Winning a contract is just the first step. Here are five more things you must do to meet customer expectations and maximize the opportunity of winning a government contract.
The recent limitation imposed on the Defense Contract Audit Agency to perform audits means private sector accounting firms now have the opportunity to work more closely with federal agencies to help assess proposals, indirect rates, and business systems of qualifying government contractors.
This change has elevated the need for accountants specializing in government contracting who fully understand the criteria federal agencies use to select and retain contractors.
Compliance and efficiency are paramount to not only achieving the government’s goals, but also for contractors to maximize their own opportunities afforded by a federal contract. With that in mind, we’ve identified the top five areas government contractors need to shore up to ensure their services are efficient and profitable.
1. Policies and Procedures
The first step in making sure your business is set up to successfully maintain a government contract is through compliance. Working for the government is a privilege. The government not only expects to see excellent work as a return on dollars spent, but also expects a fair and reasonable price. Government contractors are held to a higher standard because of the complexity of the compliance needed to ensure taxpayer dollars are being used appropriately.
Contracts offer an opportunity to develop ideas and efficiencies the government may not achieve or implement on its own. Your work for the federal government comes with great responsibility. Therefore, once your organization wins a contract, compliance sets in. Winning the contract is only the beginning of a commitment to a higher standard of rules and regulations.
To capitalize on the opportunity afforded by a contract win, contractors must create clear policies and procedures that will govern how their work will be managed and executed. Government agencies—and their auditors—love to see that contractors have well-established processes for accounting and timekeeping, and how they will handle modifications to the contract. There should also be policies for at-risk work, employee travel and training, and bids and proposals.
Government contracts can, by nature, be significant in size, long in duration, and complex in scope. Budgeting is obviously key to making sure your company can manage these challenges, deliver what it promised to the agency, and generate a profit at the same time. As a contract awardee, you have a job to do and a finite amount of time to complete the work. Managing budgets is essential to helping your business deliver while making a profit. Budgets are critical and continuously monitoring them against your needs and available resources is essential to running long-term contracts profitably.
Understand the scope of work the contract requires and watch out for scope creep. If the government customer requests support outside of what you bid, you’ll need to let the agency know that you need a modification for a possible extension of time and maybe additional funding.
To manage scope, it is also important to know your customer. Some agencies will not tolerate work outside of the original scope of work unless it is warranted. Your company must be on its toes when overseeing scope. Many contractors have lost money due to scope creep, and it is usually not reimbursed by the government agency unless it is determined and asked for early in the process.
4. Indirect Costs
You need to understand and properly manage your indirect costs for fringe, overhead, and general administration. Fringe costs consist of the benefits you provide to your employees. Overhead refers to those expenses that you have incurred to fulfill the contract, such as teaching and managing your people who work on the contract. General administration costs are typically the everyday expenses that all companies have, such as accounting, human resources, and business insurance.
It is difficult to anticipate what will impact your indirect costs when you bid on a contract. You should build a cushion into your rate calculations and carefully manage the evolving costs of doing business. You must be prepared to weather the storm of unexpected expenses over the course of the contract. Without careful monitoring of these expenses, contractors can quickly find themselves upside down due to a change in economic conditions.
Finally, you need to communicate with and visit your government customer often. Develop a relationship with your contracting officers so that you are comfortable in asking them how you are doing on your contract. If they believe that you are doing a good job and you are monitoring your people and your costs, you may be able to explain why you need to spend extra resources on certain items, and receive that much-needed modification. Visit your customer in-person at least once each quarter.. With government customers especially, camaraderie and relationship goes a long way.
Keeping these five key areas in mind, it’s important for contractors to establish the right balance. You don’t want your compliance efforts to over-burden or prevent your organization from actually getting the work done. Build your company and your knowledge of these areas at a reasonable, but prudent pace.