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Government Contractors' Newsletter |
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For the serious small government contractor |
June 2011 | |
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COST & PRICING DVD
COMPASS (most popular), NAVIGATOR, or GUIDE Pack
(as low as only $395.00)
Ideal Ongoing Reference Tools
Recorded Live
Serious Contractors Own a Pack
Cost effective alternative to attending live workshop.
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 Greetings,
I have some thoughts I would like to share openly about Cost and Pricing, the tools and resources available to support you, and how I have hoped to impact the discipline on behalf of the small business community. You can read my shared thoughts in the first topic below.
This life is a journey that must be made. But you don't have to journey alone.
Have a safe and good holiday!
Keeping you continually in prayer.
Enjoy this issue Paul Sr.
The inspirational thought this issue provides an interesting perspective on what's behind the growth of our active, busy lifestyles. I hope you learn from it as I have.
Comments/suggestions send directly to me at paulgunn@paulgunn.com
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An Open Letter on Cost & Pricing and the task I was charged with
I would like to openly share a few personal thoughts on Cost and Pricing and the task I was charged with pertaining to this discipline over the years. I am often asked why I do not provide even more advanced training in this critical discipline or why I haven't expanded into more money making opportunities with my knowledge.
First of all, there is nothing wrong with making money and doing well. However, each person is selected for their duty and charged with tasks to accomplish it. I chose to follow the path I had been trained and equipped for. In my training I have found that the reality of what contractors are faced with, in this aspect of our business, is the inconsistency and subjectiveness of those we have to deal with.
Fact: It is very important that you must know the foundational concepts of many key aspects of government cost and pricing. There is no way around this. Yet, once you get past the foundational concepts the issues become related to fewer and fewer contractors. With confidence gained from the foundation, firms now move on to more complicated issues as they arise and become applicable to them. And they hopefully begin to learn how to negotiate and tactfully interact with ego's and inefficiencies often surrounding them. Including our own...smile.
As for me, my goal has and continues to be to impart what I have been blessed to learn, experience and practice to those firms who typically would not have the opportunity to be exposed to such. This was my charge and task from the beginning and I have received a deep abiding fulfillment to see people go from a state of fear and anxiety to one of more comfort and confidence in cost and pricing.
As I move further into the higher mature years of my life and career (did you catch that play on words..smile) I understand that I will not always be available, or have the ability to provide the level of support to my colleagues as in the past. This too is a reality of life and business. When we turn around, people are no longer in play that once were.
A most dangerous position for anyone to be in is when they "Don't Know That They Need To Know". I have been blessed to know many of the things you need to know in this discipline, even if you don't know you need to know them yet. I have spent my career counseling, consulting, training, advocating, and developing the tools and resources for small contractors.
I apologize that I have not been able to succeed in getting all of these tools to you through your own tax dollars, although I sure tried, but they are available. I have done the best I could and I thank the SBA who several years ago, sponsored so many of the cost and pricing workshops nationwide to 7(j) contractors.
Do to its' length please follow the link below to read my full letter...
To read Pauls' full letter available to all please follow this link back to top |
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Wrap Rates, Multipliers, etc. - What are they?
Question: I have seen different options for developing Wrap Rates or Multipliers using compounding factors.
Is there a difference in the resultant Wrap Rate or Multiplier based on a firms choice to compound using a base for the Overhead Pool of either 1) Direct Labor or 2) Direct labor + Fringe Benefits?
Response: The quick and simple answer is no. But the devil is in the details. So if you dare, read on..
What is a Wrap Rate or Multiplier? It is a method of calculating a factor that is typically applied to a direct labor base to determine the fully burdened cost (when factor excludes fee) or price (when factor includes fee) to the customer. For example: If I have a Wrap Rate of 2.1 (includes fee) and my base Direct Labor is $10.00 per hour, then my price to the customer is $21.00 per hour.
Now some firms use different bases for their Overhead Pool calculation. Therefore in their development of a Wrap Rate they compund their numbers slightly differently. The question proposed is does it make a difference in what method of compounding they choose?
Let's look at two contractors [Contractor 1 (C1) uses Direct Labor (D/L) as a base and Contractor 2 (C2) uses D/L+Fringe as their base] If we assume all rates are the same for both contractors than the compounding method chosen would make a difference in the resultant wrap/multiplier factors.
However it is because C2's costs are higher than C1's, and not because they used one method of compounding over the other. Check it out for yourself: Lets convert the indirect rate percentages below into dollars using the different Overhead bases for each contractor. Remember we are assuming all of the rates used are equal.
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CO Requested to Reduce Price Proposed - Case 14A
Situation: A contractor is asked to reduce the price proposed due to government funding limits. The contractors' past performance is exceptional and they are in good standing with the customer. The contractor knows they cannot provide a quality product at the price the contracting officer is asking. What should they do?
First: Relationship skills! State your understanding of their constraints and you are willing to be flexible. Next, specifically identify those "Work line items" that you feel can be changed, reduced or eliminated while still providing a quality product within funding limitations. Then be sure to ask your client what they think about your suggestions!
Restate your desire to do the job and work with them on the price. However, remind them that because you know your cost, you do not want to commit to anything you know will not result in a quality product and a win-win situation. Let your customer have the opportunity to counter-offer. This is one of several approaches I personally use.
Remember, you can only successfully use this win-win strategy if you "Know Your Costs". Finally, whatever the final offer on the table, a firm management decision must be made by you. Yes or No. And be prepared to live with the results of your decision... Learn and move on.
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Time and Materials Costs Higher Than Expected - What are our options?
Inquiry: I have a question regarding time & material contracts. Contractor has a T&M contract that is commencing soon. After award we have determined that some of the incumbent employees that have first right of refusal are making considerably more that we proposed. Conversely, some positions were bid at a rate that affords Contractor some degree of latitude. For example, we bid a base rate of $18.50/hour and we can hire an individual at $17.00/hour.
Contractor did its due diligence by performing extensive salary surveys and proposed hourly rates that DCAA reviewed and determined them to be fair and reasonable. However, the incumbent personnel, in some cases, were making more that were proposed.
What course of action should Contractor pursue in order to mitigate the additional cost associated with the incumbent employees have first right of refusal. We could offer them a lesser rate which they may or may not accept. The down side to this is that the incumbent employees have been employed at their current positions for 20+ years and the Department of Energy's Labor Relations Department will, most assuredly, will take a dim view this.
Response: I would first do a cost analysis to determine the overall impact on the contract for those rates that are higher than and lower than proposed. Who knows, it may balance out. If it does balance out or there is no Material Impact on the costs than I would leave it alone.
Now the question is did the customer provide you the information on current incumbent employees salaries to use for proposal purposes? Probably not. If not, than it could be argued that information critical to the cost decision was not available.
I would first contact the CO or COTR and try to get authorization to allow an amendment to the contract for those incumbents that you must allow first right of refusal that would like to stay and that would be in the governments best interest to retain. Especially if the information was not available to anyone during the bid process.
I would explain from the view of impact on government if they cannot be retained at the least their current base rate. Then it shifts a little of the responsibility to the customer to determine if they will accept the people staying or leaving.
Be sure to show on a spreadsheet that is clear and concise the Cost Impact if they used the current incumbents rates. Let them see for themselves if the overall impact is material or not. Do not hesitate to show offsets for those higher rates with the lower rates. It shows you are requesting and negotiating in good faith. In addition, when looking at the impact, you can Choose not to apply G&A or Fee on the increased portion of the base rate. This is also a good faith negotiation technique.
In other words, you are requesting only an adjustment in the increase direct hourly rate plus the fringe benefits and payroll taxes as applicable. This is similar to what the government allows for SCA and Davis-Bacon employees when they have an increase the Base Wage Determination Rates.
And don't forget to look at the impact of any increase cost you did not expect in Fringe Benefits on those long-term employees, such as longer vacation, sick leave, health benefits, retirement etc.
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 How Satan Changed His Tactics To Keep People from God
Everyone that reads this may not be Christian, however satan makes no distinction in who he deceives or distracts from his true purpose. I hope God guides you in receiving that which directs you to Truth.
Satan called a worldwide convention. In his opening address to his evil angels, he said, "We can't keep people from going to church. We can't keep them from reading their Bibles and knowing the truth. We can't even keep them from conservative values. But we can do something else. We can keep them from forming an intimate, abiding experience with God in Christ. If they gain that connection with Jesus, our power over them is broken!
"So let them go to church. Let them have their conservative lifestyles. But steal their time so they can't gain that experience in knowing God through Jesus Christ."
"Here is how I want you to do this. Distract them from gaining hold of their Savior and maintaining that vital connection throughout their day."
"But how shall we do this?" shouted one of the angels? "Here is what I want you do do".......
Please follow the link below to review the entire inspirational thought. You will be glad you did!
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