Wednesday, April 1, 2015

Your Feds and Mine, Draining the Life from Small Contractors

In September 2012 I joined a small IT contractor which provided services to the Federal Government, serving as a Senior VP  for Strategy and Corporate Development, a nice title for what really meant "helping to get business.".  They were pretty much 100% a Federal prime contractor; and even when they were a subcontractor, the end customer was the Federal government.  So in essence they lived and died with the needs of the Departments of You-Name-It.

Now, for those unfamiliar, suffice it to say that "small", while a relative term in the real world, is a very relative world in Federal contracting.  A grocery store doing $20 million in revenue per year is ginormous; a contractor doing $20 million in IT services is, for the most part, "small" and is treated advantageously by the Feds in the sense of being able to compete for work through "set-asides" that larger businesses cannot.

"Small" in the contracting world is also context-sensitive.  Through a very detailed system, the Feds distinguish among hundreds of business categories, products, services and the like, to where there are officially over 1100 categorizing codes, from "Wireless Telecommunications Carriers" to "Document Preparation Services."  There are dozens alone within what the layman would call "computer stuff."  Each one has a size standard associated with it, either annual revenue or employee count.  When the Feds let out a request for the work, they designate one of those codes for the work, and the code dictates who is small and who is large if it is set aside.

The company I joined was certainly small as far as the type of work we mostly did.  Like almost every company, however, they wanted to be larger and bid on opportunities to grow.  That's why I was there; along with my decades in the business and a lot of mentoring of companies just like theirs, I am, modestly, pretty good at writing proposals and certainly understand the very arcane Federal acquisition process.

Along with a colleague who was in charge of business development, we were charged with growing the company over the subsequent 18 months.  And go forth we did.  By the time ten months had elapsed, we had no fewer than eight proposals submitted to various agencies in response to their formal requests, and every one was what we call a "set-aside", i.e., only a small business could bid on it.

Technical services companies run fairly thin margins, in that they have to pay their staff for 40 hours work each week whether or not they can bill for it.  So you can imagine that it costs quite a bit to produce high quality proposals against that margin.  "A bit" can run into the range of one percent of the projected revenue from the opportunity, or more -- a three-year, $15 million job, typical of a business that size, can cost $150,000-200,000 or more in proposal costs.

Plus, when you bid a large services contract, you are generally required to propose specific people as leaders, and deliver them on award.  That means you have to hire them, sometimes on overhead (i.e., without being able to bill for them) at great cost.  Their individual careers can be on the hook while the proposal is being evaluated.

So maybe those of you who aren't too familiar with the process may be thinking it's not a big deal and, well, that's the risk that an entrepreneur takes.  You'd be right.

You would expect that the customer would take a month to read through the proposals, make a decision and write a contract and the contractor can start working and billing.  You'd be oh, so wrong.  So wrong, so wrong.  By an order of magnitude.

At my former company we did eight large proposals in that year I was there.  The last of the eight was finished in May 2013; the first had been submitted in December 2012.  When I left the company in September 2013, not a single one of the eight proposals had been awarded by the government.

That's right, the Federal Government was so slow about reading proposals even from small businesses that they could not make an award.  And let's look at the impact.  As I enjoy saying, small businesses are small businesses because they are small.  They do not have the money to pay people to wait for awards.  They do not have the money to burn on requiring key personnel to be available in case of a win. It is difficult to manage personnel you intend to move from their current task to the new contract if you don't know what year it will be awarded.  And frankly, the Government has no excuse for not dropping everything when it puts a request out and doing the evaluation immediately and promptly.

I don't ask you to have sympathy for the big giants, the Lockheeds and Boeings and Northrop Grummans of the world.  They live in this environment and have seen proposals sit on Government bureaucrat desks for months and years, even though the customer put the request out.  They figure it out because they have the resources.

But small businesses, ah, this is where someone needs to grow a pair, stand on the floor of Congress and demand that any request for proposal set aside for small business be required to come to an award decision in 60 days or less, or the customer shall be required to pay the costs of the proposal for every bidder.

That'll get 'em -- and it will show a stand taken on behalf of the Americans who actually do create jobs.

Copyright 2015 by Robert Sutton

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