After finalizing your WRAP calculations, the verdict is in – costs associated with operating a government contracting business are rising; the fastest rising component is the fringe rate -not the salary.
Fringe and G&A can change during the course of a contract. The most notable is the cost of health insurance benefits and rising insurance premiums. Anecdotally, most firms see 10%+ increase on an annual basis.
This is compounded with the typical workforce demographic seen in the DC metro-area. A strong labor market combined with an educated workforce will look for nontaxable benefits (ex. tuition reimbursements and 401K match) as a means of either differentiation between employers or a means to reduce taxable income. However, these items all must be considered in the proposal pricing.
Five Strategies to Evaluate:
- How are benefits administered? There is a multitude of ways that health benefits, P&C, and workers compensation can be structured to lower the effect of fringe and your WRAP rate. Lately, self-funded benefit models have been gaining traction in the government contracting community as a way to lower costs.
- Evaluate leases and office space. If teleworking is an option for your employees – explore a smaller space in a cheaper location? Paying for empty office space is certainly not what the competition is doing that can put in a more competitive bid.
- Explore outsourcing back-office functions as it relates to revenue generation? Huh – yes not all back-office functions directly lead to revenue. A lean back office will directly correlate to lower WRAP rate. Contractors with less than $5 million in revenue don’t need a full-time BD person and an HR director. However, a recruiter in house for a large company could lead directly to more business if you have not filled all seats on a particular contract.
- How much is the culture of your company worth? A great culture could be why employees turn down jobs and stay for less salary. Less salary, better culture, lower WRAP rate? Check out the companies winning best culture awards year after year; they are creating several competitive advantages.
- Tax Cuts & Jobs Act (TCJA) of 2017 . The changes to the tax code are limiting the interest deduction to 30% of EBITDA (disclosure, I am not a CPA, check with yours). There are forms of financing available that are not calculated as debt / interest; but rather loss on sale of an asset.
Author: Matt Stavish, Republic Capital Access
Originally Posted on LinkedIn: https://www.linkedin.com/feed/update/urn:li:activity:6387772567704334337