Industries

• How do I enter the federal market?
• What are the major contractor systems that are most critical to government customers?
• When in the process can I expect federal government auditors to perform audits of my organization and its submissions?
• Should I maintain my federal government works in a separate division or organization from my commercial work?
• Is having a GSA Schedule the easiest way to enter the federal government marketplace?
• Do any pitfalls exist for commercial firms entering the government contracting environment?
• Why is CAS happening to my firm? 

How do I enter the federal market?
First, do your due diligence to assess government demand for your goods or services. Use published sources of federal contracts or organizations such as Eagle Eye or Commerce Business Daily, which were established to assess demand within various federal organizations and promote contractor capabilities to those government organizations.

If there is a threshold demand for your goods or services, you can respond to published solicitations or, with particular buyer’s intelligence, submit an unsolicited proposal. With proper advice from your government contracts consultant, you must decide if you can legitimately propose, under relevant regulations, the sales of "commercial" goods or services, which will mitigate some of the more onerous requirements of traditional federal contractors. If you can’t qualify your goods and services as "commercial items," you may have to support your proposal with a compliant build-up of estimated costs.

If you are not awarded a contract, you will usually have the option to receive a federal customer debriefing to continue your understanding of federal awards arena and improve your future proposals.

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What are the major contractor systems that are most critical to government customers?
Government customers, particularly pricing and audit representatives, are most concerned that the following corporate systems are compliant with federal contracting requirements:

• Estimating 
• Purchasing/subcontracting 
• Timekeeping/labor charging 
• Accounting systems (especially cost accounting, billing and accounts payable)

The level of scrutiny will depend on the type of contract you perform and the composition of that contract. The requirements increase in scrutiny from firm, fixed-price type contracts, to time and material contracts, to cost type contracts. Those system requirements are established from binding requirements and evolving guidance found in:

• Particular statutes 
• Federal Acquisition Regulations 
• Cost Accounting Standards 
• Federal contract audit guidance 
• Administrative and federal case law 

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When in the process can I expect federal government auditors to perform audits of my organization and its submissions?
The most prevalent government contract audit organization is the Defense Contract Audit Agency. Although this is a Defense Department organization, they conduct a number of audits in support of civilian agency procurements. There are other agency audit groups as well as contract pricing and financial administration organizations that have contractor audit and financial review responsibility. It’s up to either the procuring or administrative contracting officer to request a contractor audit based on relevant regulatory guidance. The most likely first contact between you and your auditor is during a proposal review. There is also often a contractor accounting system review and a provisional billing rate review conducted before a contractor receives its first cost type contract (including cost plus fixed fee and cost plus award fee contracts).

These audits, if completed with favorable findings, can be very beneficial for you because they provide assurances, sometimes necessary assurances, to future prospective federal customers that can be included in your proposals. Unfortunately, contractors themselves cannot request these audits by federal government auditors. Alternative assurances may be sufficient. There are a number of other audits conducted by federal agencies including the extensive final overhead rate audits of the required annual final overhead rate submissions from federal contractors performing cost type contracts. The most important thing is that you have a firm understanding of the audit objectives and the potential risk to your organization of a worst-case outcome.

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Should I maintain my federal government works in a separate division or organization from my commercial work?
There are two schools of thought in response to this question. First, understand that government auditors expect consistent treatment, particularly with regard to defining categories of costs and allocating indirect costs. With that in mind, there is one approach that dictates a combined organization without separation. To decide if this approach is right for you, project direct and indirect costs and assess any disproportionate allocation of indirect costs that may result from increased indirect expense supporting one group of contracts compared to the other (e.g., marketing effort, including bid and proposal costs, professional fees or other administrative support effort for one group of contracts vs. another). Federal regulations do not automatically require a separation if such a disproportionate allocation occurs but a regulatory analysis is required.

On the other hand, many contractors decide, perhaps because management of a predominantly commercial organization is reluctant to submit all of its organization’s practices and records to government audit scrutiny, to separate the organizations within the company or even in separate companies. Under that premise, management must not defeat this objective by sharing resources under certain circumstances. Again, a regulatory analysis is required.

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Is having a GSA Schedule the easiest way to enter the federal government marketplace? 
That depends on the commercial nature of the types of goods and services offered by your firm, small business status of the firm, past performance capability of your firm and stability of your firm’s pricing.

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Do any pitfalls exist for commercial firms entering the government contracting environment?
Yes. Have you structured the government entity legally to mitigate government audit risk? Have you examined the impact on your financial, purchasing and HR systems for government compliance? Have you surveyed the federal sector to ensure that your goods and services are highly desired by the government?

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Why is CAS happening to my firm? 
Cost-type mega-deals trigger full CAS coverage when the contract award value (base plus option years) is estimated at $50 million or more.  Then a CASB Disclosure Statement is required, 19 CAS becomes applicable to your firm and DCAA audits become routine.

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