By Wes Bennett, Chris Hetz, and Cherissa Tamayori
The September 2023 issue of Contract Management magazine.
The relationship between the federal contracting community and the commercial world is a delicate dance with far-reaching impact.
Government acquisition professionals work side by side with industry professionals and company executives to inject new capabilities into the federal government. Each side has unique motivations, interests, values, challenges, and vulnerabilities.
To help unpack these driving forces, the National Contract Management Association (NCMA) recently hosted a panel discussion with two former Department of Defense (DoD) contracting executives, Wes Bennett and Chris Hetz. Cherissa Tamayori, Director of Acquisition at the Defense Innovation Unit (DIU), moderated the discussion.
We drew upon the discussion to write this article to share what working with the federal government feels like for contractors. We also offer some suggestions for building better business partnerships.
The For-Profit World
In order to effectively and efficiently procure the best technology money can buy, the federal contracting community must understand how for-profit entities operate.
The private sector has options. It can exist and evolve with or without DoD’s business. It is therefore in the interest of DoD and the government to be a better business partner. Otherwise, we run the risk of losing out on mission-critical – and even lifesaving and democracy-saving – technology.
DIU has successfully used other transaction (OT) authority over the past six years through its streamlined Commercial Solutions Opening (CSO). It has provided flexibility and scaling potential to protect the government’s interests while also being a good business partner.
Moving from government to industry, you quickly learn that companies are very willing to say no to bidding on government contracts. Before diverting resources to compete for a federal award, most companies require a strong business case. If due diligence indicates a low return on investment (ROI) or the need for significant intellectual property tradeoffs, most companies will quickly determine that partnering with the government is not in their best interest.
The effort and resources it takes for the private sector to comb through and understand government regulations and contract-specific requirements also are significant deterrents. Vendors do not have the same built-in knowledge of the Federal Acquisition Regulation (FAR) as the government. It may not be a core part of their business model.
Moreover, the compliance burden of FAR-based contracting is substantial. Every clause the government includes in a contract triggers the need for a company compliance team to read it thoroughly and assess how it will affect existing business systems, processes, and procedures. Often, the company must determine if it can even comply with a clause, and, if not, how much it would cost to change its business practices so it could.
Take for example, OTs and the multitude of unique articles that come with each new award. How does a company keep track of bespoke binding requirements that have no common naming convention and no consistency even within awards from the same government organization?
Pressures and Constraints
Private sector pressures and constraints are as intense as but different from those in government.
Like the government, commercial businesses have systems of checks and balances. Companies must weigh government opportunities against their overarching strategy as well as the potential for recurring revenue.
To give commercial firms a better idea of what that potential total addressable market might be in the government, contracting officers should include long-term planning information in solicitations. This will help vendors understand how their solutions could scale as a result of the partnership. It also makes it more likely they will pursue government opportunities.
For example, providing information on aligned government transition partners or other government agencies with similar needs helps the total addressable market analysis. And, although it might seem taboo, providing the estimated magnitude of effort in the solicitation might be appropriate in certain scenarios. This can make it easier for companies to forecast the potential ROI and justify investing resources to bid.
A major constraint that federal program managers and contracting officers should bear in mind is the magnitude of the resource investment required to qualify for government opportunities. For example, many startups well equipped to meet the government’s needs are solely focused on capturing the commercial market. The steps it would take for these businesses to pivot to meeting government requirements could be a bridge too far. A prime example is achieving FedRAMP authorization.
At the end of each quarter or at the end of the company’s fiscal year, company representatives often contact their contracting officers to ask about the status of a pending award. A common misconception among contracting officers and program managers alike is that this contractor preoccupation with speed to award is driven by individual bonuses. In reality, it has everything to do with solvency and the health of their organizations.
Young companies in particular face steep operating costs as part of growing their long-term revenue. Knowing whether (and when) revenue will meet or exceed the cost of doing business is vital.
Companies of all sizes, from publicly traded conglomerates to startups, operate on quarterly reporting cycles. In reporting, they must disclose to their boards of directors (or other stakeholder groups) how the business performed against previously established profit goals. Companies that miss those goals over a few quarters may find themselves in the unfortunate position of having to cut costs. This could include laying off employees.
Contracting officers and program managers must prioritize workload based on their organizations’ priorities. They also must understand the risk that companies take on when they opt to work with the government.
To the extent the government can ensure speed to award and recurring revenue, it will also ensure that we have a thriving, solvent commercial ecosystem and robust national security innovation base to deliver goods and services that keep the government running optimally and able to counter threats to the nation.
Practice Contractor Empathy
Contracting officers and program managers alike face enormous pressures to execute contracts under tight timelines. To help alleviate the pressure and meet deadlines, the government often imposes a short response period for a solicitation. However, as in government, most companies require layers of approval and analysis before sending a proposal. Tight deadlines often drive companies away from proposing.
Anything that reduces the bidding pool is particularly worrisome from the strategic national security perspective. To keep pace with near-peer adversaries, the United States must engage companies to the fullest extent. Especially important are those developing leading-edge technology solutions. Attracting companies to work with the federal government takes patience. Creating a quality proposal takes time – certainly more than a week.
Instead of squeezing time out of proposal development, we encourage contracting professionals to look to other stages of the process to save time. For example, time may be saved in requirements development or proposal evaluation.
During the pre-solicitation phase, contracting professionals may find it helpful to consider how different parts of the solicitation would affect and incentivize different types of companies. If you are unclear on what the incentives might be, open up the conversation. You can put out draft requests for proposal (RFPs) and hold industry days. Call industry association representatives and ask them how particular solicitation requirements would motivate (or dissuade) them.
This might seem like giving companies an unfair advantage. However, there are ways to prevent that such as posting the information across multiple sources.
Failure to communicate with industry limits the vendor base and reduces competition. So does inadequately incentivizing small and non-traditional companies or those new to the government market. These companies typically are not incumbents and do not have contacts in your organization. They usually have very limited knowledge of your requirements.
Consider practicing contractor empathy. Open the aperture of communications, and avoid limiting competition.
The federal contracting community often is critiqued for being risk averse. But there is risk aversion on the contractor side, too. Here are some drivers of private sector risk aversion:
• Delayed ROI: Companies can be wary about competing for government contracts when it is unclear how long it will take for their investment to pay off. Many companies are unwilling to take work for which it might take several years to reap the return on their initial investments.
• Misinformation: Much risk aversion is based on misinformation or lack of communication. It can yield questions like, “What are government data rights?” or “Is the government going to take my intellectual property (IP)?” Government contracting officers can help assuage such concerns by clearly explaining their long-term goals early on.
• Unattractive Terms and Conditions: Weaving unattractive terms and conditions into the contract can spook companies. A prime example is unnecessarily asserting rights to a company’s IP. The thought of giving up any rights or allowing the government to provide a firm’s IP to a competitor can be untenable. Here again, contractor empathy can go a long way. Ask only for the rights that are necessary for a program and clearly signal to industry what those necessary rights are.
• Revenue Realization: Companies not accustomed to working with the government have processes that generally allow them to book revenue as quickly as possible. The payment clock often starts after a purchase order is signed. It does not begin after receipt and acceptance, as the government requires before payment. In addition, many company End User Licensing Agreements (EULAs) allow for the automatic renewal of subscriptions. Again, a practice not allowed by the government due to the Antideficiency Act. Government’s procedures are not wrong, just different. Like many differences from commercial practices, companies can view these as risks of working with the government.
The acquisition community is a key conduit for information that can make or break a business. Contracting officers and program managers have a hand in many critical decisions that might not seem earth shaking to them. But exercising an option, for example, can have a profound effect on a contractor. As a result, urgency, transparency, and empathy are among the most important characteristics for successful government-industry partnerships.
The views, opinions, and assumptions expressed in this paper are those of the authors and do not necessarily reflect the official policy or position of any agency of the U.S. government.
This article appeared in the September 2023 issue of Contract Management magazine, published by the National Contract Management Association. Used with permission.