What to Expect from Government Pre-Award Surveys and Fact Finding

INTRODUCTION

When a government contracting specific market target has been identified and a proposal has been submitted, pre-award surveys and fact finding by the buying agency or the prime contractor often follow. These processes take two forms:

1. A survey visit to the small company facility

2. Inquiries with respect to supplementary details for enhancing the customer perspective on a proposal submittal.

Undertaking the above processes with a government agency differs from that of undergoing them with a prime contractor. You are not required to disclose proprietary data to a prime contractor. Please see the following articles for further information in this vital area:

Protecting Intellectual Property

This article will discuss each of the above processes and suggest measures to prepare for, conduct and succeed at pre-award surveys and fact finding.

PRE-AWARD SURVEY

A pre-award survey is a government or prime contractor visit to a supplier's facility. The Procurement Contracting Officer (PCO) or the Administrative Contracting Officer (ACO) and the Contracting Officer’s Technical Representative (COTR) as well as members of their respective staffs may attend.

In some instances the local Defense Contract Management Area Office (DCMAO) is involved. As you become a regular supplier to an agency, site survey visits will normally cease or occur only rarely.

For further explanation of the above government officials and their roles, please see the following article:

Government Contracting Customer Relations

The site survey team is interested in establishing the physical presence of a new supplier, the technical capability and the human resources to perform the prospective work and the quality of the environment in which the effort will be performed. A "Pre-award Survey of Prospective Contractor" Forms are completed and become part of the contract file:

Pre-award Survey Forms

Pre-Award Survey of Prospective Contractor SF-1403 8/1997
Pre-Award Survey of Prospective Contractor (Accounting System) SF-1408 8/1997
Pre-Award Survey of Prospective Contractor (Financial Capability) SF-1407 8/1997
Pre-Award Survey of Prospective Contractor (Production) SF-1405 8/1997
Pre-Award Survey of Prospective Contractor (Quality Assurance) SF-1406 8/1997
Pre-Award Survey of Prospective Contractor (Technical) SF-1404 8/1997

Select the person who will lead the meeting with the government survey team. This person should be empowered to speak for the company and should be completely familiar with details of the solicitation and your company's offer.

If relevant, make available one or more technicians to answer questions. Identify any disparities that may exist between the solicitation and your company's offer that should be resolved during the initial meeting with the survey team. Think about how you can demonstrate actual technical capability or the development of technical capability on the proposed contract. Make sure your facilities and equipment are available and operable. If they are not, be prepared to demonstrate that they can be developed or acquired in time to meet proposed contract requirements.

Make sure that your labor resources have the proper skills or that personnel with the needed skills can be hired expeditiously. Gather and make available to the survey team documentation, such as previous government contracts or subcontracts or commercial orders, to demonstrate a past satisfactory performance record with regard to delivery, quality and finances. Gather financial documentation for the team financial analyst, including the company's current profit and loss summary, balance sheet, cash flow chart and other pertinent financial information. Make sure the plans are in place for vendor supplies and materials or subcontracts to assure that the final delivery schedule can be met. Make sure that these plans are verifiable.

Review any technical data and publications that may be required under the proposed contract and make sure you understand them. If the contract is a type other than a firm-fixed price or if you have requested progress payments, prepare adequate accounting documentation for review. Review your quality control program and make sure that it is workable and consistent with the quality requirements stated in the contract.

PROPOSAL FACT FINDING
Fact-finding usually involves the government requesting additional information to supplement that which was submitted by you in your proposal. These areas of interest are early indications of where the negotiator is looking for weaknesses in your cost justifications or disconnects between your technical approach and the cost you are estimating to do the job. If you have subcontractors or major material suppliers, the government may ask for copies of your vendor proposal evaluations. The government may wish to examine cost history for the last time you performed similar efforts.

Keep in mind that most government agencies put together an independent cost estimate of what they feel the item or service should cost. These are commonly called "Should Cost Estimates". The additional requests for information during fact finding are feeding the should cost estimate. The Procurement Contracting Officer (PCO ) typically has an end user for the product or service internal to his organization who will become the Contracting Officer's Technical Representative (COTR) when the contract is awarded.

The COTR has a strong influence on the negotiations and will usually be present when negotiations commence. On many occasions, the COTR is the real internal customer at the agency. He has fiscal, technical and schedule responsibilities to his management for the program you are servicing. He simply cannot sign for the government.

The PCO has the agency warrant to commit the government and knows the most about public law and the Federal Acquisition Regulation (FAR) as it is applied to contracts the agency undertakes. It is the COTR who is likely feeding the PCO requests for fact-finding data. Keep in mind that the COTR and the PCO are formulating their assessment of the cost and the risk associated with the program during the fact-finding process. Cost is the first item of negotiation and risk has a direct influence on the government's position on profit.

The contacting officer may order a Defense Contract Audit Agency (DCAA) audit. The Request for Proposal (RFP) to which you responded may in fact have ordered a copy of your proposal be submitted to the DCAA Office nearest your location. If you are a new supplier to the government, DCAA may ask for a copy of your long-range plan containing your direct and indirect rate structure. They will verify the rates utilized in your proposal against your LRP, evaluate escalation factors utilized for long term projects and check the math. For guidance on these matters, please see the following article:

DCAA Audits And Small Business Job Cost Accounting Systems

The auditor will ask for copies of major material and travel quotations and insure that government per diem rates are utilized for lodging and meals in the cost proposal. DCAA may also visit your facility to check compliance with Cost Accounting Standards insuring that the company sets up each new government contract on job cost accounting in the identical manner in which it was proposed; in effect identifying direct labor, direct material and other direct costs to each contract monthly and allocating overhead and G&A utilizing the same numerator and denominator relationships upon which the contract was originally estimated.

DCAA is paid by the PCO to perform the audit. The audit does not extend to negotiations and at the audit conclusion the auditor files a report with the PCO. The report will contain information on any errors uncovered and findings on the adequacy of the accounting and long range planning systems. DCAA will not express an opinion on the cost content of the proposal in terms of a value judgment regarding prices for prospective supplies and services. If the auditor does not offer an exit interview, ask for one. Better yet, ask for a copy of the audit report to the PCO. Many DCAA offices will provide a copy to audited contractors. DCAA does not have the authority to direct a proposal revision based on audit findings. An astute contractor will immediately correct any errors found by the auditor in the proposal and examine other audit findings in preparation for negotiations.

SUMMARY
With adequate preparation and understanding of what the processes involve, the small enterprise can succeed in passing government agency or prime contractor site surveys and fact finding.

Remember that these encounters are extensions of your image as presented in your proposal. They are building block in nature and serve to establish, reinforce or change a customer’s view of your company and your proposal.

Assessing Department of Labor (DOL) Government Contract Wage/Rate Determinations

MANAGING COMPLIANCE WITH THE SERVICE CONTRACT AND DAVIS-BACON ACTS

INTRODUCTION:

When pricing government contracts, in particular service contracts, the small business will encounter government wage determinations under the Service Contract Act and Davis-Bacon Act. These determinations specify the minimum wages and related benefits that must be paid to all hourly employees charging time directly to a federal service contract as part of a total compensation plan.   

The Department of Labor Manages the Wage Determination program.

SAM Wage Determinations

Contractor compliance with Wage Determinations  is subject to audit by the Department of Labor, Defense Contract Audit Agency, or other agency audit procedures. Failure to prove compliance may subject the contractor to debarment from all government contracts for up to three years.

Service Contract Act, as an example, requires minimum wages be paid per labor category as defined in the Directory of Occupations and listed as minimum wages per labor category on the Area Wage Determination incorporated into each contract. The wages are mandatory minimums paid employees for every hour worked on the contract as defined by The Act, both full-time and part-time. A typical Wage Determination is below: (Please Click Image to Enlarge)
                                                                   

MANAGEMENT CONSIDERATIONS:

When bidding a service contract with a requirement containing a Wage Determination, the labor category wages and fringe must conform, as a minimum,to the Wage Determination in the government Request for Proposal (RFP).  The personnel must be paid not less than the wages and fringe benefits specified in the determination when the contract is awarded.   

Due to competitive factors and labor market concerns the company may propose labor and fringe exceeding the Wage Determination, but the bid cannot go beneath the government specified rates.  Below is a typical conformance table for an engineering firm with the Wage Determination information on the right side and the company bid rate on the left side of the table.  (Please Click Image to Enlarge)

The Fringe element of the Wage Determination conformance is usually discussed in the basis of estimate for the fringe rate in the price proposal. A major project in a given location may impact on the company wide-fringe rate if existing fringes in the company do not meet the minimum requirement for the wage determination in the area being bid. This can be a deciding factor in a bid/no bid decision on a prospective project.

 
When conforming a labor category to a government wage determination,  the title of the company job need not be identical to that to which the government wage determination refers, but the company job description must be made available to an auditor for compliance mapping purposed; i.e. the role of the individual and the scope of his or her job description must very closely match the government documents. It is best to use existing company labor categories and descriptions and work any exceptions during the conformance process, conveying the results in the form of a table similar to the above in your proposal.

If a particular wage determination selected by the contracting officer in the RFP appears to be vastly out of sync with the scope of work in the prospective contract, it is best to bring this to the government's attention in the form of a question or a suggestion for improvement during the Q&A or draft RFP comments phase of the bid process.  But remember, your question, its answer and any action taken by the CO will be made available to all competitors. 

In many instances competitive labor rates, and in some cases benefits as well, will be higher than those specified in the government wage determination. Wage determination updates by the government often lag rapidly changing technical labor markets and area economic trends.

Evaluate your initial GSA Schedule and renewals against area wage determinations, since the government may choose to buy off your schedule or you may choose to use your GSA Schedule rates to bid a procurement where a wage determination applies.

Demographics in your company may play a role.  Accumulation of labor cost history driving a pay rate in one geographic location of a company for a given labor category may not meet government wage determinations if that category is used in another geographic area with a different area wage determination in a substantially different labor market.  Many larger firms maintain standard rates across multiple geographic locations to deal with this factor.  

SUMMARY

Regularly review your company labor category rates and fringe benefits for ongoing compliance with DOL Area Wage Determinations. Sample the DOL Wage Determination web site regularly as a normal function of maintaining your labor rates and fringe benefits costs. 

 

DCAA Service Contract Audits and Small Business Job Cost Accounting Software Tools

INTRODUCTION

Small Businesses typically have a learning experience growing into government services contracting. Part of that process is undergoing reviews by the Defense Contract Audit Agency (DCAA). It takes knowledge of the requirements and strategic focus to set up the type of business processes required for accommodating government contract job cost accounting and fit those processes into the way your company does business.

DCAA or other agency representatives do not approve job cost accounting software packages. They approve contractor job cost accounting practices in compliance with Federal Cost Accounting Standards (CAS). If you are a small business, you are probably going to come under modified CAS Coverage that you can read about at the following link:

What is a "Compliant" Federal Government Contracting Small Business System?

Perhaps you have already examined the above background, but I would encourage you to review it again in connection with planning for your business system. Perhaps you have discovered that CAS compliant job cost accounting effects your estimating structure, your long range planning for indirect rates, as well as your general ledger, overhead and G&A structure. You may have discovered as well that DCAA wants to see your government contracts accounted for in a separate cost center from your commercial work and that there are certain unallowable costs that cannot be charged directly or indirectly to government contracts.

PROPOSAL AUDITS

Proposal audits are performed by DCAA on your cost proposal at the request of the Procurement Contracting Officer (PCO) and verify your direct and indirect rates against your long range plan, your labor category pricing, contingent hire agreements, vendor quotes, subcontractor proposals and all other data related to the cost volume of the proposal. Results go to the PCO. Arithmetic checks are made. No opinion is offered on the merit of the pricing, only that it has been documented in a long-range plan or a vendor or subcontractor quote and it is accurate.

PROGRESS BILLING AUDITS UNDER FIRM, FIXED PRICE CONTRACTS

This type of audit is on live data from your billing system. It is triggered by your submitting a progress payment under a firm, fixed price contract. Progress payments can be allowed in long-running firm, fixed price contracts that are front-end loaded with material and labor investment and have lengthy schedules for delivering the end product.

The DCAA Auditor will get the audit request from the contracting activity and will ask to examine the complete set of job cost records in your accounting system for incurred cost on the fixed price contract and tie those records out to the progress payment requested amount (usually 85-90% of the incurred cost to date - they hold some billed amount in retention). Records audited are at the time card and expense report level, as well as purchase orders, travel vouchers and any other transactions that are booked and billed in your accounting system to the fixed price contract. They will want to see the time cards and other documents and will trace them back through the system.

If you do not have a progress billing clause in your firm, fixed price contract, it is unlikely you will be audited. The contracting activity or the Defense Finance Accounting System (DFAS) will simply compare the final amount you bill to the firm, fixed price amount in your contract and pay if the item or service has been accepted and delivered. (Usually a sign-off by the PCO, Contracting Officer's Technical Representative (COTR) or a DD Form 250 signed by a government inspector on product deliveries)

COST PLUS AND TIME AND MATERIAL CONTRACT AUDITS

Billing audits are performed by DCAA, again at the request of the contracting activity. The auditor will go into all actual cost records submitted with your billing. Cost plus and T&M billings must have all the billing detail behind them or they will not be paid. The detail must be at the transaction level and the audit is identical to the one discussed above for progress payments.

INCURRED COST AUDITS (OFTEN REFERRED TO AS "RATE AUDITS")

These audits are conducted when you are closing out contracts with the government and they have been billed at provisional rates, or the government needs to establish that you are billing accurately from a rate standpoint. If the contract is fixed price with progress payments, cost plus or Time and Material in nature and has been billed over a long period, particularly if it has crossed more than one government fiscal year, then a system-wide incurred cost audit will be necessary to verify the rates that were charged to the government and determine the difference between the provisional rate billed and the actual rate incurred (where applicable).

In addition it is periodically necessary for the government to establish that no unallowable costs have found their way into government contract billings.
The government allows provisional billing rates for the convenience of the contractor based on his long-range plan and mix of business. The government holds a retention amount on each billing and then at closeout determines with the contractor through an incurred cost audit the final amount due on the contract, releases the retention accordingly, and the contract can then be closed if all other obligations have been completed. At closeout the government pays the final bill.

A rate audit determines the compliance of the job cost system if it occurs while the contract is in process. If an incurred cost audit occurs on contract closeout actions, results will directly impact final contract billing approval and amounts.

JOB COST ACCOUNTING SOFTWARE TOOLS

My experience with job cost accounting software tools is that complete packages are pretty expensive. COTS accounting packages such as Quick Books do not provide job cost accounting. I have installed JAMIS, which is the 'Cadillac', DELTEK, which is the 'Fairlane 500', and SYMPAQ, which is the 'Volkswagen'. They are all expensive, even for single user licenses. You can go to these and other product sites on the web and examine their capabilities:

DELTEK

SYMPAQ

JAMIS

Here are some products especially designed for small business:

ICAT

PROCAS

ASPIRE

All of the above suppliers are used to long sales cycles and competing against each other. They will do remote demos for you and bend over backwards to show you their products. You can learn much about government contract job cost accounting just by taking the time to go through a demo. For companies whose direct job cost records are growing fast, these tools offer the utility to manage data volume and efficiently handle requirements such as changes to existing records driven by rate changes, fiscal period closing or contract closeout.

GROWING YOUR JOB COST SYSTEM

Many small companies doing government work start out with a rudimentary direct job cost accounting software package such as Peach Tree (now SAGE) or the add-on tool for Quick Books mentioned above and crutch it with manually maintained records on spreadsheets for indirect cost allocation, time keeping, expense reporting, purchasing and supplier commitments. There is nothing wrong with such an approach as long as you can supply job cost (individual contract) records complying with modified CAS Coverage and demonstrate such things as:

Time Cards and time keeping process by worker and labor category by contract or indirect cost pool

Expense Reports and expense report process by worker by contract or indirect cost pool

Purchase Orders with job cost accounting data traceable thru invoices to contacts or indirect cost pools after payment

Overhead Allocations in a Government-unique cost center to individual contracts at month end based on individual contract direct labor cost

G and A Allocations in a Government-unique cost center to individual contracts at month end based on individual contract total cost.

A semi-manual approach gets burdensome as the company grows and the number of accounting transactions at the direct and indirect cost level increase in volume.

If you do not have a good job cost software tool, I recommend you begin looking for one and plan strategically to implement it if  significant progress billings and service contracting transactions, to include time and material and cost plus contracts, are in your future. Implementing a government compliant job cost system is a sensitive matter and must be planned. '

As companies grow and get involved in larger programs they come under full CAS Coverage that requires a disclosure statement and considerably more controls on the structure of the business system. You can read about full CAS coverage at the link contained in the introduction to this article.

SUMMARY

If you have the investment budget available, you may wish to consider the job cost accounting system software suppliers I mentioned above and compete them against each other for a price. Installing one of these packages is critical from an accounting period standpoint. I recommend a new year starting point and running in parallel on your old system for at least a quarter.

Keep in mind that DCAA does not approve COTS job cost accounting system software. Buying the software will not make you "DCAA Compliant" or "CAS Compliant" You do that through careful process development, specific to your company, utilizing software as a tool to operate your own unique business processes. Your processes will include long range planning, pricing, job cost accounting, indirect cost allocation, time-keeping, expense reporting, purchasing and commitments and billing - all geared to accurate job cost records at the individual contract level.

To the extent that you cannot demonstrate the above features to DCAA when they audit your business you CAN demonstrate that you are aware of the necessity to set these things up, lay out your plan to do so, and specify a time frame within which DCAA can expect to see you complete your compliant government contract pricing and accounting structure.

I have found that DCAA auditors are reasonable people who understand small companies must grow into government business systems. Showing them your accounting structure and your business system plans will display knowledge they will appreciate and assure them you understand the requirements, even if you cannot demonstrate all the processes at the point in time that the government initially audits your company.

Chapters 45 and 51 through 53 of my Book, "Small Business Federal Government Contracting" provides further detail and examples on establishing CAS-Compliant small business planning, pricing and job cost accounting. The book is free as a download in the right margin of this site in the "Box Net" cube.

NOTE:  Comments at this post have been retained from previous discussions on the topic at "Small to feds" 

Maximize FREE Social Media Utilities to Promote Your Small Business

Utilize social media to promote your small business. The process requires a front-end loaded investment in time, but it is well worth the effort when using free or very low cost utilities on the Internet. The return may surprise you.

Set up a free Google or Word Press blog as an extension of your web site.  A blog is quite different from a web site. Provide good, solid information free of charge and use blog searches for synergistic business teaming. Teaming is an absolute necessity these days. 

SmallBusiness Teaming 

Be prepared to provide information, samples and valuable service gratis as a marketing tool. Introduce yourself and then immediately engage the client or potential teaming partner with your presentation tools available to bring your expertise to whatever topic they are interested in. 

Let them take you where they want to go with their concerns and their needs. Apply your presentation tools and expertise dynamically. The idea is to refer clients to article links at your web site and your blog to avoid having to repeat yourself over and over in new business marketing, thereby keeping yourself available for specific inquiries and closing deals. 

Link everything together and begin answering questions as well as registering at many of the free applications for networking web sites on the Internet to see how that can benefit your product and services. Utilities like LinkedIn, Twitter, Alignable, Pinterest and About Me will serve your site well. 

You may wish to consider Google Ad Sense for cash flow.  It is free and could supplement your income with ads in the margin of your blog. 

Integrating and networking platforms together is the best approach. Most of the free applications of the type discussed here have profile features to link back to your blog and many will automatically publish your content on their site, once linked. 

Content is king and the queen is a hub of strong useful information with spokes emanating from it like those of a wheel to many free social networking platforms where your brand, your consistency and your offerings drive the engine that is your enterprise.

Please see the below link for an example of how the above principles have been achieved. 

Integrated Utilities Linked as a Composite on "About Me"