It’s time to rethink GovCon pricing to align with post-pandemic reality

Moe Jafari, CEO of Executive 1 Holding Company explains why the old model of pricing is not just obsolete, but completely counterintuitive.

The landscape of government contracting pricing is stuck in a bygone era. In my 26th year as a business owner and contractor with hundreds of proposals under my belt, I’ve witnessed the complex evolution of pricing strategies and their practical implications. The post-pandemic market is completely at odds with the reality of pricing and hiring within government contracting.

In the past, we submitted proposals with differentiated pricing for on-site versus off-site contract staff. Traditionally, on-site rates were set lower than off-site, sometimes by as much as 9%-to-10%. This was based on the assumption that on-site work incurred less overhead for the contractor, and therefore, the government received a discounted rate.

However, the COVID-19 pandemic upended those presumptions, introducing variables like remote work, supply chain disruptions, culture change and updated labor laws. Contractor recruiting teams now work harder than ever, increasing scope, time to hire and effort to find a workforce who will work “onsite.” It is costing much more in overhead, salaries and incentives to hire people willing to commute to work. The old model of pricing is not just obsolete; it is completely counterintuitive in today’s work environment.

The reality is that assembling teams for on-site work has become an onerous task, both for contractors and for federal agencies. Contractors are expected to offer a discount for on-site work inside government building and in some recent contracts, it is a requirement. Far from being a cost-saving option, on-site staffing now demands a premium. Just as frustrating from a collaboration standpoint is the fact that contractor teams are the only workers required to be onsite versus their federal partners.

Consider this: An on-site technician working a full week is now approximately 25% more expensive than a remote counterpart. Yet billing rates have not adjusted to this reality. Despite the thin profit margins and the obligation to offer our lowest rates, government contractors are grappling with higher turnover and steeper costs of training and retention than ever before.

And it isn’t spread evenly across all contractors. Small government contractors, unlike their larger counterparts, lack the size, scope and financial reserves to absorb these inequities. With the government’s intent to increase small business set-asides, there’s an urgent need to scrutinize how these pricing policies impact the broader ecosystem of government contracting, including impacts on supply chain, market rates and wages.

There are pricing categorizations within General Services Administration Schedules and other governmentwide contracting vehicles for sure, but those prices and policies need to reflect the new reality. In order to hire and retain the people to work within government as contractors on-site, I have to pay them more. It’s just that simple. Unfortunately, the burden of shouldering increased costs has fallen disproportionately on small government contractors.

There have been countless articles around the resistance to in-person work, likely continuing to frustrate the Biden administration’s efforts to get more federal employees (and contractors) back to in-person work. But the administration’s efforts, aside from the high-profile lunches with cabinet secretaries and the Office of Management and Budget memos seeking to “increase meaningful in-person work,” have fallen short of examining the real cost of staffing in-person versus remote.

It’s time for a robust conversation among stakeholders, including executive branch leaders, acquisition experts, congressional representatives and government contracting advocates on recalibrating the pricing structures within government contracting – both in regulation and practice.

The Biden administration and many leaders in Congress express their strong desire for a return to in-person office work. But the devil is in the details, as the expression goes, especially in government. A proactive step toward in-person work would be to establish higher on-site rates for all government contracts, incentivizing the transition back to government facilities for more contractors.

At a minimum, higher onsite rates would remove the cost penalties currently affecting the recruiting and hiring of on-site workers and allow small businesses to compete on a more level playing field. Higher paying onsite jobs could also be a tipping point to spark a return to office revolution. Either way, it’s a win-win for government contractors and the reality check we desperately need.

Moe Jafari is CEO of Executive 1 Holding Company with over 25 years of experience in government contracting, technology business investments, strategies, and mentorship.

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