Strategic Proposal Development: From RFP to Rolling Forecast

Brandon Smith, ARSA

ARSA Solutions

• Anglin, Reichmann, Snellgrove & Armstrong, PC

• www.anglincpa.com

• Founded over 25 years ago

• Work with over 300 Government Contractors

• Over 50 fulltime employees

• Clients headquartered in 26 states and Washington D.C.

• Services for our Government Contractors:

– Audit & Assurance

– Tax Advisory

– IT Services

– R&D Consulting

– Business Valuations

– Consulting Services (Controllership, CFO, Compliance)

Brandon C. Smith, CPA

• Brandon is a Partner of the ARSA Solutions group at Anglin · Reichmann · Snellgrove & Armstrong, although he began his public accounting career in Audit and Assurance. He has a unique background of over 15 years of experience in the government contracting and technology fields that includes time as a Controller / CFO. With his industry and public accounting experience, he is able to provide extensive consulting services for government contractors. He also works with clients in biotechnology, information technology, construction, manufacturing, professional services, and other industries.

Finding New Business

• A potentially successful contract is one where the contractor can perform the work meeting all the needs of the buyer at a price that will earn a reasonable profit, and, perhaps gain another benefit, future contracts.

• Consider the following:– Potential revenue and margins

– Profits or other business opportunities

– Can you develop a winning strategy

Key Factors

• Know yourself– What do you do well?

• Identify potential customers early– Who is your sales representative?

• Know your customers– Determine their needs and help them clarify

them.

• Know your competitors– Cost? Incumbent? Technical?

Bid/No Bid

• Weigh the risks and the opportunities

– What are the costs to pursue?

– Are the objectives clearly stated?

– Do you know the buyer’s budget, schedule, long term plans?

– What are the risks?

– Determine appropriate course of action

Budget Development

• Known or reasonably expected– Current contracts and volumes– Option years with high expectation of award

• Development of Direct Costs– Labor

• Labor mix• Escalations

– Subcontractors– Materials– Travel– Other Direct Costs

Budget Development

• Developing Indirect Costs

– Labor

• Labor mix

• Escalation

– Known changes

• Leases, software licenses, training, certifications

– Estimated changes

• Health insurance, utilities, office supplies

Rate Structure

• 2-tier vs 3-tier– Refers to how fringe is applied

– 3-tier• Fringe is a final indirect cost pool and is shown

separately from OH and GA

• Direct labor burden includes FR + OH + GA

– 2-tier• Fringe pool is allocated to OH and GA cost pools

• Direct labor burden includes OH + GA

– No difference in calculated wrap

Rate Structure

• Overhead Pools

– How many do I need?

• Logical and consistent groupings

• Not separating causes an unequitable allocation of costs

– Total Cost Input (TCI) vs Value Added (VA)

• Burden on material and subcontracts

Rate Structure

• Total Cost Input– Direct materials and direct subcontracts are in the G&A

base– Burdened with G&A

• Value Added– Costs associated with procuring and administering direct

materials and direct subcontracts are a separate cost center – Subcontractor/Material Handling Pool (S/MH)

– Direct materials and direct subcontracts are in the S/MH base rather than the G&A base

– S/MH pool is included in the G&A base– Your G&A will be likely be higher

Cost Impact Analysis

• How will this award affect my indirect rates?

– Direct costs

• Additional labor, subcontracts, materials, travel

– Indirect requirements

• Unique benefit requirements, Service Contract Act

• Additional facility space required

• Additional indirect help (accounting, contracts, HR)

Cost Impact Analysis

G&A Pool G&A Base G&A Rate

Operating Budget $500,000 $5,000,000 10.00%

Two FT Engineers $265,000

Cost Impact $500,000 $5,265,000 9.50%

Pricing Strategies

• Must have sufficient information on both direct and indirect costs to make a fair and reasonable determination of costs

• Remember the objective is to cover costs and contribute to obtaining corporate and operational objectives

Rolling Forecasts

• Budgets

– Anticipates future revenue/costs

– Typically done annually

– Past and current trends determine plan for upcoming year

– Typically annual and static (count down)

• Rolling Forecasts

– Anticipates future revenue/costs

– Continuous process

– Current trends and changing conditions determine plan

– Maintains constant and adds iterations

Rolling Forecasts

• The average small business responds to 19 proposals (both prime and sub) in a given year

• Layering cost impacts could cause an artificial lowering of burden rates

• Excel spreadsheets are not adequate to track the iterations of cost impact analysis

• You must have the flexibility to add/remove scenarios from your forecast

• You must analyze the impact on current work

Rolling Forecasts

G&A Pool G&A Base G&A Rate

Operating Budget $500,000 $5,000,000 10.00%

Proposal 1 $265,000

Proposal 2 $750,000

Proposal 3 $125,000 $500,000

Proposal 4 $50,000 $375,000

Cost Impact $675,000 $6,890,000 9.80%

A static forecast that layers potential awards shows my burden decreasing

Rolling Forecasts

G&A Pool G&A Base G&A Rate

Operating Budget $500,000 $5,000,000 10.00%

Proposal 1 $265,000

Proposal 3 $125,000 $500,000

Cost Impact $625,000 $5,765,000 10.85%

In reality, it is unlikely to win all four proposals and the awards could actually increase my rates. In this scenario, the new contracts will not be as profitable as anticipated and existing contracts have more burden to absorb.

Rolling Forecasts

• Use rolling forecasts to analyze changes in existing contracts

• Additional direct work without significant infrastructure needs will lead to better performance on existing contracts

• There is more base to allocate the burden

Rolling Forecasts

Revenue Direct Labor

Gross Profit

FR (50%)

OH (10%)

G&A (12%)

Net Profit

Net Margin

Contract 1 1,000 400 600 200 40 77 283 28.32%

Contract 2 3,000 1,500 1,500 750 150 288 312 10.40%

Contract 3 5,000 2,800 2,200 1,400 280 538 (18) (0.35%)

Totals 9,000 4,700 4,300 2,350 470 902 578 6.42%

Potential Award (After Cost Impact Analysis)

Direct Labor FR (50%) OH (8%) G&A (10%) Fee (8%) Total Award

4,000 2,000 320 632 556 7,508

Current Contract Performance at Actual Rates

Rolling Forecasts

Apply the proposal rates to your existing contracts using a rolling forecast

Revenue Direct Labor

Gross Profit

FR (50%)

OH (8%)

G&A (12%)

Net Profit Net Margin

Contract 1 1,000 400 600 200 32 63 305 30.48%

Contract 2 3,000 1,500 1,500 750 120 237 393 13.10%

Contract 3 5,000 2,800 2,200 1,400 224 442 134 2.67%

Totals 9,000 4,700 4,300 2,350 376 743 831 9.24%

Profit on existing contracts would increase by $254k in this forecast

Revised Bid After Updated Forecast

Direct Labor FR (50%) OH (8%) G&A (10%) Fee (5%) Total Award

4,000 2,000 320 632 348 $7,300

Summary

• In the competitive environment we are in, spreadsheets are not able to efficiently provide the analysis needed

• A cost impact is only the first step in your pricing model, those forecasted rates must be applied to existing contracts to determine the effect on burdens and profitability

Closing

Thank you for your time…..Questions?

From the Wall to the Cloud; a time of Security & Modernization

Federal Market Outlook FY 2017 and Beyond

Chris KadalecEZGovOpps Market Intelligence

www.ezgovopps.com

Presentation Outline

• Federal Market Trends

• Contracting Influences (The Trump Effect)

• Agencies & IDIQs to Track

• Emerging Markets & EZG Tips

Federal Market Trends

• Consolidation & Category Management

• Accountability & Compliance

• SIMPLICITY

• Fresh, New Ideas

• Divesting, Merging & Closing: Contractors Scramble to Adapt

Federal Market Trends

CATEGORY MANAGEMENT

Best in Class

• Foundation has been set, ‘17 will reveal preferred sources

• MAC to Best in Class Vehicles

• Less Contracts :: More Competition

Federal Market Trends

LET THE RUMBLE BEGIN

• Grapple with new Compliance Standard

• NEW: Transactional Data Reporting Rule

• NEW: Digital Accountability and Transparency Act

– MAY ‘17

Federal Market Trends

(trying to) Make it Easier with SAP

• Simplified Acquisition Procedures better for both

– Expedites awards, avoids protests

– Decreases workload,

increases PWIN

Federal Market Trends

Unconventional Contracting

• Recent moves to spur Silicon Valley in unorthodox ways

Federal Market Trends

Unconventional Contracting; Hack the Pentagon

Federal Market Trends

Unconventional Contracting; DHS: OTS

Federal Market Trends

Scramble to Adapt

• Learn to cope with Margin-Squeezing

• Strategic Sourcing, SB Set Asides, LPTA, etc.

• Large Contractors will continue to separate lower margin services

• The Mid-Size Quandary

Federal Market Trends

Outlook in 2017 Forward: Digital First

Expiring government contracts from 4/1/17-4/1/18 involving IT modernization

• 77.7% of FY17 Agency IT budgets are for Modernization

• Expanding Public & Private Clouds at CMS, FDA• Leveraging PaaS to drive data/info sharing at

NIH• Data analytics driving next stage of quality

measurement• Better customer service through web services

and visualization• TIP: Forecast. Recompetes.

• $200b in IT hit the street last year across 300 various opportunities, the largest contracts are cyclical

Influences on Contracting

The Trump Effect

• The Contracting Officer & Chief• Feds may break contracts for wide variety of

reasons

• Hiring Freeze…good news? • Outsourcing to Increase• Expect increased reliance on contractors

• American Energy and Infrastructure Act• Cyber isn’t going anywhere #VladEffect• Reverse Obama’s executive orders

relating to regulation (& sequestration cuts)

• 2017 NDAA: 90 sections relating to acquisition

Influences on Contracting

OMB’s Budget Blue Print

versus

GAO’s Government Contractor Data Report(developing)

Agency to Watch: DHS

• Elaine Duke, Deputy Secretary under John Kelly• UNITY OF EFFORTS

• OMB Blueprint effects• Data Center consolidation (DC 1 & 2)• Cyber & Internet of Things• Infrastructure: Border Wall• Hiring Spree: ICE

Agency to Watch: DHS

• First Source II: DHS Vehicle for IT commodities and solutions

• Looking for experience in: Data centers, Network Security, Management and security ops centers for OneNet initiative

• Border Wall RFI• Fast moving, quick turn-around,

new norm?• Expect DHS to showcase new trend

quick

Agency to Watch: DHS

Agency to Watch: VA

• Predicting very active ’17• Large focus on Information Integration• Targeting: App Dev, Case Management,

Information Sharing, Data Management, CRM & Healthcare Management

• Expect adherence to Rule of Two

• Look for: • Community Care Network for

Professional Service ($64b)• Commodity Enterprise Contract

RFP• Building on Veterans Technology

Services• VETS II set for growth

Agency to Watch: VA

Agencies to Watch

Agencies to Watch (continued)

• Plan to use scorecard approach in evaluation procedures • Plan to release RFP for Small Business Enterprise Solutions

• Follow on to Network Centric Solutions 2 (orig. ceiling of $960m)

• Next Generation Enterprise Network recompete due in July• Expected award date mid 2018• Hardware, services and Management for USMC Intranet

• IT Support Service Contract: expected follow on• To build out IT Infrastructure: ‘10 opportunity included

Accenture, CSC, Lockheed & Northrup Grumman • Planning to expand number of contractors

Agencies to Watch (continued)

• Plans to revamp IT infrastructure with IT Support Services 5• Worth $1.4b• Released draft RFP in ’16, RFP expected 3rd quarter of ‘17

• Looking for: Big Data, Data Analytics in support of Law Enforcement

• Will begin evaluating bids for Alliant 2 (& SB) which could bring approximately $65b in IT service over next decade

• Awards expected over the next couple months

Emerging & Niche Markets

Tips from the EZG Team

• Focus on Forecasting

• Identify Recompetes

• For the incumbent: stray away from “History Lessons” and look to the future

• Pick Clients Carefully

• Look through agency solicitation histories as well as forecasts

• How do they handle your service? e.g. LPTA? (risky).

• Know your client, their focus, their strategy and what they know about you

• Being aware of their acquisition system is a must

Tips from the EZG Team

Thank you for your time!

For any further questions or requests for slides please email inquiries@ezgovopps.com