Coming to America Pt3 - Show Me the Money

The Appeal of doing business with the Federal Government

In part 1 of this series the importance of NAICS codes in government contracting was described. Part 2 was an overview of the role of small businesses in Federal Government procurement. But how do you make money?

In the third part of the series, several of the paths to government contracts open to you as you seek to grow your company in the United States will be explained.

Understanding the opportunities presented by the US Government procurement budget and how to participate will be critical to your strategic plan. Whether you sell pencils or cleaning services, if you sell it, it is likely the US government buys them.

According to the Government Accountability Office, in the Fiscal Year 2020 (Oct 1st to Sep 30th), the government obligated $665 billion on contracts, largely for the purchase of products and engagement of services.

The Department of Defence (DoD) accounted for $422 billion with the remaining $243 billion attributable to civilian and federal agencies.

Source : A Snapshot of Government-Wide Contracting For FY 2020 (infographic) | U.S. GAO

With such a huge spending profile, you should be asking the question, are government contracts a possibility for our business and if so, how do I grab a share?

Directed Procurement

Not all procurement uses a competitive acquisition process. In 2020, almost $260 billion, or 40% of all spending was directed procurement (sole source). Directed procurement is permitted if the procuring agency can justify not using a competitive approach to contracting. It is common when the government considers that there are no alternative providers, e.g., you cannot buy additional AH-64 Apache helicopters from anyone other than Boeing.

However, even after carving out sole source amounts, an attractive $400 billion is left for everyone else. Disappointingly, now that I have caught your attention, the bad news is that not everyone can bid on the remaining $400 billion of contracts.

Contract Vehicles

A portion of the proposed spending is obligated to contract vehicles. A contract vehicle is a streamlined method the government uses to buy goods and services. These are typically long-term.

A company must be prequalified to become a participant in a contract vehicle and the number of participants is limited.

*A contract vehicle is not a contract. Securing a place on the vehicle does not guarantee you any business, it simply qualifies you to compete on contracts that will be awarded under that vehicle umbrella.

An example of a contract vehicle is Polaris GWAC, intended to run for 10 years. It has an expected ceiling value of $15 billion to $20 billion.

Government agencies will be able to buy innovative and emerging information technology solutions and services. It will focus on modern technology requirements, including cybersecurity, emerging technologies, and IT supply chain risk management.

The NAICS code for Polaris GWAC is 541512 (See Part 1) – Computer Systems Design Services, with a small business size standard of $30 Million. Polaris requires that you be one of four groups of business types for you to be eligible to compete for a place on the vehicle, based on size and socioeconomic status: Small Business (SB), HUBZone Small Business, Women-Owned Small Business (WOSB) pool(s), and Service-Disabled Veteran-Owned Small Business (SDVOSB).

If you fail to win a place on a particular contract vehicle, it is possible and a common practice to team with a qualified business. Large businesses often have an obligation to team with small businesses. If you do not qualify to bid or win, do not give up. Understand what benefits you can bring to other bidders and evaluate the possibilities of teaming. Give some thought to the pros and cons of exclusive versus nonexclusive teaming agreements.

For the Polaris GWAC contract vehicle, the government will conduct an “Organizational Risk Assessment” that favours teams or partners with a history of working together. The lack of a prior history of working together will result in a lesser score for this scoring factor.

Indefinite Delivery Indefinite Quantity contracts (IDIQs)

Are a form of contract wherein the contractor is required to deliver an indefinite amount of supplies or services over a predetermined amount of time. The amount of time covered in these contracts typically doesn’t exceed five years, but it’s very common that they will contain options to extend the time if necessary.

An example of the use of an IDIQ might be from a vehicle maintenance depot. The depot does not know specifically how much engine oil they will need to use in vehicle maintenance, they certainly do not want to have to purchase and store large quantities of oil. An established IDIQ contract with an oil vendor allows the depot to purchase oil as needed and in quantities that they choose, at an agreed price.

Small Business Contracts

Small business set-asides accounted for $144 billion of spending in FY2020. The contracts are awarded to companies that meet the small business size standards applicable to the contract NAICS codes (see Pt1 and Pt 2 of this article series). The US government has a goal of awarding 23% of contracts to qualified small businesses. Note that small business size standards vary immensely between different NAICS codes. You may qualify as a small business for one type of contract but not for another. Make sure you have declared NAICS codes for all the categories that apply to your company. In 2021 civilian agencies awarded 26% of their total spending to small businesses and the DoD awarded 19%.

Other Transaction Agreements OTAs)

OTAs are another component of the US acquisition process and are particularly interesting to research companies and those developing advanced technologies. They grew from $609 million in 2014 to over $4 billion in 2018, $8 billion the following year, and a further doubling in 2020. OTAs may be used to carry out, “basic, applied, and advanced research projects,” as well as, “prototype projects relevant to enhancing mission effectiveness of military personnel and supporting platforms.” The overall intent of an OTA is to increase the speed and efficiency of getting mission-critical technology to the warfighter.

Although not a complete list of potential revenue sources, you now have a basic understanding of the key government procurement processes and potential contracting types.

Should I Bid on Government Contracts?

Even if your business does qualify for one or more contract types, should you participate in the process?

The competitive process is often lengthy and consequently expensive. Careful consideration of the probability of winning is vital if you are to avoid unnecessary business expenses. In determining if the investment in competing is worthwhile understanding “Past Performance” and “CPARs” (Contractor Performance Assessment Reporting System) are critical, both of which will be discussed in upcoming articles. Without demonstratable past performance, your options become restricted. Past performance can be a catch-22 situation in that you need to demonstrate previous contract performance, but you cannot win a contract without previous past performance.

Oh, and before you get too excited, there is an endless list of additional topics that require professional advice. Do you understand the intellectual property risks, and the expense, revenue recognition, and cash profiles of government contracting? How does Federal Government budgeting work?  What are the legal risks of export control laws? Are you familiar with labour laws, small business subcontracting plans, collective bargaining, approved government rates, and many more?