In This Chapter

If you’re already doing business with governments, it’s likely you’ve been dealing with people relatively far down the procurement food chain. And maybe that’s all you really need to know to do your job day-to-day. But if you‘re curious about how the authority to expend government funds flows through the procurement cycle, then this chapter is for you. And even if you believe you are not affected by all that wrangling and political bickering in Washington, you may benefit from having some insight into why things are the way they are. What you learn here can influence your strategic approach to getting government contracts.

This chapter describes the federal process. But analogous, if far less complex, processes are taking place in all the states and local governments, too. So if you’re interested in that market, you can read this chapter to get a basic understanding of the process in general, then adjust the particulars as dictated by your own state or local government customer’s processes.

First we explain how the procurement process works. (It does work, however imperfectly!) Seven steps explain how money flows from federal budget setting to the agencies that offer contracts, to an award on your company’s doorstep. Then you can see how your business’s size factors into the process and where you have a chance to influence outcomes, if at all.

The procurement process is complex and involves the interests of many parties, which are often dissimilar and even competing. Some may wonder how anything ever gets done, with one powerful interest group wanting one thing and another powerful interest group wanting something entirely different. Witness the controversy over energy policy.

The country’s decisions on energy policy have many players: individual companies (Exxon Mobil, Commonwealth Edison, General Electric, to name a few); trade and industry groups and their lobbyists (walk down K Street NW in Washington and you’ll find one without any trouble); government agencies (Department of Energy, Department of the Interior, Environmental Protection Agency); academic institutions (University of California, University of New Mexico); and “think tanks” (Brookings Institution, Hoover Institution). The list could go on and on. Each of these has an idea of what the energy policy should be. They can’t all be right, and they can’t all be wrong. The question is, which forces or combination of forces will prevail? The living, changing answer is to look at the budget process, along with our tax policies, and you can see which of these is winning at any given time.

The current budget process has evolved over time. Until the early 1900s, the government was much smaller in relation to the entire United States economy than it is today. But early in the twentieth century, the government was, basically, out of control. It was hamstrung by archaic processes. Getting anything done well required an Act of Congress! The practices have elements that are constitutional (such as Article I, Section 7, 8, and 9), legislative (The Budget and Accounting Act of 1921, as amended), executive (various regulations set by executive agencies, such as the Federal Acquisition Regulation, and Executive Orders, issued by the President), and judicial (case law).

Let’s look at the seven-step path that money takes from being just a wish list of a federal agency, to passing through presidential and congressional gatekeepers, to ending up as real budget money at an agency and eventually getting into your hands through the award of a contract.

Agencies submit their budget requests to the OMB with a deadline of September 15 each year. Each agency has its own way of developing its budget requests to OMB. Because agency submissions are due in mid-September, the real work on budgets begins shortly after submission of the President’s budget the previous January. The budgeting process is a year-round, never-ending process. No sooner has the President’s budget gone to Congress than the agencies begin preparing the next September’s submission.

Within the agencies, there is always a conflict of priorities. Each sub-part of an agency believes in the work it does, fiercely defends its current budget, and requests an increase in funding. However, the upper echelons of the agencies know that requests for more money will not likely survive a review process. So what the Congress sees is the result of a great deal of negotiations within the agencies. Because the agency heads must conform to the guidance of OMB or appeal directly to the White House for budget relief, the agency position is not the true desires of the agency. Typically, the agencies would like to ask for more funds, but this budget is often the most possible, under the total circumstances. You can be certain subagencies are requesting and justifying much higher funding.

Agency submissions must follow the format prescribed in (the dreaded!) OBM Circular A-11 and be consistent with the planning guidance the OMB gives to the agencies. Why is this dreaded? Well, the Circular A-11 for 2008, for example, (used for formulating the fiscal year 2010 budget) was a tidy little 700 pages and a mere 7 megabytes!

The President submits his budget to Congress at the beginning of each congressional session, typically in January. From September 15 until mid-October prior to that January, OMB staff members hold hearings with agency heads and high-level staff to more fully understand the details of their budget requests. Each element of OMB has a target budget at the total agency level, and sometimes it has subtotals within those totals. Although somewhere, perhaps in another universe, there is an OMB target number higher than the agency request, a careful review of history says that this has not happened yet.

So negotiations take place between the agency and OMB staff and management about what to present to the President as a baseline solution to the gap between the agency request and the OMB solution. The President and his own top management team then make the difficult decision of what to submit as the President’s budget. After many hours of hard bargaining and difficult decisions at many levels regarding what to give priority in the budget, a President’s budget actually does emerge and is then sent to Congress for Congress to do its thing.

Between September 15 and the formal transmission of the President’s budget early in the next calendar year, individual companies have only limited opportunity to influence the negotiations that invariably take place. In fact, OMB staff have strict prohibitions on communicating with outsiders during this time. On the other hand, there is less sensitivity to accepting inputs from individual companies in the March to June period. Because there is no active, specific consideration of programs, the staff has a chance to hear from the private sector. So this is the time to carefully provide white papers and other technical and programmatic inputs to OMB staff as well as to agency personnel.

Agency heads or their designees have the duty and the right to testify before (typically) both the House and Senate committees. There are two separate, but related, tracks: before the Authorizing Committees of each body and before the Appropriations Committees. Authorizing Committees give the general authority to agencies to proceed with programs, and Appropriations Committees give permission to actually draw down funds from the public treasury. This gives the testifiers four chances to present justification for their budget requests as approved by the President. The amended Budget and Accounting Act of 1921 requires that agency personnel support the President’s budget. This can be tricky because sometimes the agency testifiers would rather ask for a different amount, either higher or lower, but the act requires each individual to support the President’s budget.

The term “approval” says that is the resultant state. Between the receipt of the President’s budget and the passing of legislation for the President’s signature, a flurry of activity takes place on both the Authorization and Appropriations Committees and on both sides of Capitol Hill—the House of Representatives and the Senate.

Once the President’s budget has gone to Congress and depending on the specific agencies, you can talk to the agency people about alternative funding streams. However, you must realize that the agency people can do little about this until the next budget cycle. There are exceptions, for emergency situations, but it’s a good rule that once the President’s budget goes to Congress, nothing else can happen until the next fiscal year. It is possible, although rare, to submit materials to an agency, which can then become part of the supporting materials for the agencies’ testimony to Congress.

The Congress—whether Republicans or Democrats are in power—has an unenviable record of being late to the September 30 deadline for approving funds for the new fiscal year beginning the next day. But eventually, the budget bill moves through the authorization process, which means “it’s okay in principle to spend the money.” Then it goes through the appropriation process which is government speak for “upon the President’s signature into law, the funds may now be provided by the Treasury.” After all this is complete, the agencies may actually spend the funds.

Often in anticipation of the release of funds, agencies begin to build formal plans for spending the money. It is illegal, under the amended Budget and Accounting Act of 1921, to actually commit funding until the President signs the Authorization and Appropriations bills into law. But some agencies (very appropriately) go ahead with detailed plans, contingent upon release of the funds.

Based on the high-level procurement plans, the procuring agencies then release detailed solicitations. These may be in the form of a Request for Proposal (RFP)—typically the most competitive procurements—or a Request for Quotation (RFQ). A major difference between these is that agencies use an RFQ when they know, rather exactly, what they want; for example, a Model 455 solar-powered thingamabob. Typically, RFPs are awarded on the basis of so-called “best value,” where the agency states in the solicitation that it reserves the right to choose a winner on the basis other than lowest offered price, among acceptable offers. RFQs are awarded to the qualifying offeror with the lowest offered price.

So now the process gets interesting and more relevant to you as someone seeking government contracts. Now that the money is available, the agency—your customer—is ready to go through the selection process. This selection process focuses on creating and releasing clear and relevant solicitations. The focus then shifts to proposal evaluation.

The customer does the magic in the selection of a winner or winners in a multiple-award solicitation. Then comes the wonderful day of the contract award!

There are three levels of understanding and involvement for complex processes such as the flow of money for government contracts:

If you are a small business dealing as a prime contractor on small contracts, a subcontractor working mostly if not exclusively through large contractors, or a supplier selling commodity products to the government or near-commodity products to prime contractors, your interest in this chapter is probably minimal. You may have only a little interest in Level 1. However, as you move up the scale to larger and larger contracts and take on the role as a prime contractor, you may need to know Level 2, why things happen that way.

The ultimate Level 3 applies to large contractors, for example, Boeing, Computer Science Corporation, SAIC, Northrop Grumman, or General Dynamics. These companies surely do need to understand the process through Level 3 so that they have the ability to influence outcomes; Boeing, for example, needs to know in great detail the Level 1 and 2 facts and be able to go on to Level 3 for the USAF Tanker Replacement contract.

What we can accurately say is that each stage offers opportunities for your company to provide data and analysis (white papers) that are consistent with your own company’s technical and/or management approach or solution. For example, industry groups create those white papers with the intent of influencing the decision-makers.

Even if you’re a small company, the industry groups that represent small companies actually have influence through those papers. You may want to figure out which of these many groups best represent your interests. Then join the group, and support it through your contribution to those papers. More specifically, you should:

The Least You Need to Know