The Ins and Outs of Government Contracting

What is Government Contracting?
Government contracting refers to the process through which the government procures goods, services, or projects from private sector businesses. It allows the government to obtain the necessary resources to fulfill its functions and obligations.

Government contracts can be highly lucrative for businesses, providing a stable source of income and the opportunity to work on significant projects. However, engaging in government contracts requires an understanding of the ins and outs of government contracting, including the complex procedures, regulations, and requirements involved. 

Key Aspects of Government ContractingTypes of Government Contracts

1. 1. • Fixed-Price Contracts: The government pays a set price for a specified product or service.
      • Cost-Reimbursement Contracts: The contractor is reimbursed for allowable costs incurred, plus a fee that represents profit.
      • Time and Materials Contracts: The government pays for the contractor’s labor and materials at predetermined hourly rates.
      • Indefinite Delivery/Indefinite Quantity Contracts: These contracts are used when specific quantities or delivery schedules are uncertain.

Contracting Methods

1. 1. • Open Competition: Multiple businesses can compete for government contracts through a formal bidding process.
      • Simplified Acquisition: For contracts below a certain threshold, the government can use simplified procedures to award contracts without a lengthy competitive process.
      • Sole Source: In specific circumstances, the government may award contracts directly to a single company if it’s determined to be the only viable source or have a special designation like Service Disabled Veteran Owned or 8(a) program.

Contracting Vehicles

1. 1. • General Services Administration (GSA) Schedules: These pre-negotiated contracts provide a streamlined process for federal agencies to purchase a wide range of goods and services.
      • Multiple Award Contracts (MACs): These contracts are awarded to multiple vendors, who then compete for individual task orders.

Registration and Compliance 

1. 1. • System for Award Management (SAM): Businesses must register in SAM to be eligible for government contracts.
      • Federal Acquisition Regulation (FAR): The FAR is a set of rules and guidelines that govern the acquisition process for most federal agencies.
      • Federal Procurement Data System (FPDS): ​​The real-time, relational database that serves the government acquisition community as the authoritative source of contract information.
      • Contractor Performance Assessment Reporting System (CPARS): A web-based system that allows government agencies to report and rate contractor performance.
      • Small Business Programs: Various programs exist to promote small business participation in government contracting, such as the Small Business Administration’s 8(a) Business Development Program, HUBZone Program, and Women-Owned Small Business Program.
      • Compliance and Certifications: Depending on the industry, specific certifications and compliance requirements may be necessary, such as ITAR (International Traffic in Arms Regulations) for defense-related contracts.

Proposal and Contract Management

1. 1. • Request for Proposal (RFP): The government issues an RFP outlining its requirements, evaluation criteria, and contract terms. Contractors respond with proposals.
      • Proposal Development: Crafting a compelling and compliant proposal requires understanding the government’s needs, differentiating your business, and demonstrating capabilities and experience.
      • Contract Performance: Successful contract execution involves adhering to contract terms, providing regular reports, managing subcontractors (if applicable), and meeting deliverables.

Ethics and Integrity

1. 1. • Government contracts are subject to strict ethics regulations, including rules against bribery, conflict of interest, and favoritism.
      • Compliance with ethical standards, including the Federal Acquisition Regulation (FAR) and agency-specific regulations, is essential.

Post-Award Actions 

1. • Contract Administration: This involves managing day-to-day operations, ensuring compliance, tracking progress, and addressing any contract modifications or issues.
   • Performance Evaluation: The government evaluates the contractor’s performance against predetermined criteria.
   • Contract Modifications: Changes to the contract may occur during its execution, such as scope changes, extensions, or adjustments to the terms and conditions.

Navigating the world of government contracting requires careful planning, knowledge of the regulations, and the ability to effectively compete in a complex and highly regulated environment. It is advisable for businesses interested in government contracts to thoroughly research the process, seek guidance from experts, and stay updated on the latest regulations and opportunities in order to maximize their chances of success.

Are you a Government Contractor? Virtual CFO provides GovCon-centric strategic accounting for small businesses providing services in technology, architecture, engineering, aerospace, and project management industries. 

We know your pain points – let us help you relieve them – schedule a consult.

What You Need to Know About DCAA and FAR Compliance

DCAA stands for Defense Contract Audit Agency, while FAR stands for Federal Acquisition Regulation. Both DCAA and FAR are critical components of government contracting, and compliance with them is necessary for companies that want to do business with the U.S. government.

Here are some important things you need to know about DCAA and FAR compliance:

What is DCAA Compliance?
The DCAA is responsible for auditing and evaluating government contracts and ensuring that contractors are following regulations and guidelines. To be DCAA compliant, contractors must adhere to certain accounting principles, maintain accurate and complete records, and follow proper billing procedures.

FAR Compliance
The FAR is a set of rules and guidelines that govern the acquisition process for federal agencies. The regulations cover a wide range of topics, including procurement procedures, contract administration, and ethics. Contractors must comply with the FAR to be eligible for government contracts.

DCAA Audits
The DCAA conducts audits to ensure that contractors are in compliance with government regulations. Audits can be performed on a variety of areas, including billing procedures, cost accounting, and timekeeping. Contractors should maintain accurate records and be prepared to provide documentation to support their compliance.

Compliance Requirements
Contractors must be aware of the compliance requirements for both DCAA and FAR. This includes understanding the rules and regulation, maintaining accurate records, and implementing appropriate internal controls. Failure to comply with these requirements can result in penalties, loss of contracts, and damage to a company’s reputation.

Importance of Compliance
Compliance with DCAA and FAR regulations is critical for companies that want to do business with the government. It not only ensures that contractors are following proper procedures and guidelines, but it also helps to promote transparency and accountability in government contracting.

In summary, DCAA and FAR compliance are important for companies that want to do business with the government. Contractors must be aware of the rules and regulations, maintain accurate records, and implement appropriate internal controls to ensure compliance. Failure to comply with these requirements can result in penalties, loss of contracts, and damage to a company’s reputation.

Are you a Government Contractor? Virtual CFO provides GovCon-centric strategic accounting for small businesses providing services in technology, architecture, engineering, aerospace, and project management industries. We know your pain points – let us help you relieve them – schedule a consult.

Who Needs an Incurred Cost Submission?

It is a few weeks into the new year, and you finally feel like you can breathe again. Your business’ financial statements are done, and your taxes are in progress. For the foreseeable future, it seems as though everything will be smooth sailing. That is until you get a reminder about an Incurred Cost Submission (ICS). Before the panic can set in, you remember that not every government contractor needs to submit an ICS. But how do you know whether you need to submit an Incurred Cost Submission?

Who Needs to submit an Incurred Cost Submission?

Government contractors with time and materials (T&M) or cost reimbursement contracts need to submit an incurred cost submission. Contracts that require the submission of an ICS will include the Federal Acquisition Regulation (FAR) clause 52.216-7. This clause requires the submission of an ICS six months after the fiscal year end. FAR 16.307 requires the inclusion of this clause in T&M and cost reimbursement contracts. If a contractor needs to submit an ICS late, an extension request to their contracting officer (CO) needs to occur. Also, an ICS must meet DCAA’s requirements, and their adequacy review.

Why does an Incurred Cost Submission need to be submitted?

Provisional billing rates (PBR) provide contractors with indirect cost rates to bill the government on T&M and cost reimbursement contracts. The PBRs are approximate rates of a contractor’s final rates. Since, PBRs are only estimates, they often differ from the final rate. The differing rates is why contractors must submit an incurred cost submission. An ICS establishes the final actual indirect cost rates. With the final rates, any under or over payments to the government becomes clear. Ultimately, the ICS provides a ‘true up’ of actual indirect costs to those billed using the PBR rates.

DCAA requires contractors with T&M and cost reimbursement contracts to submit an incurred cost submission. If you are unsure whether you need to submit an ICS, our team is here to help!

Originally written by Jamie M. Shryock, CPA

Updated and additional content provided by Elizabeth Partlow

8(a) Business Development Program

As a government contractor, the road to success is not always easy, but is well worth it. The industry offers opportunities for growth to businesses of any size. As a small business though, there are programs to help create an equal playing field with your larger competitors. The Small Business Administration (SBA) has several programs to help small businesses win federal contracts. One, in particular, is the 8(a) Business Development program.

What is the 8(a) Program?

The 8(a) Business Development program creates opportunities for economically and socially disadvantaged business owners. It is a nine-year program, that develops small businesses through training and technical assistance. The program’s assistance strengthens a business’s ability to compete effectively in the federal contracting world. Disadvantaged businesses in the 8(a) program can compete for sole-source contracts. According to the SBA, the government authorizes sole-source contracts to 8(a) participants ranging from $4.5 – $7.5 million, depending on acquisition type.

Eligibility and Certification

The government’s goal is to award 5% of its contracting budget to small, disadvantaged businesses each year. To qualify, a business must meet certain criteria. The SBA states you must:

• Be a small business
• Not have previously participated in the 8(a) program
• Be at least 51% owned and controlled by U.S. citizens who are socially and economically disadvantaged
• Have a personal net worth of $750 thousand or less, adjusted gross income of $350 thousand or less, and assets totaling $6 million or less
• Demonstrate good character
• Demonstrate the potential for success such as having been in business for two years

If you meet these requirements, you can apply for the program.

Compliance Requirements

As a government contractor there are many rules and regulations you must follow to be compliant. One major focus of compliance has to do with your accounting system and financial reporting. Examples of compliance requirements include:

• Segregating direct costs from indirect costs
• Excluding unallowable costs
• Identifying jobs costs per a contract’s requirements

These compliance requirements apply to businesses with the 8(a) certification as well. However, 8(a) businesses must meet more requirements.

For example, during the last 5 years of the program, 8(a) businesses must attain specific percentages of revenue from non-8(a) sources. If they do not meet the amounts for non-8(a) revenue, then they may become ineligible for sole-source 8(a) contracts. Due to this, 8(a) businesses must be able to track and identify the revenue they receive. Also, to remain eligible for the 8(a) program, a business needs to submit an 8(a) annual review. There are many requirements for this annual review, to include providing year-end balance sheet and profit & loss statements, and business tax returns.

Receiving an 8(a) certification can help your small business become successful. Although, the process and the requirements can be tedious. It does not have to be. Our team of experts would love to assist you!

Contributed by Elizabeth Partlow

Pre-Award Survey Failures

As a government contractor, you are all too familiar with the importance of being compliant. One of the many requirements, you face is to have an accounting system that complies with Federal Acquisition Regulation (FAR). This is especially true if you want to bid on cost reimbursable or T&M contracts. How do you determine if your system is compliant though? Passing a pre-award survey indicates that your accounting system is compliant.

What is a Pre-Award Survey

The pre-award accounting system survey or audit (pre-award survey) evaluates a prospective government contractor’s accounting system. It determines if an accounting system can adequately accumulate contract costs. The survey uses the Standard Form (SF) 1408 for the assessment. To pass the survey, all the questions on the SF 1408 must have YES responses. If there are any NO responses, this indicates that there is a deficiency in your accounting system. Failing a pre-award survey can halt your progress on a contract.

Passing the pre-award survey is important. One of the first steps to passing is having the knowledge of what not to do. Below are five of the most common causes of pre-award survey failures.

GAAP Financial Reporting

The first question on the SF 1408 asks if the accounting system is in accordance with generally accepted accounting principles (GAAP). Essentially, to have a compliant accounting system a contractor must use the accrual basis of accounting. Many contractors prefer to use the cash basis of accounting because it is easier. However, accrual basis accounting accrues expenses as a contractor incurs them. This is important because it helps to stabilize indirect costs rates throughout the fiscal year. Ultimately, helping to better manage over-billings of the government.

Labor Distribution

Labor allocation is another common cause of a pre-award survey failure. Over billings are a major concern of the government. It is important that contractors record all their, and their employees, work hours. This includes hours on contracts and non-contracts, as well as during hours outside the normal workday. Not recording all hours can cause over billings on indirect rates.

Segregation of Costs

Segregating of costs is imperative to passing a pre-award survey. It is so important that the FAR has an entire section about contract cost principles and procedures. Also, there are multiple questions on the SF 1408 that surround this topic. One specifically asking if the accounting system provides for ‘proper segregation of direct costs from indirect costs.’

Contractors usually have no problem delineating between direct and indirect costs. However, segregating indirect costs seems to be more difficult. It is important to classify these costs regarding their ‘cost benefit analysis.’ Costs that benefit multiple contracts should be overhead, whereas costs that exist without contracts should be G&A.

The segregation of unallowable expenses is important as well. Costs that do not meet the criteria of FAR 31 are unallowable. Contractors cannot bill the government for these costs and must exclude them. Excluding these costs reduces the billings of indirect costs to the government.

Indirect Cost Rates

Government contractors must be able to determine and monitor their indirect cost rates regularly. Monitoring indirect cost rates ensures a contractor bills the government accurately. A deficiency in the accounting system results when a contractor is unable to ensure that costs do not exceed contract limitations. Many of the questions on the SF 1408 go hand in hand. For example, a contractor should be able to calculate and monitor indirect cost rates by following GAAP and segregating costs.

Policies and Procedures

Although, there is not a question on the SF 1408 about policies and procedures, they are still important to have. Having these in place provides evidence as to how the contractor manages each question on the checklist. Also, understanding the difference between accounting processes and internal controls is important. Accounting processes do not provide any proof of important activities such as fraud prevention. Proper policies and procedures help to regulate internal controls, as well as provide necessary documentation. Many internal control procedures are detrimental to the passing of the pre-award survey.

A government contractor passes the pre-award survey once their accounting system is deemed acceptable. Passing of the survey requires expertise in many areas such as GAAP financial reporting and government regulations. This may seem like a daunting task, but it does not have to be. Having a team with these specialties makes all the difference.

Originally written by Cheryl Jefferson Cooke, CPA/CFF

Updated and additional content provided by Elizabeth Partlow

Advertising and Public Relations Costs

The investment in advertising and public relations costs is one many business owners are willing to make. These costs often provide a return on investment, ultimately helping to grow your business. As a government contractor though, these costs can cause quite the headache. The classification of Advertising and public relations costs can be tricky for government contractors. Knowing the distinction between allowable and unallowable costs can help you remain compliant, while reaping many benefits.

Advertising is ‘the use of media to promote the sale of products or services.’ Examples of advertising media are magazines, newspapers, conventions, and direct mail. Public relations are ‘all functions and activities dedicated to maintaining, protecting, and enhancing the company image or maintaining or promoting favorable relations with the public.’ Public relations include activities that relate to advertising and customer relations. Advertising and public relations costs include:

• Costs of media time and space
• Purchase of services outside organizations perform
• Applicable portion of salaries, travel and fringe benefits of employees that engage in the functions and activities that FAR 31.205-1 identifies.

Allowability of Advertising and Public Relations Costs

When determining the allowability of advertising and public relations costs a basic rule of thumb exists. If these costs relate to benefiting the government, then they are most likely allowable. If not, they are unallowable. Government contractors often take a conservative approach to these costs and classify them as unallowable. However, in doing this they take the chance of not recouping the costs from the government.

The Federal Acquisition Regulation (FAR) sets specific guidelines to determine the allowability of these costs. Advertising costs are allowable only if FAR 31.205-1(d) indicates they are. Allowable advertising costs include:

• Costs that arise from requirements of government contracts
• Costs to promote sales of products normally sold to the U.S. government
• Costs that are allowable in accordance with FAR 31.205-34

The guidelines for allowable public relations costs include that they must be a requirement for contracts. Also, there are other guidelines for these costs to be allowable that FAR 31.205-1(e) addresses. Examples of allowable public relations costs are:

• Responding to inquiries about a company’s policies
• Communicating with the public
• Costs of participation in community service activities such as blood bank drives and disaster assistance.

Unallowable Advertising and Public Relations Costs

These costs can, however, also be unallowable. FAR 31.205-1(f) provides guidance for the determination of unallowable costs. If a cost does not meet the requirements above, then it is unallowable. Some common examples of these unallowable costs are:

• Events that do not focus on the promotion of sales to the government
• Costs of corporate celebrations
• Cost of promotional material

Understanding the aspects of advertising and public relation costs is imperative as a government contractor. These costs can be tricky for government contractors. The misclassification of them can negatively impact your business. Having a team of experts to provide you with guidance can help ‘tackle’ this challenging subject.

Originally written by Jamie M. Shryock, CPA

Updated and additional content provided by Elizabeth Partlow