Federal Government Contracting: 7 Characteristics of a Successful Subcontractor

Prime contractors that pursue and win major service contracts with the Federal Government often form teams with smaller companies as subcontractors. They do this to broaden their technical offerings, take advantage of subcontractor customer domain knowledge and develop an extensive pool of qualified engineers and technical specialists.

Assembling a winning team however requires experience and skill and prime contractors look for subs that meet certain defined criteria. Seven subcontractor characteristics are critical in developing a winning team.


Unique or Exceptional Skills Desired by the Customer

Each customer requirement is unique and in order to develop a winning proposal the team must identify and include team members with the skills the customer requires. Special skills could include expertise in cyber security, advanced software development techniques or system engineering skills.

Examples of this are defining systems requirements for over 8,000 requirements on a major program, utilizing a special Extract Transform Load tool to solve a software development effort and developing a PKI cyber system for a classified customer.


Possess Extensive Customer Domain Knowledge

Knowledge of the customer, its mission and personnel are mandatory prerequisites to winning. It cannot be over emphasized that intimate understanding the customer organization and operations offers tremendous advantages.

When a multibillion dollar contract award was made to a large team from a major intelligence agency, special knowledge and relationships of the subcontractor was a major success factor for the team.


Extensive Proposal Preparation Skills and the Ability to Clearly Write and Persuade the Customer

Proposals are a prerequisite to winning a contract and proposal preparation is both an art and a science. In the Request for Proposal (RFP) mandatory requirements are detailed and evaluation criteria are established.

Concise and persuasive proposal writing is required because customer evaluators receive a large number of proposals and summary checklists are often used to score winning proposals. Since proposals often have a number of authors that write in different styles and voices, a subcontractor with strong editing skills can be especially valuable to the team.

The customer, through the proposal process, demands clear and concise solutions and a well written proposal that meets the customer's needs is a winning document. This can be seen in a recent large IDIQ contractor where the subcontractor wrote one major sample task order (T/O) and edited a second winning T/O. As a result, the team won a major intelligence agency contract award.


Support the Proposal Process and Meet All Data Calls

Value added subcontractors actively support the proposal process by participating in writing technical and management volumes. The process is complex and requires the collection and evaluation of large amounts of data usually developed through data calls on all teammates. The best subcontracting teammates respond to data calls timely with accurate information.

This is particularly true when the proposal is a response to a major multiyear effort. Subcontractors who always respond before the data call due dates generally gain a larger percentage of work share. Subcontractors with a reputation for performance on data calls are often invited to join teams for new projects.


Develop Aggressive Pricing

Large government projects are competitive and all teammates need to develop aggressive pricing.

Fringe, overhead and G&A forward pricing must be carefully and accurately developed and the customer usually reserves the right to review prices and cost buildup. The best subcontractor teammates understand government pricing models and requirements and eliminate excess costs from their proposals.

One successful subcontractor offers separate benefits packages based upon market demands that allow aggressive pricing and a more competitive cost proposal. This strategy has resulted in a number of team wins.


Use Customer Knowledge to Shape and Win Task Orders

For many large contracts of the IDIQ (Indefinite Delivery, Indefinite Quantity) type, competitive task orders are released that winners must also bid on. The most effective way to win task orders is to interface with the customer, understand its needs and influence the specification of the requirements in a way that teammates can best respond and win.

Subcontractors with marketing knowledge of the customer requirements and who interface regularly with the customer are able to raise the win percentages (PWIN) for awards.

As an example, one small contractor was so entrenched with the customer base of a large intelligence agency that a large contractor bought the company and, as a result, won a multibillion dollar contract award.


A Teammate must be an Aggressive Recruiter

For services contracts the subcontractor must be able to recruit and hire the best qualified individual quickly and cost effectively.

One example of a successful recruiting partner is a subcontractor that has invested in recruiting technology and personnel that enable the building of an available pipeline of skilled candidates with required clearances for contracts with the Intelligence Community.

Those teams that add subcontractors that add real value have greatly improved chances of winning major contracts.

Large government contracts are competitive and winning proposals can be very costly. The best winning proposals are a team effort and the best subcontractors on the team meet or exceed the criteria detailed above.

Jon M. Stout is Chief Executive Officer of Aspiration Software LLC. Aspiration Software LLC is an Information Technology/Cyber Security services provider focused on the Intelligence Community (IC). For more information about Federal Subcontracting and Employment Opportunities in the Intelligence Community go to http://aspirationsoftware.com

Construction Estimating Labor Using a Subcontractor Lump Sum Quote

This discussion assumes that you are acting as a General Contractor, Home Builder, or Construction Manager that does NOT self perform labor in specific areas of work.

This process is very similar to the Subcontractor System unit cost approach. However, in this discussion, you have absolutely NO pricing histories from Subcontractors, just a Lump Sum quote, making it almost impossible for you to qualify the quote. Possibly, the only way to qualify quotes, is to compare quotes across all Subcontractors in a specific specification section or category hoping that none of the subcontractors or vendors left something ( material, equipment or labor) substantial out of their Lump Sum quote. Another MAJOR concern is, what happens when you do not get any or enough quotes in a specification section or category? Needless to say, this method is very risky for your company. Whereas, in the Subcontractors System Unit cost process, you could possibly have some pricing histories from some subcontractors who have bid to you in the past for specific types of work of past performance. But equipped with only system unit pricing histories from those or some contractors probably will not provide you the time or pricing analysis to help reduce risk to your company or make your bid more competitive. That is mainly due to your mindset being in the Lump Sum quote expectation mode, in lieu of thinking about or preparing your analysis in a scope or system outline.

Now don't be offended here, but this process is probably one of the most used processes, so it is highly suggested that you explore a hybrid estimating process, scope estimating process, or subcontractor system unit cost process. Those areas expand on the concept of checking Subcontractor quotes in a little more detail that will help you to qualify quotes. One of the reasons this Lump Sum Quote process is so popular is not because it is efficient or accurate for that matter. It is strictly a time saver, since you are just soliciting for quotes or bids from vendor or subcontractors. So this process does not allow you to have an understanding of (what is in the job or bid) the bid items (or complexity of the project) or of the way you expect bids or quotes are going to be coming in to you in the last two hours or twenty minutes of a competitive bid to an owner. So essentially, most people land up taking the low subcontractor lump sum quote without really understanding the extent or scope of the quote, where the volatile risk to your company is really high. Some would agree that bidding like that is just like flying blind, so please research the other estimating processes mentioned above.

http://www.asktheestimator.com/ls-quote-construction-estimating-software-contractors/ addresses all these issues in depth and in video format, all for FREE. The posting of your questions and our video responses are a FREE service as well. There are various postings that cover how to review a construction estimating software program based on the 12 AskTheEstimator estimating processes. So please visit http://www.asktheestimator.com/ to get you onto the right track to Consistent, Profitable, and most importantly, Competitive estimates. Toll-Free 1-888-552-2520

Subcontractors: Who Knows Your Clients Best?

A big fear computer consultants have when developing partnerships and relationships with subcontractors is "How do I keep the subcontractors from stealing my clients?"

Contracts Are Only Part of The Equation

Should you implement a non-compete form from the onset of the relationship? Absolutely. But never put a piece of paper ahead of your gut feelings.

This type of business is not as cut and dry as just having clients sign your service agreement and subcontractors signing your independent contractor agreement.

What Are the Subcontractors' Intentions?

Some people sign things in bad faith. Some people sign things in good faith. A lot of it is sizing up the relationship and being a good judge of character.

You should definitely have your service contract reviewed by your attorney to make sure it's legally binding and enforceable, but no amount of clauses, no amount of sign-offs is going to protect you from someone determined to make your life miserable.

Don't Allow Subcontractors Steal Your Clients and Vice Versa

Another interesting idea that's worked is to put something in the clients' service agreement that your clients are not allowed to steal your employees and your subcontractors.

All these things are just deterrents. If someone is really determined to get around your contracts, they're going to figure out a way to do it.

Make Sure Your Clients Know Who You Are

Know your clients. Look to have some kind of balance between people that are on your staff and payroll so that there is a certain amount of continuity to the existing client relationships.

Those should be the people that your clients get to know best. If your subcontractors are known the best, then who really owns the relationship?

Don't Be a Stranger To Your Client

Make sure that if you take on a client where they're starting to see your subcontractors a lot, that you're supplementing those visits. Accompany your subcontractors on a project management level, do a lot of follow-ups between visits, or have your junior techs tag along and do some work so they get a little bit of cross-training as you go along.

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Joshua Feinberg helps small business computer consulting firms get more steady, high-paying clients. Learn how you can too. Sign-up now for your free access to a one-hour audio training program on Small Business Computer Consulting Tips.

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Best Practices When Using Subcontractors

Contractors take great care to make certain that their subcontractors have the necessary skills to perform their craft. Unfortunately, many contractors are less informed about best practices for the business relationship with their subcontractors. Without taking as much care to ensure a solid business and legal relationship, contractors put their customers, their business, and themselves at great risk of failure. This article reviews the financial, insurance, entity, and contractual guidelines contractors need to consider.

Financial

When margins are tight and the opportunity to raise prices is limited, managing the cost of subcontracted labor is the only way to remain profitable. Managing subcontracted labor cost is handled the same as your other costs - know your ratios.

Begin with your 2010 financial reports, specifically the Profit and Loss Statement. Determine the total amount spent last year on all subcontractors. Divide that number by the total amount that customers were invoiced, last year's total revenue. The result is the subcontracted labor cost ratio. For example, if you spent $500,000 on subcontractors last year and billed customers a total of $1,000,000, then your subcontracted labor cost ratio is 50%.

By comparing the ratios for the past several years, you can determine whether your cost of subcontracted labor has been increasing, decreasing, or staying the same over that period of time. This sort of trend analysis is helpful when negotiating prices with your subs going into the new year and making the sort of decisions that will help improve your 2011 financial performance. If you know what the market will bear for a particular project, such as an insurance-paid roof replacement, you can determine the maximum you can afford to pay for labor.

Insurance

Contractors should look for ways to shift project risk to others where ever possible. The easiest way to do this is to make certain your subcontractors are fully insured.

Most insurers want contractors to require the same or greater coverage limits from their subcontractors as the contractor carries on its own policies. The contractor should insist on a certificate of insurance listing the contractor by name as an additional insured on the policy. The contractor's insurance agent should review the certificate for the proper form and coverage that maximizes the contractor's protection.

Unless all of the employees of the subcontractor own at least a 25% share of the business, a workers' compensation policy is required. It is strongly advised that, even where the sub isn't required to carry a policy, that contractors require proof of a workers' compensation policy from every subcontractor before allowing them on a job site.

Entity

Since January 1, 2009, Minnesota law requires individuals (not corporations, LLCs or partnerships) who work as independent contractors in the building construction industry to obtain from the Minnesota Department of Labor and Industry an Independent Contractor Exemption Certificate (ICEC). For purposes of the state's workers compensation, unemployment insurance, wage and hour, and occupational safety and health laws, individuals doing building construction work without an ICEC will be employees of the contractor for whom they are working.

The best way for a general contractor to avoid their subcontractors becoming employees is to require each subcontractor to provide an original Certificate of Good Standing from the Minnesota Secretary of State or an ICEC from the Department of Labor. Don't assume that just because the subcontractor uses "Inc." or "LLC" in its business name that the sub is an entity. Get a copy of the certification every year.

Subcontractor Agreement

Best practices are to obtain a signed Subcontractor Agreement, well drafted by an attorney experienced in construction law, from every sub before work begins. The agreement should include provisions for pricing, insurance requirements, and entity status.

Minnesota's statutory warranty only binds the general contractor to warranty obligations with the homeowner. The subcontractor has no direct warranty obligations. The subcontractor agreement should create the same warranty obligation between the subcontractor and the general as the general has with the customer.

The subcontractor agreement should also include an indemnification provision, a provision requiring that all safety laws are followed, and a tobacco, drug, and alcohol provision. Because subcontractors are entities, a personal guaranty signed by the owners of the subcontracting company should be a part of the agreement.

Conclusion

The relationship between general and sub is more complicated today than ever. Margins in construction are tight so keeping your subcontracting costs under control is vital. Shifting risk to your subcontractors is key to controlling costs and proper insurance coverage contributes to that goal. Verifying the entity status of subs can ensure that the contractor won't incur unexpected employment costs. And a well drafted subcontractor agreement helps both parties know what 'the rules of the game' are for the relationship.

Use care in managing the business and legal relationships with your subcontractors and make 2011 your best season ever.

* * * * 2011 Alden Pearson. P.A. All rights reserved.

William E Gschwind, JD, MBA is a business and legal advisor in Minnesota. Before earning his law degree, he spent 25 years as a successful business owner, manager, and sales representative.

As a business attorney with an MBA in business management, Mr. Gschwind is uniquely qualified to assist small business owners with the variet of issues that challenge them. Business owners who use his services accept nothing less than outstanding performance - for themselves, their employees, and their service providers.

When you're ready to take your business to the next level, visit our website at http://www.aldenpearson.com for the resources to help you get there.

10 Lame Excuses Home Builders Tell Their Subcontractors

While I've probably heard a lot more than 10 lame excuses from home builders, while I was working as a subcontractor. Here's the top 10 list and I hope you have fun reading it, because I had fun writing it.

1. I will pay you tomorrow, you can count on it. As a contractor who has worked for plenty of General Contractors, you can almost count on never getting paid on time.

2. I never signed that change order. This one isn't very funny, especially if it's a large change order.

3. I don't have enough money in my bank account to pay you. This is usually followed by more excuses like, I'm waiting to get paid from the homeowner or their partner spent your money.

4. Let's talk about this tomorrow, when I feel better. This usually means that they need more time to think, try to get them to talk about it today.

5. That's too much money, you will need to lower your bid price, if you want the job. This is pretty standard talk for most general contractors, it doesn't matter how much you charge them, they're always going to try to get you to come down on your pricing

6. I thought you were going to order the windows. If you're going to be installing the windows, make sure you know who's ordering them. This could also create other problems with concrete, lumber and roofing materials.

7. I don't have enough money to pay for lunch. Don't get caught up in this scam. If the general contractor invites you out to lunch, leave your wallet in your truck. You could end up washing some dishes, but you will teach the contractor a valuable lesson.

8. I never said that, did I. this is the ultimate general contractor excuse and if it gets used more than once, you might consider purchasing a digital recording device.

9. I won't be able to be here tomorrow. This one will usually get used around payday. If you're supposed to get paid and your contractor uses this excuse, tell them that you won't be there tomorrow either. This usually gets their creative juices flowing.

10. Last but not least, I'm not responsible for that, you are. This is why we have contracts and you had better read your contract, because a clever general contractor, who isn't interested in using new again, could make your life miserable.

A little bitty humor and a little bit of pain, this is what the construction business feels like to me most of the time.

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Wrap Ups, OCIP's, CCIP's - Basics From the Subcontractor's Point of View

Whats in it for the Subcontractor?

I was at a subcontractors association meeting and there was a lot of confusion and complaining about these types of policies. Large GC's and owners know these insurance products, but often the subcontractor does not fully understand them. The short article with explore some of the pros and cons from a subcontractor's perspective. Unfortunately the sub typically only sees the con. The benefit for the subcontractor is usually the unseen benefit. Let's explore some of each to obtain a fair assessment.

Project cost and coverage availability.

The typical CIP offers a 1-3% savings on the total project cost. As a sub, you have to ask, whats in it for me? This savings on a $100+ million job, may be the edge needed for financing, got your GC/CM the winning bid (which in turn has given you the ability to put your people to work), or any number of things that help put the shovels in the ground for the job. Sometimes it is not the cost savings but coverage availability that drives the use of a CIP. Often coverages can be negotiated in a CIP that can not be negotiated in a traditional policy. Multi-family construction typically has had some severe exclusions in the coverage recently which often times can be negotiated out with the use of a CIP, thus making the risk for the owner/gc much more palatable.

Rigorous Safety Programs.

Often a CIP has a rigorous safety program requirement. How often have you been on a job and just wanted to get off of it because of another sub that has a substandard safety program that puts you and your people at risk? Too often a sub with a great safety program has it compromised by other subs which do not have a good safety program. Most CIP sponsors will not award a job to a sub that does not have a good safety program, to begin with. Often, there is greater oversight on safety programs on a CIP project.

Reduced Litigation

This is the area that provides a huge benefit all around. Any sub that has had to defend a 3rd party over action from an injured employee, never wants to deal with the double whammy of paying a claim on the workers comp side and being forced to defend the owner/gc through their own liability policy as well. This exposure is greatly reduced in a CIP. This is an area that the sub may not see as a soft cost benefit. If one of your people ever gets severely injured on the job and they lose the ability to sue the owner/GC because they are collecting workers compensation from them, the sub will have been saved from a third party over action suit. Workers comp experience will be reflected in the ERM, the sub will often be shielded from a liability claim.

Limits of Insurance

This is where the sub has no control and may leave themselves unintentionally exposed. Usually the limits purchased through a CIP are much greater than the limits of any one sub and often the GC. The difficulty is that the limits are shared by everyone. The limits can be eroded away through claims that have nothing to do with your work, leaving you to have little or no coverage. There is an endorsement to the general liability policy that can be purchased which will provide excess coverage for a CIP on a regular insurance policy. This is one of those areas in which price isn't everything. Many of your less expensive carriers will not offer it (that's why they are cheaper). If the sub can negotiate a "difference in conditions" on his/her own policy that adds coverage for a CIP on an excess basis, this is the best solution. Even though CIPs are often excluded from a sub's (and GC) policy, I have found through my research that a carrier may be forced by the court of good public policy to step up to the plate.

Case study, The Tropicana Garage Collapse. (All knowledge of this claim was through research as thankfully I have no first hand knowledge of this claim) The OCIP limit on the project was $25 Million. The settlement in this case was the largest construction accident settlement awarded at the time for $101 Million (2006). The engineers, subs, and undoubtedly the GC involved would have never had enough limits on their own to pay this claim. $25MM was surely not enough limits. The engineers, the owner, the GC, and the subs involved all had their insurance contribute to this loss, even though the GC and the subs insurance carriers could have used the "wrap up exclusion" as a means to walk away from this claim. It may be very easy to surmise that this CIP did not have enough limits for this type of project. While, I agree with that statement, I would also offer that if a CIP did not exist at $25MM, all of the other insurances and indemnifications to the additional insureds would not have produced nearly enough limits to cover the $101MM settlement. It is in these ugly situations, where we actually see the benefit of the CIP. This is also where I offer a counter argument to those that believe buying higher limits will invite the larger lawsuit. This settlement was going to be $101MM not matter the limits available or it was going to go through an ugly trial and I submit it would have succeeded in having a change of venue to an equally liberal court and the verdict would have dwarfed this record setting settlement.

In summary, CIPs may be an administrative nightmare but don't forget the hidden benefits that may be looming in the background when something goes wrong. Like a good safety program the benefits are often taken for granted because we only see what it costs us in time and money to implement. Like that safety program, take it away, and you will see the true cost of not having it. This is an insurance product, the benefits are not going to be seen until someone gets hurt.

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