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January 2006 Newsletter We would like to extend our warmest thoughts and prayers to those affected by Hurricanes Katrina and Rita. We hope that the rebuilding of lives, homes and businesses goes as swiftly and smoothly as possible. If you are interested in how your product or service may be used in the recovery effort, please visit: http://fedbizopps.gov/katrina.html -------------------------------------------------------------------------------------- This is the second in a series of articles designed to help businesses master the alphabet soup with which you must contend when the government becomes your customer. This issue we will focus on contracting methods and its associated lingo. Government Contract Speak and More Alphabet Soup from Manhattan Chamber of Commerce Business Matters Newspaper By Larry Christensen, Federal Contract Consultants There are several formal contracting methods recognized by government regulation. These procurement methods include such contracting methods as: "fixed-price", "time & materials" and most arcane of all, "cost-reimbursement" contracts. Firm fixed-price contracts (FFP) are the most common form of contracting and are further categorized into: single or multiple award schedules (MAS), definite or indefinite delivery/indefinite quantity (IDIQ) and fixed total price or fixed unit-price contracts. Each contracting method incorporates a different method of determining, to the satisfaction of the government, a "fair and reasonable price" and a "fair and reasonable profit" for the contractor. While it is true that all government contracts will generally fall into one of these contracting definitions, government agencies and prime contractors (companies holding large government contracts) often use alternative language, much to the dismay of those beginning in government sales. For example, you might encounter the terms: "commercial product" or "production" or "development" contracts or solicitations. Here's the translation: Commercial Product Contracts For well-defined products or services, the award will be some form of fixed-price or time and materials contract. These contracts are commonly negotiated on the basis of discounts from some standard of commercial prices and do not involve a separate determination of fee or profit. Profit is undisclosed and generally determined by a negotiated discounted price. This is the government's preferred method of soliciting and contracting because profit or loss risk is 100% on the contractor. The largest groups of contracts of this type are the General Services Administration supply schedule contracts and similar contracting programs managed by various other government agencies. Sometimes referred to as Government-Wide Acquisition Contracts (GWACs), supply contracts permit federal agencies to buy all sorts of products and services with a minimum of regulation and paperwork. Business may be conducted with a telephone and a government credit card. Production Contracts Technically, there is no such thing a "production contract" under government regulations; there are situations which are more or less conducive to simpler methods of contracting for well-defined products and services. What some agencies may call a "production contract" could be simply an Invitation For Bid (IFB) or Request For Quotation (RFQ) solicitation that results in a fixed price contract for a well-defined product or service with a defined schedule of delivery and known quantities of deliverables. When using Production Contracts, the government as well as the contractors may share the profit and loss risks. Development Contracts When there is no detailed definition or specification of what the end product will be or what the deliverable quantities or delivery schedules are, "research and development" (R&D) contracts can be employed. R&D contracts are radically different from other types of contracting (such as production or build-to-spec contracts) because fair and reasonable prices and profits are determined from the bottom-up (estimation of costs), not the top-down (from discounted prices). Major federal prime contractors such as Lockheed Martin and Boeing, are principally involved with this very intense form of federal contracting referred to as "cost-reimbursement", or more commonly "cost-plus" contracting. A defining characteristic of R&D contracts is the element of uncertainty in what the end product will be, and the ways to develop the end product. Most involve a high degree of technical expertise and critical development learning curves and a heavy reliance on quality and performance goals. They are also be characterized by tight schedule requirements and critical path milestones. In such cases all or some of the cost risk passes to the government and the contractor assumes fee or profit risk. Costs will generally be reimbursed even if there are cost-overruns, but there will be an inevitable erosion of profit margin when cost or other fee parameters are not controlled. In the extreme, 100% of the cost risk is on the government. FEATURED GOVERNMENT WEB SITE: Federal Procurement Data Center www.fpds.gov The Federal Procurement Data Center (FPDC), part of GSA, operates and maintains the Federal Procurement Data System (FPDS). The FPDS is the central repository of statistical information on federal contracting. The system contains detailed information on contract actions over $25,000 and summary data on procurements of less than $25,000. This web site will help you with marketing information - you can find out what the government is purchasing and how much it is purchasing. You can check to see if there is a sizable market for your product or service already in existence, or if you will need to build a market. If you are interested in finding out GSA Federal Supply Schedule statistics only (as purchased through GSA Advantage!), you can go to the Vendor Support Center at http://vsc.gsa.gov and download their sales totals by clicking on "Business Opportunities" then "Advantage! Sales". In a future article, we will deal more completely with the cost reimbursement type of contracting. Have a Happy New Year!  |