be established for these type expenses and they must not be priced directly into federal government contracts during the proposal process.

Such costs cannot be made a part of the expense pools which are applied to federal government contracts through an overhead, material handling or G&A cost allocation at accounting period close or during forward pricing rate planning. For more detail on unallowable costs please see the following article:

Unallowable Costs

Integrate Pricing With Technical and Management Approaches

Establish price targets as soon as possible for major tasks, evolve a program plan, or if you are bidding a T&M, IDIQ type program develop a sample work order for a typical representative effort.

As the technical and management proposal move toward completion, use established checkpoints to evaluate the efficiency of your cost estimate, escalation factors, labor, material and other direct costs. Then apply your indirect rates and subject your total proposal to a credibility check with regard to a believable cost estimate considering your solution and its time frame.

Run your competition price model and bring in some outside experts to review the end product proposal “Cold” before it is submitted.

Manage Best and Final Offers (BAFO) Carefullly

Most government solicitations require a format and terms and conditions with submission that permit contract award without further discussion. However, many involve a down-select process, briefings by those selected in the “Competitive Range”, a call for best and final offer (BAFO) or negotiation to achieve a final price.

The best and final offer period is a sensitive time. Most contracting agencies that call for a BAFO will cite weaknesses or concerns in the selected contractor proposals. They wish to hear about solutions to those weaknesses during BAFO briefings and require a re-submitted offer to correct them. The price may be adjusted as well and that is a key consideration. Pay particular attention to the way the BAFO instructions and concerns, specific to your down-selection, are worded. Look for hints that indicate critical opinion about your pricing, and then adjust your costs.

Consider the cost, schedule, technical and past performance implications of the BAFO request letter from the government and revise your proposal by the required submission date. Close the loop on all matters with your suppliers, subcontractors and prime contractors, and then conduct your briefing to the customer when it is scheduled. Present a united front to win. Your price should be your best. You will not be offered a chance to bid another competitively on that program.

On some procurements you may be asked to undertake additional discussions to determine final contract pricing. Please see the negotiation template at the following article for guidance on that process:

Government Contract Negotiation

SUMMARY

This discussion has conveyed how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning.

We have further explained how your long and short term pricing factors should be integrated with the management and technical elements of any given proposal. Take the long and the short view of your business by integrating long-term company strategy with short term proposal objectives”

https://www.smalltofeds.com/2010/05/pricing-small-business-federal.html

Pricing Small Business Federal Government Service Contracts

Integrate Long-term Company Strategy With Short Term Proposal Pricing Objectives

‘SMALTOFEDS’ By Ken Larson

“Small businesses entering or growing into federal contacting often struggle with developing a pricing approach. They must design a pricing structure to pass an audit and win competitively. A winning strategy for federal services contracting must involve a view of the horizon as well as the instant bid on the table.“

_______________________________________________________________________________________________________

“If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your pricing challenge is minimal. A service contractor faces a far greater challenge in understanding the nature of government contact pricing and winning at it.

Strategic thinking must therefore be applied to structuring a government service contracting cost center in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work.

LONG TERM COMPANY STRATEGY

Build a Business System With Pricing in Mind:

We have previously discussed the basics of small business government contracting business system design: Job Cost Accounting Basics

The structure or your pricing approach from the cost element level through burdens must use the same template as your job cost accounting and billing. The parallel mapping provides the consistency required to pass audits or get your billings approved on a service contract.

Please read the above article and its related references. Then design your processes recognizing the guidance there and applying it to your company organization, and the way you produce your supplies and services:

Sculpt the DCAA Auditor

As you begin submitting government contracting proposals you will encounter your local DCAA audit office. They learn about your company by auditing your cost proposal rates, job cost processes and systems, billings and contract closeouts.

Keep in mind that you are shaping opinions in these encounters on the part of these government personnel that will influence your future and be passed on in reports to contracting officers. Your unique company business system structure must be carefully explained to them against what they know best; their DCAA Audit manual and FAR Cost Accounting Standards:

DCAA Audits and Job Cost Accounting Systems

Protect Rate Information

Your fully loaded rates will appear on your GSA schedule in the public domain, in subcontracts from prime contractors and in data acquired under the Freedom of Information Act (FOIA) by competitors.

It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.

Companies do not disclose the details of their rates to other companies and they do not expect to see another company’s proprietary rate information. So companies view each others rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.

If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, ‘Government Eyes Only’. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.

For further information on intellectual property protection and protective markings on government contract proposals please see the following article:

Protecting Intellectual Property

Recognize Overhead and G&A Rates Are Critical

Assuming your competition pays a generally similar labor rate to their employees as you do and that fringe costs about the same for everyone, then overhead and G&A are what wins and loses contracts.

Please read the following articles carefully with regard to long range planning and setting your overhead and G&A rates:

FAR and CAS Compliant Systems

Provisional Indirect Rates

Keep in mind that if you are performing work inside a government facility the government will expect to be charged a lower overhead rate than if you were paying the space and occupancy costs and the light bill. This is normally achieved by establishing a separate cost center for “On site” (Internal to government quarters) work with lower overhead expenses applied to project direct labor dollars in that cost center.

Price Set Aside Contracts the Same as Full and Open Competitions

If you are a small business lucky enough to receive a sole source set aside contract under an 8(a) or Hub Zone award, or if you are participating in limited competition under a small business set aside designation, use the same sharp pencil you use on the full and open market. Your goal is to compete for the long haul and inflating estimates on particular jobs due to limited competition has an inflationary effect on your business as a whole.

Your company past performance is being constantly evaluated by the government and prime contractor community. Consistency attains and retains new business. You will eventually grow to the point where set asides and sole sourcing will no longer be available; prepare early.

Know the True Value of Your Proposal

Develop risk thresholds (ceiling and floor) for your bids. The ceiling is the price for which you can bid a job, perform to meet specifications and win. A floor is the lowest possible price for which you can accept a contract and survive.

Do not bid or be negotiated out of these thresholds. “Buying In” does not work and sacrificing the future of your company by “Low Balling” cost proposals and hoping to get well on scope changes later is dangerous.

In government contracting the only worse scenario than losing a contract is winning it, performing poorly (cost, schedule or technical) and getting a black eye on your company past performance record that takes a long time to go away.

Understand a Proposal is the Opening Chapter a Baseline for Your Contract

Your proposal represents an initial offer to a government agency or a prime contractor. Please read the following articles on how this baseline is initially set and controlled through the negotiation process and ultimately through careful contract management.

Project Baseline Managment

Contract Negotiation

SHORT TERM PROPOSAL OBJECTIVES

Make Bid/No Bid Decisions Wisely

Conduct your bid/no bid decisions effectively. Please see the bid/no bid analysis process at the beginning of the following article:

Contract Negotiation

Be Conservative in Rough Order of Magnitude Pricing

A common government planning technique in the early phases of marketing is to ask questions and review and approve a concept paper by a company then informally request for “Planning Purposes”, a rough order of magnitude cost estimate (ROM).

If you provide a ROM be very careful. It tends to get cast in concrete in the customer’s mind, even though it is not the final, formal proposal. Make it conservative in cost content and schedule duration, then plan to beat it with your formal proposal.

Make sure you caveat the ROM if you are asked for it with the statement in your cover letter that it is for planning purposes only and is not a commitment on the part of your company. State that you will be happy to make a full formal proposal/commitment upon receipt of a formal RFP from an authorized contracting officer. Keep in mind that contracting officers are the only people who can commit the government:

Customer Relations

The government usually goes forward with the concept paper and the ROM for approval of the funding necessary for the job. The “Agency Higher Ups” either give the project personnel the approval to do a set aside or they require a competitive procurement.

You may want to read the following article on Statements of Work:

Contract Statement of Work and Technical Specifications

Know the Difference Between Firm, Fixed Price, Time and Materials and Cost Plus Contracting

During the solicitation and proposal process the contract type is specified.

Firm, Fixed Price (FFP) is the riskiest type of contracting and should be undertaken only when you have a definitive grasp of a precise statement of work with known variables and end products. You should have achieved similar work scope in the past or be delivering follow-on products and services that are mature in nature to undertake a firm, fixed price contract.

FFP is particularly risky in software development contracts or high technology program pressing the state of the art. You will receive no more in the form of funding than your bid price on a firm, fixed price contract.

Time and Materials (T&M) contracting places the risk on the government and is suited to long term service contracts of a development nature. T&M may be contracted with fixed labor rates, making the hours and pass through materials and other direct costs the only variables.

Cost Plus (CP) contracting is the least risky of all contract types and you are assured of receiving every dollar of cost incurred under this type of contract.

The lower the risk to the contractor the lower the expected negotiated profit rate you can expect, since the government considers risk the principal factor in profit negotiation.

For further explanation of contract types in more detail, please see the following article:

Government Contract Types

Develop a Price Profile of the Competition

Use a copy of your own forward pricing long range plan (LRP) to model your strongest competitors. Profile your best intelligence regarding their size, location, contract base and estimated overhead and G&A expenses. Then interpolate, from your knowledge of the market, their labor and fringe costs, as well as other direct costs as you prepare your proposal. Incorporate any unique approaches you estimate your competition may offer that impact cost.

Modeling Your Competition

Adjust your competitor cost model to perform “What If Analysis” during your risk assessment and proposal review process. For an example of an LRP cost model please see the Box Net Cube in the left margin of this site: Small Business Federal Government Contracting It is Appendix B to the book, “Small Business Federal Government Contracting” and is available as a free download in Adobe format from the BOX in the right margin of the site.

Understand “Best Value” Source Selection

When the government declares a “Best Value” proposal award process the agency will perform a weighted trade study of cost verses technical and management factors in reviewing proposals. They will announce the weight of each factor in relative terms within the solicitation so contractors can focus on the most important elements.

What best value means quite simply is that if you are the low price bidder you may not win. If a competitor proposes a superior technical and management approach, a higher weighted rating in those factors may offset an otherwise non-competitive bid price, resulting in an award. This is a fact you must keep in mind when preparing your own proposal. In short you must perform your own trade study on your own bid.

Past performance has also become a significant weight factor in proposal evaluations in recent years. To address this challenge, please see the following article:

Past Performance Challenge

A balanced proposal, with specific, heavy emphasis on government-designated weight factors and an economical, yet realistic cost/price usually wins. Offsetting weaknesses in any designated government weighted area by proposing excellence in other weighted areas is vital.

Beware of Unallowable Costs

Over the years the federal government has determined that certain costs cannot be allowed in prices, cost reimbursements or settlements under contracts with the US Government. The government is unwilling to pay for these costs as direct charges to federal government contracts or through indirect expense pools applied to federal government contracts.

A company is not prohibited from incurring unallowable costs, but they cannot be recovered either directly or indirectly under federal government contracts. To manage unallowable costs, separate accounts must be established for these type expenses and they must not be priced directly into federal government contracts during the proposal process.

Such costs cannot be made a part of the expense pools which are applied to federal government contracts through an overhead, material handling or G&A cost allocation at accounting period close or during forward pricing rate planning. For more detail on unallowable costs please see the following article:

Unallowable Costs

Integrate Pricing With Technical and Management Approaches

Establish price targets as soon as possible for major tasks, evolve a program plan, or if you are bidding a T&M, IDIQ type program develop a sample work order for a typical representative effort.

As the technical and management proposal move toward completion, use established checkpoints to evaluate the efficiency of your cost estimate, escalation factors, labor, material and other direct costs. Then apply your indirect rates and subject your total proposal to a credibility check with regard to a believable cost estimate considering your solution and its time frame.

Run your competition price model and bring in some outside experts to review the end product proposal “Cold” before it is submitted.

Manage Best and Final Offers (BAFO) Carefullly

Most government solicitations require a format and terms and conditions with submission that permit contract award without further discussion. However, many involve a down-select process, briefings by those selected in the “Competitive Range”, a call for best and final offer (BAFO) or negotiation to achieve a final price.

The best and final offer period is a sensitive time. Most contracting agencies that call for a BAFO will cite weaknesses or concerns in the selected contractor proposals. They wish to hear about solutions to those weaknesses during BAFO briefings and require a re-submitted offer to correct them. The price may be adjusted as well and that is a key consideration. Pay particular attention to the way the BAFO instructions and concerns, specific to your down-selection, are worded. Look for hints that indicate critical opinion about your pricing, and then adjust your costs.

Consider the cost, schedule, technical and past performance implications of the BAFO request letter from the government and revise your proposal by the required submission date. Close the loop on all matters with your suppliers, subcontractors and prime contractors, and then conduct your briefing to the customer when it is scheduled. Present a united front to win. Your price should be your best. You will not be offered a chance to bid another competitively on that program.

On some procurements you may be asked to undertake additional discussions to determine final contract pricing. Please see the negotiation template at the following article for guidance on that process:

Government Contract Negotiation

SUMMARY

This discussion has conveyed how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning.

We have further explained how your long and short term pricing factors should be integrated with the management and technical elements of any given proposal. Take the long and the short view of your business by integrating long-term company strategy with short term proposal objectives”

https://www.smalltofeds.com/2010/05/pricing-small-business-federal.html

Pricing Small Business Federal Government Service Contracts

Integrate Long-term Company Strategy With Short Term Proposal Pricing Objectives

‘SMALTOFEDS’ By Ken Larson

“Small businesses entering or growing into federal contacting often struggle with developing a pricing approach. They must design a pricing structure to pass an audit and win competitively. A winning strategy for federal services contracting must involve a view of the horizon as well as the instant bid on the table.“

_______________________________________________________________________________________________________

“If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your pricing challenge is minimal. A service contractor faces a far greater challenge in understanding the nature of government contact pricing and winning at it.

Strategic thinking must therefore be applied to structuring a government service contracting cost center in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work.

LONG TERM COMPANY STRATEGY

Build a Business System With Pricing in Mind:

We have previously discussed the basics of small business government contracting business system design: Job Cost Accounting Basics

The structure or your pricing approach from the cost element level through burdens must use the same template as your job cost accounting and billing. The parallel mapping provides the consistency required to pass audits or get your billings approved on a service contract.

Please read the above article and its related references. Then design your processes recognizing the guidance there and applying it to your company organization, and the way you produce your supplies and services:

Sculpt the DCAA Auditor

As you begin submitting government contracting proposals you will encounter your local DCAA audit office. They learn about your company by auditing your cost proposal rates, job cost processes and systems, billings and contract closeouts.

Keep in mind that you are shaping opinions in these encounters on the part of these government personnel that will influence your future and be passed on in reports to contracting officers. Your unique company business system structure must be carefully explained to them against what they know best; their DCAA Audit manual and FAR Cost Accounting Standards:

DCAA Audits and Job Cost Accounting Systems

Protect Rate Information

Your fully loaded rates will appear on your GSA schedule in the public domain, in subcontracts from prime contractors and in data acquired under the Freedom of Information Act (FOIA) by competitors.

It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.

Companies do not disclose the details of their rates to other companies and they do not expect to see another company’s proprietary rate information. So companies view each others rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.

If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, ‘Government Eyes Only’. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.

For further information on intellectual property protection and protective markings on government contract proposals please see the following article:

Protecting Intellectual Property

Recognize Overhead and G&A Rates Are Critical

Assuming your competition pays a generally similar labor rate to their employees as you do and that fringe costs about the same for everyone, then overhead and G&A are what wins and loses contracts.

Please read the following articles carefully with regard to long range planning and setting your overhead and G&A rates:

FAR and CAS Compliant Systems

Provisional Indirect Rates

Keep in mind that if you are performing work inside a government facility the government will expect to be charged a lower overhead rate than if you were paying the space and occupancy costs and the light bill. This is normally achieved by establishing a separate cost center for “On site” (Internal to government quarters) work with lower overhead expenses applied to project direct labor dollars in that cost center.

Price Set Aside Contracts the Same as Full and Open Competitions

If you are a small business lucky enough to receive a sole source set aside contract under an 8(a) or Hub Zone award, or if you are participating in limited competition under a small business set aside designation, use the same sharp pencil you use on the full and open market. Your goal is to compete for the long haul and inflating estimates on particular jobs due to limited competition has an inflationary effect on your business as a whole.

Your company past performance is being constantly evaluated by the government and prime contractor community. Consistency attains and retains new business. You will eventually grow to the point where set asides and sole sourcing will no longer be available; prepare early.

Know the True Value of Your Proposal

Develop risk thresholds (ceiling and floor) for your bids. The ceiling is the price for which you can bid a job, perform to meet specifications and win. A floor is the lowest possible price for which you can accept a contract and survive.

Do not bid or be negotiated out of these thresholds. “Buying In” does not work and sacrificing the future of your company by “Low Balling” cost proposals and hoping to get well on scope changes later is dangerous.

In government contracting the only worse scenario than losing a contract is winning it, performing poorly (cost, schedule or technical) and getting a black eye on your company past performance record that takes a long time to go away.

Understand a Proposal is the Opening Chapter a Baseline for Your Contract

Your proposal represents an initial offer to a government agency or a prime contractor. Please read the following articles on how this baseline is initially set and controlled through the negotiation process and ultimately through careful contract management.

Project Baseline Managment

Contract Negotiation

SHORT TERM PROPOSAL OBJECTIVES

Make Bid/No Bid Decisions Wisely

Conduct your bid/no bid decisions effectively. Please see the bid/no bid analysis process at the beginning of the following article:

Contract Negotiation

Be Conservative in Rough Order of Magnitude Pricing

A common government planning technique in the early phases of marketing is to ask questions and review and approve a concept paper by a company then informally request for “Planning Purposes”, a rough order of magnitude cost estimate (ROM).

If you provide a ROM be very careful. It tends to get cast in concrete in the customer’s mind, even though it is not the final, formal proposal. Make it conservative in cost content and schedule duration, then plan to beat it with your formal proposal.

Make sure you caveat the ROM if you are asked for it with the statement in your cover letter that it is for planning purposes only and is not a commitment on the part of your company. State that you will be happy to make a full formal proposal/commitment upon receipt of a formal RFP from an authorized contracting officer. Keep in mind that contracting officers are the only people who can commit the government:

Customer Relations

The government usually goes forward with the concept paper and the ROM for approval of the funding necessary for the job. The “Agency Higher Ups” either give the project personnel the approval to do a set aside or they require a competitive procurement.

You may want to read the following article on Statements of Work:

Contract Statement of Work and Technical Specifications

Know the Difference Between Firm, Fixed Price, Time and Materials and Cost Plus Contracting

During the solicitation and proposal process the contract type is specified.

Firm, Fixed Price (FFP) is the riskiest type of contracting and should be undertaken only when you have a definitive grasp of a precise statement of work with known variables and end products. You should have achieved similar work scope in the past or be delivering follow-on products and services that are mature in nature to undertake a firm, fixed price contract.

FFP is particularly risky in software development contracts or high technology program pressing the state of the art. You will receive no more in the form of funding than your bid price on a firm, fixed price contract.

Time and Materials (T&M) contracting places the risk on the government and is suited to long term service contracts of a development nature. T&M may be contracted with fixed labor rates, making the hours and pass through materials and other direct costs the only variables.

Cost Plus (CP) contracting is the least risky of all contract types and you are assured of receiving every dollar of cost incurred under this type of contract.

The lower the risk to the contractor the lower the expected negotiated profit rate you can expect, since the government considers risk the principal factor in profit negotiation.

For further explanation of contract types in more detail, please see the following article:

Government Contract Types

Develop a Price Profile of the Competition

Use a copy of your own forward pricing long range plan (LRP) to model your strongest competitors. Profile your best intelligence regarding their size, location, contract base and estimated overhead and G&A expenses. Then interpolate, from your knowledge of the market, their labor and fringe costs, as well as other direct costs as you prepare your proposal. Incorporate any unique approaches you estimate your competition may offer that impact cost.

Modeling Your Competition

Adjust your competitor cost model to perform “What If Analysis” during your risk assessment and proposal review process. For an example of an LRP cost model please see the Box Net Cube in the left margin of this site: Small Business Federal Government Contracting It is Appendix B to the book, “Small Business Federal Government Contracting” and is available as a free download in Adobe format from the BOX in the right margin of the site.

Understand “Best Value” Source Selection

When the government declares a “Best Value” proposal award process the agency will perform a weighted trade study of cost verses technical and management factors in reviewing proposals. They will announce the weight of each factor in relative terms within the solicitation so contractors can focus on the most important elements.

What best value means quite simply is that if you are the low price bidder you may not win. If a competitor proposes a superior technical and management approach, a higher weighted rating in those factors may offset an otherwise non-competitive bid price, resulting in an award. This is a fact you must keep in mind when preparing your own proposal. In short you must perform your own trade study on your own bid.

Past performance has also become a significant weight factor in proposal evaluations in recent years. To address this challenge, please see the following article:

Past Performance Challenge

A balanced proposal, with specific, heavy emphasis on government-designated weight factors and an economical, yet realistic cost/price usually wins. Offsetting weaknesses in any designated government weighted area by proposing excellence in other weighted areas is vital.

Beware of Unallowable Costs

Over the years the federal government has determined that certain costs cannot be allowed in prices, cost reimbursements or settlements under contracts with the US Government. The government is unwilling to pay for these costs as direct charges to federal government contracts or through indirect expense pools applied to federal government contracts.

A company is not prohibited from incurring unallowable costs, but they cannot be recovered either directly or indirectly under federal government contracts. To manage unallowable costs, separate accounts must be established for these type expenses and they must not be priced directly into federal government contracts during the proposal process.

Such costs cannot be made a part of the expense pools which are applied to federal government contracts through an overhead, material handling or G&A cost allocation at accounting period close or during forward pricing rate planning. For more detail on unallowable costs please see the following article:

Unallowable Costs

Integrate Pricing With Technical and Management Approaches

Establish price targets as soon as possible for major tasks, evolve a program plan, or if you are bidding a T&M, IDIQ type program develop a sample work order for a typical representative effort.

As the technical and management proposal move toward completion, use established checkpoints to evaluate the efficiency of your cost estimate, escalation factors, labor, material and other direct costs. Then apply your indirect rates and subject your total proposal to a credibility check with regard to a believable cost estimate considering your solution and its time frame.

Run your competition price model and bring in some outside experts to review the end product proposal “Cold” before it is submitted.

Manage Best and Final Offers (BAFO) Carefullly

Most government solicitations require a format and terms and conditions with submission that permit contract award without further discussion. However, many involve a down-select process, briefings by those selected in the “Competitive Range”, a call for best and final offer (BAFO) or negotiation to achieve a final price.

The best and final offer period is a sensitive time. Most contracting agencies that call for a BAFO will cite weaknesses or concerns in the selected contractor proposals. They wish to hear about solutions to those weaknesses during BAFO briefings and require a re-submitted offer to correct them. The price may be adjusted as well and that is a key consideration. Pay particular attention to the way the BAFO instructions and concerns, specific to your down-selection, are worded. Look for hints that indicate critical opinion about your pricing, and then adjust your costs.

Consider the cost, schedule, technical and past performance implications of the BAFO request letter from the government and revise your proposal by the required submission date. Close the loop on all matters with your suppliers, subcontractors and prime contractors, and then conduct your briefing to the customer when it is scheduled. Present a united front to win. Your price should be your best. You will not be offered a chance to bid another competitively on that program.

On some procurements you may be asked to undertake additional discussions to determine final contract pricing. Please see the negotiation template at the following article for guidance on that process:

Government Contract Negotiation

SUMMARY

This discussion has conveyed how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning.

We have further explained how your long and short term pricing factors should be integrated with the management and technical elements of any given proposal. Take the long and the short view of your business by integrating long-term company strategy with short term proposal objectives”

https://www.smalltofeds.com/2010/05/pricing-small-business-federal.html

Pricing Small Business Federal Government Service Contracts

Integrate Long-term Company Strategy With Short Term Proposal Pricing Objectives

‘SMALTOFEDS’ By Ken Larson

“Small businesses entering or growing into federal contacting often struggle with developing a pricing approach. They must design a pricing structure to pass an audit and win competitively. A winning strategy for federal services contracting must involve a view of the horizon as well as the instant bid on the table.“

_______________________________________________________________________________________________________

“If you are a small enterprise selling off-the-shelf commercial items under FAR Part 12 or marketing commercial products on a GSA schedule, you may be initially challenged by the government contracting venue. With persistence you will establish selling relationships through agencies and prime contractors. Your pricing challenge is minimal. A service contractor faces a far greater challenge in understanding the nature of government contact pricing and winning at it.

Strategic thinking must therefore be applied to structuring a government service contracting cost center in your company. It must involve long term planning and designing a business system as well as establishing rates and factors to bid new work.

LONG TERM COMPANY STRATEGY

Build a Business System With Pricing in Mind:

We have previously discussed the basics of small business government contracting business system design: Job Cost Accounting Basics

The structure or your pricing approach from the cost element level through burdens must use the same template as your job cost accounting and billing. The parallel mapping provides the consistency required to pass audits or get your billings approved on a service contract.

Please read the above article and its related references. Then design your processes recognizing the guidance there and applying it to your company organization, and the way you produce your supplies and services:

Sculpt the DCAA Auditor

As you begin submitting government contracting proposals you will encounter your local DCAA audit office. They learn about your company by auditing your cost proposal rates, job cost processes and systems, billings and contract closeouts.

Keep in mind that you are shaping opinions in these encounters on the part of these government personnel that will influence your future and be passed on in reports to contracting officers. Your unique company business system structure must be carefully explained to them against what they know best; their DCAA Audit manual and FAR Cost Accounting Standards:

DCAA Audits and Job Cost Accounting Systems

Protect Rate Information

Your fully loaded rates will appear on your GSA schedule in the public domain, in subcontracts from prime contractors and in data acquired under the Freedom of Information Act (FOIA) by competitors.

It is generally recognized by all industries participating in federal government contracting that internal overhead and G&A rates and the data that support them are proprietary data. The reason for the proprietary nature of rate data between companies is that in government work firms are teaming with each other exclusively on one project and competing against each other on additional contracts or projects at the same time.

Companies do not disclose the details of their rates to other companies and they do not expect to see another company’s proprietary rate information. So companies view each others rate information on a fully loaded basis, meaning the total of the base cost, any proprietary indirect cost and an agreed upon profit percent.

If a prime contractor requests that subcontractor proprietary rate information be supplied with a proposal the detail should be double wrapped and the package stamped, ‘Government Eyes Only’. The prime will then hand the package off to DCAA without opening it and receive only the fully loaded result of the burdened rate pricing.

For further information on intellectual property protection and protective markings on government contract proposals please see the following article:

Protecting Intellectual Property

Recognize Overhead and G&A Rates Are Critical

Assuming your competition pays a generally similar labor rate to their employees as you do and that fringe costs about the same for everyone, then overhead and G&A are what wins and loses contracts.

Please read the following articles carefully with regard to long range planning and setting your overhead and G&A rates:

FAR and CAS Compliant Systems

Provisional Indirect Rates

Keep in mind that if you are performing work inside a government facility the government will expect to be charged a lower overhead rate than if you were paying the space and occupancy costs and the light bill. This is normally achieved by establishing a separate cost center for “On site” (Internal to government quarters) work with lower overhead expenses applied to project direct labor dollars in that cost center.

Price Set Aside Contracts the Same as Full and Open Competitions

If you are a small business lucky enough to receive a sole source set aside contract under an 8(a) or Hub Zone award, or if you are participating in limited competition under a small business set aside designation, use the same sharp pencil you use on the full and open market. Your goal is to compete for the long haul and inflating estimates on particular jobs due to limited competition has an inflationary effect on your business as a whole.

Your company past performance is being constantly evaluated by the government and prime contractor community. Consistency attains and retains new business. You will eventually grow to the point where set asides and sole sourcing will no longer be available; prepare early.

Know the True Value of Your Proposal

Develop risk thresholds (ceiling and floor) for your bids. The ceiling is the price for which you can bid a job, perform to meet specifications and win. A floor is the lowest possible price for which you can accept a contract and survive.

Do not bid or be negotiated out of these thresholds. “Buying In” does not work and sacrificing the future of your company by “Low Balling” cost proposals and hoping to get well on scope changes later is dangerous.

In government contracting the only worse scenario than losing a contract is winning it, performing poorly (cost, schedule or technical) and getting a black eye on your company past performance record that takes a long time to go away.

Understand a Proposal is the Opening Chapter a Baseline for Your Contract

Your proposal represents an initial offer to a government agency or a prime contractor. Please read the following articles on how this baseline is initially set and controlled through the negotiation process and ultimately through careful contract management.

Project Baseline Managment

Contract Negotiation

SHORT TERM PROPOSAL OBJECTIVES

Make Bid/No Bid Decisions Wisely

Conduct your bid/no bid decisions effectively. Please see the bid/no bid analysis process at the beginning of the following article:

Contract Negotiation

Be Conservative in Rough Order of Magnitude Pricing

A common government planning technique in the early phases of marketing is to ask questions and review and approve a concept paper by a company then informally request for “Planning Purposes”, a rough order of magnitude cost estimate (ROM).

If you provide a ROM be very careful. It tends to get cast in concrete in the customer’s mind, even though it is not the final, formal proposal. Make it conservative in cost content and schedule duration, then plan to beat it with your formal proposal.

Make sure you caveat the ROM if you are asked for it with the statement in your cover letter that it is for planning purposes only and is not a commitment on the part of your company. State that you will be happy to make a full formal proposal/commitment upon receipt of a formal RFP from an authorized contracting officer. Keep in mind that contracting officers are the only people who can commit the government:

Customer Relations

The government usually goes forward with the concept paper and the ROM for approval of the funding necessary for the job. The “Agency Higher Ups” either give the project personnel the approval to do a set aside or they require a competitive procurement.

You may want to read the following article on Statements of Work:

Contract Statement of Work and Technical Specifications

Know the Difference Between Firm, Fixed Price, Time and Materials and Cost Plus Contracting

During the solicitation and proposal process the contract type is specified.

Firm, Fixed Price (FFP) is the riskiest type of contracting and should be undertaken only when you have a definitive grasp of a precise statement of work with known variables and end products. You should have achieved similar work scope in the past or be delivering follow-on products and services that are mature in nature to undertake a firm, fixed price contract.

FFP is particularly risky in software development contracts or high technology program pressing the state of the art. You will receive no more in the form of funding than your bid price on a firm, fixed price contract.

Time and Materials (T&M) contracting places the risk on the government and is suited to long term service contracts of a development nature. T&M may be contracted with fixed labor rates, making the hours and pass through materials and other direct costs the only variables.

Cost Plus (CP) contracting is the least risky of all contract types and you are assured of receiving every dollar of cost incurred under this type of contract.

The lower the risk to the contractor the lower the expected negotiated profit rate you can expect, since the government considers risk the principal factor in profit negotiation.

For further explanation of contract types in more detail, please see the following article:

Government Contract Types

Develop a Price Profile of the Competition

Use a copy of your own forward pricing long range plan (LRP) to model your strongest competitors. Profile your best intelligence regarding their size, location, contract base and estimated overhead and G&A expenses. Then interpolate, from your knowledge of the market, their labor and fringe costs, as well as other direct costs as you prepare your proposal. Incorporate any unique approaches you estimate your competition may offer that impact cost.

Modeling Your Competition

Adjust your competitor cost model to perform “What If Analysis” during your risk assessment and proposal review process. For an example of an LRP cost model please see the Box Net Cube in the left margin of this site: Small Business Federal Government Contracting It is Appendix B to the book, “Small Business Federal Government Contracting” and is available as a free download in Adobe format from the BOX in the right margin of the site.

Understand “Best Value” Source Selection

When the government declares a “Best Value” proposal award process the agency will perform a weighted trade study of cost verses technical and management factors in reviewing proposals. They will announce the weight of each factor in relative terms within the solicitation so contractors can focus on the most important elements.

What best value means quite simply is that if you are the low price bidder you may not win. If a competitor proposes a superior technical and management approach, a higher weighted rating in those factors may offset an otherwise non-competitive bid price, resulting in an award. This is a fact you must keep in mind when preparing your own proposal. In short you must perform your own trade study on your own bid.

Past performance has also become a significant weight factor in proposal evaluations in recent years. To address this challenge, please see the following article:

Past Performance Challenge

A balanced proposal, with specific, heavy emphasis on government-designated weight factors and an economical, yet realistic cost/price usually wins. Offsetting weaknesses in any designated government weighted area by proposing excellence in other weighted areas is vital.

Beware of Unallowable Costs

Over the years the federal government has determined that certain costs cannot be allowed in prices, cost reimbursements or settlements under contracts with the US Government. The government is unwilling to pay for these costs as direct charges to federal government contracts or through indirect expense pools applied to federal government contracts.

A company is not prohibited from incurring unallowable costs, but they cannot be recovered either directly or indirectly under federal government contracts. To manage unallowable costs, separate accounts must be established for these type expenses and they must not be priced directly into federal government contracts during the proposal process.

Such costs cannot be made a part of the expense pools which are applied to federal government contracts through an overhead, material handling or G&A cost allocation at accounting period close or during forward pricing rate planning. For more detail on unallowable costs please see the following article:

Unallowable Costs

Integrate Pricing With Technical and Management Approaches

Establish price targets as soon as possible for major tasks, evolve a program plan, or if you are bidding a T&M, IDIQ type program develop a sample work order for a typical representative effort.

As the technical and management proposal move toward completion, use established checkpoints to evaluate the efficiency of your cost estimate, escalation factors, labor, material and other direct costs. Then apply your indirect rates and subject your total proposal to a credibility check with regard to a believable cost estimate considering your solution and its time frame.

Run your competition price model and bring in some outside experts to review the end product proposal “Cold” before it is submitted.

Manage Best and Final Offers (BAFO) Carefullly

Most government solicitations require a format and terms and conditions with submission that permit contract award without further discussion. However, many involve a down-select process, briefings by those selected in the “Competitive Range”, a call for best and final offer (BAFO) or negotiation to achieve a final price.

The best and final offer period is a sensitive time. Most contracting agencies that call for a BAFO will cite weaknesses or concerns in the selected contractor proposals. They wish to hear about solutions to those weaknesses during BAFO briefings and require a re-submitted offer to correct them. The price may be adjusted as well and that is a key consideration. Pay particular attention to the way the BAFO instructions and concerns, specific to your down-selection, are worded. Look for hints that indicate critical opinion about your pricing, and then adjust your costs.

Consider the cost, schedule, technical and past performance implications of the BAFO request letter from the government and revise your proposal by the required submission date. Close the loop on all matters with your suppliers, subcontractors and prime contractors, and then conduct your briefing to the customer when it is scheduled. Present a united front to win. Your price should be your best. You will not be offered a chance to bid another competitively on that program.

On some procurements you may be asked to undertake additional discussions to determine final contract pricing. Please see the negotiation template at the following article for guidance on that process:

Government Contract Negotiation

SUMMARY

This discussion has conveyed how pricing should be a natural outgrowth of the organization structure, market strategy, competitive analysis, business system design and long range planning.

We have further explained how your long and short term pricing factors should be integrated with the management and technical elements of any given proposal. Take the long and the short view of your business by integrating long-term company strategy with short term proposal objectives”

https://www.smalltofeds.com/2010/05/pricing-small-business-federal.html

Business Ethics Feed Government Records of Past Performance

“SMALLTOFEDS” By Ken Larson

” The practical aspects of how business ethics effect a company past performance rating and how not meeting the associated challenges can jeopardize an industry reputation and business success.”

_________________________________________________________________________________________________________

“It is vital to maintain solid ethical business practices in dealing with customers and industry partners.

Maintaining an Ethical Company Image

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) and 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 AND 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

Business Ethics Feed Government Records of Past Performance

Business Ethics Feed Government Records of Past Performance

“SMALLTOFEDS” By Ken Larson

” The practical aspects of how business ethics effect a company past performance rating and how not meeting the associated challenges can jeopardize an industry reputation and business success.”

_________________________________________________________________________________________________________

“It is vital to maintain solid ethical business practices in dealing with customers and industry partners.

Maintaining an Ethical Company Image

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) and 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 AND 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

Business Ethics Feed Government Records of Past Performance

Business Ethics Feed Government Records of Past Performance

“SMALLTOFEDS” By Ken Larson

” The practical aspects of how business ethics effect a company past performance rating and how not meeting the associated challenges can jeopardize an industry reputation and business success.”

_________________________________________________________________________________________________________

“It is vital to maintain solid ethical business practices in dealing with customers and industry partners.

Maintaining an Ethical Company Image

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) and 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 AND 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

Business Ethics Feed Government Records of Past Performance

Business Ethics Feed Government Records of Past Performance

“SMALLTOFEDS” By Ken Larson

” The practical aspects of how business ethics effect a company past performance rating and how not meeting the associated challenges can jeopardize an industry reputation and business success.”

_________________________________________________________________________________________________________

“It is vital to maintain solid ethical business practices in dealing with customers and industry partners.

Maintaining an Ethical Company Image

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) and 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 AND 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

Business Ethics Feed Government Records of Past Performance

GOVERNMENT GRANTS VERSUS DIRECT CONTRACTS - There are many misconceptions about the nature of such instruments, who qualifies for them and what constitutes a small business grant.
https://rosecoveredglasses.wordpress.com/2026/08/24/small-business-government-grants-versus-direct-government-contracts/
#GovernmentContracting #GrantsVSDirectContracts

GOVERNMENT GRANTS VERSUS DIRECT CONTRACTS - There are many misconceptions about the nature of such instruments, who qualifies for them and what constitutes a small business grant.
https://rosecoveredglasses.wordpress.com/2026/08/24/small-business-government-grants-versus-direct-government-contracts/
#GovernmentContracting #GrantsVSDirectContracts

GOVERNMENT GRANTS VERSUS DIRECT CONTRACTS - There are many misconceptions about the nature of such instruments, who qualifies for them and what constitutes a small business grant.
https://rosecoveredglasses.wordpress.com/2026/08/24/small-business-government-grants-versus-direct-government-contracts/
#GovernmentContracting #GrantsVSDirectContracts

GOVERNMENT GRANTS VERSUS DIRECT CONTRACTS - There are many misconceptions about the nature of such instruments, who qualifies for them and what constitutes a small business grant.
https://rosecoveredglasses.wordpress.com/2026/08/24/small-business-government-grants-versus-direct-government-contracts/
#GovernmentContracting #GrantsVSDirectContracts

Small Business Government Grants Versus Direct Government Contracts

“SMALLTOFEDS” By Ken Larson

“Start-ups, entrepreneurs and new small businesses regularly seek information regarding small business grants. There are many misconceptions about the nature of such instruments, who qualifies for them and what constitutes a small business grant.

Other than the special circumstances surrounding the COVID-19 Pandemic, there is generally no such thing as “Free” small business government grant money. In many instances individuals seeking grants should be looking to direct government contracting. “

____________________________________________________________________________________________

“Small Business Government Grants

Small Business government grants involve performance of a statement of work for agencies that are in some socio-economic endeavor serving the public, such as health care, public information, communications, high technology, or similar undertakings. A small business entity receiving a grant from a government agency becomes an extension of the agency mission and obtains funding to enhance that mission while growing as an enterprise.

Small Business Direct Contracts

Small business direct government contracting differs from grants in sheer numbers and regulatory control. Direct contracts are used by all agencies of the federal government to acquire supplies and services. Both for-profit and non-profit organizations compete in direct government contracting. A direct government contract has a very specific work scope, schedule, deliverable items, pricing and in many instances incremental funding. A grant has a more generic functional orientation to funding and may or may not include deliverable items.

There are some programs, such as Mentor/Protege and Small Business Innovative Research (SBIR) that appear to be hybrids of grants and direct government contracting and are often mistaken for grant instruments. They are not grants and are governed under the Federal Acquisition Regulation (FAR) as direct government contracts.”

REGISTRATION
Guidance on registering to become eligible for both small business grants and direct contracts is at the following link:

Registering For Government Contracting

STRUCTURE AND STRATEGIC PLANNING

Non-Profit Organizations

Most small business government grants go to non-profit organizations because of the nature of the work such entities do.

A non-profit organization operates in much the same way that a for-profit company does except that the founder (s) work for a board of directors that pays them a salary and, upon registration with state and federal governments under IRS provision 501 3 (c) or a similar designation, the business pays no taxes.

What would normally be considered profit in a for-profit company is re-invested back into a non-profit to further its work. Annual reports are required by the IRS to demonstrate the re-investment and maintain a tax-free status.

Non-profit organizations are usually initiated to pursue a religious or socio-economic endeavor serving the public, such as churches, health care, public information, communications, high technology, or similar undertakings.

No one owns a non-profit organization. A board of directors, a charter, articles of organization filed with the state and the IRS designation with the federal government establish it as a public entity. In the event it is discontinued, all proceeds and assets are distributed by the government for public use and no one individual benefits. A non-profit charter must include that provision.

For-Profit Organizations

A for-profit organization is founded by individuals specifically defined by name as owners in the articles of incorporation with the state and registered with the federal government for tax purposes. There are many different types of for-profit entities (S Corp, Sole Proprietorship, LLC, Partnership, etc.); each type has its own unique tax and operating characteristics.

A for-profit organization exists for the specific purpose of providing a return on investment for the owners. All assets on the books of the company are the property of the company, and although certain types of corporations, such as a Limited Liability Company (LLC) reduce the risk and insulate the owners’ private assets to some degree, in general what is invested by an owner in the firm is the property of the firm and subject to business risks and the laws governing such matters. In return the owner or stockholder is entitled to the return on his or her investment as an individual in the form of dividends, direct proceeds after costs or other forms of entitlement (conveying what is commonly known as profit).

GRANTS VS. DIRECT CONTRACTING

Small Business Grant Funding

Small Business Government Grants have the effect of supplying lump sum funding to a non-profit organization for a specific period once the grant is awarded. In general the funding is used to further the stated mission of the business. However, the grant provider may reserve the right to receive reports on how the money was spent and may require deliverable items associated with performance of the work under the grant.

Certain grants take the form of cooperative agreements, whereby the non-profit and the agency commit to supplying mutual funding amounts to a project. Under limited or special circumstances involving 0 profit, a for-profit entity may be eligible for such a cooperative agreement with the federal government.

Federal Government grant regulations are at the following link:

Grant Regulations

A Web site for researching federal grants as well as additional information on grants in general is at the following site:

Government Grants

Small Business Direct Contract Funding

Federal Government direct contracting regulations are at:

Federal Acquisition Regulation

“Small to Feds”, the web site you are reading, was initiated to assist small businesses in understanding the above regulation and direct federal government contracting. Please see the table of contents in the right margin of this site for topics.

As stated in the introduction above, both for-profit and non-profit entities compete for direct federal contracting. A non-profit entity will bid grants and direct contracts at 0 profit. The following links are suggested as an introduction to direct federal government contracting:

Introducing Federal Government Contracting Into Your Commercial Small Business

Small Business Government Contact Set-Aside Designations

Should You Consider Small Business Federal Government Contracting?

SUMMARY
This article has provided a brief (and admittedly general) overview of the difference between non-profit and for-profit business entities and the small business government grants and direct contracting available to each. 

Both small business government grants and direct government contracts are highly competitive. Selecting potential agency sources and submitting winning proposals are acquired skills. For assistance in writing grant and direct contract proposals please see the following link:

Proposal Preparation

When considering forming an enterprise, please assess in your business plan the potential of both types of entities in direct contracting or grant competitions. 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:

Write Your Business Plan

The following site contains samples of business plans:

Sample Business Plans

Look for examples in the above of both for-profit and non-profit organizations at the above link.

Ask yourself some strategic questions, such as what competition you envision and what your marketing plan will be. Addressing 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.”

Small Business Government Grants Versus Direct Government Contracts

Small Business Government Grants Versus Direct Government Contracts

“SMALLTOFEDS” By Ken Larson

“Start-ups, entrepreneurs and new small businesses regularly seek information regarding small business grants. There are many misconceptions about the nature of such instruments, who qualifies for them and what constitutes a small business grant.

Other than the special circumstances surrounding the COVID-19 Pandemic, there is generally no such thing as “Free” small business government grant money. In many instances individuals seeking grants should be looking to direct government contracting. “

____________________________________________________________________________________________

“Small Business Government Grants

Small Business government grants involve performance of a statement of work for agencies that are in some socio-economic endeavor serving the public, such as health care, public information, communications, high technology, or similar undertakings. A small business entity receiving a grant from a government agency becomes an extension of the agency mission and obtains funding to enhance that mission while growing as an enterprise.

Small Business Direct Contracts

Small business direct government contracting differs from grants in sheer numbers and regulatory control. Direct contracts are used by all agencies of the federal government to acquire supplies and services. Both for-profit and non-profit organizations compete in direct government contracting. A direct government contract has a very specific work scope, schedule, deliverable items, pricing and in many instances incremental funding. A grant has a more generic functional orientation to funding and may or may not include deliverable items.

There are some programs, such as Mentor/Protege and Small Business Innovative Research (SBIR) that appear to be hybrids of grants and direct government contracting and are often mistaken for grant instruments. They are not grants and are governed under the Federal Acquisition Regulation (FAR) as direct government contracts.”

REGISTRATION
Guidance on registering to become eligible for both small business grants and direct contracts is at the following link:

Registering For Government Contracting

STRUCTURE AND STRATEGIC PLANNING

Non-Profit Organizations

Most small business government grants go to non-profit organizations because of the nature of the work such entities do.

A non-profit organization operates in much the same way that a for-profit company does except that the founder (s) work for a board of directors that pays them a salary and, upon registration with state and federal governments under IRS provision 501 3 (c) or a similar designation, the business pays no taxes.

What would normally be considered profit in a for-profit company is re-invested back into a non-profit to further its work. Annual reports are required by the IRS to demonstrate the re-investment and maintain a tax-free status.

Non-profit organizations are usually initiated to pursue a religious or socio-economic endeavor serving the public, such as churches, health care, public information, communications, high technology, or similar undertakings.

No one owns a non-profit organization. A board of directors, a charter, articles of organization filed with the state and the IRS designation with the federal government establish it as a public entity. In the event it is discontinued, all proceeds and assets are distributed by the government for public use and no one individual benefits. A non-profit charter must include that provision.

For-Profit Organizations

A for-profit organization is founded by individuals specifically defined by name as owners in the articles of incorporation with the state and registered with the federal government for tax purposes. There are many different types of for-profit entities (S Corp, Sole Proprietorship, LLC, Partnership, etc.); each type has its own unique tax and operating characteristics.

A for-profit organization exists for the specific purpose of providing a return on investment for the owners. All assets on the books of the company are the property of the company, and although certain types of corporations, such as a Limited Liability Company (LLC) reduce the risk and insulate the owners’ private assets to some degree, in general what is invested by an owner in the firm is the property of the firm and subject to business risks and the laws governing such matters. In return the owner or stockholder is entitled to the return on his or her investment as an individual in the form of dividends, direct proceeds after costs or other forms of entitlement (conveying what is commonly known as profit).

GRANTS VS. DIRECT CONTRACTING

Small Business Grant Funding

Small Business Government Grants have the effect of supplying lump sum funding to a non-profit organization for a specific period once the grant is awarded. In general the funding is used to further the stated mission of the business. However, the grant provider may reserve the right to receive reports on how the money was spent and may require deliverable items associated with performance of the work under the grant.

Certain grants take the form of cooperative agreements, whereby the non-profit and the agency commit to supplying mutual funding amounts to a project. Under limited or special circumstances involving 0 profit, a for-profit entity may be eligible for such a cooperative agreement with the federal government.

Federal Government grant regulations are at the following link:

Grant Regulations

A Web site for researching federal grants as well as additional information on grants in general is at the following site:

Government Grants

Small Business Direct Contract Funding

Federal Government direct contracting regulations are at:

Federal Acquisition Regulation

“Small to Feds”, the web site you are reading, was initiated to assist small businesses in understanding the above regulation and direct federal government contracting. Please see the table of contents in the right margin of this site for topics.

As stated in the introduction above, both for-profit and non-profit entities compete for direct federal contracting. A non-profit entity will bid grants and direct contracts at 0 profit. The following links are suggested as an introduction to direct federal government contracting:

Introducing Federal Government Contracting Into Your Commercial Small Business

Small Business Government Contact Set-Aside Designations

Should You Consider Small Business Federal Government Contracting?

SUMMARY
This article has provided a brief (and admittedly general) overview of the difference between non-profit and for-profit business entities and the small business government grants and direct contracting available to each. 

Both small business government grants and direct government contracts are highly competitive. Selecting potential agency sources and submitting winning proposals are acquired skills. For assistance in writing grant and direct contract proposals please see the following link:

Proposal Preparation

When considering forming an enterprise, please assess in your business plan the potential of both types of entities in direct contracting or grant competitions. 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:

Write Your Business Plan

The following site contains samples of business plans:

Sample Business Plans

Look for examples in the above of both for-profit and non-profit organizations at the above link.

Ask yourself some strategic questions, such as what competition you envision and what your marketing plan will be. Addressing 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.”

Small Business Government Grants Versus Direct Government Contracts