Comparing Commercial and DoD/Federal Market Sector Business EnvironmentsPosted: November 13, 2019
The 17-person 809 panel was tasked with finding ways to streamline and improve the defense acquisition process. I met with the 809 Panel in February 2017 and I found it important to speak about the challenges facing mid-tier companies.
Another question the panel asked me to address was what are the differences between contracting with the Department of Defense and a commercial sector.
New entrants, such as “Silicon Valley” companies, entering via OTAs and other mechanisms will eventually confront the same challenges as traditional players in the defense sector. This is particularly the case as they achieve success, become established, and play by the same rules as traditional government contractors.
These new entrants must prepare to operate in a defense contracting business environment. Described below are key differences between the commercial and DoD business environments, which impact directly on the business models companies operating in those environments adopt:
1) Commercial Environment:
- Customer/company commercial contractual practices reflect the need to adhere to general legal contractual requirements as defined by local, State, and federal government and are far less complex and formal than the practices encountered when working with DoD and to comply with the FAR/DFAR.
- Commercial marketplace involves rapid customer decision making and compressed timelines.
- Commercial marketplace includes flexible contractual arrangements that foster rapid business deals.
- In general, there is no requirement to meet specific socio-economic/small business targets in contracting.
- Customers have more flexibility to develop and establish criteria for selecting venders.
- Awarded work often involves rapid delivery of products and services.
- Companies focus on rapidly closing deals, maintaining continuous cash flow, and minimizing peaks and valleys in revenue/profit streams.
- Companies maintain robust sales and marketing capacity to continuously sustain and grow business.
- Commercial companies offering products/services relevant to DoD market sector stress continuous R&D and product scaling and improvement in order to sustain competitive position.
- Losing companies in commercial transactions have little recourse to protest customer’s decision.
2) DoD Contracting Environment:
- Contractual practices are guided by FAR and DFAR, unless waived, such as OTAs; procedures are formal and time intensive.
- Customer procurement strategies, criteria, and practices reflect guidelines provided by Executive Branch, Congress, DoD, and DoD agencies, which leads to complex customer requirements.
- Customer decision making involves multiple layers of leaders; all must adhere to specified procedures, which is time intensive.
- Contractual arrangements promote adherence to intent and letter of the law rather than focusing on rapid award of contracts.
- DoD agencies must stress adherence to socio-economic/small business targets.
- DoD agencies allocate significant time and resources to develop criteria, specifications, and requirements for contractual competitions; companies operating in the defense market space establish business model that are influenced by those government characteristics.
- Companies focus on obtaining access to contract vehicles, winning task orders or full & open competitions, and protecting incumbent work.
- Awarded work often involves multi-year contracts; this reduces the challenges associated with short duration commercial work.
- Companies address continuous cash flow and minimizing peaks and valleys in revenue/profit streams by sustaining numerous concurrent contracts.
- Successful defense-oriented companies maintain BD teams that focus on account management/business intelligence, capture, and proposal development.
- While many defense companies by their nature focus on R&D and building new capacity to remain competitive, they are influenced in their investments by the need to invest in activities required to meet DoD certifications and requirements (e.g., financial and security compliance, ISO-standards, CMMI-standards, etc.).
- DoD is generally unwilling to compensate companies for being innovative; viewed as a value-added trait.
- Companies operating in the defense market sector must obtain and sustain key certifications to remain competitive, such as ISO 9001:2008/2015, ISO 20000, ISO 27001, CMMI-3 & 4, NIST compliance, etc. This involves major internal investments.
- Losing companies in DoD transactions can protest large procurements; this impacts government procurement strategies and timelines.
Companies must design their organizations to optimize performance relative to the customers they serve, and as I’ve shown, the commercial market is very different form the Government market.
Given this, the DoD will be challenged in enticing non-traditional companies to enter the DoD market sector. While the DoD can offer short-term relief to the various barriers to entry, non-traditional players in that market sector will eventually have to adapt business models that support congressional and DoD policy requirements.
Randy J. (“RJ”) Kolton is VP of Mid-Tier Advocacy Group, and Senior Vice President (SVP), Business Development for Data Systems Analysts (DSA), Inc., a mid-sized, employee-owned company that is a leader in delivering business driven information technology and consulting solutions and services to the Federal Government and industry. Building on experience spanning more than five decades, DSA has deep expertise and comprehensive understanding of the operational, security, collaboration, and identity management challenges our customers must address.