• Government Contracts

The breakdown of Revenue by Contract Type. 45% revenue from federal contracts come from cost type contracts, 20% are fixed price and 35% are time and material. The percent of cost type contracts has substantially increased each year apparently putting to rest the impression that the government is moving more toward commercial practices where fixed price or T&M contracts predominate.

Fees. Average negotiated fees for cost type contracts averaged 6-7%, T&M contracts had an average of 910% while firm fixed contracts had 10-11%. It should be noted that these negotiated profit rates are computed after deducting unallowable costs and before income taxes so actual profit rates are lower than negotiated rates.

Billing Retention Withholds. The fixed fee clause in cost reimbursable contracts require that 15% of the negotiated fixed fee be withheld from contract billing during contract performance up to a maximum of $100,000 per funded contract vehicle. The clause directs the government to release 75% of the withhold after receipt of the incurred cost proposal for the year the contract work was physically completed and up to 90% based on the contractor’s past performance in the settlement of final indirect cost rates. The survey found that 32% do not bill for fee retention until the final government audit is complete, 22% bill after the incurred cost submission is made and the remaining 46% bill some of the withheld fee before final audit and some after final audit.

Proposal Win Rates. Surveyed companies stated their win rate on non-sole source proposals was 30%. Reasons stated for loosing competitions was a combination of price and technical – 55%, price only – 16% and technical only – 20%.

Special Business Units. Companies often create special business units (SBUs) frequently to work around burden rates or cost accounting practices established at current organizations. The survey found that existing cost accounting practices are enhanced by populating the SBUs with the parties’ own employees as opposed to providing services on a subcontract or intracompany basis. Special business units such as joint ventures or limited liability corporations were established by 17% of surveyed respondents where they reported a 65% win rate.

Bid and Proposal costs. 73% of respondents reported spending less than $1 million while 19% spent between $1-2 Million.

Claims and Identifying Out-of-Scope Work. Identifying out of scope work, whether it comes from an easy to recognize direct change or sometime difficult to recognize constructive changes, provides an important opportunity to receive additional entitled revenue. 35% of the respondents said their procedures for recognizing out of scope work are vey effective, 65% said somewhat effective and 9% said not effective.

GSA Schedules and ID/IQ Contracts. The use of IDIQ contracts and GSA Schedule contracts have increased substantially where IDIQ contracts are awarded to multiple contractors after which contractors must compete with each other for actual work. Though agencies often issue their own IDIQ contracts the most common types issued are under the GSA multiple award schedules. When the GSA schedule is based on commercial pricing (as opposed to a cost buildup) companies must designate a target customer or category of customers required under the Price Reductions Clause (PRC) where contractor must notify the GSA of all special discounts offered to the targets where either they must offer the same discounts or justify why the special discounts are not offered to the GSA (contrary to popular belief, offering of a discount to a non-target client is not covered by the PRC.).

23% of the respondents do not have an IDIQ contract, 73% have 1-5 IDIQ contracts while 4% have more than 5. 70% report no significant impact on profits from having IDIQ contracts while 17% reported that profits had increased while 13% said they had decreased. For GSA contracts, 47% of respondents priced their GSA contracts on a cost basis while 53% used commercial pricing (we assume the survey means the GSA schedule billing rates were based on commercial versus cost build-ups). As for what companies are covered by the PRC, 51% said all commercial firms are the target companies while 26% named only a single target company and 23% used some but not all. (In general, the fewer the better.)

{TAG_FORM_TITLE}