Guest Opinion

Reforms Hike Overhead Costs

By John Moliere



Virtually all federal IT contractors have been affected by the shift in emphasis from project or program centric procurements to omnibus, all encompassing procurements using a variety of indefinite delivery, indefinite quantity contract vehicles.

The Information Technology Management Reform Act of 1996, which triggered federal agency streamlining and downsizing, has also driven a rapid shift by the government toward best commercial practice in procurement methodology.

In the IT and professional services contractor community, this has caused a shift of enormous proportions from services delivery to services management with significant ramifications and potential reward. But it has not come without pain and cost.

In the past, competing contractors would research a given program, conduct requisite premarketing qualification and pre-positioning activities; put an internal team together to develop a technical and pricing strategy; prepare technical, management and cost responses; submit the draft to the scrutiny of a knowledgeable Red Team; make corrections; submit the response and wait.

On those occasions where the IT contractor was successful, staffing requirements were met from in-house people and augmented with new hires. Except for pedestrian contract administration and modifications, the contracts staff was basically finished. The accounting department interfaced with the program manager, invoices were generated monthly, and in-place processes were exercised to ensure smooth management.

These days, agencies issue far-reaching requirements in the solicitation document and whether or not many of the requested niche functions ever get used is another issue. Nonetheless, assembling a diverse capability team is costly up front.

The net result has been a shift in the workload from the government to the contractor staff organizations. The government seeks an holistic capability from its prime contractors, which requires teams to be comprised of a variety or primary and niche providers, as well as companies that meet one or more small business imperatives. These requirements dictate the need for a larger corps of subcontractors, and drive the contracts personnel of the prime contractor to do a greater amount of work early on.

Before a contract award, this group must review the document for onerous terms, conditions and other requirements (such as bonding); prepare and send non-disclosure agreements and agreement to subcontract; prepare templates for response and requests for pricing information; and then negotiate each of the separate agreements.

The successful completion of these instruments is key to the proposal being completed on time and requires a great deal of follow-up by the contracts shop. This is an extraordinarily demanding effort which requires constant liaison to reach closure on a timely basis.

Pricing is separate from contracts. Contracts have a role — a big role in the aforementioned precontract award administra- tion, preparation of representations and certifications, and auditing the work completed by the pricing team. This allows unbiased contract administrators to ensure that the detailed, indirect work-ups comply with set or provisional rates and with the requirements of the request for proposal.

Upon award, all the precontract award administration activities become post-contract award administration. Continuity between the prime contractor and their equal and opposites at each of the subcontractors enables a smooth transition to successful execution. But the work does not recede, nor does the requisite turnaround time slacken. It is at this time that the impact begins to be felt by other staff departments. If a national or far-reaching requirement dictates establishing a new, distant office, or if a rapid ramp-up of staff is required, then the human resources and facilities personnel must respond quickly and are beset with an avalanche of interviews and new-hire paperwork.

New IDIQ contracts typically means that contracting firms execute a series of short- term tasks. This spells a higher incidence of invoices to generate and accounts payable to vendors and subcontractors. The cost per work transaction increases accordingly.

Then there's the marketing and business development groups. There seems to be an insatiable thirst to secure more and more IDIQ and BPA contracts. But why? Who's driving this madness ... IT contractor or federal buyer? The cost for contractors to secure these contracts is not great, but they are in many cases redundant with regard to other hollow IDIQ contractual vehicles.

For many contractors, the question "when is enough, enough" is a difficult one to answer. These days, many federal agencies are in competition with other federal agencies for the override dollars associated with contract usage.

Often, if an IT contractor does not have an IDIQ or BPA in place with a given ordering agency or regional office, then that task may go to an IT contractor that has such a vehicle. Government downsizing has certainly caused up-sizing in the private sectors' staff functions, which serves the government IT functionaries. But competition amongst federal ordering offices costs IT contractors, and in the final analysis, the user.

The end result for government contractors is higher associated general and administrative and overhead costs across the board, a factor that must be considered in future pricing strategies.

John Moliere is vice president of telecommunications integration systems at Sherikon Inc., Chantilly, Va. He can be reached at jmoliere@sherikon.com.

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