You know, not every shiny object is right for your company. Lots of times you see opportunities for contracts with the government that appear to be something you can (and want to!) perform for the government, but are really too big for you to perform well, or even at all. It’s hard to say “no” to a five year contract valued at $50 million when the government is looking for the kind of services you provide.
So how do you decide if a potential contract is really the right size for you? Here are some things to consider before you go after “the big one.”
- Dollar value of the contract: A large dollar contract will take significant amounts of financial resources to successfully start up. The federal government rarely pays its contractors in advance of performance. This means that on a contract requiring a product to be delivered, payment will probably be after successful delivery and acceptance of the product – and not before. If the contractor is the manufacturer, that means paying for the materials and labor out of your own pocket for creating, packaging, and delivering the product before you submit an invoice, which gets paid 30 days later. If the product is an aircraft or a large quantity of any item, this could require a significant outlay of money. Be sure you have the financial capacity to pay all of your upfront costs for up to 90 days with no payment from the government.
- Personnel Resources. Let’s say you currently have 10 employees, you gross $1 million per year, and you provide professional engineering services. Going after a $25 million contract ($5 million per year for 5 years) might seem reasonable. But let’s check the math. This one contract will mean that you probably will need to bring on 40 or more new employees to perform this contract. Anyone who has performed government contracts will tell you that getting the invoices submitted and paid by the federal government at the start of a contract can take some time – as much as 90 days. We usually recommend that you be prepared to pay the first 3 months of expenses out of your own pocket – including all the money for recruiting, hiring, employing and performing the contract, as well as paying all of your usual bills.
- Recruiting and bringing on board 4 or 5 times the number of employees you currently have may mean you will require increases to your current infrastructure as well. If you have 10 employees, you can easily do your own books, hand write checks and hand them out. Keeping personnel records and running payroll for 50 employees is a whole different thing. Will you need to hire a finance person or accounting firm? Will you need to implement a web-based schedule management system to help you ensure all positions are covered every day? Plan ahead for growth so you are ready to implement needed infrastructure changes quickly and smoothly.
Keep in mind, when you win a contract with the federal government, you cannot simply “cancel” it or back out of it once it’s been awarded to you. Only the federal government can terminate a contract for convenience. And if they have to terminate the contract for default because you cannot perform satisfactorily, there will be consequences that will not only cost you money, but will live with your company for a very long time.