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Cost-Cutting Strategies for Government Contractors

Both emerging and experienced players in the government contract arena know one thing for certain: current government contracting is focused primarily on cost savings and efficiency.  

In other words, how successful your firm is in winning business with government customers will depend primarily on your ability to provide goods and services at a lower cost than your competitors. “Who can provide the lowest price” has always been the yardstick against which competitors for LPTA contracts have been judged, but cost is fast becoming the main criteria in Best Value contract awards as well. 

So what can you do to remain competitive in the current government contracting environment?

The most effective cost reduction strategies start with a careful evaluation of your direct and indirect costs. A thorough assessment will almost definitely reveal areas where you can make changes. It is then critically important to be willing to make those changes, knowing that those adjustments will either help you win the contract you are currently bidding on or will go a long way toward increasing your chances of scoring the win in the future.

In short, there is no room for a “but that’s the way we’ve always done it” mindset in today’s government contracting arena. Every aspect of how you do business needs to be looked at carefully and re-engineered if called for to give your company the strongest competitive advantage.

Historically, contractors have used the same formulas to allocate direct and indirect costs. However, today’s government contracting environment demands a thorough review of all the practices and components you have in place. This evaluation will give you valuable information about how your wrap rate compares with your competitors and show you where variables can be adjusted to give your company the strongest competitive advantage.  

Start by determining where you can streamline your business. Is there training you can provide that will help your people be more efficient? Can you automate things that you currently have staff doing? Examine your Human Resources function. With the availability of online modules to process employees’ tax documents, choice of benefits, and other administrative information, you may not need as many certified HR specialists on your team. Revisit the rates you are using. Are they standard or alternate? And finally, take a close look at the rest of your accounting system and look for ways to allocate costs in ways that place your firm in a more competitive position.

One of the most common ways of bringing costs on a project down is reducing salaries. However, cutting your existing team’s salaries, or replacing your workforce with younger staff who will work for less money, may be an option, but it should never be your first choice. Not only does the practice erode your team’s loyalty and confidence, but it is also more costly than you might think to replace workers. Recruiting and training new employees is expensive, and productivity inevitably suffers due to a steeper learning curve. A long-term, broad-based study by the American Center for Progress* indicates that businesses spend approximately one-fifth of an employee’s annual salary to replace them with another worker– a significant expense that needs to be considered carefully when contemplating replacing workers or teams.

A thorough assessment of how you are handling your direct and indirect costs frequently yields information that will lead you to important cost-reduction strategies. Whether it’s developing a new office model, rearranging your overhead structure, or creating a new material handling pool, a detailed assessment of everything you are doing as a company has enormous potential to reveal many things you can do to lower your final bid price.

* https://www.americanprogress.org/issues/economy/reports/2012/11/16/44464/there-are-significant-business-costs-to-replacing-employees/

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Recency and Relevancy: Gaining a Window Into a Competitor’s Past Performance

Earlier this month, we discussed the federal source selection process, including how proposals are reviewed, evaluated, selected, and ultimately awarded.

To recap, we talked about how government officials use multiple sources of information when making award decisions. In this blog, we’d like to address one of the most common factors: Past Performance. Simply put, Past Performance is an assessment of a bidder’s likelihood to successfully perform the contract, based on its history with similar contracts. This is important not just for your own bid, but also for understanding how your competitors will likely score on their past performance, and how you can better counter that with your own approach.

In evaluating a bidder’s past performance, government officials use the Contractor Performance Assessment Reporting System (CPARS). Exclusively available to the government, CPARS includes detailed information on how the bidder has delivered on their previous contracts with the government. This includes their record of meeting requirements and conforming to standards of good workmanship, forecasting and controlling costs, and adhering to schedules. CPARS also evaluates what FAR part 42.1501 refers to as a contractor’s “commitment to reasonable and cooperative behavior and customer satisfaction” on previous government contracts.

Federal decision-makers evaluate contractors’ past performance based on two standards: recency and relevancy. “Recency” refers to how long ago the work was performed, and “relevancy” has to do with how similar this work is to what the current RFP is asking for.

Because FAR 42.1503(4)(d) deems all past performance data as Source Selection Sensitive; information contained in CPARS is not releasable (unless expressly directed by the agency who submitted the data). However, contractors can gather a surprising amount of information on their likely competitors just by leveraging various open-source tools and their industry contacts.

Evaluating Recency and Relevancy

Requests for Proposals typically give specifications for what they deem to be a valid past performance reference. Typically, a good past performance reference is similar in size and scope as the contract you’re pursuing and within a 3–5 year window. Section M of the RFP discloses how these references will be evaluated.

Your analysis of the relevancy of a competitor’s past performance starts with determining which category it is in. For example, is this a product-based contract that involves the development of an item or low to full-rate production? Or is the opportunity calling for a service-based solution such as mission-based support or systems integration and engineering? Especially when the solicitation is looking for a service to be performed, be sure to get a good handle on the contract requirements by breaking them down into simplest terms. For an IT contract, for example: is the agency looking for cloud-based services support? Help desk support? Cybersecurity? The same applies to any product-based procurement.

Good sources of information for competitor past performance analysis include databases like GovWin, DACIS, GovTribe, and BGOV. These databases should be augmented by searching press releases and other news articles for announcement of awards that may not have been captured (or easily found) in one of the above databases. GlassDoor and other social media platforms can be excellent sources of data for contractors that are performing poorly, but a good analyst will always guard against potential bias by taking negative press with a grain of salt.

Finally, as you examine your competitors’ past performance, there are a few questions that are good to consider:

  • Are the contract requirements well within their capabilities, or does their contract record suggest they have “gaps” in their ability that they must fill via teaming?
  • Do they have sufficient experience in designing and manufacturing the product in focus?
  • Have they recently won a large number of programs, and might struggle with bandwidth for the upcoming bid? Will they need to expand their manufacturing capabilities because they are currently performing at max capacity? Or will they need to go on a hiring spree to fill the required positions because this is a new contract type?

All this information is geared toward a single goal—providing your capture team with information that will inform strategy. It gives you the best possible chance to prepare for – and hopefully outmaneuver—your competitors and enhance your win probability.

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Understanding the Federal Source Selection Process

When the federal government issues an RFP asking companies to submit proposals to manufacture goods or supply services on a contract basis, the application process is complex and highly detailed. Likewise, there is an equally specific way through which the winning bid is selected. This selection process is defined by the Federal Acquisition Regulations (FAR) system, a group of uniform policies and procedures that guide the acquisition of goods and/or services by all executive agencies. 

Found in Title 48 of the Code of Federal Regulations, FAR consists of 37 chapters, each hundreds, if not thousands, of pages long. (Chapter 1, which applies to all government agencies and covers cost accounting standards, is more than 2,000 pages long.) Fortunately, familiarity with the entire document is rarely necessary. Part 15 of FAR that deals with the selection process, although other sections do come into play in rare circumstances.

Why is understanding the selection process important? Simply put, knowing what steps the agency will take in making a decision will help you organize and write your proposal. Most would-be contractors know that considering “What does the buyer want?”, “What are their critical needs”” and “How does this potential customer define value?” will benefit them, but understanding the steps through which their proposal will be vetted before a final decision is made is equally important. 

After the government receives the proposals and the deadline passes, pricing is stripped from each submission. The bids are then processed through three distinct steps as outlined in FAR:

  1. The agency convenes a Source Selection Evaluation Board (SSEB). Typically, the SSEB is made up of a small group or team of individuals, but it may also be a single person depending on the size and circumstances of the agency. The SSEB evaluates each proposal (again, without pricing information) separately. Each submission is evaluated for general strengths and weaknesses; any pluses or minuses that are particularly significant are identified and highlighted. 
  2. A Source Selection Advisory Council (SSAC) is chosen. Its function is to take the information the SSEB has given them, bring in the pricing information, and provide the ultimate decision maker, the Source Selection Authority (SSA), with a recommendation as to which contractor to choose.
  3. An SSA’s sole responsibility is to select the winning bid. While the SSAC’s recommendation is carefully considered, the SSA is not required to go with its recommendation.

Most often, however, the SSA will agree with the SSAC’s recommendation and make the award in that applicant’s favor. Occasionally, however, the SSA will either send the SSAC back to the table to provide more justification and back-up information on their choice or opt to go in an entirely different direction—in which case, they take full responsibility for the decision.

When an SSA deviates from the typical federal source selection process, there are inherent risks. This is why it will be important for the ultimate decision maker to be able to clearly articulate their reasoning for going against the advice of the SSAC. For example, if there is a protest over the award, the SSA will need to justify and explain its actions thoroughly. If they can show that their decision clearly provides the government with added value, as long as it doesn’t contradict the rationale given in the RFP, the GAO will side with the SSA. 

In addition to understanding the source selection process, it’s also important for would-be contractors to know who is likely to be involved in the information-gathering, evaluation and decision-making process. Very rarely, the customer will disclose who these people will be, but far more likely, it is up to those submitting to try to discern the likely players. Look for contractors who have had a close working relationship with the agency in the past. Examine the historical patterns in previous procurements. See if you can determine which agency position has typically been the SSA in the process. Along with your primary research, this sort of information can guide your assumptions and help you write your proposal more effectively.

Our best advice is to understand the process, know your customer, and write your proposal accordingly. Having as much information as possible on the decision-making process will be an important factor in winning the award.

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When It’s Time to Rebid a Contract: Avoiding Incumbentitis

avoiding contract rebid incumbentitis graphic

Where and when is a little knowledge a dangerous thing?

Sometimes, when it’s time to rebid a government contract in the federal marketplace, knowing more than your competitors do can be the beginning of the end.

In other words, when you are the incumbent—that is, the company that currently owns the contract and who has been working on it for years, it’s critical that you realize that the historical knowledge you have accumulated in that time is a double-edged sword. 

There’s a good chance that the price you come up with will be among the higher bids submitted unless you keep some important considerations in mind. Here are three symptoms of incumbentitis that can be your undoing if you’re not careful:

Not Pricing Precisely to the Requirements

When the company posts an RFP, incumbents often have difficulty pricing to the exact requirements, especially when their experience indicates that these requirements don’t reflect what the potential client will actually need. If an RFP specifies 80 units, and the incumbent has been producing 100+ units for the past five years, it’s hard to resist the temptation to reflect that in their pricing. Instead of showing the incumbent’s superior insight and experience, including the pricing for what they think they know versus what the RFP actually calls for, only results in a higher bottom line that frequently costs them the contract.

Giving Staff Jobs’ Protection Top Priority

The incumbent also needs to stay focused on the goal of winning the job again. That means they need to emphasize the creation of a PTW strategy instead of focusing on protecting the jobs of the people who are currently working the job being re-bid. For better or worse, the workforce that has been on the contract from the beginning is more experienced and likely more expensive now than an entry-level staff is going to be. Despite the intuitive benefits of keeping a more experienced workforce on the contract, the incumbent’s estimators must still keep the final cost of the proposal in mind as it will likely compare to their competitors’ pricing when rebidding a job.

Overestimating History and Experience

Another just as insidious miscalculation that an incumbent can make is jumping to the conclusion that their history with the company issuing the RFP will count for more than it actually does. “What have you done for me lately?” is still the mindset at the majority of agencies, making securing services at the lowest cost the priority.

If you’re an incumbent who wants to win a rebid, you need to be both literal and humble. Pay careful attention to what the RFP is actually calling for, and resist the temptation to fill in what you think you know. Focus on PTW instead of job protection, and be humble enough to understand that your previous relationship with the company or agency that has filed the RFP is not necessary a big plus—in fact, if you’re not careful, it can actually prove to be a hindrance to you actually getting the contract again on rebid.

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Identifying Your Competitors: How Wide Should You Cast Your Net?

Winning government contracts requires a lot of preparation. Would-be contractors spend hundreds of hours developing capture strategies and crafting compelling proposals, as well as (hopefully) assessing the competition. A successful competitive intelligence effort will identify the overall approach, as well as the strengths and weaknesses of each credible competitor, but this requires early identification of who those competitors are likely to be. An overly narrow focus risks missing one or more key competitors (surprises are bad), but an overly wide focus drains resources (like trying to boil the ocean).

So how wide is too wide to cast your net?

A textbook capture effort begins very early, well in advance of the customer releasing a Request for Proposal (RFP) and preferably even before word of the opportunity has hit the streets. This requires strong customer intimacy and keen market insights, but that’s a topic for another day.

Regardless of how your organization learns of an opportunity, your competitive intelligence effort should begin immediately and continue in sync with the capture effort. At this early phase, competitive intelligence begins with the critical step of identifying who the companies are that will likely bid against you.

There’s an obvious trade-off in starting this process so early; the less you know, the more you must assume. Alternatively, if you wait to assess the competition until you know who they are, it may be too late to make any needed course corrections. Therefore, the competitive intelligence effort is charged with making early predictions about who the competitors will be. But how?

An early prediction of which companies are likely to bid against you is based almost entirely on capabilities. Who in the industry has the capabilities required to submit a credible bid on the opportunity in question? Answering this question will require some research, but not as deep a dive as you will need to do later as the field narrows. For now, look at the websites and other marketing literature of would-be competitors. Read their capabilities statements. Review their list of past contract awards and compare that against their claims to assess their credibility.

It’s important to note that the government’s procurement strategy nearly always changes and evolves, making its requirements clear. As they become more specific, some competitors will drop out. This is the time to dig deeper into the contenders. Look at their strategies, unique strengths and weaknesses, and present and past clients. After you’ve done that, you can narrow your assessment down even further by reaching out directly to those companies to discuss any interest they might have in the bid. Look into their key personnel and find out what kinds of things they have historically shown interest in pursuing.

Be prepared for the evolution of the bid to involve huge jumps. What starts as a full and open competition may morph into a small business set aside, completely changing everything about the process.

Keep in mind that securing a government contract is an iterative process. As the government’s requirements become clearer, you can re-focus your lens based on those things to get a better idea of who your competitors are and the strategy you need to employ to win the contract.

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Category Management—Streamlining Government Acquisitions

Business category report

We all know federal contracting can be a bit disorganized. Between delays, duplicate contracts, and a tedious process, at times, we are all left scratching our heads, thinking, “There has to be a better way to do this!” That is where category management comes in. The Federal Government has made a push for agencies to begin categorizing their procurement efforts to do their best to prevent contracting issues.

What is category management? Category management enables a government agency to categorize buying groups. By creating these groups, the agencies can eliminate redundancies, increase efficiency, and deliver more value and savings from the government acquisition programs. The keys to the success of category management are to identify core areas of spending, collectively developing levels of expertise, leverage shared best practices to provide acquisition, supply, and demand management solutions. In short, by categorizing acquisitions to deliver more savings, value, and efficiencies to federal agencies.

It is a relatively newer process being implemented by the Department of Defense to buy goods and services. The Army began utilizing this approach in 2019. They created 19 categories, 10 of which are profession and service focused, and the other nine are related to weapons and ammunition, electronic and communication equipment, and R&D focused. By grouping buying efforts in similar categories, the Army can use the data for other procurements in its category to make better decisions when it comes to consolidating contracts negotiating price and what the state of the industrial base they are looking into. Category management is not only making the process more repeatable and efficient. It is saving valuable time and money. The Army alone saved $1.2 billion or 9% in 2019, and they are looking to save an additional 5% in 2020. Category management is being utilized across the Department of Defense. The Air Force has also saved $1.5 billion by using this approach.

What does this mean for us in the industry? It is quite simple; contracts are going to become more organized and repeatable. That means researching contracts and understanding the category they are coming out of will give us more insight into what the customer is looking for, their requirements, and budget. Not only is the category management approach giving the customer more data to understand the industry, it is also giving us in industry data to understand the customer.

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Other Transactional Agreements – Something the Federal Government Can Agree On

Businessmen making a transactional agreement

Even though Other Transactional Agreements, “OTAs,” have been around for decades, they have gained popularity in the last few years. A big driver was the National Defense Authorization Act of 2016, which permanently allowed for DoD, military construction, and the national security programs of DoE to award OTA contracts for research, prototype, and production purposes. Ever since the NDAA passed in 2016, OTA headlines have appeared to pop up more frequently all over Government contracting news. There is something the Government can agree on: OTAs speed up the acquisition process by removing a lot of the red tape of traditional procurement.

Why have OTAs increased in popularity? It is quite simple; our armed forces are undergoing a sizeable modernization effort. As warfighting strategies change and our adversaries have more access to modern technology, we needed to transform the assets of our armed forces. The Army even created a new Program Executive Office (PEO), Army Futures Command, to solely focus their modernization efforts. The Army alone accounts for 63% of OTA contracting dollars since 2016. The Army’s modernization efforts span from the Next Generation Squad Weapon, which will replace the current M4A1 and M249 squad automatic rifles, to the Future Vertical Lift Program, through which the Army is looking to replace its Blackhawk and various other helicopters with a modern solution.

OTAs have allowed for DoD to tap into the resources industry has to offer much faster. They are an excellent vehicle for prototyping new technology to modernize or replace a current vehicle, weapon, aircraft, etc., but they are not just for prototyping. OTAs can speed up the procurement of a non-developmental item to undergo testing and production at a much quicker pace. For example, the Army is looking to replace its current towed howitzers. The howitzers (M777A2) have not undergone any major redesign since their creation in 1999. The Army is looking to replace the M777A2 with a new, wheeled, self-propelled solution, but the Army is not requesting a prototype. The Army called for contractors to provide a non-developmental solution that is ready to be tested and fielded by troops. Instead of going through the standard RFP processes, the Army released the specs of what they are looking for industry to provide. Contractors then take those specs and propose their mature solution that best fits the Army’s needs. By using an OTA to procure a howitzer replacement, the Army could begin testing and integrating the modern alternative in months rather than years.

Over the next few years, we will see all kinds of new technology reaching our armed forces rapidly because of the efficiency of OTAs. The Government can agree that OTAs provides our troops with the best-modernized resources at a much faster rate.

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Organizational Change Management

How to keep your business moving in the face of organizational change and uncertainty

Whether it’s a Government shutdown, company re-structuring or consolidation through M&A, change can have a negative impact on your organization if the accompanying periods of uncertainty and downtime are not properly managed.

In business development, an environment filled with uncertainty can create a breeding ground for lost talent, new business and even a company’s core work – recompetes.  Employees haunted by the thought of layoffs, loss of productivity due to unknown budget allocations and operational stand stills resulting from a lack of direction are just a few examples of how change can have an adverse effect on your business if not addressed.

Here are a few guidelines and tips to consider when managing change within Business Development:

Understand the past

It takes both time and money to prepare a proposal, which is why every bid – win or loss – deserves a thorough post-award analysis and lessons learned to carry forward.

To ensure maximum utility of B&P dollars spent, it is important to understand the who, what, when, where, why and how behind every award. A comprehensive look at the past will help build this story.

1. Prepare win/loss analysis for every competitive bid awarded over past three years

  • Collect and document:
    • Contract details (type, primary NAICS and major elements of cost)
    • Basis of award (from Section M of the RFP to the customer award debrief)
    • Customer (from the highest level of budget authority down to the end user)
    • Competitors (from pre-submission assumptions to post-award knowns)
  • Analyze:
    • Technical (non-cost) scores vs awardee
    • Bid price vs award price
    • Proposal strengths and weaknesses identified on customer award debrief
  • Ask:
    • Was the actual award outcome consistent with Section M of RFP?
    • Did the customer award to the lowest price offer, highest technical rated offer or both – lowest price and highest technical offer?
    • Did we win/lose on price, technical or both?
    • How accurate was our pre-submission assessment of the competitive landscape? Did we model the competitors accurately? How competitive was our bid price?

Keep moving at present

Regardless of the circumstances, business development should never reach a dormant state. There is always work to be done.

To ensure maximum utility of future B&P spending, it is important to ensure that lessons learned from the past do not become lost in translation as an organization undergoes change. Understanding your past will help you thrive at present.

2. Complete deep dive assessment on past wins/losses

  • Collect and document:
    • All prior solicitation packages
    • Technical and pricing requirements
  • Analyze
    • For losses, reverse price engineer average bid rates
    • For wins, compare bid vs current FTE, personnel qualifications and salary
  • Ask:
    • For new business, can we compete against prior average bid rates?
    • For recompetes, to what extent have we deviated from our prior bid? Does the customer intend to adopt this deviation on recompete solicitation?

Prepare for the future

In business development, your opportunity pipeline is your lifeline. While some aspects may become hazy in times of change, there should never be complete lack of certainty with regards to what opportunities your organization will pursue.

Protecting your core work is critical and recompete efforts should be considered automatic to your pipeline and preparation should never cease to exist.

Use present momentum to refine and shape your pipeline around opportunities with the highest pwin.

3. Solidify new business opportunity pipeline using past and present takeaways

  • Use win/loss analysis to identify key customers, competitors, contract types and basis of award that proved most/least successful on past bids
  • Use deep dive assessments to determine if position has improved or worsened since the last bid to determine classification on pipeline

Conclusion

While there is no “one size fits all” when it comes to the specific actions an organization can take to effectively manage change, there is one overarching guideline that applies to all – keep moving.

“He who controls the past controls the future. He who controls the present controls the past.”

– George Orwell, 1984