What’s going on in federal contracting?
New regulations, supply chain issues, and construction projects through military institutions: what’s going on with federal contracting? Stephen has all the updates after attending an Associated General Contractors conference in Washington D.C. Get up to speed on this week’s episode.
Topics we cover in this episode include:
- The Associated General Contractors organization and what it does
- Project Labor Agreements
- OSHA regulations
- Supply chain issues
- Water Resources Development Act
- United States Army Corps of Engineers and NavCon
- Current opportunities in federal contracting
- Set aside goals for small businesses
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
TRANSCRIPT
[00:00:00] Rob Williams: Welcome to the Contractor success Forum. Today, we’re discussing what’s going on in federal contracting. We have with us, Stephen Brown with McDaniel Whitley bonding and insurance agency. And we have Wade Carpenter, Carpenter and Company CPAs. And Rob Williams with IronGate Entrepreneurial Support Systems. And we are the Contractor Success Forum discussing how to run a more profitable, successful construction business.
And today we’re talking about what is going on in federal contracting. Wade, have you been wondering about this? I can’t wait to hear this one.
[00:00:43] Wade Carpenter: Absolutely.
[00:00:43] Stephen Brown: Wade is getting over COVID guys and listeners, you can’t get it through the camera, but Wade, thank you for–
[00:00:51] Rob Williams: Yes, our COVID surviving man.
[00:00:54] Stephen Brown: You look like a movie star. I’m–
[00:00:56] Wade Carpenter: Yeah, I don’t know about that, but.
[00:00:58] Rob Williams: Yeah.
[00:00:58] Wade Carpenter: Anyway, about everybody actually watching the podcast instead of listening. But anyway, Stephen, I know you, you went up to Washington, DC. I believe. What–
[00:01:08] Stephen Brown: I did a couple of weeks ago, went up to the state’s capital. Flew up there, had no problem, flights canceled coming back. So, a bunch of us rented a car and we thought, well, it’s eight and a half, nine hours from DC to Memphis, so we’ll just pull an all-nighter. Each person only has to drive three and a half, four hours a piece. So it’s no big deal. Let’s just gut it up and knock it out. Well, we did. And we’re all four of us are still recovering from that massive road trip to get home from DC.
But let me tell you guys, it was a great trip. It was the Associated General Contractors, Fed Con they call it, which of course stands for federal contracting. But it’s all things federal contracting to contractors.
Things you wanna talk about, things that are going on, legislative updates that you have to know about. And then what’s coming out from the different government entities that release this contracting. And also to see what the AGC does for their base of members. A lot of politicking is involved in getting these projects off the ground and also getting them done in terms that are palatable to the contractors to do the work.
So the AGC’s got 26,000 members nationwide. I think they’ve got 170 student groups, mostly in engineering schools. These are students. It’s a plug for the AGC, but there’s so much that organization gives to its members. It’s very impressive. And I think if you’re doing federal contracting, the information was worth its weight in gold.
So, Wade just wanted me to tell y’all about this and what I got from it.
[00:02:45] Rob Williams: Yeah. I’ve been so interested. I keep reading on the news and the TV. It’s, okay, we’ve got all these things to spur the economy now, but then people are saying, well, where is it? What’s happening? What’s going on? Why are we not seeing all this? And the conversations on your end are just–
[00:03:01] Stephen Brown: That’s really interesting because you know, you talk about the backlog and you talk about the product that’s just waiting to go out. Of 75 billion, with a B, dollars of contracts. You’ve got contracts from last year that haven’t been bid yet.
And then you have all these shovel ready projects. They call them shovel ready because they’ve been on the books. The contractors know about them. The work has to be done and the government just put it off and put it off and put it off. And now, these shovel ready projects that you think you know the budget for if you’re a government contracting person is out the window. No, we can’t do it.
And in this dialogue that we were having at this convention with the government contracting officers and the general contractors, there was just a lot of disconnect. And a lot of the government contracting officers were saying, we got jobs that we receive no bids for, not one bid. And that just doesn’t happen.
Somebody always throws out there a Hail Mary type of number that they can do it for. But in today’s contracting environment, it’s so stressful for the Contractor to determine a price when they don’t know the price. So how much risk are they willing to take? And that’s the key, how much risk are you willing to take? And for whom are you gonna take that risk?
Just like we’re talking about in the Pumpkin Plan for Contractors. There are certain projects and owners that are just the perfect fit and it’s the same with government contracting. That’s one of the key things I got from this was just this disconnect.
And every one of the entities contracting entities are saying, we’ve gotta be more apparent. We’ve gotta be more helpful. We’ve gotta work more with… and the contractor’s going I heard that before. Really. But this is at a point where a lot of people lose these jobs. Politicians expect these jobs to be done, especially in their district.
They’re funded. We want them done, what’s going on? So I thought y’all might be interested in just hearing about some of the legislative things that they’re fighting about quickly, but also what’s being done about this problem we’ve got going on right now.
[00:05:17] Wade Carpenter: Yeah.
[00:05:18] Rob Williams: I’m dying to hear.
Project Labor Agreements
[00:05:20] Stephen Brown: Legislatively there’s things that, project labor agreements. These things are gonna be required for every job over 35 million dollars. And it’s certainly harder for a, a non-union contractor to meet these guidelines, but that’s something that the AGC is fighting, they’re fighting it on Capitol Hill tooth and nail.
The department of defense says, hey, we don’t recognize these. Don’t bring us into this political stuff. We’ve got the military to run, get out of our way. And they’re getting away with it because they have to.
OSHA Regulations
[00:05:53] Stephen Brown: And then OSHA. Fighting OSHA on some things. This thing that’s most interesting to me is they’ve got a new heat standard on federal projects and it’s triggered at 80 degrees. And we got a big kick out of that being from Memphis. We’d have to stop right here in my office right now, it’s kinda warm. I better check the temperature because I might need to go home, but 80 degrees, really? It’s gonna–
[00:06:18] Rob Williams: Oh, my gosh.
[00:06:19] Wade Carpenter: Seriously? they, They seriously said you gotta stop at eighty degrees.
[00:06:23] Stephen Brown: Well, I mean that triggers a possible OSHA violation. So, these federal regulations have to be stopped by someone and that, that don’t make sense. And that’s the AGC. Everybody believes that hydration is important and but mandating at 80 degrees, all these procedures have to kick in place? That’ll end construction everywhere, but the north pole, I think.
There’s kind of crazy stuff out there. Then there’s new forklift standards that are out, that if you have an old forklift you’re using, you’ve got to document how that is as safe as the new one. Okay. So you say, well, who cares? Who cares about this? Well, you care when you get a fine and it keeps you from getting a job. That’s when you care. And who fights OSHA?
Well, the AGC helps fight OSHA for you. Now you can get attorneys and fight OSHA yourself, but you know, that’s one of the perks of membership. Okay. That’s my plug on that. All right.
Supply Chain Issues
[00:07:19] Stephen Brown: Then we talked about the supply chain issues. And in government contracting, there’s basically, most of them are showing a 10% flexibility in the prices you quoted and the escalation.
So, kind of 10% range is the gut feeling I got, for which you can go back to the contracting officer and work with them. But you’ve gotta have your facts and figures together to go to them with that data if you expect to get a, an increased change order on the project. We talked about that. So that’s the legislative stuff.
Water Resources Development Act
[00:07:52] Stephen Brown: And then the water resources development act is getting ready to get past. And that’s a lot of money. We don’t think a lot about water here in Memphis, because it’s just not a problem yet. We’ve got this giant aquifer right underneath us. We’re very fortunate to have that, but some people just aren’t getting water at all.
And the Department of Natural Resources and Reclamation, they’re in charge of providing water. And you would not believe, it’s expensive to live in California. Part of that is because they have to get water. And it’s very expensive. And when we’re talking about gas being $6 a gallon, what’s water per gallon? Nobody ever thinks like that unless you live in California and you don’t have water. So this is huge.
Then we’ve got another issue of find out we’ve got all these dams and reservoirs that create hydroelectric power, all the benefits of a dam. There’s 2,900 dams out there. And most of them were built from the mid fifties to the mid seventies, guys. And they’re starting to fail. So there’s gotta be money pumped into it, and it has to be there. This is going down.
United States Army Corps of Engineers and NavCon
[00:09:03] Stephen Brown: And another thing that I thought y’all might wanna know is that most of the contracting dollars for developing a construction project funnels through the United States Army Corps of engineers. And we’ve talked about this before. And then there’s NavCon: Naval Facilities Contracting. But these are military folks.
The projects get done. There’s a reason why they do it. And the general of Core of Engineers has got this whole marketing program of the castle that represents the core of engineers. Notice now that drawbridge is down and all the windows are open, we’re transparent. And they signed a new partnership with the AGC.
They’re trying to say, hey, the buck does stop with us. And we’re gonna be more adaptive and we’re gonna be more reasonable and we’re gonna do what’s right, and what makes sense to get the job done. And it’s amazing guys, what a general can get done. Those guys, they get stuff done. So you can see why most of the 75 billion dollars is running through the Corps and NavCon.
So, if you say, well, that’s who’s doing all the money, then how do I get my hands on these jobs? How do I start doing stuff? I guarantee you there’s a government job that you’re perfect for doing out there. But you gotta register on Sam.gov and you’ve gotta get on their radar so they can find you. And then you’ve gotta find the projects. So we have that on another website, how to do federal contracting. That’s one way to do it.
[00:10:40] Wade Carpenter: One question, Stephen. I, you told me somebody showed up at the meeting, just to ask some questions because they weren’t getting answers.
Can you talk about that?
[00:10:49] Stephen Brown: Yeah. There was a fellow from one government division that showed up at the Corps of Engineers discussion because it was right there in Washington DC and they thought, well, I’ll just duck in on this meeting and get some help.
I really applauded him for doing it. It was like, I’m ripping my hair out. What do I do? And we were all sitting there watching it. I was thinking, yeah, this is dysfunctional. When you’ve got the government, and you’ve got these entities that aren’t talking to each other, that’s scary. And so they consider the Corps of Engineers’ plan of doing business the best way to get a project completed. And that’s it.
[00:11:28] Rob Williams: I keep thinking, Stephen it’s so unfathomable that they’re not getting bids and you just think, well, just go bid something, put it in. What are these contractors saying? Is it because they’re just too afraid of the government bureaucracy or is it mostly because of the material and the pricing and they don’t know whether to put 50% or 10%?
[00:11:50] Stephen Brown: I’ll say this, a number of those projects seem to be with overseas projects.
[00:11:54] Rob Williams: Oh yeah.
[00:11:56] Stephen Brown: Getting ahold of the supplies. And then the length of the project. The complexity of it, it’s okay, we do that all the time. Yeah. We can do this work here and there, but, hey, think about the Navy, guys. Their bases are all over the world. So NAVFAC spends a lot of money and the Corps does a lot of work for the Navy and for the Marines and for the Air Force. And so all these military organizations, they have normal maintenance and stuff that needs to be done all the time on their bases. But there’s also, just like us. They need new buildings, they need new infrastructure. They need new water lines. They need new HVAC. It just doesn’t stop, guys.
Current opportunities in federal contracting
[00:12:37] Wade Carpenter: Well, I know we did a couple of episodes on the federal contracting, and I think we’ve said before that when there’s a lot of competition, there’s not always a lot of profit, but from some of the contracts I’ve heard from this infrastructure project I’ve got some out doing at the Atlanta airport, they’re making stupid profits on these things.
[00:12:58] Stephen Brown: Well, you can make your profit, if you can do the work. The money’s there. So you just gotta get in there and go after it, is my take on it. As a listener, you’ve got your own opinion on it, and we’d love to hear about it.
[00:13:12] Rob Williams: I do wonder, Wade, how are your clients doing this when the job is gonna be two years off? How do they predict the cost of concrete and what happens there maybe, or it takes two years now that’s two years off.
[00:13:25] Stephen Brown: Well, and you’ve got vendors giving you a 48 hour bid.
[00:13:30] Rob Williams: How do you deal with that? What is the government’s point of view when they do that? What concessions, what contract revisions…?
[00:13:36] Stephen Brown: They don’t care. They’re giving you a little bit of leeway in the pricing fluctuation. And when the government stops a job, they give you time for that. But it still costs you money. When you go work on a military base, you gotta get your whole crew on base.
And I just know from visiting that job at Andrews Air Force Base a couple weeks ago, how much trouble it was just to get guests on the base. The base shuts down and there’s certain hours and it’s their way or the highway. As you get used to that, you’ve gotta build those costs in. You can’t eat those.
[00:14:06] Rob Williams: I did a lot of the housing at the Navy bases and now, the good thing is we didn’t really have anybody stealing anything. That was one thing. We had some serious security around that job. So, of course we were the only contractor, I guess if there’d been two or three of us building next to each other, we would’ve stolen from each other. So we still had a problem, but it was just me framing them.
[00:14:28] Stephen Brown: And if you understand how to play by the rules and they go out of their way to help you learn how to play by the rules, you get paid like clockwork. So that stress is gone. So, you know, all these pros and cons of, ah, no, I’m not getting it, man. I tried to do a job or I subbed a job, you kinda have to rethink that right now because there’s a lot of money out there. That’s my take on it.
[00:14:51] Rob Williams: I guess you get paid, because I know I didn’t get paid on one of my, but it turns out it was a public private project, so that gets confusing. I didn’t realize the factors that were in there. I thought it was just.
[00:15:04] Stephen Brown: Well, that’s notoriously, so yeah.
[00:15:07] Rob Williams: Yeah it got ugly. It was really slow pay.
Set aside goals for small businesses
[00:15:10] Stephen Brown: One other thing I wanted to tell you that I thought y’all might find interesting is that their goal, the small business and set aside business goal for government contracting is 11%. So 11% of 75 billion dollars, and that’s their goal for 2022. And it’s 15% by 2025. So it’s not going away.
[00:15:34] Rob Williams: Now what now? Explain that to me. Am I hearing that right there? What is 11?
[00:15:40] Stephen Brown: Of those contracting dollars are set aside for small business.
[00:15:44] Rob Williams: Oh, set aside. Okay. Gotcha.
[00:15:47] Stephen Brown: All right, here is the breakdown. I figured y’all would appreciate this. Okay. Right now, this is as of 2020, they didn’t have data for 2021 available yet. 2.8% of government contracting work is done by Asian Pacific. 1.7% is African American owned. 1.8% is Hispanic. 2.7% is Native American. 0.5% is other minority owned. And 15.6% is small business. And remember, small businesses can be huge.
[00:16:23] Rob Williams: Yeah. What is small business in the contracting?
[00:16:27] Stephen Brown: We mentioned that you literally go in, when you put your NAICS number in there, and it tells you for your type of business.
Now here’s the good news. They used to develop it over three year average, and they just passed the law where it’s five years. So people that may have grown out of being a small business may be eligible again, based on that five year rule. So guys, to say that they are desperate for these construction projects to be finished and that we need it. And there’s just never been a time in America where we’ve needed construction industry so much. Now’s the time.
[00:17:04] Rob Williams: I know when I got in it, I was pretty much pulled in it from people that just needed my skill because I knew how to do wooden framing and these guys didn’t know how to do it. How do other people–
[00:17:15] Stephen Brown: Well, you got pulled in and it was slow pay. So it would be hard for you to get back into federal contracting. So I would just say guys, ask your bond agent if they know government contracting. They can help you out.
[00:17:27] Rob Williams: Yeah. So lots of different types of jobs out there. It’s not all just bridges, right? There’s all kinds of stuff other than roads and bridges. Right?
[00:17:36] Stephen Brown: That’s right. It’s out there. It has to be done. And that’s the beautiful thing about construction. Buildings get old. They fall down. Infrastructure becomes unsafe. Look at how much money we spent on our bridge across the river when it became unsafe. There was no amount of money. It wasn’t the state Arkansas and the state of Tennessee constantly bickering over that bridge and the cost involved. Hey, it didn’t matter. You’ve gotta pay it.
[00:18:05] Rob Williams: Yeah.
[00:18:07] Stephen Brown: Shutting down traffic over that bridge, it cannot happen. They’re even talking about building a third bridge now. It doesn’t matter what it costs, guys. I mean, at some point it does, of course. But they’re gonna spend the money to do it. And their budget for that bridge, I don’t know what it ended up costing. But they did it and it’s back and at work. And they deserved every penny of it. As a taxpayer, I hate the fact that they didn’t plan ahead better, but you know, the bridge is open again, so.
[00:18:40] Rob Williams: Oh yeah.
[00:18:41] Stephen Brown: Hey, that’s all I had to say. Unless y’all have any questions.
[00:18:44] Rob Williams: This is amazing. So, just find out, look at our website and contact Stephen or anybody, or your own bonding agent, if you’re locked into one. There’s so many opportunities out there to do this and grow that and maybe find a specialty, you know, in something.
[00:19:00] Stephen Brown: Talk to a friend that does a lot of federal contracting, if you’re not competitors.
[00:19:05] Rob Williams: Right, right, right. I’ve got clients that merged. They’ve joined forces together. People that met each other. And I had one client, they even, they had kids in grammar school together and they ended up forming a huge joint venture to do a bunch of work.
One of them was doing FBI work and one of them was doing embassy work and they ended up forming together to do a thing from kindergartens, it’s just crazy. But it ended up being an amazing partnership. So, his skills that he had doing over here worked a little bit better for this guy who didn’t have those skills. And it was amazing. So just, yeah, talk it up, go to these things, be there, start showing up and being able to take advantage of these huge opportunities. So.
[00:19:46] Stephen Brown: There you go guys, and look at our podcast on joint ventures, too.
[00:19:50] Rob Williams: Yeah. Yeah. That’s I can’t stress that enough because I know, I felt like I couldn’t do this. I had no idea how to enter in that. And I didn’t actually go out seeking it really. I think I was asked in, where I don’t think I had to take the initiative, but I don’t think if I hadn’t learned that I wouldn’t have ever figured it out.
So, we didn’t have the Contractor Success Forum to tell us how to do that.
[00:20:13] Stephen Brown: Hey, you don’t know what you don’t know, guys.
[00:20:15] Rob Williams: That’s right. That’s right. Well, thanks a lot. I appreciate it. And Wade, thank you for showing up at your COVID station and staying secure and safe there at the homestead.
[00:20:26] Stephen Brown: I know, I wish we had set up a little cot for you. You could curl up on during–
[00:20:30] Rob Williams: That’s right. Well, thanks for visiting the Contractor Success Forum, and we will see you on the next episode. Thanks.