For established engineering firms, government contracting offers significant opportunities—but also demands advanced strategies to boost profitability and maintain compliance. Profitability often hinges on streamlining operations, refining cost structures, and navigating regulatory complexities.

While securing contracts is a significant milestone, the ability to deliver projects efficiently and profitably is what sets successful firms apart. From fine-tuning indirect rates to leveraging technology, adopting advanced business strategies can empower engineering firms to stay competitive and profitable.

Increase profitability, enhance compliance, and manage risk with insights into effective advanced strategies that can help established engineering firms succeed in the dynamic world of government contracting.

Enhance Indirect Rate Structures for Competitive Bids

Indirect rate structures play a crucial role in determining both profitability and competitiveness in government contracting.

Improve indirect rate structures and increase the ability to win competitive bids by incorporating the following strategies:

• Analyze Indirect Rate Components. Indirect rates typically include overhead, general and administrative (G&A) costs, and fringe benefits. Regularly assess these components to identify inefficiencies and eliminate unnecessary expenses.
• Improve Allocation Methods. Ensure your allocation methods align with the type of work you’re bidding on. For example, allocate overhead costs by project type—such as design or fieldwork—to avoid subsidizing less profitable activities, or adjust G&A costs to reflect shifts in the firm’s operational structure.
• Conduct Forward Pricing Rate Agreements (FPRAs). Engage with government agencies to negotiate FPRAs that establish approved indirect rates for future contracts. This reduces the risk of disputes and expedites the bidding process.
• Leverage Benchmarking Data. Compare indirect rates against industry benchmarks to ensure your firm remains competitive. This data can also inform internal cost-cutting measures to improve efficiency.

Advanced Cost-Volume Strategies for Successful Pricing Proposals

Developing a compelling and accurate cost-volume proposal is critical for securing government contracts. Advanced strategies can help your firm stand out and increase project profitability.

Create a well-crafted cost-volume proposal that not only improves your chances of winning contracts but also supports project profitability with these advanced strategies:

• Develop a Comprehensive Cost-Build-Up. Break down costs into direct and indirect categories to present a transparent and well-justified proposal, including labor rates based on experience levels and project requirements and equipment and material costs tied directly to project deliverables.
• Incorporate Risk Adjustments. Build contingency plans into your cost-volume proposals to account for potential risks, such as delays caused by regulatory reviews and escalating material costs due to market volatility.
• Focus on Value Engineering. Highlight cost-saving measures and efficiency improvements, such as innovative technology to reduce man-hours and alternative designs that lower material costs without compromising quality.
• Present Competitive Pricing Without Undercutting Margins. Strike a balance between offering competitive rates and protecting your profit margins. Use historical project data and cost modeling to refine your pricing strategy.

Maintain Compliance with Updated FAR and DFARS Clauses

Compliance with government regulations, including the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS), is an ongoing challenge for engineering firms. Staying abreast of updates is critical to maintaining eligibility and avoiding costly penalties.

Proactively addressing regulatory changes allows your firm to remain competitive and avoid interruptions to ongoing projects.

• Monitor Regulatory Updates. FAR and DFARS are periodically updated to reflect changes in federal policies, procurement standards, and industry requirements. Recent updates include Cybersecurity Maturity Model Certification (CMMC) which requires firms working on Department of Defense (DoD) contracts to implement specific cybersecurity measures, and new climate and sustainability clauses emphasizing sustainability in construction and engineering projects.
• Implement Training Programs. Educate staff on updated regulations and their impact on day-to-day operations. Consider hosting regular training sessions for project managers and compliance officers.
• Conduct Internal Audits. Regularly review internal processes and documentation to ensure compliance with the latest requirements. Focus on high-risk areas such as labor compliance under the Davis-Bacon Act and cybersecurity protocols for sensitive government data.
• Engage Compliance Specialists. Work with experienced consultants or legal advisors to navigate complex regulations and address compliance gaps.

Manage Risk in Multi-Contract Portfolios

Managing multiple government contracts simultaneously introduces unique risks that require strategic oversight. Effective risk management is essential to maintaining profitability and meeting contractual obligations.

By proactively managing risks, your firm can maintain control over complex portfolios and protect its profitability.

• Diversify Contract Portfolio. Avoid over-reliance on a single contract type or agency. Diversifying your portfolio across federal, state, and local projects reduces the impact of unforeseen challenges.
• Develop a Centralized Risk Management Plan. Create a comprehensive risk management framework that addresses operational risks, such as delays, resource shortages, or subcontractor issues, financial risks, like cash flow constraints or cost overruns, and compliance risks, like failure to meet reporting or audit requirements.
• Monitor Key Performance Indicators (KPIs). Use KPIs to track project health and identify potential issues early. Key metrics include budget variance, schedule adherence, and subcontractor performance.
• Conduct Scenario Planning. Prepare for worst-case scenarios by developing contingency plans for critical risks. For example, establish backup suppliers for essential materials and maintain an emergency cash reserve to cover unforeseen costs.

Leverage Technology for Compliance and Efficiency

Technology is a powerful tool for streamlining operations, ensuring compliance, and improving profitability in government contracting.

Embracing technology enables your firm to operate more efficiently while staying ahead of regulatory requirements.

• Adopt Project Management Software. Use software solutions to centralize project planning, resource allocation, and performance tracking. Leading tools can automate schedule updates and integrate cost tracking with project milestones.
• Implement Compliance Management Systems. Compliance software can simplify reporting and improve adherence to government regulations. Features can include automated payroll reporting for Davis-Bacon compliance and real-time alerts for regulatory changes.
• Leverage Data Analytics. Analyze historical project data to identify cost drivers, improve forecasting accuracy, and refine future bids. Data insights can also help identify underperforming areas that require corrective action.
• Enhance Cybersecurity Measures. Government contracts often involve sensitive data, making cybersecurity a top priority. Invest in tools that encrypt data to protect against breaches and monitor networks for unauthorized access.

Build Strategic Relationships with Industry Associations and Government Agencies

In government contracting, technical expertise and compliance alone won’t guarantee success. Strong relationships with key industry associations and government agencies can provide critical insights, networking opportunities, and competitive advantages.

By actively participating in industry associations and engaging with government customers, your firm can gain early access to contract opportunities, stays ahead of regulatory changes, and strengthen its reputation as a trusted partner in the public sector.

Engage with Industry Associations

Organizations such as the American Council of Engineering Companies (ACEC) and the Associated General Contractors of America (AGC) offer:

• Access to Decision-Makers. Events and conferences often feature agency leaders from the Department of Transportation (DOT), General Services Administration (GSA), and the Department of Defense (DoD) who share upcoming project opportunities and procurement strategies.
• Regulatory and Market Insights. Associations keep members informed about legislative changes, funding shifts, and industry trends that impact government contracts.

Cultivate Relationships with Government Customers

Government agencies look for contractors they can trust to deliver high-quality projects on time and within budget. To build credibility:

• Attend pre-bid meetings and industry days hosted by contracting agencies to gain insights into their priorities.
• Engage in one-on-one meetings with agency representatives to discuss how your firm can support their long-term infrastructure or engineering goals.
• Provide feedback on Requests for Information (RFIs) to demonstrate expertise and help shape future solicitations.

Leverage Peer Networks for Best Practices

Connecting with other engineering firms in your industry can provide valuable insights into:

• Effective cost strategies for competitive bidding.
• Compliance best practices for emerging regulations.
• Lessons learned from past projects with similar government agencies.

We’re Here to Help

To learn how advanced strategies can help your engineering firm increase government contract profitability, please contact your Moss Adams professional.

Additional Resources

• Government Contractor Practice
• Professional Services Practice