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From Small Business to Large Business - With Growth Comes New Challenges

Scenario

Until recently, this CB&H client had been classified as a small business under the majority of its government contracts. Explosive growth over the last two years, including a large contract award over $200 million, led the company to be reclassified as a large business. The company now had to submit an acceptable small business subcontracting plan on all its contracts exceeding $500,000, and a Cost Accounting Standards (CAS) Disclosure Form. CB&H was engaged to assist the company with meeting these new compliance obligations, as well as establishing an Employee Stock Ownership Plan (ESOP).

CB&H Action Steps

These separate but interrelated activities required CB&H to apply its broad range of experience in government contract administration and cost accounting. We assisted the client in developing a master small business subcontracting plan that would be acceptable to all government agencies. We then worked directly with the client in their preparation of every entry on the CAS Disclosure Form, and discussed whether the company’s current accounting practices were in compliance. We examined every practice the company employed regarding pricing and estimating on all government contracts. We identified areas where changes had to be made, and what those changes should be.
Our first task in establishing an ESOP was to make the client aware of the accounting differences between the two types of ESOPs acceptable for government contract cost accounting purposes. This enabled the client to best determine which type would be most advantageous. Due to our continuous efforts to stay current on contract cost issues, we became aware that the CAS Board intended to modify the CAS to clarify that only a deferred compensation ESOP would be acceptable. Accordingly, we made the client aware of this likelihood.

Results

As a result of our efforts in regard to the master subcontracting plan and CAS Disclosure Form, the client is in a better position to continue to receive government contracts, and not have their award delayed because of deficiencies in these areas. This will permit the client to continue its expansion as a company, and maintain significant revenue growth. In addition, the company has established an ESOP that is in compliance with the cost allowability requirements of the FAR. Moving forward, the client will be able to recover the significant sums they invest in the Plan as allowable costs on their government contracts.