Watkins Meegan,

A Division of CohnReznick

W i n n i n g C o n t r a c t s i n a

C h a n g i n g I n d u s t r y

Cover slide for all

Watkins Meegan

presentations

after 10/31/2014

A g e n d a

• The Baseline

• Establishing Relationships

• Your Value Proposition

• Trends – Large, Small & Overall

• Direct and Indirect Strategies

• Other Strategies

• Conclusion

April 30, 2015 1

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U n i q u e T i m e i n C o n t r a c t i n g

• LPTA / Best Value Pendulum

• Competition is fierce

• Compliance is high

• Less Procurement/Buying or more small business

• Stakes are higher than ever

• What does technology/economy look like in 10 years

• Who to team and not to team with

• Salaries going up and rates going down…huh?

April 30, 2015 2

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C o m m e r c i a l S t r a t e g i e s

• Industry trends are towards diversification; We are seeing more -

Contractors moving into the commercial market

Commercial companies buying and folding government contractors into their

portfolios

Commercial companies entering into the federal market (earnings pressure)

• Risks of a commercial / GovCon mix

Government feels risks of rate development (shift in costs away from commercial

and towards government)

Risk of compliance on the commercial side

Firewalling / veiling commercial segments

April 30, 2015 3

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E s t a b l i s h i n g R e l a t i o n s h i p s

T h e G o v e r n m e n t S a l e s C y c l e i s a

M a r a t h o n , N o t a S p r i n t

• Establishing relationships with agency levels is imperative (program and

acquisition)

• Agency procurement is generally decentralized

• Allow 24 months for relationship building

• Maintain relationships, be aware of upcoming retirements or assignments

• Don’t get incumbantitis

• Get in front of the RFP – use your RFI opportunity

April 30, 2015 5

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D o Yo u r H o m e w o r k

• What does your target agency buy / need?

• How are they performing against their goals?

• What contract vehicles are most used by the agencies you have targeted?

• Agency websites and publications

• Agency lists of large prime contractors

• Upcoming RFP’s

April 30, 2015 6

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I f i t L o o k s L i k e a D u c k , a n d W a l k s

L i k e a D u c k …

• Look like a government contractor

• Website and agency marketing materials

• Let the agencies know past performance, contract vehicles

• Discuss your marketing strategy around:

• Schedules / Multiple award contracts

• Prime & Subcontracting

• Teaming / Joint Venture Arrangements

• Mentor Protégé Agreements

• Registered on

• SAM

• Fedbizopps

April 30, 2015 7

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A n d Q u a c k s L i k e a D u c k …

Hot Tip: Learn the acronyms and buzzwords (from “How to do Business With

the Federal Government”)

“I got together with the COTR (Pronounced “Co-Tar”) and put together a

JOFOC (Pronounced “Joe-Fock”) for the C.O. – She used it to justify a FAR

Part 8 limited competition under a GSA Sched 70 GWAC (Pronounced

“GeeWac”), and I won!”

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W h a t R e a l l y W o r k s

(from “How to do Business With the Federal Government”) www.nist.gov

• Relationships

• Networking

• Multiple Contracting Vehicles

• Continuous Marketing

• Being Prepared

• Get Involved

• Past Performance

• Share Information

• Patience

• Persistence

April 30, 2015 9

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Yo u r Va l u e P r o p o s i t i o n

• Have we forgotten what it is in an LPTA environment?

• How can you solve an agency’s problems?

• Your teaming arrangements

• Differentiate yourself

• Show agility and flexibility

• Do not lead with Socioeconomic status when establishing agency

relationships

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T h e R F P

S u c c e s s f u l R F P S t r a t e g i e s

• Anticipate (follow) the RFP

• Understand what LPTA means to that agency

• Understanding Reasonableness and Realism

• Know your competition

• Get teaming partners in place

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S o u r c e S e l e c t i o n A p p r o a c h e s

B e s t Va l u e C o n t r a c t i n g

• Best Value evaluations can be ambiguous - important to understand agency

or contracting office tendencies. Some agencies publish internal guidelines

regarding best value determination.

• It is not uncommon for the successful Offeror to have a price 5-10% higher

in best value evaluations, but no more; and only if they are clearly the better

proposal.

• Trade Off Process: The Government uses a “trade off” process when it is in

their best interest to award to “other than the lowest priced offer”, or “other

than the highest technically rated offer”.

• LPTA: Low Price Technically Acceptable (LPTA) is a conversation how we

bid to meet only the compliance threshold for acceptance, at the lowest

possible price.

• Summary: Trade-Off and LPTA are the two approaches per FAR 2.101. Best

Value is not a process, but the result of the process.

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R e a s o n a b l e n e s s & R e a l i s m

• Reasonableness (FAR 15.404-1(a)) - Should answer the question: Is the

Government paying too much? Justification for how we came up with the

rates should be clearly outlined.

• Realism (FAR 15.404-1(d)(3)) - Shows the Government that you clearly

understand the solicitation requirements and have mapped the labor

categories appropriately to the hours.

April 30, 2015 15

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R e a s o n a b l e n e s s

• 7 techniques and procedures to ensure a fair and reasonable submission

(FAR 15.404-1(b)(2):

• Comparison of proposed prices received in response to the solicitation –

Preferred technique

• Comparison of the proposed prices to historical prices paid

• Use of parametric estimating methods/application of rough yardsticks

• Comparison with competitive published price lists….

• Comparison of proposed prices with independent Government cost estimates

(IGCE’s)

• Comparison of proposed prices with prices obtained through market research for

the same or similar items

• Analysis of data other than certified cost or pricing data

April 30, 2015 16

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B e s t V a l u e i n A c t i o n

• Notes from “ABERDEEN PROVING GROUND ADVANCED PLANNING

BRIEFING TO INDUSTRY” – November 2014.

• ACC-APG’s Business Process Initiatives for 2015

• Better definition of existing recompeted work

• FY13 LPTA & Tradeoff statistics - % of the time award made to the incumbent

• LPTA: 7%

• Tradeoff: 42%

• Protests went from 3.15% in FY13 to 16.94% in FY14.

• Competition for dwindling acquisition dollars

• Less experience in personnel (in debriefings and in communication with industry, and

evaluators)

• Emphasis on socio-economic goals

• Difficulty in performing cost realism

April 30, 2015 17

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T r e n d s - L a r g e , S m a l l & O v e r a l l

S h i f t i n R F P S e t - A s i d e s

• SBA gains muscle to make small business requirements even more

important – from 15% ranges to mandatory 60%+ (DHS 45% TCV).

Move from total subcontracted dollars to TCV.

SB% requirement as evaluation factor.

• DCAA and DCMA involvement in procurement cost assessments continue to

grow.

• Based on the FY2013 Scorecard Summary of Prime Contracting data

published by FPDS-NG:

April 30, 2015 19

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S h i f t i n R F P S e t - A s i d e s – F Y 2 0 1 4

G o a l s

April 30, 2015 20

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L a r g e C o n t r a c t o r s

April 30, 2015 21

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• Competitors are focusing on keeping current contracts – this is key to

maintain customer and market position. The assault on cost factors

demands realignment (Consolidations, M&As).

• Large businesses are developing more cost allocation strategies to propose

and win with lower wrap rates.

• Fighting the misnomer: Small Business Small Price, Large Business Large

Price.

• Prime is responsible for Subcontractor price reasonableness analysis

• Increased rise in Estimating and Purchasing system audits:

Documentation of purchasing Subcontractors

“Negotiated” does not mean fair and reasonable

S m a l l C o n t r a c t o r s

April 30, 2015 22

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• Many small companies have never been audited and don’t understand the

role of DCAA & DCMA.

• Small businesses often have challenges calculating their cost structures

resulting in them unknowingly overcharging or undercharging the

government.

• The ability to conduct a valuable competitive analysis is not feasible.

• Delays to the RFP release are extremely costly for industry and greatly

impact small businesses.

• SB companies don’t actually follow the estimating and purchasing

methodologies they write about in their cost proposals.

T h e C o m p e t i t i o n

April 30, 2015 23

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• Increased focus on understanding the competition

• LPTA Bids – Competitive Rate Analysis

• Non-LPTA – Price to Win

• On a per proposal basis, Price to Win (PTW) provides a detailed, results

based assessment of the price that your competitor(s) is most likely to bid.

• Your PTW should be derived from your knowledge and research; your actual

proposed price should be based on your capability using a cost-up

approach.

• The PTW exercise may reveal a competitive price that exceeds your own

capabilities and may show new opportunities on how you can provide lower

price, better value.

• PTW is your competitors price and is based on their capabilities/cost

structure and ROI goals.

T h e C o m p e t i t i o n

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• The Price to Win process should be documented and structured

• Factors to Consider

• The Customer

• How much funding is available for the awarded contractor?

• What is an acceptable price range?

• Do we have any intelligence on which component of price the Customer

factors as “most important” – services, unit cost, total life cycle?

• Award Tendencies – Historic and Future, i.e. buying behavior

• The Competitors

• Past Performance

• Teammates

• SWOT Analysis

• How important is this opportunity – Incumbency

• Industry Days – key event in discerning serious bidders – Prime & Subs

• Factors should be custom for each procurement, but based on structured

methodology

S c o r i n g t h e C o m p e t i t i o n

April 30, 2015 25

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D i r e c t & I n d i r e c t S t r a t e g i e s

D i r e c t S t r a t e g i e s

April 30, 2015 27

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• Hard Truth #1: It is imperative that Direct Labor always be predictive in

nature.

• Hard Truth #2: Your Bid labor model is separate than your Operational labor model.

• Paid subscriptions to analyze labor data must be preferred over free user-generated

compensation surveys.

Understand the survey that is favored by DCAA and the agency you are

performing in

• Studying the Level of Effort, especially in Best Value procurements

• Direct Labor should be sectioned into quadrants and used when most appropriate:

High Price, High Margin

High Price, Low Margin

Low Price, High Margin

Low Price, Low Margin

D i r e c t S t r a t e g i e s - B O E

April 30, 2015 28

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• Increased focus on Basis of Estimate in RFPs.

• Direct Labor Costs

• Reasonableness of Salary Data

• Compensation Plan Evaluation

• Indirect Costs

• Details to Pools and Bases

• Historic Rate information

• FPRAs

• Budgets

• If Win Impact

• Material Costs – via Bill of Materials

• Other Direct Costs

• CONUS Travel

• OCONUS Travel

I n d i r e c t S t r a t e g i e s - F r i n g e

April 30, 2015 29

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• Fringe as a separate rate or as a service center / intermediate pool

Larger number of rate combinations can be made with Fringe as a separate rate

G & A

April 30, 2015 30

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• Value Added (VA) versus Total Cost Input (TCI)

• TCI most widely used

• Use of the VA base LOWERS the burden on subcontracts:

When the discussion turns to “who will Prime,” the team member with the VA

base has an advantage.

When the competition turns to LPTA, VA vs. TCI can be the difference in winning

and losing for a team

T C I A d v a n t a g e i n L P TA

April 30, 2015 31

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Advantage is when you have no or low materials or subs

T C I v s . VA E x a m p l e

April 30, 2015 32

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R e g u l a t o r y G & A p r e s s u r e s

April 30, 2015 33

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• When sub content is high, the prime is exposed to potential unallowable costs under

FAR 31.203(i), “Excessive Pass-Through Costs” (G&A on subs).

• The implementing clause at FAR 52.215-23 can result in disallowed G&A on subs, but

specifically recognizes the allowability of “charges for the costs of managing

subcontracts and any applicable indirect costs and associated profit/fee based on

such costs”.

• High sub content is defined in the FAR provision and clause as 70% or more of total

costs. Contracting Officers, based on DCAA’s recommendations, may decide that

pass-through costs are excessive even when total sub content is less than 70%.

T r e n d i n g R a t e P o o l s

April 30, 2015 34

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• Geography – OH Related

Client Site (also used for home office)

MSA (Metropolitan Statistical Areas)

Rural Site

Conus / Oconus

• Workforce – Fringe Related

Full Time

Part Time / Retired

SCA / CBA

• Skillset – OH

General

Advanced Degrees / Specialized Equipment

• Contract Driven

Cleared / Non-Cleared

Compliance Pools

Cost of Risk Pool

Why do we do this? Rate combinations = increased competitiveness

Be careful! You have to have enough base to withstand changes and still maintain the rate.

S e r v i c e C e n t e r s

April 30, 2015 35

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• Service centers can be utilized to group costs that support other indirect and direct

functions.

• Provides greater flexibility to balance pools

• Provides greater base flexibility – there are various ways to equitably allocate an

indirect pool (non-CAS covered contractors).

• Not locked into the standard base definitions of final cost pools

• Typical Service Centers:

IT

Facility

HR

Recruiting

PMO

C e i l i n g R a t e s

April 30, 2015 36

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• Monitoring rates against ceiling rates and tripwires in contracts is increasingly

important.

• Do repetitive ceiling rates require rate redevelopment?

• Up front tactic (RFP stage) – ask the ACO to state rate ceilings as a total overall

multiple rather than individual rate ceilings – this can help balance your over / under.

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O t h e r S t r a t e g i e s

D F A R ’ s B u s i n e s s S y s t e m

S t r a t e g i e s

April 30, 2015 38

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• Many solicitations requiring an “approved” Accounting system.

Getting Accounting System audits done and submitting them with your proposal

for competitive advantage and not getting locked out of a competition.

• CPSR’s and Estimating systems are on the rise.

Low first time pass rate but initiating a mock audit / readiness project significantly

reduces the number of findings and time to award.

• Update on proposed changes to DOD’s Business Systems Rule.

C A S S t r a t e g i e s

April 30, 2015 39

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• Growth strategies may result in the potential for bidding on a CAS covered contract

• Many CAS disclosure statements are due either a) with the RFP submission or b)

upon award:

CAS is not a quick turnaround, it might be best to document and have it on the

shelf

• Once CAS covered, it is extremely important to have a system for tracking current

CAS contracts to determine if full coverage is triggered or when coverage ends. Also

helps with Cost Impact analysis…Contracts are CAS covered, Contractors are not.

C A S A p p l i c a b i l i t y

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Full Coverage M o d i f i e d Coverage

Modified Coverage

Awards from $7.5M up to $50M

May require Disclosure Statement

CAS 401, 402, 405 & 406 only

Negotiated Contracts and

Subcontracts

Exceeding $700,000

– Includes options

CAS coverage at award remains

for life of contract

Full Coverage

Awards estimated to exceed $50M,

including option amounts

File Disclosure Statement

Comply with all standards

Negotiated Contracts and

Subcontracts

Exceeding $700,000

– Includes options

CAS coverage at award remains

for life of contract

F o r w a r d T h i n k i n g

April 30, 2015 41

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• Remember the marathon

• Understand what business and agencies you are tracking

• Have the right relationships in place

• Be prepared for the effects of future win’s (Business Systems, CAS, Etc.)

• Know what it means to be competitive and have a rate structure that compliments

• Revisit your old friend – your value proposition

C o n t a c t I n f o r m a t i o n

April 30, 2015 42

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Kristen Soles, Partner

Kristen.Soles@CohnReznick.com

703-847-4411

Jacob George

Jacob@jacobsmc.org

703-424-0681