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Government Contractors

Preparing a Compliant Proposal: An Art or a Science?

By: Kristen Kwiatkowski, Manager; and Eric Poppe, Manager

Preparing a technical and cost proposal for any company can be a daunting task. Not only do you need to prove that you have the services or products the customer needs, but you need to prove you can provide them better than your competitors, at the best price, and still make your company a profit. Layer in the complexities of government contracting, and you have an intricate dance that many spend their whole careers trying to master. In addition to fighting your own challenges on preparing a compliant proposal, you may also be dealing with one or more subcontractors.

While Federal Acquisition Regulation Part 15, Contracting by Negotiation, should be your roadmap for proposal compliance, it too can be daunting to interpret. We’ll focus on a few hot topics in proposal compliance that many are facing during the current flurry of summer Request for Proposals (“RFP”).

Subcontractor Proposals & Cost or Pricing Data

When certified cost or pricing data is required from subcontractors your company is including in its proposal, challenges may arise that have not previously presented themselves. Since your company is responsible for all data within the proposal, even the subcontractors’ data, there is a significant amount of burden to prove and justify the reasonableness of proposed costs for all elements.

One of the biggest struggles most companies face is proper cost/price analysis of subcontractor proposals. Often subcontractors refuse access to their cost proposal details to representatives within your company. In this instance, we’ve seen more circumstances where the government has allowed the use of third parties to conduct independent reviews of the subcontractor’s proposal resulting in a written report. The report is then used as a part of the proposal package to help support the cost.

Approved Systems

More frequently, our team is seeing RFPs that require or give “points” for companies maintaining “DCAA or DCMA approved” business systems, with more emphasis given to Accounting and Purchasing Systems. We are also noticing that the Defense Contract Audit Agency (“DCAA”) is performing far fewer business system reviews due to the incurred cost submission backlog. What is a company to do with these types of requirements to win the desired work?

If the RFP is specific that DCAA or the Defense Contract Management Agency (“DCMA”) must perform such reviews, then there is little that a company can do as a government contractor is generally not able to request a review by DCAA or DCMA themselves. Additionally, some RFPs will state the government agency will not request an audit of a contractor’s system in response to the RFP. A contractor could certainly protest such a solicitation as the government is excluding competition for something that THEY did not do. However, many contractors have determined that this is not the best way to ingratiate the source selection committee. If a good relationship exists between the company and a current contracting officer, coordination may be possible for the contracting officer to request the review for the company.

On the flip side, if the RFP is still in draft stage, a company can provide comments that the language surrounding the requirements also include an independent third party (such as a CPA firm) to perform the review, which would suffice the basic requirement the RFP is seeking. These reviews can include, as identified at DFARS 252.242-7005:

  • Accounting System
  • Earned Value Management System (EVMS)
  • Estimating System
  • Material Management & Accounting System (MMAS)
  • Government Property Management System
  • Contractor Purchasing System Review (CPSR)

While only large businesses are subject to the requirements per the Defense Acquisition Regulations Supplement, any proposal with potential cost type or time and materials work may require a standard SF1408 review, which is similar to the level of effort that DCAA currently puts into their audits. Companies who are reaching their size limits or who know they may have similar requirements mandated, may still consider performing any of the other reviews, as applicable, in order to win more points and score that highly sought after contract.

Indirect Rates

Most companies unfortunately lack approved forward pricing rate agreements (“FPRA”), which in theory would make most proposals easier to prepare. However, the lack of a FPRA can be a strategic advantage when implemented correctly.

While the construction of indirect rates in any given proposal should be consistent with the company’s accumulating, estimating and billing practices, each proposal can be a new opportunity for strategic gains. Table 15-2.II.C, Indirect Costs, requires:

  • an indication of how costs are applied;
  • a cost breakdown;
  • trends and budgetary data for evaluation of reasonableness; and
  • appropriate explanations.

Smaller companies may struggle with calculating budgetary rates for a proposal life of five years, and instead straight-line the rates. The DCAA tends to default to believing rates should trend downwards, which is a reasonable assumption if the business is growing. However, in the presence of a steady business base or conversely, a declining business base, steadily decreasing rates may not make the most sense. For small businesses, especially as government spending continues to contract away from small businesses, use of budgetary data should be used in preparation of out-year rates. For example, when developing the rates for a proposal, if as a result of winning the contract, the company’s direct labor would increase substantially, this number can be included in the rate calculation as long as there is reasonable budgetary information to support the amount.

As we approach the end of the government’s fiscal year and agencies try to tie up appropriations and start planning for the next year, creating a proposal that stands on its own is ever more important. Adequately performing subcontractor reviews and providing support within the proposal, and using budgetary trends showing changes in cost elements that would result if a contract is awarded in the calculation of your indirect rates are two ways to help stand out in the current market. Doing both could provide the needed cost competitiveness and cost justification needed to win the highly sought after award and help continue success for years to come.

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