1. Operating under a lower G & A Carlos Garcia Owner/CEO KIRA National 8(a) Association Winter Conference 2015

2. Part 1 -What is G & A? Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. Part 2 - Building a G & A cost pool Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

10. 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

11. 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

12. 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

13. 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

14. Part 3 – Bid and Proposal Costs Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

15. 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

16. 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

17. 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

18. 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

19. 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

20. Tracking opportunities Forecast opportunities Track opportunities Bid lists Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

21. 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

22. 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

23. 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

24. Part 4 - Conclusions Operating Under a Lower G & A National 8(a) Association Winter Conference 2015

25. 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