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November 21, 2008
 
 
 
Jones Lang LaSalle
 
BUNDLING AND
FIXED PRICES

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Can’t you just tell from the “government contract speak” title that it’s time to resume our latest roundtable at Morton’s in Tysons? Yep, with Federal IT experts:

  • Jodi Johnson, former CEO of Oberon
  • Long Nguyen, CEO of Pragmatics
  • Sudhakar Shenoy, CEO of Information Management Consultants

Special thanks again to our sponsors KippsDeSanto managing director Bob Kipps and Sheppard Mullin’s Vic Victorino, who are also renowned experts in this area, as well as fine diners. We wish we could somehow pipe in the great food to you, dear readers, on this page; but, alas, you’ll have to settle for the great conversation. 

 

KippsDeSanto focuses on M&A transactions, mostly middle market defense and technology companies. Meanwhile, Bob’s food is getting cold.  

Our Doug Anderson led the conversation:

 
Doug:  What are the big issues in the M&A world right now?
   
Bob: There’s still an active market for the best positioned defense and technology firms as the larger players continue to look to M&A to reposition themselves for the market's future needs and demand.  That being said, buyers today are being more discriminating, resulting in many deals not getting completed. The number of buyers willing and able to pay the often eye-popping prices of recent past has narrowed. One thing I’ve seen is the increasing amount of winner-take-all, multiple-award government contracts continue to be a catalyst for consolidation, because bundling generally makes it more difficult for mid-size firms to continue to grow on their own.
   
Long: I see more and more government agencies leaning toward multiple-award ID/IQ contracts. During the last few years, many small and mid-tier companies have won these contracts as primes. These companies have seen the value of these types of contracts as a solid foundation for their growth.
   
Vic: I think a big reason behind bundling is to avoid protests. If a protest to a single award is successful, the agency's plans and schedule are disrupted. The agency figures that by doing multiple award contracts, anybody who is competent can submit a bid and get a contract and, as a result, there are no legitimate protests.
 

Long’s 23-year-old company has 21 prime contracts for the Army, DISA, DHS, State, OCC, the IRS, and the FDIC. (We’ve run out of initials.) Revenues for FY09 are expected to be $115M.

 
Doug: 

As a government contractor, what issues keep you up at night?

   
Sudhakar: One of the most important issues is the government’s fight for more fixed price contracts, but so many contracts change over time that it’s almost impossible to determine a fixed price. And Henry Waxman, of course, is one of the biggest proponents of this.
   
Vic: One of my first projects, way back in the early '70s, was when Lockheed was on the brink of bankruptcy. They got into trouble in large measure because they took on about five major fixed-priced development-to-production contracts, called a total package procurement back in the days of Defense Secretary McNamara, even before they knew what they were really building. The resulting cost overruns nearly killed them. And that’s essentially what Waxman is talking about today: Total package fixed price procurements.
   
Sudhakar:

It really looks good at the front end, but then conflicts arise and there needs to be renegotiation.

 

Vic has focused his law practice on government contracts for the past 38 years and is part of a team of 16 lawyers at Sheppard Mullin who concentrate solely in this area.

 
Jodi: We’ve actually done very well on fixed price projects, but I’m only comfortable with them as long as we could define what the customer wants.  We never want to be in a position where we would have to say we can’t do that for you.  Therefore, it is especially important in a fixed price job to articulate exactly what it is that is being contracted.
   
Long: We don’t mind them. Of course when you write the proposal, we put in the assumptions and so on, but the main thing is not building the proposal in the assumption. We want to work with the customers as partners. And once they see that we are really serious about it, they are willing to work with us. A few years ago, the emphasis was on cost plus contracts, then time and materials. I expect that the pendulum will swing back in the future.
 

David Stegon is at the Kidney Ball Saturday night! Say hi there or send story ideas to David@Bisnow.com.

 
 
 
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