Operating under a lower G & A

Carlos GarciaOwner/CEO KIRA

National 8(a) Association Winter Conference 2015

Part 1 -What is G & A?

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

What is a G & A rate and how is it calculated?

Collect “headquarters costs” and divide by baseExample: A company with $1 Million in annual G & A costs and $20 in revenue will have a G & A rate of 5%. (Generally speaking.)

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

What are subcontractor and material handling fees?

Alternative rates applied to certain categoriesDesigned to allocate a lower rate to certain categories of costsCaution: Pushing the balloon on one side increases the other side

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

What is Overhead?

Costs associated with a specific contract that are not directly billableExample: Headquarters employees that spends all of their time supporting a single contract

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Joint Venture companies and G & AAdvantage: possibly lower, more competitive G & A rateDisadvantage: removes base from core company G & AReminder: Prime captures all revenue in a populated LLC “JV”

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Capped G & A and impact on profits

Advantage: Customers like itDisadvantage: Risk. Can eat into profits

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Today’s competitive environment and LPTA

G and A rates have never been lower – and they continue to fallAt the same time, the number of headquarters functions is growingNeed to work smarter

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Part 2 -Building a G & A

cost pool

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Building a G & A cost pool

Easier in a new company than an existing oneIn CPFF environment must be DCAA approvedAllocation of costsChart of Accounts Internal and external financial statements

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Tops down and bottoms up budgeting

Top down budgets look at “what we can cut”Bottoms up budget looks at “minimum we need.”

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Forward rates and forecasting

Can be useful but cut both waysMust also consider cash flow implicationsRequire constant monitoringAverages don’t work well with small sample sizes

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Benchmarking and estimating

How much should G & A Cost?Salary surveys and estimating guidesRS Means and CareerBuilder

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Part 3 – Bid and Proposal Costs

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Old rule: 3% of first year’s revenue

No longer true due to lower marginsImpact of IDIQ and MATOC bidsNeed to maintain discipline Be willing to abort bids

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Teaming agreements and proposal costs

Must comply with SBA rulesShould be specific regarding deliverables“What if” clauses

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Dealing with delays in contract awards

Need to track multiple opportunitiesBack ending expenses

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Bid and Proposal costs during a proposal cycle

Most BP costs incurred during final 60 days before bid is submittedReminder to budget for protests, ENs, and BAFO phase

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Proposal costs

Internal costs (e.g. employees)External costs (e.g. consultants.)Who gets to charge to a proposal?

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Tracking opportunities

Forecast opportunities Track opportunitiesBid lists

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Realistic bids – compliance grids

Minimum past performance guidelinesFunctional qualificationsSecurity clearanceSubcontract limitations

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Return on Equity and Return on Sales

Return on SalesReturn on EquityReturn on Invested CapitalCapital Expense (CapEx) and cash flow turns

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Allowable and unallowable expenses

GAAP “ordinary and necessary” business expenses are not the same as G & A expenses.

Several categories of cost can be “necessary” but not “allowable.”

Track both categories to see a complete picture of a company’s financial performance.

Tax considerations also come into play (e.g., Lease vs Buy decisions.)

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

Part 4 - Conclusions

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

ConclusionsStay in compliance with all DCAA, SBA, DOL and other regulations.Determine prevailing G & A rate for firms in your industry that are winning work.Decide if you can meet those rates; if not consider exiting the industry.Track current month, year to date, and estimated annual G & A spend and G & A rate.Make changes quickly, don’t chase it. Chasing revenue to lower G & A sometimes results in lower rates; cutting costs always lowers rates.

Operating Under a Lower G & A National 8(a) Association Winter Conference 2015