What is supply chain management, exactly? In a government context, it’s how an agency ensures the proper flow of goods between a supplier—a direct source or a contractor—and the agency’s constituents.
The COVID-19 pandemic brought many government supply chain systems to a virtual halt in 2020 due to shortages of drivers, fleet operators, and pilots. These snags created a scarcity of goods that we’re all paying for now through the effects of inflation.
The current inflationary squeeze is especially severe for government contractors, who already face a marketplace where the buyer is always in charge, considerations are always on the sellers’ end, and financial terms are rarely negotiable.
Once into the performance phase of a proposal, contractors face a wall of bureaucracy that is slow to recognize the fiscal impacts of double-digit inflation. And unlike commercial buyers, Contracting Officers (COs) have little leeway to suggest pricing adjustments that make a contract more equitable to both parties; requests launched up an agency’s command chain meet many obstacles for approval. 3
However, there are some situations where the current inflationary effects on government could eventually work to a contractor’s advantage. We’ve looked into our supply-chain crystal ball and identified a few here: long-tail and short-tail.
Long-tail
The DoD direct supply chain may move to the U.S.
What caused the government supply chain crisis for the DoD? The defense department's reliance on foreign-made materials, parts, and minerals—and their scarcity due to supply chain issues—has created skyrocketing costs in final-product acquisition and production.
While the defense industry is subject to the same budget overruns caused by supply chain disruptions that influence the private sector, the consequences can be direr—such as an inability to meet strategic defense objectives, potentially creating combat casualties.
Protecting our warfighters could come down to moving defense components and parts manufacturing into the U.S., This move can potentially decrease raw materials costs for artillery, plane, ship, and similar end products and allow a more reasonable margin for you on final-product defense contracts. 1
Long-tail
Domestic sourcing of natural elements could increase
If the Government is willing to re-look at its regulations around mining in the U.S., mineral leases could be renewed to allow for the excavation, development, and production of our natural elements to fuel war-fighting equipment.
The critical-mineral government supply chain crisis could be resolved through domestic means. Tax and other incentives could go a long way toward moving mineral imports away from China and into our backyard.
As a complement to Defense Production Act grantmaking, these initiatives will go a long way in creating new, more affordable mineral supply chains for direct-government acquisition and defense contracting bids. 1
Long-tail
Be cautiously optimistic about long-term SMB opportunities
Though you might be a DoD provider of “niche” parts or services, you’re just as crucial as any other vendor for keeping military vehicles, vessels, and weapons up and running.
But impacts to your supply chain disproportionately affect you as a small business. The DoD recognizes your continued participation in federal procurements is likely a Sisyphean task. Current contract practices construct barriers, minimize incentives, and make government business difficult.
A lack of raw materials, backlogged ports, and a shortage of shipping containers and truckers have significantly impacted small and medium businesses more than any other business category.
And productivity improvements due to technological automation won’t offset a talented supply chain workforce.
As we write this, the government is heavily considering establishing robust new training and mentoring programs to encourage young people to enter the supply chain.
Defense industrial base recruitment and training can be a golden opportunity for those looking to enter a lucrative career soon. They can also be a way for your SMB firm to shift from contract work to direct procurement. 1
Short-tail
The GSA is working to amend the Economic Price Adjustment clause
Now for more immediate optimism: The General Services Administration (GSA) recognizes the protracted process vendors must go through to increase their supply chain costs—or any other—to realize a profit.
For example, the GSA’s Economic Price Adjustment Clause only lets vendors increase prices no more than three times per year per item. However, the total increase is often limited to 5 percent—a minimal adjustment.
Over the past two years, many contractors have operated at a 15 to 25 percent loss through proposal awards. As a result, federal contractors are now looking at private industry as their primary business alternative.
But back to the GSA: The administration is working with the Office of Governmentwide Policy and the Office of Policy and Compliance to create workarounds for industry contractors so that you can increase pricing more often—and even make addendum adjustments when inflation suddenly takes a sharp upward turn.
When you’re sure you have all information you need to make an adjustment request, email your CO first and then your GSA ombudsman, if necessary. Don’t just present a firm-fixed-price invoice from a supplier in the commercial sector. An example of valuable documentation: freight charges for your raw materials and how they affect your supply chain pricing.
Tell a complete, valuable story, and you could come out ahead. 3
Short-tail
Cut proposal costs through an automated review system
One way to shore up existing capital is to substantially reduce proposal costs and timelines through ProPricer Contractor Edition and its compatible platform for agencies, ProPricer Government Edition.
Contractors, ProPricer Contractor Edition, gives you a head start on every new proposal. The platform automatically adjusts costs incurred on a historical job similar to your current bid to make those costs relevant for upcoming timelines.
In doing this, ProPricer takes into consideration supply chain delays, federal security status, and more. So take advantage of the past and price to win your future.
Agency pricing pros: ProPricer Government Edition includes a database architecture that lets you import an instantly organized view of proposal cost and pricing data—with the contractor’s fully-functional cost model ready to use. Modify rates and estimates at the level of your choice, then quickly compare multiple proposal versions to the original.
And contractors, while all supply-chain issues may not disappear into your near-term financial horizon, at least streamlining your proposal process can help ease economic pain from a time-and-materials perspective.
Sources
- IndustryWeek: US National Defense Supply Chain is in Crisis
- Stinson Blog: Growing Issue of Inflation in Government Contracts - Supply Chain Leads to DoD Clarification on Potential for Relief
- Federal News Network: Contractors Need Agencies to Help Them Whip Inflation Now
