Optimizing an Organization with Disparate Commercial and Federal Business Interests

There are many issues associated with optimizing an organization with disparate commercial and federal business interests within a single global enterprise. There also are multiple alternative approaches along with respective advantages and disadvantages of each. Federal contractors view compliance with the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) as simply a cost of doing business with the federal government.  However, a purely commercial firm would never voluntarily observe these federal rules and regulations as the cost of doing so would be an unnecessary expense and a distraction from the company’s core competency.

A significant number of firms with a predominance of commercial business combined with a large federal contracting business units address this major dichotomy by using different policies, practices, systems and tools for each disparate business unit.  The advantages of “walling off” a federal division include limiting the reach of federal auditors into commercial practices and allows the federal division to price itself more competitively in the federal market. While effective, this approach can raise barriers to effective collaboration, cooperation and resource sharing between commercial and federal divisions of a single company.

Our recommendations for companies managing challenges associated with a mix of federal and commercial business are to:

  • Create a separation between the federal and commercial businesses;
  • Adopt a GovCon-specific point solution as the primary cost accounting system for the federal unit;
  • Implement GovCon-compliant practices in (only) the federal unit to meet FAR, CAS and other contract requirements;
  • Pass a share of corporate shared services costs to the federal business while maintaining practices designed to limit exposure of the rest of the enterprise to Government audit;
  • Perform price analyses on internally procured commercial items to demonstrate a fair and reasonable price;
  • Share resources to capitalize on the breadth of capabilities with a combination of approaches:
    • Transfer personnel into the federal unit when an assignment is more than short term
    • Establish “transfer pricing” for short-term resources to facilitate “arm’s-length transactions”
    • Maintain an enterprise-wide view of the entire resource pool to manage and source personnel

Some of the most successful FORTUNE® 1000 firms with both commercial and federal business units have addressed the compliance requirements of their federal contracts in exactly this manner.

Gain Insight

To learn more about how to optimize an organization with disparate commercial and federal business interests information, please read our detailed white paper, or contact:

Christine Williamson, CPA, PMP
Partner
Government Contracting Industry Practice
703-847-4412
Christine.Williamson@CohnReznick.com

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