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Scott A. Stanberry has been working with government contractors for more than 20 years. He specializes in providing auditing and accounting services for commercial clients with federal government contracts and in assisting government agencies in the administration of federal contracts. Scott is a certified public accountant.
Federal Contracting
Made Easy
Fourth Edition
Scott A. Stanberry
About the Author
Scott A. Stanberry has been working with government contractors for more than 20 years. He specializes in providing auditing and accounting services for commercial clients with federal government contracts and in assisting government agencies in the administration of federal contracts. Scott is a certified public accountant and is highly experienced in the application and interpretation of the Federal Acquisition Regulation.
How Does Federal Government Contracting Work? |
What’s in this chapter?
The big picture
Top buyers
Future of federal contracting
Can you sell to the federal government?
Should you sell to the federal government?
Federal contracting is big business. By any measure, the U.S. government (a.k.a. Uncle Sam) is by far the largest consumer in the world. No other nation, or corporation for that matter, can begin to match its purchasing power.
Generally we hear only about government purchases for multimillion-dollar aircraft or those infamous $1,000 toilet seats and $500 hammers. But are you aware that there are currently over 350,000 government contractors receiving more than $500 billion worth of contracts each year—$100 billion of which goes to small businesses?
The federal government enters into contracts with American citizens like you to acquire the supplies and services needed to run its operations or fulfill its mission requirements. It uses a specific process designed to give business concerns the maximum practical opportunities to participate in federal contracting. Each year (actually, fiscal year, which begins on October 1 and ends on September 30), the federal government spends billions of dollars buying from nonfederal sources, or commercial contractors.
The government initiates or modifies more than 9 million contracts each year, two-thirds of which it grants to contractors outside the Washington, D.C., area. The key to getting a piece of the pie is to understand how the federal government does business and to position your company accordingly.
Ready? Set? Let’s go win some government business! This chapter provides an overview of what federal contracting is all about.
THE BIG PICTURE
Look at it this way: Every 20 seconds of every working day, the federal government awards a contract, with an average value of $495,000. And Uncle Sam must tell us what, from where, and from whom it buys.
The government purchases a mind-boggling array of products and services, ranging from high-technology items like homeland security programs, missiles, ships, aircraft, and telecommunication systems to more mundane items like office furniture, maintenance services, shoes, computers, food, janitorial services, carpeting, accounting services, and real estate. You name it, and the government probably buys it!
Because the government’s needs vary from those that individuals and small, singly owned enterprises can meet to those requiring the resources of large corporations, everyone has a potential share. In fact, it is no exaggeration to suggest that a small business can probably provide a service or create a product for nearly every federal agency.
Furthermore, a business can supply the government with its products or services from wherever it customarily operates. In other words, contractors are not restricted to selling to federal agencies in their own communities. A contractor in Memphis, Tennessee, can supply the Naval Surface Warfare Center in Dahlgren, Virginia, just as easily as a contractor operating from Dahlgren. Anyone looking for more customers or thinking about starting a new business should consider the federal government as a prospect.
To help small businesses participate in federal contracting, the government offers a variety of programs and services, including credit assistance, procurement opportunities, technical support, management assistance, and grants. (See Chapter 4 for what constitutes a small business in the eyes of the government.) These programs and services have created and sustained thousands of small firms, generating many millions of jobs in the process. As a result, many of these small businesses have grown into large businesses.
I have personally seen firms go from zero to $50 million or more in federal business in less than five years. No other industry provides more opportunities for small businesses than government contracting. Yet only 1 percent of the 22 million small businesses in the United States participates in federal contracting.
Why doesn’t everyone contract with the government? Contracting with the government can be cumbersome, with its regulations, rules, laws, bureaucracy, and red tape. The primary purpose of these detailed rules and regulations is to ensure that the government spends public funds—our tax dollars—wisely. To be successful as a government contractor, you must understand these rules and regulations (see Chapter 2).
Although federal contractors use many of the same business practices as commercial vendors, a number of characteristics clearly differentiate the two. To begin with, the federal government operates in a market that is called monopsonistic—one with only one buyer and many sellers. As a result of this sovereignty, the government has certain unusual powers and immunities that differ significantly from those of more typical buyers, as detailed in the table below. Congressional mandate, rather than state laws, controls federal policy.
Significant differences include:
Government business varies vastly, depending on the products or services being sold. Selling copiers has little in common with selling jet engines. Also, the contracting needs and guidelines of the Department of Defense (DoD) in many cases differ from those of civilian federal agencies.
You need to determine which federal agencies purchase your goods and services and what solicitation procedures those agencies use to acquire them. Part III of this book touches on a number of methods for soliciting and marketing to the various federal agencies.
It’s not so much that doing business with the federal government is difficult; it’s just different. Instead of selling directly to decisionmakers, as in the commercial world, government contractors must patiently wade through the government procurement process, which makes the sale more complex and longer to complete. If you learn the system and are patient and persistent, the federal government can be a great source of business revenue for both new and established businesses.
Lisa Rein, Washington Post – April 8, 2012
Federal agencies must report their progress this week in complying with the Plain Writing Act, a new decree that government officials communicate more conversationally with the public.
Speaking plainly, they ain’t there yet.
Which leaves, in the eyes of some, a basic and critical flaw in how the country runs. “Government is all about telling people what to do,” said Annetta Cheek, a retired federal worker from Falls Church and longtime evangelist for plain writing. “If you don’t write clearly, they’re not going to do it.”
But advocates such as Cheek estimate that federal officials have translated just 10 percent of their forms, letters, directives and other documents into “clear Government communication that the public can understand and use,” as the law requires.
Official communications must now employ the active voice, avoid double negatives and use personal pronouns. “Addressees” must now become, simply, “you.” Clunky coinages like “incentivizing” (first known usage 1970) are a no-no. The Code of Federal Regulations no longer goes by the abbreviation CFR.
But with no penalty for inaction on the agencies’ part, advocates worry that plain writing has fallen to the bottom of the to-do list, like many another unfunded mandate imposed by Congress. They say many agencies have heeded the 2010 law merely by appointing officials, creating working groups and setting up Web sites.
What’s more, the law’s demand for clearer language seems like make-work to skeptics who say there is no money to pay for the promotion of clarity and that the status quo is the best path to accuracy.
“It’s definitely an ongoing battle,” said Glenn Ellmers, plain-writing coordinator for the Nuclear Regulatory Commission. “We’re trying pretty hard. But when you’re talking about something as complex as a nuclear power plant, you can’t get around specialized language. The really technical people take a little pride in using it.”
As a concession to them, the commission is simplifying only the cover letters of plant inspection reports, while leaving intact the highly technical and all-but-impenetrable text of the actual documents.
“Part of this is we have a change in culture,” said Ed Burbol, the Defense Department’s plain-language coordinator, who oversees two full-time staff members assigned to promoting clearer communication. “We’re going to encounter resistance.”
A retired lieutenant colonel in the Air Force, Burbol acknowledged that “some people here can write very well and some people can’t write at all,” a problem he attributes to the large number of service members who return to work as civilians.
Consider the next sentence: “This subpart identifies those products in which the Administrator has found an unsafe condition as described in Sec. 39.1 and, as appropriate, prescribes inspections and the conditions and limitations, if any, under which those products may continue to be operated.”
And here’s the revision of the sentence, a Federal Aviation Administration guideline, by the nonprofit Center for Plain Language: “Airworthiness directives specify inspections you must carry out, conditions and limitations you must comply with, and any actions you must take to resolve an unsafe condition.”
Cheek, the retired federal worker, still devotes at least 20 hours a week to the tiny nonprofit plain-language center she founded for federal employees. To inspire healthy competition when the law passed two years ago, the group started giving out annual awards for the best and worst of government-speak, including a Turn-Around prize for most improved agency. The annual ClearMark awards banquet, scheduled this year for May 22, is held at the National Press Club.
In this era of shrinking government, advocates of plain writing say their cause can actually save money.
They cite Washington state’s “Plain Talk” program: A revamped letter tripled the number of businesses paying a commonly ignored use tax, bringing $2 million in new revenue in a year, according to law professor Joseph Kimble, author of a forthcoming book on the benefits of plain language.
And after the Department of Veterans Affairs revised one of its letters, calls to a regional call center dropped from about 1,100 a year to about 200, Kimble said.
“People complain about government red tape and getting government out of your hair,” said Rep. Bruce Braley (D-Iowa), House sponsor of the Plain Writing Act. “If every one of these forms was written in plain language, the number of contracts to federal agencies would plummet.” He’s started a “Stop B.S.” (for “Bureaucrat Speak”) campaign soliciting examples of badly written public documents.
The law exempts regulations from its mandate for clearer communication, although last fall the Obama administration ordered agencies to write a summary of their technical proposed or final regulations, and post it at the top of the text.
But Braley says that’s not enough. He’s introduced a bill to extend the law to the full text of regulations so ordinary people can understand them.
Americans have always loved plain talkers. But at some point, scholars point out, inscrutable language became associated with high status.
“A lot of people in government wield their jargon to make themselves seem very impressive,” said Karen Schriver, a plain-language expert at Carnegie Mellon University.
There have been many attempts to turn this trend around, including at the presidential level. Richard Nixon required that the Federal Register be written in “layman’s terms.” Jimmy Carter issued executive orders to make government regulations “cost-effective” and easy to understand. (Ronald Reagan rescinded the orders.)
The Clinton White House revived plain language as a major initiative, and Vice President Al Gore presented monthly “No Gobbledygook” awards to federal workers who translated jargon into readable language.
None of these efforts stuck, although some agencies—including Veterans Affairs and the Internal Revenue Service—took the mission seriously. The IRS won the Center for Plain Language’s top prize last year for “intelligible writing in public life.”
And then there is the difficulty of promoting revision while preserving precision. At a January meeting of the Plain Language Information & Action Network, a group of federal employees devoted to the cause, members from 20 federal agencies listened as Meredith Weberg, an editor at the Veterans Affairs inspector general’s office, described how she butted up against an “obstinate” boss.
In attempting to simplify a handbook for auditors, Weberg changed “concur” and “not concur” to “agree” and “disagree.” The manager changed it back.
One of her allies in the cause of plain writing had to, well, concur with the boss’s decision. “A concurring opinion says Justice so-and-so agrees with the conclusion of the court,” said Ken Meardan, who writes regulations for the Agriculture Department. “He may not agree” with the reasoning.
Weberg said she let this one go.
The new law is hitting larger obstacles.
“They didn’t really make it plain as to what my responsibilities are,” said the newly appointed plain-language coordinator at the Department of Transportation, describing her assignment from management. She looked bewildered.
Her counterpart at the U.S. Agency for International Development had an even bigger problem: She could not get behind an electronic firewall for online training.
“We have a lot of classified information,” Christine Brown told the group. “We’re not getting very far with this. No one has the resources.”
USAID has appointed a plain-language committee. But it is just starting to train its members to write plainly.
“A lot of people didn’t think this was the kind of thing you should do a law about,” Cheek said. “We’ll see if it works.”
© 2012, The Washington Post. Reprinted with permission.
TOP BUYERS
During FY 2011, the federal government purchased well over $500 billion worth of supplies and services. The following table shows the major federal agencies and categories in federal procurement:
Federal Agency Procurement, FY 2011
| Federal Agency | Expenditures (in billions) |
| Department of Defense (DoD) | $ 374.03 |
| Department of Energy (DOE) | $ 25.06 |
| Department of Health and Human Services (HHS) | $ 19.46 |
| Department of Veterans Affairs (VA) | $ 17.47 |
| National Aeronautics and Space Administration (NASA) | $ 15.58 |
| Department of Homeland Security (DHS) | $ 14.22 |
| General Services Administration (GSA) | $ 12.42 |
| Department of State (DOS) | $ 9.15 |
| Department of Justice (DOJ) | $ 7.17 |
| Department of Treasury (USTREAS) | $ 7.12 |
| Top Product or Service Categories (by NAICS Code) | |
| Manufacturing: Metals, Machinery, Furniture (33) | $ 164.23 |
| Professional and Scientific Services (54) | $ 147.26 |
| Administration and Support (56) | $ 48.42 |
| Construction (23) | $ 39.01 |
| Wholesale Trade (42) | $ 25.78 |
| Manufacturing: Printing, Petroleum, Rubber (32) | $ 18.63 |
| Transportation (48) | $ 15.87 |
It’s clear from this table that DoD is a major player in the federal contracting landscape, chipping in with over two-thirds of the government’s annual purchases.
The following chart shows the value of federal contracts awarded by state (to the top nine states and Washington, D.C.) during FY 2011, in billions of dollars:
Federal Awards, by State, 2011
FUTURE OF FEDERAL CONTRACTING
During the decade immediately preceding the Obama administration, both the legislative and executive branches made a continuing effort to increase the number of services performed by private industry contractors and to reduce the number of government employees. This effort was based on the belief that the competitive forces of the commercial marketplace would produce better products and services at cheaper prices. As a consequence, the already significant contracting opportunities available in the services sector increased even more.
Under the Obama administration, there has been some backlash to this trend. Many government officials and federal employee unions have questioned the cost effectiveness of this “contracting out” philosophy. Additionally, government officials have expressed concern that contractors may be performing services that are inherently governmental in nature. They found support for this concern in the executive branch and among some members of Congress and elsewhere. A study report issued in September 2011 by the Project on Government Oversight, a nonprofit group, found that the government may sometimes pay more for contractor employees than for current government employees.
While the pace of growth in contracting out has slowed, the fact remains that contractors have far more flexibility in hiring, utilizing, and—when necessary—laying off employees. This considerable administrative advantage, coupled with the expanding use of task order contracts (see Chapter 16) and the limited public tolerance for an expanding government workforce, contributes to the continuation of a favorable environment for government service contracts going forward. For product and supply contracts, the government has relied, and will continue to rely, almost exclusively on private-sector vendors.
CAN YOU SELL TO THE FEDERAL GOVERNMENT?
To receive a contract, a contractor must agree to meet (be “responsive” to) the government’s requirements. It must also be “responsible,” which means that it must have or have provided for the resources needed to do the job and, if it is an established business, must have a satisfactory record of integrity and performance.
Depending upon the type of procurement and the circumstances involved, the contracting officer may do a very detailed examination for responsibility, such as conducting a physical pre-award survey of contractor facilities. In other occasions, such as for many commercial items, the contracting officer may assume that someone active in the marketplace is prima facie (at first sight) a responsible contractor.
Additionally, to receive a contract, a contractor may have to demonstrate or certify to specific criteria for a specific kind of contracting. For example, if the proposed contract is set aside for competition only among small businesses, the contractor may have to certify that it is a small business before being eligible for award.
In general, the government wants to know the following about a potential contractor:
Is the contractor eligible, under existing laws, to do business with the government?
Does the contractor have adequate financial resources to do the job?
Does the contractor have a good performance record?
Does the contractor’s record demonstrate ethics and integrity?
Does the contractor have the necessary skills to perform the job, or can it acquire them?
Does the contractor offer prices that are fair and reasonable?
Does the contractor have the necessary facilities and production capacity to deliver its products?
Can the contractor meet the performance schedule (or delivery schedule), given other commitments?
The government then uses this information to determine whether a potential contractor is eligible for federal contracts.
SHOULD YOU SELL TO THE FEDERAL GOVERNMENT?
Once you understand the contracting process, the next step is to decide whether you should sell to the federal government.
Advantages
Working with the federal government offers tremendous advantages:
The government purchases practically every type of supply and service. Plus, federal contracting work tends to be a more reliable source of income than private sector work because the government is open for business in both good economic times and bad.
The government has more than 2,500 buying offices (or contracting activities) throughout the United States.
Each major federal agency must provide free assistance to contractors.
In some cases, the government provides financial assistance, such as guaranteed loans and progress payments (payments made to a contractor based on a percentage of costs incurred or work performed under the contract).
The government has preference programs to encourage small business participation.
For FY 2012, the federal discretionary spending budget was approximately $1.34 trillion.
The government mandates “full and open competition.” In other words, a contractor can compete for federal contracts without having to belong to an exclusive “club” of elite contractors.
The government spends approximately 25 cents of every dollar spent in the United States.
Generally, contractors do not need a massive product distribution system or a substantial advertising budget.
Numerous regulations governing federal contracting ensure fair play by both the government and the contractor. (These regulations do, however, create a certain amount of red tape.)
If you perform the work required by the contract, you will get paid—usually within 30 days. Checks cut by the federal government never bounce!
Federal business programs often lead to business with other federal agencies, as well as with state and local governments.
Many government contracts run for a base year with up to seven option years. So if you live up to expectations, you can expect to get your contract renewed.
Average government orders/contracts tend to be larger than commercial orders—values of $10 million to $100 million are not uncommon.
Government business tends to complement your commercial business. It’s common for contractors to sell a product to the government and then sell additional versions of the product to government vendors that are compatible with the government’s requirements.
In spite of legal changes in recent years, the government awards about 45 percent to 50 percent of its contracts to sole-source providers. A sole-source award is a contract that a federal agency awards after soliciting and negotiating with only one source. Therefore, contractors may be able to locate and bid on federal contracts that have limited competition.
Contracting with the government is patriotic.
Disadvantages
With all these advantages, what businessperson wouldn’t want to contract with the government? But as with any client, there are disadvantages to working with the federal government:
Government red tape can produce volumes of paperwork. Contractors must fill out numerous federal forms, and even not knowing which one to do next, or to whom to send it, can be a major obstacle to your success. The best way to keep current with these forms is to use the General Services Administration’s Web site at www.gsa.gov/forms. This book, of course, will also help you untangle the red tape.
To be successful in government contracting, you must learn how the government operates. This includes learning the clauses, terms, conditions, proper terminology, and methodology.
Recent estimates show it takes about 18 months to strike your first deal in the federal marketplace.
Once you sign a federal contract, you are generally locked into performing according to the terms of that contract.
Government contract specifications (specs) tend to be much more stringent than those for commercial contracts. For many contracts, for example, the government requires a company to establish a detailed quality assurance program.
Government contracting can be very competitive—and seemingly unfair if competitors have established a personal relationship with a particular buying office.
Certain common practices in commercial business, such as entertaining personnel, are illegal in government contracting. (See Allowable Costs in Chapter 15.)
These disadvantages are not intended to discourage you from seeking to do business with the government. On the contrary, if prospective contractors can become aware of and obtain the necessary information before embarking on government business, the chances of success—in terms of both profit and efficiency—are greatly enhanced. If you can avoid learning through trial and error, everyone comes out ahead.
Dr. Martin Luther King, Jr., said it best: “Give me an opportunity, not a handout.” This book will help you learn how to do business with the federal government and take advantage of the many contracting opportunities the government offers. There is no better long-term customer than your federal government!
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