Federal contracting is enticing, but risky

Project management authority H. Kent Craig discusses the unique risks of taking on a federal contracting job

With the traditional watering holes of residential, commercial and even industrial contracting work drying up in this parched economy of ours, it's a temptation to look outside our big fish in a little pond scenario and dip our fins into the biggest of them all, trying to compete and win in the federal ocean.

Considering that the new administration in Washington is getting ready to dump more dollars into what will be the biggest series of public works projects since the Great Depression, it's a natural temptation to jump into what is the most complex, ferocious, confusing, detailed, vicious and scary market of all. Trying to get contracts as a prime contractor with the federal government or get a slightly less risky share as a subcontractor to a prime contractor can be intimidating.

Those involved in federal contracting will tell you that it takes a special species of individual and company to make a profitable go of it. Yes, the main advantage of working as a contractor for the feds is that they have the money (your money) to always pay you and pay on time, but that's less than half the story. There are unique risks in taking on a federal job, which no one usually wants to tell you about, but I'm going to.

The first risk is that the breadth and detailed level of required record keeping needed in order to actually get paid is truly astonishing. Remember when your pickiest customer required you to document associated job costs down to every dime spent on everything, even down to the toilet paper (such a mundane thing) for the job trailer? That was nothing! You have to be prepared for the federal contract scope requiring you to go even further.

The only reason you should care about this is because the time spent creating such records cost money, usually more money in SG&A percentage of contract cost than you're used to spending. If you don't include this higher cost within the final number of your winning bid, you're going to lose money.

The second risk is not believing what you read, not taking every single word in a request for proposal (RFP) literally and thinking to yourself as you assemble your final number, “Oh, that's preposterous, they can't really mean that!” Yes, they do mean it or they wouldn't have put it in the solicitation language. No matter how absurd it is, whatever “it” is, you'll have to comply with it. Don't think of the requirement for daily job cleanup is just cleanup, but think of cleanup with special fur dusters. Even if you think this is a joke and that they can't be serious, you are wrong. It might be a joke to you, but it's not to them. If you don't price out every stated contract line item, you're going to lose money, a lot of it.

Another risk is that any contract (not a fixed-end, goal-centered, start-finish traditional contract) with the U.S. government can be a starting point for future massive contract changes, including many change orders that can creep up on you so quickly that you will not even recognize the end product.

Why is this important? Because it can be frustrating to deal with, and if you're not careful or not lucky, it can consume huge amounts of your personal time and energy as well as the company's. Layering percentage points to your overhead that can't be documented and for which you can't ask for reimbursement will kill your profit margins. This fact is counter-intuitive to the old way of thinking that, “any change order is a good change order,” but we're talking about the feds here, not the real world. What's true in the real world isn't necessarily true in the federal one.

Then, add on the fact that any work done for Washington carries with it many unseen, unstated potential torpedoes that may not sink your company ship, but could possibly land you in the brig until you “retire” as well.

Are you accustomed to taking your customers to lunch, including your general contractor and project manager, as a fence-mending gesture? Can you do that legally with your federal contract officer? Is doing so considered to be a bribe that can land you in a federal prison or is it merely an ethical violation that can cost you money and/or have your contract cancelled? Maybe it is no big deal at all? This is just one small example of how much you, as a federal contract greenhorn, don't know and how such sublime ignorance could potentially cost you.

Believe it or not, I'm not discouraging you from pursuing work for the federal government as an option for adding work to your company's portfolio. However, before you even look at your first RFP/RFQ, make sure to do tons of homework, talk to others who have done work in the federal arena and got out of it, as well as those who've made a go of it, and then pray for divine guidance before submitting your first proposal since you're definitely going to need it!

Kent Craig is a second-generation mechanical contractor with unlimited Master's licenses in boilers, air conditioning, heating and plumbing. You may contact him via email at [email protected].