Operating under a lower G & A
Carlos Garcia
Owner/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 base
Example: 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 categories
Designed to allocate a lower rate to certain categories of costs
Caution: 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 billable
Example: 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 & A
Advantage: possibly lower, more competitive G & A rate
Disadvantage: removes base from core company G & A
Reminder: 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 it
Disadvantage: 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 fall
At the same time, the number of headquarters functions is growing
Need 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 one
In CPFF environment must be DCAA approved
Allocation of costs
Chart 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 ways
Must also consider cash flow implications
Require constant monitoring
Averages 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 guides
RS 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 margins
Impact of IDIQ and MATOC bids
Need 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 rules
Should 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 opportunities
Back 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 submitted
Reminder 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 opportunities
Bid lists
Operating Under a Lower G & A
National 8(a) Association Winter Conference 2015
Realistic bids – compliance grids
Minimum past performance guidelines
Functional qualifications
Security clearance
Subcontract limitations
Operating Under a Lower G & A
National 8(a) Association Winter Conference 2015
Return on Equity and Return on Sales
Return on Sales
Return on Equity
Return on Invested Capital
Capital 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
Conclusions
Stay 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