Event Recap – Knowledge is Power – The State of Government Contracting

At its sixth “Knowledge Is Power” forum held Sept. 13th at The Hotel At Arundel Preserve, the Baltimore Business Journal welcomed four distinguished panelists to discuss the state of government contracting in today’s economic climate. By Alan H. Feiler

Panel Members

Erich Baumgartner Vice President, Public Sector Sales Sourcefire Terry Grant CPA, CCIFP, CCA, Co-Chair, Government Contract Services Group KatzAbosch Eric Pietras Senior Vice President/Senior Client Manager Government Contractor & Technology Group, Global Commercial Bank of America

Moderator: Deon Viergutz President of the Fort Meade Alliance and Director of Operations Lockheed Martin Cyber Solutions

The State of Government Contracting

Just hearing the mere utterance of the “S-Word” – sequestration – sends shivers up the spines of longtime contractors and those hoping to snag prized contracts from federal agencies in today’s competitive, fiscally tight-fisted environment. But panelists representing an array of industries say that with a certain amount of flexibility, tenacity and creativity, companies can overcome obstacles and tightening federal regulations and practices – such as the Lowest Price Technically Acceptable (LPTA) evaluation criteria – to be successful in the changing government contracting landscape. “It’s still a great marketplace,” Offit Kurman  said. “It’s just about doing things differently than what most companies are used to. They have to be more flexible and dynamic in how they’re doing things to maximize returns.” The current economic situation will continue for the foreseeable future, Pietras warned. Already, he said many companies have streamlined and reduced overhead to be more competitive and weather the storm. But there have also been companies that have done little to adjust to the LPTA and contract slowdowns. The outfits that have taken precautions will likely not be as impacted by sequestration. Many regional contractors worry about retaining their limited pools of employees who have security clearances and expertise in particular fields, said Offit Kurman. He suggested contractors need to implement incentives to keep such workers over the next five years. Grant said companies that are re-bidding on contracts are finding they need to replace high-level employees with lower-level staffers to reduce costs. The challenge, she said, is how to retain the high-level staff while minimizing overhead and cuts. That requires having a good plan in place. Despite sequestration and the challenging economy in recent years, Baumgartner said the field of cyber security is thriving. He is optimistic that he and his partners will be even more successful at securing contracts in the future, having “been around the block.” To stay competitive in 2014 and beyond, mid-size businesses must find ways to cut costs, Pietras said. They need to meet with customers and determine the programs and projects most likely be affected by sequestration so they can identify the risks and be prepared. Over the past year, he said he has seen clients spend a great deal of time minimizing non-allowable costs by reducing overhead through such measures as improving their invoicing and collections process. Diversification is essential, according to Offit Kurman. He advised companies to approach multiple agencies and seek work at the prime and sub-prime levels in order to survive in this environment. Diversification allows a contractor to maintain revenue and spread out their overhead. Contractors need to know the agencies they’re working with, Grant said, so they should get to know the contracting officers well. That way, they will know ahead of time if contracts are slowing down or going to end. Then, they can plan accordingly. Over the past 5-10 years, government contracting has grown increasingly competitive, with many new companies entering the field, Offit Kurman said. Get to know the process, he said, and attend networking events and recognize the value of partnering with other companies. “You have to be more open to meeting more people and getting out of your office,” he said. “Meet your customer, go to them to sell them business.” Survival requires knowing your customer’s needs better than your competition does, said Baumgartner. He suggested getting to know not only the contracting officer but the end user who can understand your value proposition, and help justify a higher price. Offit Kurman said more commercial businesses are getting into government contracting and more government contractors taking commercial business, so it is becoming difficult to set pricing. Companies, he said, need to segregate costs and restructure themselves so they can compete in both environments. One audience member asked panelists how the government is responding when underbidding companies fail to perform. Pietras said that under LPTA, the past performance requirement was waived. That’s eliminated barriers for smaller companies, but it has led to non-performing companies, which is something that will come back to haunt the government. Viergutz added that contracting officers realize there is a finite amount of financial resources available, so they have to be flexible. He said there is a trend to for the government to hold contractors accountable and terminate contracts for non-performance rather than continue. Baumgartner said his company is focused on developing technology with its own money and then turning around to sell it to government or commercial clients. He said product companies need to stay focused and come up with the best products to survive. Pietras said he is starting to see mergers and acquisitions activity pick up, with more transactions and deals. More business owners are thinking about selling, he said, because they are afraid their companies won’t survive in this environment. So large companies, such as Lockheed Martin, used last year to streamline their outfits and are now well-positioned to acquire companies in areas in which they want to diversify. As far as the availability of capital, Pietras said a lot of banks have pulled back from the market. Still, there are banks making deals. However, the underwriting process has changed and banks are now looking for expiring contracts and scrutinizing projections. If a company says that it’s going to improve its margins, that’s a red flag, Pietras said, because that is not happening in this market unless it’s a cost-cutting measure. When asked about the future of government contracting, all of the panelists were optimistic. “The key is to have something unique and to be able to present that uniqueness to the agency or company you’re trying to appeal to,” Grant said. There will be challenges and pressures in the foreseeable future, Pietras predicted, but the companies that “are well-positioned and take the time to do some selective layoffs and reposition their business line and get into the right type of marketing areas and exercise some flexibility are going to do just fine.”