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How do small businesses survive in the world today, especially when they are primarily government contractors? The government has such a twisted path of regulations concerning contractors and then they control the amount of fee or profit that the small business can earn. There is definately a cost in doing business with the government that many businesses don't realize when starting. One of the constants we have noticed over the years is that experience in government contracting makes a difference. Small businesses usually can't afford to hire someone with experience on their staff but they can hire a consultant and outsource this experience level on an "as needed" basis. We have found that fully outsourcing back office services such as bookkeeping, accounting, payroll, contract management and even HR or purchasing can be valuable to the small business. This allows those services to be performed by "experts" in the area and allows the members of the small business to focus on the tasks that they are experts at - thereby increasing their value to the bottom line. A web hosted accounting system is a great tool for this scenario because both the outsourced consultant as well as company management can access the financial records at any time. The following video outlines some of the benefits of such a web hosted solution, just imagine the cloud shared application is your accounting system!
Cloud Computing from Manta Media Inc on Vimeo.
In government contracting there are many risks of not being compliant with either your accounting system or your contract. Sometimes companies are not aware of the risk they are running until an audit or a contract close out occurs and then the problem can be too large for the small business to survive. Prevent that from happening by hiring a knowledgeable consultant to:
- Maintain and verify your compliance on a daily basis
- Free up your valuable time to contribute to the bottom line
- Perform routine and mundane tasks but in fully compliant terms
- Provide real time management reports and documents on a cloud based solution
- Help direct your business to the most profitable path
At Tech BizSolutions, we have the experience and we are the experts in these back office services.
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The Tech BizSolutions team.
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Over the last year or so the DCAA has focused attention on larger government contractors. Many smaller businesses may feel left out since they have not been visited by the DCAA. More likely, they may feel that everything is "ok" since for most of us "no news is good news". Our Account Managers here have been hearing bits of news from various sources that this might change in 2012. First, the DCAA is apparently going to focus more on completing Incurred Cost Proposal audits in 2012, especially from smaller contractors. The backlog of Incurred Cost audits was estimated to have quadrupled over the last 10 years but even
DCAA Director Fitzgerald didn't know the exact number in a meeting with Senators Brown (R-MA) & McCaskill (D-MO) in February last year. Rest assured the number is huge. We have recently seen clients that have received letters from the DCAA that demand the Provisional Billing Rates for Jan. 1, 2012 thru Dec. 31, 2012 be completed and turned in to the DCAA by February 1, 2012. So we are seeing focus not only on the provisional rates (
Ref Far 42.704(b)) but we expect to see a focus on cleaning up the backlog of Incurred Cost Proposals. Both of these efforts will affect small business contractors. The Provisional rates affect your ability to bill the government in the near future. Once the DCAA audits the Incurred Cost Proposals the provisional rates become final rates. The government is bound to payment based on the final indirect rates so these are very important numbers. If your final indirect cost rates are lower than your provisional indirect cost rates, then the contractor could be liable for repayment to the government. The important message for all government contractors is twofold: 1) it is important that your provisional rates are calculated correctly so that they come as close as possible to the final rates and 2) it is important that your Incurred Cost Reports are correctly done and accurate. We envision spending a lot of time on those two areas this year. It would be wise for all government contractors to do the same.
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The Tech BizSolutions team.
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You read many articles this time of year about easily overlooked IRS deductions for your personal taxes. A similar dynamic applies to government contractors when evaluating actual indirect rates for the year.
Measuring indirect rates is critical for contractors having cost reimbursable contracts or cost-funded grants. Under-running billing rates (pre-approved, negotiated, or capped annual indirect rates) means you may owe the government money on contracts with cost-based billings or grant drawdowns.
While undesirable in this first case, low indirect rates can mean extra profits on Time & Material or Fixed-Price contracts. However, under-running rates on T&M and fixed –price contracts might not be in your best interest from a long-term financial or competitive pricing point of view.
So here is our Top 10 List of easily overlooked allowable expenses for government contractors that you can take advantage of before the end of the year.
- Accrued vacation (FAR 31.205-6)
- Bonuses (FAR 31.205-6)
- Equipment, hardware, software below capitalization limit (FAR 31.205-25/26)
- Raise the capitalization limit to $5,000 per item
- Training/seminars (FAR 31.205-44)
- Dues and subscriptions (FAR 31.205-44)
- Visiting prospects (FAR 31.205-46)
- Bid and Proposal (FAR 31.205-18)
- Independent Research & Development (FAR 31.205-18)
- Some patent and other legal costs (FAR 31.205-28/30)
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The Tech BizSolutions team.
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Tech BizSolutions has noticed another policy change from the DCAA recently that could impact the bottom line of a small business. One of our clients received a notice from the DCAA that indicated there will be more emphasis on subcontracts. Specifically this emphasis will be on reviewing policies and procedures related to subcontracting. Two areas of concern were outlined on monitoring subcontractors and on requiring subcontractors over $700K to submit Incurred Cost Submissions either to the prime or to your ACO in accordance with FAR 52.216-7. This has significant impact for many small businesses. Tech BizSolutions can help any company with preparation of an Incurred Cost Submission as well as your subcontractors (just a reminder that an Incurred Cost Submission is due within 6 months from the end of a company’s fiscal year per FAR 52.216-15).
So there are basically 2 action items required:
1. You may need to review your Policies and Procedures to make sure you have the proper documents in place for your subcontracts and control of your subcontractors. Tech BizSolutions can help you by performing a review and providing a “gap” analysis. Then Tech BizSolutions can help fill in these “gaps” with standard procedures that Tech BizSolutions has developed to handle these situations. Of course, training can be supplied by Tech BizSolutions until you are comfortable that these policies and procedures are working properly to be compliant.
2. You may need help with preparing your Incurred Cost Submission. Now is not too early to start getting ready even though it may not be due for 6 months. Completing your ICE early can also help improve your positive cash flow. To help you complete your ICE report, Tech BizSolutions has created two valuable resources to help you prepare for your ICE submission. Use these resources to ensure you can accurately finish each Schedule from the ICE. Click on the links below and you will be directed to our website where you can download each today!
Tech BizSolutions can help your company prepare a complete Incurred Cost Submission to ensure you remain in compliance. Tech BizSolutions staff are experts in completing Incurred Cost Submissions. We will complete this accurately, quickly, and in the most advantageous fashion for the needs of your company.
Contact us today to see how we can help you with these important tasks. In today’s government contracting environment you don’t want to have this done improperly. Errors in Incurred Cost submissions can take money from your bottom line. Don’t let that happen. Call Tech BizSolutions today to see how we can help you protect your bottom line.
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The Tech BizSolutions team.
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The DCAA appears to be pushing for Provisional Billing Rate (PBR) proposals earlier than past years. PBR proposals have suffered a tortured history the past few years. They have alternately been ignored and considered mandatory by the DCAA. Now, we’re getting the sense that the DCAA may be insisting on proposals even if indirect rates don’t change. One clients said their auditor advised they should get their billing rate proposal in the first of the year to assure that there is no gap in billing.
As a reminder, under cost-plus type contract having FAR clause 52.216-7 and 42.704, contractors must establish provisional billing rates for those contracts. This allows contractors to use fixed indirect rates for billing purposes for a specific annual period. The risk contractors now face is the DCAA or contracting officer rejecting invoices sent to the government in the new year without a new negotiated PBR.
Tech Biz has the tools to perform this analysis and advise clients on indirect rate strategies that ensure profitability and growth in the government contracting environment. With cashflow being more critical now in this austere budget environment, it's best to be prepared rather than surprised by government actions.
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The Tech BizSolutions team.
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In small businesses executives must wear many hats. There simply isn't enough revenue to fund specialists in various "non-direct" areas like accounting. For this reason alone, the Chief Financial Officer (CFO) duties are often carried out either by a founder with limited financial experience or carried out by someone who does not have enough time to devote to the duties to do the job in a complete and efficient manner. As a result, the business usually suffers. To hire, as a consultant, an outsourced CFO for your business you can focus on the tasks that will bring the most benefit to your firm again and rest assured that the financial health and strategic growth of the company are being watched. Here is a quick list of the top 5 reasons for hiring a consultant to serve as your CFO:
- Cash flow: Cash flow is the lifeblood of a small government contractor or subcontractor. Managing cash for a small government contractor requires knowledge of government contract types and specific clauses related to contract payment. Negotiating the most favorable terms may mean the difference between long term success or failure of the contract and possibly even the firm.
- Pricing: Pricing in the proposal stage of a contract is crucial. Knowing how to leverage government cost rules when budgeting and pricing new proposals will directly affect cash flow after the award of the contract. With all the FAR regulations and other flow-downs on most government contracts it is critical that the small business has an expert CFO that can anticipate and construct pricing models that will be in the best interests of the firm going forward.
- Compliance: Depending on your mix and dollar amounts of the contracts, your financial and business systems may be heavily scrutinized by the government. Most small businesses simply don't have the expertise to survive the scrutiny if it focuses on your firm. An experienced outsourced CFO can provide that expertise and stability.
- Profitability: Success as a government contractor means monitoring profits and threats to performance on a job-by-job basis. Understanding the special contractual obligations imposed by government work is key to assuring this success. Understanding all of the government's complex matrix of requirements and applying them strategically can also lead to the maximization of a limited "fee" under government contracting guidelines.
- Company Vision: An outsourced CFO provides a "second set of independent eyes" on your business that assures the best possible long term strategy. This helps control costs because you pay for only the CFO duties that you need and don't need to pay 6 figures to receive the benefit of this position. A part-time CFO makes you look "bigger" and helps assure the government of your ability to survive and grow in the market. Also, by hiring a consultant you may have the benefit of more than one CFO at the outsourced agency that can "poll" their ideas and strategies resulting in a better final strategy for the small business. To top it all off, this is an allowable expense for government contractors.
Tech BizSolutions offers experienced CFO personnel on an outsourced basis. All of our CFO's have over 20 years experience with government contracting and financial responsibilities. Call me today if you want to discuss how this could positively impact your business.
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The Tech BizSolutions team.
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There may be a perfect storm brewing in the government contracting world that will make it harder to do business with the federal government. It started in July of 2008 when the Government Accountability Office (GAO) issued a
report that 3 of 3 DCAA audits showed inadequacies in the DCAA's performance of the audits. This was followed up with another
GAO investigation in September of 2009 that indicated a widespread problem within the DCAA organization. As a result the DCAA went through 3 directors in a little over a year. Major reform was announced and the DCAA is performing audits strictly to the book now,
with only a "pass/fail" grade issued. But even with this increasing dose of compliance issues for contractors, there
continues to be problems. Does it seem to you that we are hearing more about
federal contractor fraud cases lately? And then how about the case where
government contractor executives are paid excessive salaries? Many contracts suffer from cost overruns and late deliveries. Combine all of this with the current economic crisis and the emphasis on cutting the federal budget and we have a perfect storm focused on government contractors. What does this mean? I think it will mean more scrutiny on government contractors, more emphasis for compliance and certainly more emphasis on performance. There will be more difficulty for firms to survive in the government marketplace that do not meet all he compliance issues and/or that don't perform on-time and either on budget or under budget. The contractors that can do this will be rewarded. The contractors that cannot perform to this new standard will be rapidly pared from the market. Companies that have an experienced staff to respond to all the government's compliance issues will prosper. Companies that do not have significant experience in this area need to shore up that weakness. Outsourcing this function can strengthen a company and assure survival. Tech BizSolutions staff has the experience to offer to these companies in need of this service. Call us today if you need to address a weakness or potential weakness. We can help.
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The Tech BizSolutions team.
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The new year starts this week for the government. Just like last year at this time, the budget is not yet approved for this fiscal year. Instead, the House just approved yesterday a
measure to operate through mid-November. This happened several times last fiscal year too if you remember. Finally the government threatened to shut down in late spring before congress approved the budget. In other words, the government operated half way through the fiscal year without an approved spending budget! (Try that in your business!!) We are headed for more of the same this year. Federal spending is cautious at best under such guidelines. Spending is postponed for fear of possible cuts and/or cancellations. This makes it difficult not only for the Contracting Officers but also for the businesses bidding on projects that the government needs to buy. Combine this with the proposed trimming of the budget and business is very uncertain and tough for small business contractors.
Large business contractors also feel the pain. It has always been a challenge to do business with the Federal Government but now, especially with the certain
drop in defense spending for the first time in over 10 years, makes it even more challenging. There are some areas of opportunity in this market however. It seems that certain areas of spending will demand a growing emphasis, including areas such as Energy (especially conservation related areas), Healthcare, Budget Streamlining and
Cybersecurity. There will continue to be Defense related opportunities (spending will be cut, not eliminated) but they will result in more competition and it will be harder to secure them. This will mean businesses need to focus on making sure their systems are compliant, that they can deliver a quality product, at a competitive price and on time. Sounds like typical "lip service" except in today's environment this is no longer "lip service". Only the "best" will survive the competition. If you would like help making sure your offering is in this class, Tech BizSolutions can help you.
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The Tech BizSolutions team.
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In helping a client recently with some contract closures, it became quickly apparent that the DCAA was way behind in getting to the audit of the system to close out this contract. It became quickly apparent that there are several risk factors for this happening. First the contract work will be in the distant rear-view mirror by the time the audit takes place. The chance of misplaced records and forgotten tasks becomes much greater as more time passes. Such omissions could result in the government disallowing costs that would change the indirect rates. This could end up costing the company money. To mitigate this risk, it can be in a contractor's best interest to try to have the government perform what is called the quick closeout procedure. This is described in FAR 42.708. This clause allows the Contracting Officer (CO) to negotiate the settlement of indirect costs for a specific contract. There are a couple of requirements to be able to use this clause. First the contract must be complete. Then the contract's unsettled cost must be relatively insignificant. For the government, insignificant usually means unsettled indirect costs of less than a million dollars for one contract. There are provisions for restrictions to not exceed 15% of the estimated total unsettled indirect costs allocable to cost-type contracts for that year too. It is worthwhile to talk with your CO to see if an agreement could be reached to close out the contract so you don't have to wait for the DCAA to "wade" through their backlog and get to your specific contract. By the time they get to it, you could end up with a penalty that you didn't anticipate.
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The Tech BizSolutions team.
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The government plans to cut $2.4 Trillion from the budget over the next 10 years, beginning in the 2012 budget. It is expected that up to $900 Billion in cuts could be included in the 2012 budget. The Defense department could see over $28 Billion in cuts in 2012 with an expected $350 Billion over the next 10 years. Federal agencies and departments are "running scared". Contractors should be too as many current programs either will not exist or may exist in a reduced form in the next budget. The Federal Budget is a large pendulum that swings from one extreme to the other. We have enjoyed almost 10 years now of increased spending that can only be viewed as a boom. Now there is a correction. Sometime in the future the pendulum will swing back, we need to survive in the meantime. Here are 5 strategies that small businesses can use to help mitigate their risk in this uncertain time;
1) Communicate with your customer - You need to stay close with your customer to find out as much as you can about their changing needs. You should be having regular conversations with your CO, your TPOC and other customer contacts to not only tell them about progress on current jobs but to find out more about what is happening in their organization. What priorities are changing, how can you help solve these changing needs with your value proposition.
2) Subcontract with Primes - If you currently are contracting direct with the government and think the contract may change, you should look to team with a large Prime that may need your expertise and help. The Small Business Liaison at these companies is a good place to start to form a relationship.
3) Diversify your government customer base - You may want to look at other agencies that could use your products and services. For instance if you have been supplying IT services to a military base (DoD) you may want to look at how the other agencies like NIH, DOE, etc. might use your services. Don't be afraid to visit these "target" agency websites to find initial contacts and drill down to find the right people to talk to.
4) Diversify your product offering - Currently some of the large DoD primes are adding health care services to their product portfolios. They are doing this to help bolster top line revenue in anticipation of loosing DoD weapons and other related sales.
5) Diversify to commercial markets - If you have been successful in selling to the government, are there commercial markets that you have overlooked in the recent boom? Time to analyze the market and target some more commercial sales.
Thank you again!
The Tech BizSolutions team.