Rose Report: Issue 12

GovCon Taking a Cue from Commercial Organizations

Government contractors have their own business models and objectives, but that doesn’t mean they can’t gain anything from looking outside their own sector. In fact, there’s quite a bit they can learn from commercial organizations.

For instance, contractors are so focused on their indirect rates that they often miss the details behind those rates. Commercial businesses, on the other hand, more often look at rates as a summation of the actual activity within the various expense accounts. For government contractors, analyzing their rates on this more holistic level would likely allow them to find more opportunities to control expenses, making them more cost-competitive.

Contractors that manage expenses on a line item basis are much better prepared to make lower—but still realistic—bids for work. Staying on top of line items can prevent them from having to convert fees into operating expenses, too. For example, if the G&A pool is capped at 10%, but actual G&A costs reach 12%, the 2% difference ultimately comes out of expected profits—not a desirable situation.

Commercial organizations also tend to focus more heavily on key performance indicators, such as balance sheet ratios, to ensure they have strong liquidity and can lower capital costs over time. Having a detailed set of KPIs by which to measure progress is just as important for contractors. And while government contractors typically excel at project reporting—in large part because of DCAA requirements—they would also do well to produce high quality management reports focused on KPIs and the metrics of their organizations.

Having a diversity of work is another advantage—especially in a still uncertain economy—that commercial businesses often strive for, while government contractors often do not. After landing a few significant contracts in the same industry, it’s easy for contractors to settle into a niche. But if funding for that particular area dries up, those organizations could find themselves in serious trouble, even on the verge of going out of business.

Finally, commercial organizations tend to be more conscious of developing their brands and marketing strategies. It’s becoming increasingly important for government contractors to build strong brands as well. To remain competitive, they must be able to distinguish themselves in the marketplace. Organizations that are still young with 8(a) minority status sometimes take for granted that agencies give them preference when it comes to awarding work. But eventually that minority designation runs out, and if they haven’t adequately established their brands, it will be difficult for them to compete long-term.