In today's super competitive government contracting business environment with its emphasis on low price, building a government sales “pipeline” is essential in increasing your odds of winning. Tracking the sales function should be done using cost accounting data to measure sales expenses and to give visibility and substantiation for maximum cost recovery. Despite its challenges, you know it's a good business to be in when you can recover your costs to prepare proposals — whether you win or you lose.
With FAR and CAS regulations governing a government contractor's accounting practices, properly defining and segregating sales related activities from an accounting standpoint will reduce the risk of costs being questioned by DCAA. Also, outcome of the effort from a business perspective can be more easily quantified. Let's provide some simple definitions of each activity:
Marketing is about influencing opinions and attitudes. A display advertisement in a newspaper or business trade magazine, or a radio or television spot are considered unallowable costs and should be treated as such. Why? They are designed to build brand awareness and is of no value to your federal government customer. See FAR 31.205-1 & FAR 31.205-38 for guidance.
Business development influences and encourages action and is a more targeted effort. For example, a government contractor's VP of Sales attends a bidder's conference where information may be solicited by the customer about an upcoming procurement. The Vice President of Sales should be prepared to provide information that will possibly produce a procurement that narrows down the field of prospective bidders for a better chance of capturing said procurement. Also, identification of teaming members that would increase your chances of a successful capture of the eventual contract could be another positive outcome.
Bid and Proposal
The bid and proposal function is a specific effort in response to a solicitation from a procuring government customer. During the business development effort, the company has identified taking action on the procurement based on the estimated cost of the bid and proposal effort and the probability of a positive winning capture.
Whether it a marketing campaign, business development, or a bid and proposal capture effort, each activity should be tracked from a job cost perspective.
Job cost perspective means that based on the materiality of the specific activity, labor and non labor costs should be isolated into a specific set of job cost accounting codes that are easily visible and where the cost of the effort can be readily calculated by your accounting software. This allows management to assess cost versus outcome and provides adequate visibility from a DCAA perspective.
Business development, which is labor intensive and a long-term investment, often involves individuals with substantial compensation packages. Management should budget, manage, and measure business development efforts based on the dollar materiality of the effort. To that end, upper management should carefully target its business development efforts. Reasonable scenarios and probability analysis should go into the bid/no bid decision when evaluating whether to pursue the effort associated with response to an RFP. Past performance and the relevant cost range may be the ultimate criteria of whether a bid/no bid decision is made.
Within your marketing, business development, and bid and proposal costs, DCAA will be looking for expenditures such as transportation, lodging, and per diem to determine reasonableness and whether they are allowable. Travel costs associated with building your sales pipeline should be managed and accounted for based on the regulations promulgated by the Federal government.
Within SYMPAQ accounting software, business activities may be segregated and accounted for using its inherent accounting structure. The job and task segments are used to account for revenue producing activities, and non-revenue producing areas such as administrative departments, individual bid and proposal responses, business development, research and development, and paid absences.
In the end, due to the long-term nature of building a government contractor's sales pipeline, defining how to effectively account for the various costs associated with marketing, business development, and bid and proposal activities is critical in today's LPTA government contractor business climate.