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5 factors construction companies should consider before pursuing federal contracts
Before seeking federal contracts, construction companies should be aware of regulatory and systems requirements, strategy considerations, and other factors.
Recent government spending has created new opportunities for construction firms and developers due to significant increases in government investment through a number of spending programs such as the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act. These acts have poured federal benefits into transportation infrastructure as well infrastructure which supports R&D and manufacturing in industries of national interest such as semiconductor and renewable energy components manufacturing. These opportunities are causing some previously commercial-only construction companies and developers to consider pursuing government benefits in the form of contracts, grants, and other incentives like tax credits.
Before seeking federal benefits, consider these five key factors.
1. Regulatory requirements for federal benefits: The level of the regulatory requirement depends on the type of opportunity being pursued. Some contract opportunities are awarded under Federal Acquisition Regulation (FAR) Part 12 (Acquisition of Commercial Items) or FAR Part 14 (Sealed Bidding). There are fewer requirements that would be new to a commercial contractor under these types of awards. If the award is to be made under FAR Part 15 (Contracting by Negotiation), then there many additional requirements, including:
- Truth in Negotiations Act (TINA) risk: There are risks associated with submitting certified cost or pricing data.
- False Claims Act risk: Those found to intentionally have submitted inaccurate information during award of a government contract face consequences.
- FAR compliance: FAR Part 31 compliance (allowability of cost) presents challenges to commercial contractors that may not have systems to segregate unallowable costs or allocate costs in FAR-compliant ways.
- Cost Accounting Standards (CAS) compliance: In some cases, awards may be subject to the additional cost accounting requirements of CAS.
In addition to contracts, federal government assistance in the form of grants is also readily available for organizations in critical industries such as chip technology, alternative fuels manufacturing and bioscience and engineering. Grants are generally subject to the federal government’s Uniform Grants Guidance found in 2 CFR 200. These regulations bear some similarity to those in the FAR, but grants differ in that they do not offer profit to the awardee, and they are often cost-share vehicles requiring the awardee to commit some of its own funds. Grants are an excellent way to accelerate or amplify an organization’s own funds in areas where the organization’s interests align with those of the federal government.
An example of another benefit that has had great impact on the construction industry are the Inflation Reduction Act Renewable Energy Tax credits which yield a multiplier of up to 5 times on the government’s existing renewable energy tax credit of 6% of eligible project costs. While these tax credits are not contracts, they do require conformance to certain contract-like requirements such as adherence to federal prevailing wage, benefits, and apprenticeship requirements which are similar to the Davis-Bacon Act labor requirements applicable to federally funded construction efforts. The recent spending acts contain a number of tax incentives and other financial benefits such as loans and loan guarantees that are intended to stimulate infrastructure projects.
2. System requirements: One of the most challenging areas of compliance involves companies’ timekeeping, accounting, estimating, and purchasing systems. Accounting can be problematic in particular. The government expects systems to be capable of complying with FAR, 2 CFR 200, and potentially CAS requirements that commercial construction may not have experience with. This does present a significant barrier to entry, but one that can be overcome by developing policies, procedures, and systems that meet government expectations. Many companies have gone down this path and established approved systems that provide a competitive advantage in winning government work.
3. Strategy to pursue opportunities: After deciding to pursue federal government awards, a necessary step is developing a strategy to identify and pursue opportunities. For those seeking General Services Administration (GSA) schedule opportunities, once listed on the GSA schedule, go to SAM.gov (which recently replaced FedBizOpps) to find possibilities. If you are pursuing items that are not commercially available, FedBizOpps also provides information about RFPs or RFQs to which you can respond. One approach is to determine the government’s required specifications. Then, make sure your product or service meets these specifications, and if it does not, consider changing it to meet them. When the government is ready to buy the product or service, you will have an advantage, since your product or service will have a commercial sales history that will facilitate the government’s purchase of the product through the GSA schedule.
If an organization elects to pursue other benefits such as tax credits, understanding the specific prerequisite for the credit, determining your eligibility and maintaining the appropriate records is critical to avoid subsequent government recapture of tax benefits.
4. Ways to obtain a competitive advantage: Many federal award opportunities involve set-asides for veteran-owned, women-owned, and other types of businesses, including small business set-asides.
Consider enabling your company to participate in these set-asides. Many businesses that do not consider themselves to be small businesses do qualify. Identify your North American Industry Classification System (NAICS) code and go to the Small Business Administration’s website to look up your revenue limit to qualify as a small business. If you are under the limit, register your company on the System for Award Management website. Consider other opportunities to participate in set-asides, including expanding ownership to those who will assist the firm in participating in minority-owned, women-owned, veteran-owned, or other set-asides.
5. Follow through on performance requirements: Once you have won government work, it is important to successfully perform your award. This will heavily affect your eligibility to pursue future opportunities. The government can be unforgiving if it perceives you did not meet quality, timing, or reporting requirements. Make sure to communicate frequently with your cognizant U.S. government official and their representatives so that you can be rated highly for the work you have delivered and quickly address any government concerns.
For all government programs in which an organization may participate, it is important to take make best efforts to comply with applicable rules and regulations, and utilize professionals including accountants, legal counsel, and tax preparers. A good-faith compliance program can mean the difference between an administrative remedy for a compliance matter, and a referral to a law enforcement agency.
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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.