Building a Government Contractor for the 21st Century By Carlos Garcia Owner and CEO KIRA

The world has changed for government contractors Far greater number of regulations Price becoming increasingly important Larger contractors are consolidation Proliferation of multiple award contracts Change from cost plus to firm fixed price contracts

Far greater number of regulations Department of Labor regulations are onerous Contractors must certify far more items on a contract More inspections by OSHA and other regulators Fines can be very large Paperwork requirements have increased Retention of records increasingly important

Price becoming increasingly important Congress is mandating that agencies save money The requirements grow but the compensation does not Most contracting officers gravitating to low cost offeror

Large contractors are merging and consolidating Many large businesses have merged This makes it difficult to gain traction for teaming and subcontracting Frequent reorganizations make it hard to know who the buyer is When two companies merge they may select legacy subcontractors from one of the companies Individuals with whom relationships have been forged may leave company

Increasing number of Multiple Award Task Order Contracts (MATOC) These contract vehicles do not guarantee work Bid and Proposal costs do not end with award of MATOC Risk that MATOCs may not be funded Risk of protest at MATOC level and Task level Customer may decide not to use MATOC

Change from cost plus to firm fixed price contracts Price is more important than ever More risk to contractors Fewer equitable adjustments Importance of understanding work load data Need to deliver service efficiently Time is money Low G & A essential

Part 2 Winners and losers

Winners Companies that focus on industries where they possess advantages Companies that can manage service efficiently Companies with low G & A rates

Losers Companies that lack focus Companies in denial about the amount of sole source work they can generate Companies with high G & A rates

Role of key executives in developing and implementing strategy Part 3 Role of key executives in developing and implementing strategy

Role of key executives in developing and implementing strategy Board of Directors Selection of the Chief Executive Officer Setting hurdle rates of return Allocating capital to the Chief Executive Officer Establishing other objectives for the Chief Executive Officer

Role of key executives in developing and implementing strategy Chief Executive Officer Develop strategy for the organization Establish business plan to achieve objectives Select key management team Establish objectives for each member of the management team Report to Board of Directors

Role of key executives in developing and implementing strategy Chief Operating Officer Manage operations Ensure compliance with laws and regulations Deliver operational results that meet budget Provide inputs in business development process

Role of key executives in developing and implementing strategy Chief Financial Officer Leadership of finance and accounting Oversight of tax and audit Oversight of rate structure Oversight of budget Cash flow and capital expense management Provide inputs in business development process

Role of key executives in developing and implementing strategy Vice President of Business Development Manage all business development initiatives Manage bid and proposal processes Manage inputs from other key executives in the business development process Ensure that business development process aligns with strategic goals

Classic mistakes made by contractors Marketing 8(a) status as their only competitive advantage Thinking that contracts are simply job shop rebadging operations Failing to understand the customer’s objective on each solicitation Failing to budget sufficient time and money for key solicitations Spreading Business development budgets over a large number of opportunities

Part 4 Budgeting

Challenges of budgeting in government contracting Contract awards get delayed Protests delay contract starts Government shut downs Changing customer priorities

Budgeting must be done Most budgets are too optimistic on contract awards Most budgets are too optimistic on revenue generation Most budgets underestimate business development expense Most budgets underestimate start up costs on contracts Most budgets underestimate legal expense

Zero based budgeting is safely approach Start each year’s budget with a blank sheet of paper Start by listing only the most critical expenses Then add the fixed expense Finally add variable expense Budget revenue expectation and associated costs separately and then combine them Avoid backing into numbers

Teaming and partnering Approach teaming carefully Invest the time to get to know your partner Understand your partner’s mission and objectives Investigate their prior experience teaming Look for opportunities to creating long term agreements Check SBA and other regulations in entering into agreements State in your agreements how companies can exit partnership

Conclusions

The landscape has changed for government contractors The government will continue to spend money on contractors Contractors will be under pressure to perform – on budget and on schedule Firm Fixed Price contracts will continue to be the norm Low Cost Technically Acceptable evaluation criteria will become the norm More risk will shift to contractors so price accordingly

Questions? Contact: Carlos Garcia email cgarcia@kira.com