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Are You a Government Contractor or Wondering What It Takes to Become One?
Government contracting, or GovCon for short, isn’t just an industry or market—it’s a cross-industry, multifunctional set of business processes where contractors provide goods and services to federal, state, or local governments. These contractors can be for-profit or non-profit and participate in virtually every industry, from professional services, to manufacturing and industrials to international aid/development organizations, just to name a few.
In the US, federal government contracting can be highly lucrative, as the federal government spends over $750 billion annually with its contractors, making it the largest consumer in the world. Given that these contracts necessarily involve taxpayer money, government contracting is also highly regulated, with a sometimes-dizzying array of compliance requirements within a complex, ever-changing regulatory environment which result in difficult barriers to entry. Understanding these requirements and establishing mechanisms for complying with these regulations is crucial for success; as a failure to maintain compliance can carry onerous penalties, including liquidated damages, contract loss, suspension, and even criminal penalties in extreme cases. Government contracting, then, serves as a classic example of the tradeoffs between business risks and rewards. Let’s take a brief look at some of these barriers:
| Barrier | Description |
| Capital Requirements | Government contracts often require substantial financial resources. The costs associated with bidding, fulfilling contract requirements, and managing cash flow throughout the contract life cycle can be significant. |
| Past Performance | Many government contracts require a track record of successful government contracting experience, which can be a disadvantage for new entrants in the competitive bidding processes. |
| Administrative Burden | The extensive documentation, reporting, and government audits associated with government contracting can be daunting, particularly for smaller companies |
| Regulations and Compliance | Federal contracting involves navigating a complex web of rules and regulations, such as Federal Acquisition Regulations (FAR), and Cost Accounting Standards (CAS), which can be overwhelming, time-consuming, and expensive for newcomers. |
| Cybersecurity Mandates | Government contractors must comply with stringent cybersecurity standards, such as the Cybersecurity Maturity Model Certification (CMMC), which can be costly and technically challenging to implement. |
Key Compliance Requirements
One of the more complicated areas of compliance for government contractors is adherence to specific accounting regulations, including the Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS):
- FAR: The Federal Acquisition Regulations provide a comprehensive set of rules and guidelines for government procurement processes. They ensure consistency and fairness in the acquisition of goods and services by federal agencies by providing guidelines on which costs are permissible under government contracts, ensuring they meet criteria such as being necessary, reasonable, and allocable to the contract. A strong knowledge base to interpret, apply, and comply with FAR is essential for government contractors to successfully bid on and execute federal contracts. Further, FAR requires that any contractor receiving a “flexibly priced” (think cost reimbursable or portions of T&M contracts) must maintain an adequate accounting system for determining costs applicable to the contract or order.
- CAS: Cost Accounting Standards are an additional set of regulations applicable to larger contractors. CAS ensure uniformity and consistency in the measurement, assignment, and allocation of costs of government contracts. While FAR and CAS live as separate regulatory bodies – much of the language within CAS is referenced or read into key aspects of FAR – adding additional complexity in navigating. CAS provides specific guidelines for cost accounting practices, while FAR includes broader regulations for government procurement. Essentially, while they are separate sets of regulations, they work together to ensure consistency and accountability in government contracting.
Together, these standards dictate how contractors must price/bid, account for/accumulate, and invoice/bill projects within their contracts, requiring specific internal controls and compliance reporting. Luckily, there are specific technologies such as purpose-built Enterprise Resource Planning (ERP) systems that can support these processes and alleviate some of the manual, resource draining burdens which help transform an organizations effort to comply from a costly, necessary evil into a distinct source of competitive advantage within the government contracting market.
ERP System Selection
There are many ERPs and supporting software available to government contractors, covering a wide variety of industries, markets, and business processes, so selecting one for your business can certainly be an intimidating task. When evaluating the various available systems, there are a few functions that contractors must ensure it can handle, preferably with as little costly and time-consuming customization as possible, including:
- Adherence to US Generally Accepted Accounting Principles (GAAP)
- Proper segregation of direct and indirect costs
- Identification and accumulation of direct costs by contract and project
- Logical and consistent allocation of indirect costs, including the ability to manage both provisional and final indirect rates
- Exclusion of unallowable costs from government contracts
- A timekeeping system that meets DCAA audit requirements, including proper labor distribution
While seemingly straightforward, finding a system that meets all those criteria while also offering industry and market-specific functionality can be especially challenging. Additionally, regulatory hurdles such as those imposed by CMMC for cybersecurity and ITAR for export control demand both process-based and technology controls that must be in place and continuously evaluated for their own compliance. Luckily, though, there is an excellent option that addresses all these needs: the powerful combination of the Microsoft Dynamics 365 ERP combined with RSM’s Government Contracting solution, all available as a cloud-native solution in the Microsoft Azure Government GCC-High environments.
GovCon System Solutions
Microsoft has invested billions in Dynamics 365, leveraging machine learning, AI, and real-time analytics to enhance operational performance. RSM’s GovCon solution, built on Azure’s secure cloud, comes deeply embedded into the D365 user interface, integrating seamlessly with its Project Management and Accounting, Finance and Operations, Sales and Customer Service, and Supply Chain Management modules with features including:
- Support for multi-tiered (including service center) indirect cost calculation and allocations; including retro billing of final indirect rates
- Project setup and controls for billing and revenue recognition
- Support for cost-plus contracts and complex revenue recognition
- Pre-configured invoice formats (e.g., SF1034/SF1035)
- Labor collection and costing enhancements
- Full support for Service Contract Act requirements
The tangible value delivered by Microsoft Dynamics 365 ERP alone is significant. A Forrester study commissioned by Microsoft found that a $1B revenue enterprise with 5000 employees achieved a 106% ROI over 3 years. They saved over $5.7M in costs and gained $9M in productivity, with a payback period of just 17 months – truly remarkable results, but the maximum value for government contractors comes when they combine the D365 ERP with RSM’s Government Contracting module, generating significant added value for government contractors including not only the Govcon-specific accounting and compliance functions, but also the enhanced efficiency, real-time insights, scalability and integration, and data security delivered within the Microsoft ecosystem.
To these ends, the integration helps contractors bolster adherence to FAR, CAS, and other regulatory requirements by providing built in controls to support DCAA audits and compliance with cybersecurity standards like CMMC and helps streamlines compliance with cost accounting and contract management requirements through GovCon-specific financial reporting functionality; significantly reducing administrative burdens and improving operational efficiency.
Leveraging the unique union of D365 with RSM GovCon, contractors gain real-time analytics and reporting capabilities, enabling better decision-making and financial performance tracking. The solution is scalable to meet the needs of growing contractors and integrates seamlessly with other Microsoft applications, such as Office 365 and Power BI, enhancing overall productivity in a unified technology ecosystem. Finally, of critical importance for those contractors dealing with CUI, the solution is offered as a cloud-native deployment option in the Microsoft Government Community Cloud (GCC) High environment, providing enhanced data security to meet DFARS, CMMC, FedRAMP High and other federal data-protection mandates.
Ready to learn more? We’d love to speak with you about how the powerful combo of D365 and RSM GovCon can launch your government contracting business to new heights. Contact us today!
Contact our team now:
For information on D365 Business Applications – Jonathan.Reynolds@rsmus.com
For information on GCC High licensing – Thomas.Turner@rsmus.com
For information on CMMC/Gov Con services – Charles.BarleyJr@rsmus.com
Contributing Author:
National Leader, Government Contract Consulting – Giacomo.Apadula@rsmus.com
Hui Anderson
Hui has over twelve years of experience in ERP software consulting and product management, involved through all phases of ERP system implementation. As a consultant, Hui has worked with over 100 companies of varying size and cross industries, focusing on government contracting. At RSM, Hui focuses on the delivery of Microsoft Dynamics 365 F&SC ERP system, and RSM’s GovCon Accelerator for project management and accounting module. Hui most recently led a few successful D365 go-lives with RSM GovCon IP in aerospace and defense industries and public sector. As the GovCon solution architect and project lead, Hui can skillfully combine her knowledge of the D365 system with the deep understanding of the government contracting space to help our clients to achieve the organizational transformation.
