By: Bob Steger
Every year in June Washington Technology publishes their list of the top 100 Federal Prime Contractors. For the last 19 years the top prime contractor has been Lockheed Martin ($17.4 billion in federal revenue). This list changes slowly over time because these top federal contractors have teams dedicated to winning federal bids, have built strong relationships within the government and have a history of past performance with the federal government.
These large companies need subcontractors and partners to bid on federal contracts with due to small business set-asides. 27% of the federal budget is designated for small business and contractors are graded on their ability to meet their specific small business subcontracting goals on a particular contract which can be as high as 54% (Dept. of Energy’s small business subcontracting goal). For most agencies, they have subcontracting goals for primes at or around 32%.
There are things you can do to make your business a more attractive partner for the Lockheed Martins and Northrup Grumman of the world. The following are attributes these companies are looking for in a federal contracting partner.
Swim Lane – Your firm should have a specialized skill and understanding of a product or service which would be used as part of a contract being performed by the prime, this is your niche or swim lane. These large companies are not interested in hooking up with a jack of all trades. They want to know how you can help them with your specialized knowledge to deliver a better proposal or product.
Specialized Agency Experience – If your firm has obtained contracts within a federal agency, these large 100 players are constantly looking to make inroads into other agencies that may be dominated by other players. Many firms have been acquired by these large organizations to obtain contracts in place with agencies as part of their overall strategic plan for doing business with the federal government. The federal game is still based upon relationships and those relationships have value to the larger players.
Past Performance – These top contractors are very protective of their top performance rankings because it is a justification for keeping higher margins, or often more importantly not being unseated in the next contract cycle by another bidder. Therefore they would like partners with high ratings so they know their own rating won’t be jeopardized by a subcontractor.
Ease of Conducting Business - Having your GSA Schedule or other federal contracting mechanisms in place such as SBA Certifications before you contact these larger entities. These aids in doing work with the federal government make it easier for the prime contractor as well.
Get Ahead of the Game – The federal budget even with the sequester in place is budgeted to grow at 1-2% in 2014 (excluding DoD reduction in foreign war spending). The hot areas for spending growth expected to be greater than this 1-2% will be the following areas. In these hotter areas knowledgeable subcontractors become even more valuable to the primary contractor:
Big Data and the analytics to data mine big data for the purposes of process improvement, healthcare clinical and non-clinical, fraud, waste or abuse.
Department of Treasury – Currently has on the agenda the implementation of The Affordable Health Care Act also known as Obamacare.
Veterans Administration – dealing with returning soldiers from war is currently having high growth in spending.
Department of Homeland Security – IT security
Transportation – FAA upgrading IT Systems, and Bridge Building
Immigration (proposed) – $30 Billion for boarder security, some IT, hardware and construction.
Mobility – some work will be available in making mobile applications.
Energy – following the “Snyder Electric Plan” where the federal agency is able to purchase an energy efficient item and pay for it over time with the budgeted savings. Snyder Electric has enjoyed success with this model due to the Military Net 0 Plan, making based net neutral in power and water pollution creates opportunities for companies that have products that can pay for themselves with energy savings. FYI – Most of the work regarding computer efficiency has already taken place.
Below is the link to the large prime contractors by Industry for 2012.
By: Bob Steger
After the GSA conference scandal Dan Tangherlini was appointed interim head of the organization in April of 2012. Dan’s previous post was the CFO of the Department of Treasury and was brought in as an outsider to be the “new sheriff in town”. Tuesday of this week he went before the Senate for his confirmation hearing and received support for his confirmation from both Democrat and Republican Senators.
Dan Tangherlini moving from an Acting Chief to a full time Chief is a very important move for federal procurement in general. As now as acting Chief he will now focus on the future direction of the GSA rather than cleaning up the past. Dan’s background aside from a long resume within the federal government is a Bachelors and Master’s degree in public policy from the University of Chicago, and an EMBA from the Wharton School of Business. I think as a result we see a very methodical businesses style approach in all the work he has done at the GSA to date.
From watching the confirmation hearing my take away is that Dan has done a sound job of imposing new controls in place at the GSA. Senator McCaskill (D-Miss) stated “you’ve taken bold, controversial, and probably unpopular steps to end bonuses as an entitlement”. Bonuses have been cut 85% under Tangherlini’s reign. Senator Coburn (R-Okla) “they look forward to working with Tangherlini in a more permanent capacity.” Given the current nature of American Party Politics, the fact that both sides feel Dan has done a good job speaks for itself. The vote on Dan’s nomination is to occur on June 24, 2013. His confirmation is all but assured.
One of Dan’s hot topics at the hearing was a recent Gardner Group Study that suggested the Federal Government was not doing enough strategic sourcing (aka not utilizing the GSA enough). Most fortune 100 companies procure 90% of their purchases through strategic sourcing. The federal government only uses strategic sourcing 5% of the time. If the government took steps to maximize strategic sourcing there would be annualized cost savings to the federal government of $12 billion dollars annually. A great example that Tangherlini gave in his hearing was that that Tangherlini’s family is currently more effective at price negotiations on mobile telephone contracts on an average cost per user basis than the federal government. Yes, literally his family spends less on a per user basis, and he has two daughters. The federal government currently has 4,000 different cellular contract and over 800 plans. His goal in the next 18 months is to get this down to 1 plan. He estimates that the federal government will save at least 30% on its cell phone bill by making this change.
Another hot topic at the meeting was Dan’s work moving forward regarding educating all federal employees working on procurement activities regarding buying from GSA Schedules. His point being, time is money, and buying off an existing GSA Schedule saves about half the time of other procurement mechanisms. Buying right saves money but spending that time on contract management also saves money as well and therefore time is important. Currently about 10% of federal procurement goes through the GSA or around $60 billion dollars. The GSA has experienced only around 3% growth over the past few years. Many thought this was due to the GSA meeting the limits of its effectiveness, but in actuality it appears to be more of a “management condition” as the GSA has had 8 Chiefs over the same number of years. Having a new leader who provides a strong direction for the GSA, who increases communication with the agencies the GSA supports, in my opinion will foster an increase in GSA utilization in the months and years to come. If you were disenfranchised by the GSA conference scandal, rest assured there is a new sheriff in town and it might be time to evaluate a GSA Schedule.
By: Bob Steger
In the Department of Defense Logistics the running joke is “In God We Trust, all others must bring data!” This is because of the large amounts of oversight that often accompany a DoD contract and the DoD wants to be able to account for every bolt purchased. A recent event that went almost un-noticed in the mainstream news media may change some of this quite a bit going forward. According to the Nunn-McCurdy Act of 1983 the United States Congress must be notified if a cost per unit grows beyond more than 15% of the original estimate and calls for program termination if the cost growth is beyond 25% of the original estimate, unless the Secretary of Defense comes to the aid of the program. In the most recent Congressional Oversight there were no breaches of Nunn-McCurdy Act that need to be reported. This is a rare feat not achieved in recent memory.
The current thinking by The Deputy Secretary of Defense in charge of Logistics, Ashton Carter is outlined in the following quote “A lot of this is about internal process. I once had a conversation with one of our program executives who told me that when he had a multi-year program, he was more effective than he had ever been in his career, because all he had to do was work on his program to get more for the money.” His point is when a multi-year program is awarded less time and attention is spent on government regulation requirements and more time is spent on completing the mission. Hence you have budgets that are able to be adhered too.
The Department of Defense with its massive budget is usually a key driver of federal procurement policy and they would like more freedom away from spending so much time on oversight. The DoD would like to have new ventures where industry and government employees have a collaborative effort instead of a top down approach. A historical example sighted as a future model would be the highly successful Lockheed Martin SkunkWorks program which has produced many Top Secret Spy Planes and Aircraft. The bottom line is that the DoD would like to move to a new model where they can spend more time working on the mission and less time on compliance with redundant federal processes.
My personal takeaway is if the DoD can continue this success expect to see longer duration contracts, future acts of congress reducing bureaucracy and additional steps taken to streamline procurement. These acts will be federal government wide and affect all other agencies as well making the federal government a friendlier environment for business.
By: Bob Steger
The Department of Homeland Security (DHS) the ten year old agency is the only one of the major seven agencies to receive an “A” rating by the SBA for meeting its small business goals consecutively for the past three years. These seven major agencies account for 90% of all federal discretionary spending or $430 out of the $480 billion in federal spending.
Of the $17 billion the DHS spends annually 40% is with large business, 30% with medium sized businesses, and 30% is with small business. The DHS’s goal is 32 percent spending with small business. What the DHS is doing to achieve this is what I find interesting. Generally speaking federal leaders like something called Strategic Sourcing whereby the government purchases in larger quantities to achieve in theory better pricing through the savings created for the federal supplier. Setting up a strategic sourcing contract requires a great deal of work on the part of the agency. The agency must make determinations as to the specifications of the contract as well as do market research (typically done through GSA Advantage) in order to make sure there are businesses that can comply with the given specifications of the contract.
The DHS has 50 Strategic Sourcing contracts which is a very large number and accounts for a large percentage of its procurement. Federal government wide, only approximately 10% of contract dollars are spent through the use of Strategic Sourcing. What DHS is doing differently is they create a reserve or carve out a portion of these 50 contracts for small business based upon their market research. This creates more work in the development stage of the contract but allows small business to be included. According to the procurement director of the DHS using small businesses does not contradict the goal of the strategic sourcing contract which is to create saving for both the government and the federal contractor.
If you are thinking about doing business with the DHS here are some numbers that might be helpful. The DHS utilizes 15,000 various contractors and suppliers. Of those 15,000 suppliers 11,000 are small businesses and of those 11,000 firms 3,000 will be new vendors this fiscal year. The amount of spending with small business annually is $5.1 billion or approximately $450,000 per vendor. I believe that copying the DHS’s Strategic Sourcing Plan will be modeled by many other Federal Agencies in their three year strategic purchasing plans. These agencies will seek to obtain the same “A” rating the SBA has given the DHS and therefore small business can see an increase in both Strategic Sourcing as well as an increase in small businesses inclusiveness by other agencies adoption of the DHS procurement plan.
Many firms ask me what is the difference between a beginner, novice and experts GSA Schedule Holder in the federal market space.
Obtaining your GSA Schedule is step one in having any type of meaningful business relationship with the federal government. This is your hunting license that gives you the ability and credibility and even more importantly the right to obtain certain contracts.
The beginner gets their products and services placed on GSA Advantage (the federal government’s web catalog portal) where over 1,000,000 federal employees go on a weekly basis looking for products and services they need. On a weekly basis approximately 30,000 items are purchased through the use of GSA Advantage and there are approximately 16,000 firms that hold GSA contracts which means on average 2 sales per week occur. The beginner often times has pictures of their products loaded on GSA Advantage, although surprisingly about 50% of products to not have pictures associated with their listing.
At this stage the GSA Schedule holder begins tweaking their GSA Schedule contract, looks to get better rankings by altering their key work descriptions of their products so their items appear on one of the first three pages of GSA Advantage for key searches. The novice also has specialize website pages that are geared specifically for federal buyers taking into consideration “best value” rather than other buying considerations.
The novice also begins taking advantage of GSA Ebuy, This is where the federal government goes to place RFPs and RFQs for GSA contract holders. If your company is doing well with its listings on GSA Advantage the procurement officers are able to find your companies goods and services and will send you invitations to bid. If routinely the firm has to find the procurement on Ebuy in order to submit a bid it could be a sign that your Advance GSA listing needs a makeover. In addition a novice will use Ebuy RFPs to build a list of contacts within the federal government they would like to solicit. A novice will also usually attempt to make telephone contact with the procurement officer prior to submitting a bid.
Routinely performs a competitive analysis and sifts through all the data that is available looking at contract-by-contract. Determinations that the expert makes, is what agencies and specific contracting offices are buying (in what quantities) your products and services. The expert also looks at what purchasing mechanism that are contracting officers are using, GSA schedule, IDIQ contract, BPA, 8a, SDVOSB, HubZone, WOSB or other.
The expert organization trains their team so they understand the rules, the game and the terminology. Government speak is important so don’t discount it. The expert builds a grass roots federal sales action plan based on the results of their continuous competitive analysis. They spot trends in the federal government based upon these trends and often times alter their product or service offerings on their GSA Schedule. This allows the expert to reduce the three million federal employees to a few hundred or less. At the expert phase usually the federal government is the firm’s largest client.
It usually takes an organization several years to move from the beginner level of federal contracting to the expert level however beginners still do well with their GSA Schedules and over time it can lead to much “greener pastures”.
by: Bob Steger
I would like to share with you a conversation I had with a high ranking officer in the US NAVY’s Logistics Department a few days ago. I asked him if he could quantify the value of past performance, how much does it truly add to the bottom line. The answer he gave me was in most instances “a lot!” He said first of all the Navy believes in absolute transparency, with that said people develop relationships and trust is very important to us. He shared with me the selection criteria for a $50 million dollar bid that was recently awarded.
The bid was down to two vendors, both with a high level of expertise in the contract area. The proposals were very similar, but the bids and performance ratings were the two variables that were the differentiators. The Federal Rating System allows for the following 5 to 6 grades (there is a grade above Excellent which is hardly ever used). In this particular bid Company A’s (excellent performance rating) bid was 3% higher than Company B’s (good performance rating) bid.
On a $50 million dollar contract 3% = $1,500,000 is the premium in the bid charged between Company A and Company B. The Navy found that the premium paid for going with the Excellent supplier warranted the 3% premium. This Naval officers impression was that 3-4% more was the general guideline for using an Excellent rated supplier over a Good rated supplier. Furthermore he quantified the overall difference between “Good” and “Fair” to be another 3-5%.
The takeaway was that a firm with an “Excellent” performance rating can bid 6-10% more and still receive the contract over a “Fair” contractor and a “Fair” contractor is still able to complete a contract.
Therefore it is critical when building your past performance to obtain “Excellent” ratings because it provides the firm with a far greater cushion on future bids to have the money to do what it takes to make the contracting officers happy.
Daily, I talk with businesses owners that don’t feel that a GSA Schedule would provide ample benefit because of a low Federal presence in their area. My response is always the same, “what you are saying, may or may not be true, but what about the state government? They buy off schedules too!”
In 2009 the 1122 Program was expanded allowing the states to buy in addition to counter-drug activates, including equipment for homeland security and emergency response activities. The popularity for purchasing these items by all states has grown greatly over the past three years. Larger state purchasing agencies learned of the time savings and cost advantages of buying off GSA Schedules. A few of the larger states developed a unique solution in order to be able to purchase off all of the GSA Schedules, and not be limited to the schedules covered by the 1122 Program. What these states have passed is legislation that allows a GSA Schedule holder to present that schedule to the state government, because it is voluntary to the schedule holder, the state can then purchase all goods and services that GSA Schedule holders place on the state Multiple Award Schedules or MAS Schedules. In essence the federal government has a great deal of free work in which the state is reaping the benefit.
This trend which is occurring among states with larger populations, we believe will soon also be adapted by the smaller states. California, Ohio, and Texas are the front runners in this “GSA Piggy Back” process. Using the GSA Schedule to establish their states own contracts. For example California has the California Multiple Award Schedule (CMAS). To participate in the CMAS the firm must have a GSA Schedule, and then present this schedule to the Procurement Division of the State of California and complete some forms. California procured over $1 Billion dollars via CMAS in 2012.
California Multiple Award Schedule (CMAS) website
We expect this trend to continue as states facing budgetary pressures seek better pricing and follow the lead of larger states. An important point to remember is that the GSA Schedule holder must submit paperwork to the state in order to get on that states multiple award schedule. The GSA Schedule holder is not automatically placed on those schedules, and being first on these procurement mechanisms when they come of age could offer a great deal of business from state governments.
If you would like to talk to us about how a GSA Schedule can potentially help your business grow through the use of Federal Contracts, please feel free to give us a call and we can walk you through an analysis to determine the opportunities that are available for your firm.
By: Bob Steger
From time to time I get a call where someone asks me what the big deal is about FAR 51 Deviation? My response is always the same, for those who know how to use it, it can be a real game changer. FAR 51 Deviation remains a relatively unknown feature of a GSA Schedule that provides some level of confusion. In simplest terms the FAR 51 Deviation is that it gives a federal vendor the ability to go look through GSA Schedules, and purchase off those schedule at the schedule pricing in order to achieve a total solutions to the federal government on a contract.
The motivation for FAR 51 Deviation is to level the playing field for small federal vendors that are trying to compete with large multinational corporations. This is because in general a multinational corporation with their large purchasing departments can procure the same widget, pencil, paperclip, 2×4 at a substantial discount over a small business due to buying power. The federal government has therefore stepped into the ring on behalf of small businesses and taken the position that small business can use the federal governments buying power for the items that the government already procures. Now if the larger businesses are not careful a smaller more nimble business who is more adept at performing search quarries in GSA Advantage can beat them at their own game.
Federal Acquisition Regulation (FAR) 51.1, Contractor Use of Government Supply Sources, prescribes policies and procedures under which contractors may use government supply sources. Currently, contracting officers may authorize contractors to use General Services Administration (GSA) sources of supply in the performance of cost-reimbursement contracts and under other limited scenarios when determined to be in the best interest of the Government.
In order to better meet the needs of GSA’s customer agencies, a deviation to FAR Part 51.1 has been approved to expand the authority of contractors to use GSA sources of supply. Specifically, Federal Government contracting officers are now authorized to give all GSA contractors access to the Federal Supply Schedule (FSS) and GSA Global Supply Programs when deemed appropriate for fulfillment of their agency requirements. Please note that the FSS Program is inclusive of those Schedules managed by the Department of Veterans Affairs. This authority is limited to contracts/orders:
The ability for GSA contractors to purchase from the FSS and Global Supply Programs benefits our customers and contractor community.
When utilizing the authority granted under the FAR Part 51 deviation, all of the following criteria must be met
Items on the contract/order issued to the buying contractor from the Federal Government must be T&M/LH. The overall contract/order can be fixed price, but the items to be purchased under the FAR Part 51 authority must be structured on a T&M/LH basis. Commonly, this is accomplished by including an optional line item in the Request for Quote (RFQ)/proposal and a corresponding line item on the subsequent contract/order.
When GSA contractors place orders with MAS and GSA Global Supply under the FAR Part 51 deviation authority, the buying contractor who is purchasing the items is not permitted to add a fee or markup to the items. Items must be invoiced at the price for which they were procured from the selling contractor.
Supplies and/or services procured under the FAR Part 51 deviation authority must be ancillary in nature. The supplies and services shall not be the primary purpose of the work ordered, but an integral part of the total solution that is offered. Please note that there are different and additional requirements associated with Special Item Numbers (SINs) on numerous Schedules that contain Ancillary Repair and Alternations (R&A).
Buying contractors must follow the procedures outlined in FAR 8.405-1 when purchasing items from a Schedule contract. The procedures are used when ordering supplies and services that are listed in the Schedule contract at a fixed price for the performance of a specific task, where a statement of work is not required (e.g., installation, maintenance, and repair)
The authority does not extend to state and local ordering activities and is intended for use only by Federal Government contracting officers.
The Federal Government Must:
Contractors Placing Orders Must:
Contractors Accepting Orders Must:
GSA Global Supply will:
There is a lot of information in the ordering guide on Schedule orders. Is it true that the deviation only applies to Schedule contractors?
No. The deviation permits ALL GSA contractors to purchase from Schedules or GSA Global Supply. The requisition process for GSA Global Supply is relatively simple. For Schedule orders, the guidance is more elaborative because there are more process steps and acquisition regulations to consider.
Is the deviation only available for T&M/LH contract types?
No. One of the primary purposes of the deviation itself is to expand the FAR Part 51 authority to fixed price contracts. Only the items procured under the FAR Part 51 deviation authority need to be structured as T&M/LH.
Can the Federal Government tailor the authorization?
Yes. FAR Part 51.102(4) permits the authorization to be tailored. The Federal Government may limit the scope and purchasing authority by customizing the authorization to limit the scope to specific supplies or services, specific schedules, dollar thresholds, socioeconomic requirements, etc.
Does the selling contractor have to accept an order placed by the buying contractor?
No. For Schedule orders, the selling contractor can reject the order from the buying contractor.
When the buying contractor is a Schedule contractor who is procuring Schedule items from another Schedule contractor, does the buying contractor have to report the sales to GSA and pay the IFF?
No. The selling contractor is responsible for reporting sales and remitting the IFF.
When acting under the authority granted by the FAR 51 deviation, the buying contractor is an authorized user of GSA’s FSS and Global Supply Programs. The products/services procured under this authority are not considered to be MAS sales because these items are not on the buying contractor’s Schedule contract and are therefore not subject to sales reporting and IFF remittance. To ensure that the sales are segregated appropriately, adjustments to the buying contractor’s sales tracking system may be necessary.
In the scenario above, the selling contractor is selling its Schedule items to another Schedule contractor. The sales are still considered to be Schedule sales?
Yes. Schedule contractors accepting orders report sales and remit IFF on items procured under FAR Part 51. When accepting orders from the buying contractor with a valid authorization, selling contractors are making MAS contract sales to an authorized user of the FSS Program pursuant to the FAR 51 deviation. As such, the products/services procured under the authority are considered to be MAS contract sales. All contract requirements for sales reporting and IFF remittance apply. To ensure that the sales are segregated appropriately, adjustments to the selling contractor’s sales tracking system may be necessary.
Does the Price Reduction clause apply to FAR Part 51 sales.
No. In the normal course of business, FSS contractors are contractually obligated to notify the GSA Contracting Officer of price reductions in accordance with GSAM clause 552.238-75 Price Reductions. However, GSA contractors purchasing from the FSS Program and/or Global Supply Program in accordance with FAR 51.101 are authorized users; therefore, pursuant to GSAM clause 552.238-75(d)(2) Price Reductions, there is no price reduction for sales to eligible ordering activities under a Schedule contract.
Does the Contractor Assistance Visit (CAV) cover the FAR 51 deviation?
The Industrial Operations Analyst (IOA) conducts Contractor Assistance Visits (CAVs) with Schedule contractors periodically throughout the contract term. The CAV is a review of the contractor’s processes to meet Federal Supply Schedule contract requirements. If the selling contractor has made sales to a buying contractor under the FAR Part 51 deviation authority, the IOA will verify that a written authorization(s) is in place for applicable sales. The IOA will report accordingly to the GSA Contracting Officer for the Schedule contract. Please note that compliance with the written authorization for orders and any necessary actions will remain the Federal Government’s responsibility.
Can the Federal Government modify an existing contract/order to incorporate the FAR 51 authority?
No. The authorization needs to be issued with the original contract/order.
Can the Federal Government modify an existing Blanket Purchase Agreement (BPA) to incorporate the FAR 51 authority?
No. The authorization needs to be incorporated when the BPA is
Can the buying contractor add any additional markup/fee onto the items procured under the FAR 51 authority, even if the fee is associated with a legitimate cost like a material handling charge?
No. The items procured under the authority must be passed through to the Federal Government at the price paid. No markup of any kind is permitted on this portion of the order.
Are there plans to modify the deviation in the future to allow for a markup?
GSA understands the concerns of its industry partners in regard to this particular restriction. However, the authority granted by the deviation is a significant change to current regulations and the way that we normally conduct fixed-price procurements. For the time being, restrictions and guidelines for use are necessary to ensure that the authority is used appropriately.
For Schedule orders, can the buying contractor use GSA e-Buy to satisfy the requirements of FAR 8.405-1?
Not yet. GSA intends to make the necessary modifications to e-Buy to permit use by contractors in the near future. It’s also possible that GSA will mandate e-Buy or other electronic tools; however, at the moment, these tools are not available for contractor use.
If the buying contractor chooses not to use the FAR 51 authority, what other options are available to satisfy the Federal Government’s overall requirement?
There are other options available. Refer to www.gsa.gov for more information. For example, if permitted by the order, Schedule contractors may use contractor team arrangements (www.gsa.gov/cta), subcontracts, and open market items in accordance with FAR 8.402(f).
What is the difference between subcontracting, contractor team arrangements, and the authority granted by the FAR 51 deviation?
For formal definitions, refer to the links provided above. When the buying contractor is a Schedule contractor, the primary drawback of subcontracting is that the subcontractor is limited to providing only those items on the prime contractor’s Schedule contract. This doesn’t usually solve the need for ancillary items. Team arrangements as defined is FAR Part 8 only apply when both contractors are Schedule contractors. Although teaming arrangements are valuable tools, customers sometimes prefer other solutions due to administration costs. The authority granted by the deviation allows GSA contractors to procure ancillary items to provide the customer with a total solution, but it has drawbacks as well. Subcontracting, teaming, and the deviation authority should be thought of as tools that can be used depending on a variety of factors.