September 28, 2021 | by Indre Bauza
Landing a government contract can be a game-changer for a small business. That's especially true if the work requires significant research and development. Government contracts can help defray those R&D costs while helping a small business establish credibility.
The challenge, however, is that bookkeeping for government contracts is complex. That goes double if the contract involves managing government property, which falls under a separate, 5,000-word clause called FAR 52.245–1. Suffice to say you'll want support from a professional bookkeeping services provider with deep bookkeeping and controller services expertise.
What Exactly Constitutes Government Property?
The Defense Contract Management Agency (DCMA) oversees government property management. It encompasses real estate and other types of property. In some cases, the contractor provides the property ("contractor-acquired property"); in other cases, the government does ("contractor inventory"). And in many cases, the government assumes (or retains) full ownership of the property, while the contractor assumes full responsibility, for the duration of the contract.
In "contractor inventory" cases, the contractor works with property the government provides, including property that arrives in "as-is condition." That means, in the words of Clause FAR 52.245–1, "The Government makes no warranty with respect to the serviceability and/or suitability of the property for contract performance. Any repairs, replacement, and/or refurbishment shall be at the Contractor's expense."
That's all pretty abstract. In reality, it plays out something like this: Let's say you're developing an environmentally friendly protective coating for marine applications to prevent corrosion and keep barnacles from building up on ships' hulls. You get a government contract to develop the coating for the U.S. Navy — and eventually, you hope, for commercial use. During the R&D phase, you request a portion of a U.S. Navy ship's hull to test a beta version of your coating. The Navy sends you a rusty, barnacle-encrusted section of a decommissioned ship from a Naval Inactive Ship Maintenance Facility.
Before you can determine if your coating can actually prevent corrosion and barnacle buildup, you'll have to remove the existing barnacles and corrosion on the test hull — at your own expense. Once you've completed the test, you return the test hull to the Navy. When planning for a government property project, keep in mind that you may have costs that are not reimbursable related to the property the government supplies.
Different Obligations for Different Contracts
There are two basic types of contracts involving government property. Let's look at each:
Firm, fixed-price contracts: These might be the way to go for small companies and smaller contracts, say $750,000 or less — as long as you fully understand the scope of the contract. Basically, you get paid a flat fee for producing an agreed-upon deliverable within a certain timeframe, and you get to keep any materials purchased for the project other than the actual deliverable. The risk is that if there are any cost overruns, you'll have to absorb those. If you're not careful, you could end up working for free.
Cost-plus-fixed-fee (CPFF) contracts: On the one hand, there are controls in place to prevent contractors from having to absorb every expense. On the other hand, administrative requirements for CPFF contracts are far more extensive, especially for those working on Small Business Innovation Research or Small Business Technology Transfer contracts. All material purchased for these types of contracts falls under contractor-acquired property, so the government specifies the requirements to record, track, report and dispose of the property. The heavy administrative burden puts many CPFF contracts beyond the reach of many smaller businesses.
Professional Bookkeeping Can Help You Stay Up to Date With DCMA Reporting
When managing government property, it’s important to make sure your records are accurate and up to date. DCMA can review the contractor’s procedures manual at any time, and conducts yearly inventory audits. Any discrepancies can affect your contract.
Here's an example. As part of its tracking procedure, DCMA requires that contractors use an Excel spreadsheet with 20 different columns. Contractors have to enter part numbers for any materials purchased, which sounds straightforward enough. But all part numbers from a certain popular supplier are prefaced with "000," which Excel automatically deletes. That can result in an error report that the contractor might not even be aware of. Three such errors can result in DCMA failing your reporting, freezing your contract and withholding further payment. Yet another reason you need to rely on professionals who know the potential problems — and their workarounds.
Successfully Run a Government Property Management Contract
Winning a government property management contract is great for a small business. You can prepare for success by working with a professional bookkeeping services provider who has expertise in this field and can not only handle the reporting requirements, but help you avoid common pitfalls.
At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.
General Manager Indre Bauza, Supporting Strategies | Northern Virginia, provides bookkeeping and controller services to growing businesses.
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.
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