While VCs scour the Valley and Hill Country for their commercial, defense, and dual-use unicorns, GovCon companies are on the hunt for their own white whale: the sole source, single-award IDIQ contract with a $1B ceiling and a SOW as broad and ambiguous as the horizon. Once a company has won that first SBIR (or two, or five, or ten, depending on how long it takes for them to feel ready to venture past the gates of SBIRland), their next question usually is, “So how do I get my own IDIQ?”

First, what is an IDIQ?

If you have never seen or used DAU’s Contracting Cone, I highly recommend it. It is an excellent tool, with links to other great resources, as well as statute, regulation, and subject-matter policies. They do a great job of defining an Indefinite Delivery, Indefinite Quantity (IDIQ), which, like the vehicle, is not one definition but contains many parts.

In short, think of an IDIQ like an umbrella or parent contract where you can pre-qualify vendors, establish general terms and conditions, and set menu pricing, so that you can later place individual orders as you identify a specific need or as funding becomes available. That’s the general idea anyway, and the USG likes them once they are in place because they are flexible and fast(er than other government contracting processes).

Did you catch the caveat? “Once they are in place.” IDIQs vary widely, with different dollar ceilings, ordering periods, vendor quantities, ordering procedures, etc. In short—they can be a huge hassle to establish, and though there is no actual funding on an IDIQ—despite the phenomenal advertising around “winning” an IDIQ by some investors and companies, the ceiling is NOT money—the documentation, process, and review requirements are the same as if the ceiling amount were a funded amount, so it can take quite a while to award.

Some of the main dichotomies and definitions with IDIQs to keep in mind are:

-Competitive vs. Sole Source—This concerns how the IDIQ was originally awarded. For example, a SBIR Phase III IDIQ may have been awarded directly to one company using Phase III authority, which would make the IDIQ a sole source, single award IDIQ. Whereas larger IDIQs, like GSA’s OASIS, are competitively awarded, meaning vendors compete for the opportunity to win an OASIS contract, and then are one of many vendors on the OASIS contract once it is awarded, and will compete further for Orders placed on OASIS even after the IDIQ is in place.

-Single Award vs. Multiple Award—This is based on how many contractors are on, or are party to the IDIQ. If an IDIQ is a single-award, only one contractor is eligible for every Task Order or Delivery Order placed under the IDIQ. If it is a Multiple Award IDIQ, you might have four vendors competing for each Order, or hundreds competing for each order, based on the Order procedures outlined in the IDIQ contract rules established at the time the IDIQ was awarded.

-Centralized vs. Decentralized—This concerns how orders are placed and who is responsible for the contracting actions for orders placed on the IDIQ. Some IDIQs are local, meaning that only the original customer and contracting shop will use them. For example, the base Civil Engineering shop works with the base Contracting squadron to establish a carpet and tile IDIQ and they will be the only ones to use it for the life of the contract. For a centralized contract, or assisted acquisitions, the organization that “owns” the IDIQ will allow other customers with a requirement or need and funding to place an order and will let the contract for them, usually for a fee. This is very similar to GSA’s overall model, where they assist other organizations with acquisitions, for a percentage of the contract value. Decentralized, on the other hand, is sometimes known as BYOKO or “Bring your own Contracting Officer.” In other words, you can use the IDIQ someone else established, as long as you follow the Ordering Guide or rules of the IDIQ, but you must have your own contracting shop place the order and manage the contract once it’s awarded.

*A note on vehicle versus contract type. IDIQs are a contract vehicle. SBIR Phase III is an authority. Both SBIR Phase IIIs and IDIQs can be (or have) multiple contract types, meaning you might have a SBIR Phase III IDIQ that has a Cost Plus Fixed Fee Task Order and a Firm Fixed Price Task Order. Or, a single Task Order placed on an IDIQ might have both FFP AND CPFF CLINs. Confused? Don’t worry–I’ll write a blog post on vehicles versus contract types in the future.

Finally, back to the main question–how do I get on or get my own IDIQ?

Because of the work it takes to award an IDIQ initially, contracting offices usually want to know that there is a current need (or scope) and funding for at least an initial task order–for some agencies this is even required. Additionally, they are going to want to validate that there is a plan for future needs and an estimate and justification of future funding available. For this, you will need a government champion to sponsor both the IDIQ and the initial Task Order. This is not easy work—think of how difficult it can be to convince someone to take on the work of the extra paperwork required to be a TPOC or COR for one, single contract. You are now asking someone to take on the work of two contracts simultaneously, and the bigger the IDIQ ceiling, the more paperwork and scrutiny required.

Everything I’m describing would apply if you are looking to get your own, sole-source, single-award IDIQ, which is easiest if you have either SBIR Phase III or some other equivalent sole-source authority. In a sole-source environment, you can often lighten the load for your customer by writing as much of the documentation for them as possible, which I often refer to collectively, as a Buyer’s Guide.

A Buyer’s Guide should, at a minimum, contain:

-Information on your product or service, both in general and relative to competitors (or who the government may view as your competitors) in your market;

-Pricing information, to include structure, substantiation, and basis of estimate;

-The scope (tasks, schedule, deliverables, etc.) of both the IDIQ and the Initial Task Order; and

-How it relates to a specific Phase I or II you’ve previously completed (if using Phase III authority); AND

-Documentation on the previously cited Phase I or II; OR

-If you are not using SBIR Phase III authority, a write-up and justification of the sole-source authority you are recommending the government use; and

-Basic company business information (CAGE, UEID, certifications, POCs, etc.).

Note that while you can and should work with your customer on things like ceiling, ordering procedures, CLIN structure, etc., and should keep in mind the strategic business implications of those variables, at the end of the day, the government will make the final decision on whether or not to award an IDIQ, and you may be forced to make some sacrifices in negotiations. The good news is that you can have multiple IDIQs, and may be able to mature how many and what type of vehicles you have available over time for new business.

As I said, this is all applicable if you are trying for a sole source, single-award IDIQ, but you can also compete or partner! You should consider becoming a prime or subcontractor on one of the multiple GWACs available, obtaining your own GSA MAS, or competing for other IDIQs/BOAs or similar vehicles that can provide strategic benefits to your company.

There are many paths to an IDIQ—what are some ways that have worked for your company or your clients? Share in the comments below!

Good luck!

Megan VanHorn

I’ve spent a lot of time, recently, chatting with folks inside and outside of the government on innovation. Inside the government, the most common topic seems to be about why so many innovation programs “fail”. I’ve been a long time fan of Steve Blank and Pete Newell, and their article “Why Innovation Dies, and How to Ensure its Survival” targeting defense innovation programs, specifically, came into one of the conversations, as well. I think it makes a lot of great points about the Department of Defense leadership structure, and I do think leadership structure is the dominant root cause driving all of the behaviors I’ve shared below. Despite that, I’d like to dive into some observations and potential pivots in execution that might save innovation programs in the future.

As I wrote, too much came together for a single article, so I’ll be breaking it up. As an overview, I would challenge three things over the next couple of weeks:

1. Are we defining success appropriately?

2. Do our expectations match our manning?

3. Do our expectations match our resourcing?

Are we defining success appropriately?

I would argue that, in many cases, “failure” is a bit debatable.

There is a lack of clarity on the purpose and value of innovation programs. Most organizations and leadership are focused on the single metric of transformative innovation. If the program did not produce or transition transformative innovation after a couple of years, then it failed.

First, truly transformative innovation is, by its nature, rare. If transformative innovations were constant, our world might actually become quite volatile.

Transformative innovations are commonly considered those which create a new market and disrupt an industry. I, personally, really like Bhaskar & Suleyman’s definition in “A Coming Wave’‘ as they set the stage for a discussion on responsible AI. They define such transformative innovations as those which create a cascade or “wave” of smaller innovations and drive a fundamental change in the common way of life. Changes like the automobile, airplane, computers, and so on.

Transformative Innovation Takes Time

Truly transformative innovations are generally not overnight sensations. They rarely go from discovery to adoption and disruption over the course of two to four years, which is the typical tenure of a government leader in a single position. The automobile was designed and driven in 1886 in Germany, but it was a cost prohibitive commodity. It wasn’t readily adopted until Henry Ford followed it up with the innovation of the assembly line, which made it an affordable commodity over 20 years later in 1908. In reality, the automobile didn’t really proliferate until the 1920s, 30-40 years after its introduction.

The concept of the airplane dates back centuries. The Wright Brothers began work on their airplane in 1899, and had their first successful flight in 1903. While the first recorded commercial flight was in 1914, it wasn’t until the late 1920’s to 1930’s that it became a mainstream activity for a scaled number of passengers. Transformative innovation doesn’t happen overnight.

Incremental Innovations Add Up

A second, and potentially more important point, is that there are other ways to win, which may not have the same impact on a chart deck, but are highly impactful in aggregate, and foundational in enabling transformative wins.

What I’m referring to here, is facilitating incremental innovations. This is especially true inside of the Department of Defense–now more than ever. These are often dismissed, but they’re critical. There is a poem that most military members and veterans will have seen or heard at some point called “For Want of a Nail” and it goes as follows:

For want of a nail, the shoe was lost.

For want of a shoe, the horse was lost.

For want of a horse, the rider was lost

For want of a rider, the message was lost.

For want of a message, the battle was lost.

For want of a battle, the kingdom was lost.

And all for the want of a horseshoe nail.

While this is commonly and correctly interpreted as a call for attention to detail, I think it is a highly appropriate analogy for the state of the tools and resources currently available to our defense operators. We have service members working with wildly outdated resources, tools, and software products. Tasks that should take seconds to minutes, or be automated entirely, are taking hours or days and causing frustration. This scenario impacts morale resulting in poor talent and personnel retention. The impact in an actual conflict could be as catastrophic as the scenario described in “For Want of a Nail.”

The problem is that the defense requirements system doesn’t have a standard means of handling minor upgrades that aren’t already tied to a program of record. They fall beneath contempt of an acquisition and budgeting process tailored around major weapons systems. A motivated individual can take on the pet project to get end of year funding for a quick fix, but rarely long term funds.

As an added problem, the complexity of tools today - particularly the software component, requires customized tools for tasks that used to be standard purchases. Our funding model hasn’t updated, however, and operational teams are generally outfitted with contracting teams trained to buy, rather than build, and appropriations designated for commodity or service purchases.

The reality is, to update these tools requires the skill set of an acquisition professional, research and development funding, and access to an accrediting official who can approve software on a defense system. Many efforts over the last 5-10 years have arisen in an attempt to fix the problem of enabling operators to resolve theses technology and tools gaps via access to funding and contracting resources. Some of these include AFWERX opening the SBIR program to operators, Army’s follow up with the xTech program and standup of Army Applications Laboratory, and the regulatory push to authorize operations and maintenance funding for software modifications.

Even with these changes, execution requires operators to learn the career field skills of an acquisition officer and take on a program management role in addition to what is likely a more than full time job in order to execute. There’s a resourcing and skills gap, and there’s still a lack of training and understanding on how to support and scale such projects. This is all a product of lack of resource allocation to innovation programs, and overemphasis on the outreach activities common to defense innovation programs.

Oftentimes these minor innovations are deemed too small. They’re interesting good news stories, but leadership and critics grow stale of these types of wins and begin to belittle their value as they stack up in the absence of a major success story. I believe there is a lack of understanding of the criticality and impact that a wave of incremental innovations could have on operational effectiveness.

The celebrated success of these wins is also crucial in spreading a culture of innovation. Innovation culture is the final major success factor that is often overlooked or not considered at all in the standup and measurement of innovation success.

A Culture of Innovation is Foundational

If we want to be able to capitalize on the big technology wins, we need to embrace, celebrate, and reward the smaller cultural wins. There is a reason it takes time for major innovations to spread. Infrastructure is, of course, critical. The speed with which infrastructure shifts is often tied to cultural acceptance and technology adoption rates. The infrastructure shifts move faster as the masses accept the change. Geoffrey A. Moore’s book, Crossing the Chasm, outlines the lack of incentives for innovators and the mass public to collaborate in driving technology adoption. This should be where the heart of resourcing for innovation programs are aimed. In defense technology adoption, we refer to technology transition and valleys of death, which can often be philosophically boiled down to a “chasm” issue.

One major way to ease the challenge of reducing the gap is to build an innovative culture. A starting point is to celebrate and empower the small wins across these programs, rather than calling a program that only produces incremental innovation a “failure”, which creates the opposite effect.

We should be creating innovation programs focused on creating a culture of innovation–and in a two year time frame, the aggregation of small wins that indicate this shift is a big win! One reason it’s often dismissed is that it is a success that’s hard to quantify and communicate (especially in a performance system that has a strong preference for quantified success).

How do you measure such a thing? You can certainly point to the rate of incremental innovations. The real wins are subtle and can be hard to quantify on a chart. You KNOW when you’re surrounded by an innovative culture. A few key characteristics of innovative culture include:

• Largely optimistic and focused on the opportunity any situation presents, rather than the problem or frustration

• The overall language used is positive

• Teammates bond and connect over ideas and successes (rather colluding over shortcomings…like discussing why innovation programs all fail)

• Conversations are creative and collaborative and often lead to natural brainstorm and ideation

• Process improvement and change in execution tactics are common and celebrated

All of these things are great ways to assess the success of your innovation efforts. While difficult, they can be measured. You may also consider more anecdotal moments, like when a colleague who is historically a follower or late adopter of new technologies and processes, comes up with an idea for how to improve a process or product on their own!

There is, of course, another way to drive mass rapid adoption of transformative technologies, and that is through crisis. Frequently I hear the argument that everything is fine, and if things got bad enough, we’d change. I find this sentiment confusing because it actively acknowledges that we need to change to succeed. In the context of national security, waiting for a crisis may be too late. There are, in fact, some interesting anecdotes tied to this mindset in the downfall of major past civilizations, but we won’t go down that rabbit hole today.

Alternative Means of Measuring Success

I’d like to bring us back to the first question I’ve asked - are we defining success appropriately? Many innovation programs were pitched for what they were — activities and practices that would largely lead to process and cultural innovation. Are we assessing them against the right metrics? Have we captured and appreciated the positive?

While there are pockets where this is not true, overall, the Department of Defense is in a poor cultural state, such that we approach even the best programs with a negative bias - innovation or otherwise. This is palpable to me now that I’ve been away from it, when I step back into military duty, or join a government dominated call - even with the most innovative organizations.

Further, we’re impatient and undisciplined, and as a result, treat innovation programs like a fitness fad. We’re looking for the magic diet pill, and view every program as the quick fix, forgetting to read the fine print proclaiming “this product works best with a healthy diet and exercise!” The many positive impacts are quickly dismissed as too small and the cumulative value of those impacts are not appropriately considered or understood. We then have a tendency to cancel, defund, and dismiss such programs prematurely. Because we are constantly starting over, we yoyo in our enthusiasm, and don’t gain lasting progress.

Instead of starting over I propose leaders consider the following approach:

1. Gain clarity on your programs objective outcomes

2. Assess the metrics your using to measure success and make sure the more subtle wins are appropriately captured

3. Reassess with a focus on what’s going right - capture it and celebrate it!

4. Review the things that aren’t working with focus, and think through resolution with the following questions in mind:

   • Is my resourcing aligned with my goals?

   • Are the individuals and personalities on the team aligned with my goals?

To my federal market colleagues - I’m rooting for you too - on my days in uniform and out! As someone who has put everything I had on the table for defense innovation, and found both successes and failures along the way, I share these thoughts for consideration and as a call to action.

In the words of Atul Guwande, I believe that “Better is Possible.” Dr. Guwande spoke these words in the context of the impact of bureaucracy in the life-or-death environment of the medical community. They are equally applicable in the life-or-death environment of national security. I like to end every conversation with hope. Despite my criticisms, I do still have it, and I’m still here fighting for it. So I’ll close out with his words:

“Better is possible. It does not take genius. It takes diligence. It takes moral clarity. It takes ingenuity. And above all, it takes a willingness to try.” - Dr. Atul Guwande, Better. A Surgeon’s Notes on Performance.

Your Fan,

The SBIR/STTR program is designed to assist companies working with the government for the first time ease into the federal market. The path from a Phase I to a Phase II to a Phase IIB or Phase II+ (known in Air Force and Space Force SBIR/STTR as a TACFI or STRATFI) is a path that slowly increases in complexity and responsibility both in terms of proposal expectations and execution or delivery requirements.

However, the contrast between the early SBIR/STTR program and a Phase III contract or other post-transition contract vehicle is often less measured. This is often because the government shows considerable leniency towards small businesses in several key areas on early SBIR/STTR awards, that other offices do not once those companies begin working outside of the SBIR/STTR program (in the “real world” of GovCon, so to speak). The change for many companies can be abrupt and oftentimes shocking, so it is wise to use your TACFI/STRATFI time to prepare. Let’s hit some of the top areas where companies feel this shift and where you can find the most efficiency in shifting your attention now.

Contract Terms and Conditions (T&Cs): Mature your review process.

1. Start reading your contract clauses–Yes, all of them. This includes examining cross-references and noting any current or potential/future requirements. For example, if you have clause that requires training, that is a requirement now, so your company needs to comply once the contract is awarded (which means signed by the Government Contracting Officer). If, however as is more common, the clause says that training is required if Labor Law X applies, you’ll need to go look up that labor law. If that labor says it applies to companies with 50 full-time employees, you’ll need to verify what full-time means by state (likely check with your business attorney and HR team) and check your FTE count. If you are not at 50 FTEs yet, then this is a future compliance requirement, that you’ll need to note with your HR team, so that they can enforce it the moment you do hit 50 FTEs. You can see why this can quickly become quite a task to manage.

2. Learn which T&Cs are negotiable.

   1. For Other Transactions (OTs), unless mandated by law, both the clause and their language are open to negotiation, albeit subject to varying degrees depending on internal agency policies or regulations.

   2. For Federal Acquisition Regulation (FAR) clauses, the prescription or clause matrix will tell you whether a clause is Required, Applicable, or Optional (If you cheat and use the matrix, it will use these letters to note which it is, the prescriptions required a more practiced reader to determine in many cases).

   3. Be aware that some FAR clauses are Incorporated by Reference (IBR), while others are included full-text or with blanks that must be filled in. Read the language the government inserts in fill-in clauses. This language may be negotiable (such as notification requirements for option clauses).

   4. Additionally, some agencies use custom-written clauses, often referred to as “H-clauses,” which may include local procedures or clauses tailored for specific programs–these, too, can often be negotiated.

3. Lastly, make sure that you have copies of and have reviewed all attachments, whether incorporated directly or by reference into the contract. Attachments are part of the contract, so read them carefully. Common attachments include the Requirements document (Statement of Work (SOW), Performance Work Statement (PWS), etc.), Contract Data Requirements List (CDRLs), DD254 or equivalent, and/or Government Furnished Property (GFx) List, among others.

Intellectual Property: Have a strategy and be ready to fight for your rights (in technical data and software).

The SBIR/STTR program is very generous with IP compared to rest of USG, as they are allowing you to retain rights for work paid for and performed under a government contractor for very little in return. They cover both technical data and software and cannot be less than 20 years. This is not the norm in government contracts, and you must educate yourself on how government IP works outside of the SBIR/STTR program.

1. Read the definition of technical data. It is very specific, and it is different than proprietary data. Technical data notably does NOT include “financial, administrative, cost or pricing, or management data or other information incidental to contract administration.” This means that if you developed a unique management style or pricing model under a SBIR award, it is NOT protected under SBIR data rights. Keep that in mind going forward in your government market plan.

2. If you intend to use any pre-existing technical data or software (excluding commercial software–we’ll get to that) in the performance of your contract, FILL OUT THE DATA ASSERTIONS TABLE. Fill it out correctly and make sure you have an expert review it. Also verify that it is included before signing the final contract.

3. If you are using commercial software as part of performance under a contract, ensure that your commercial software license agreement is incorporated into the contract. I highly encourage you to use an expert to ensure that the license agreement itself aligns with both your IP strategy and your contract (and its attachments) AND that it is incorporated correctly into your final contract.

4. After contract award, it’s critical to correctly label all software and technical data deliverables in accordance with contractual requirements before submission to the government. Deliverables cannot be marked as proprietary; they must adhere to the negotiated terms outlined in the Data Assertions Table and marking instructions within the contract.

5. If you are delivering something to the government that is NOT a deliverable under the contract, you should mark it proprietary, or it is theirs to do with as they please.

When it comes to government IP, I’d strongly encourage you to consult with an attorney who has experience in both commercial AND government IP, as government IP is very different than commercial.

Proposal Quality Standards: It’s time to up your game.

Many contractors may become complacent due to the minimal review process for SBIR/STTR proposals. However, transitioning to Phase III or vehicles using non-SBIR authorities, particularly in sole-source scenarios or at certain funding thresholds, necessitates adhering to higher proposal standards, both in your technical proposal and in your price proposal. The primary driver of this is the government’s requirement to determine vendor responsibility and that your final price or cost is “fair and reasonable.”

However, evaluating separate cost elements for price fair and reasonableness isn’t always required. Commerciality and adequate price competition are common alternative methods, especially pertinent for dual-use companies.

Regardless of whether a company operates in a dual-use, federal-only, direct-sales, or competitive government market, it’s crucial for your team to understand the correlation from the requirements document to your unique technical proposal, basis of estimate (BOE), price proposal, and ultimately, back to the contract itself.

If you do not currently have the data to write a fully-compliant proposal, it is critical to implement the controls necessary to start gathering that data now. You can start by checking out Haley’s blog on BOEs from earlier this week (link here), and stay tuned for her workshops on other products that feed into this process.

Additionally, if you aren’t sure if your offering meets the definition of commerciality, the FAR definition for both a commercial product and a commercial service can be found here  https://www.acquisition.gov/far/part-2 (Note that computer software can use either depending on the acquisition.)

Deliverables: What’s a CDRL and what it DID?

When it comes to deliverables post-SBIR/STTR, there are a few things to keep in mind:

1. Not all milestones require deliverables and not all deliverables qualify as milestones. This paradigm is common in early SBIR/STTR contracts, but most contracts use the Contract Data Requirements List construct or CDRLs, to outline deliverable requirements and standards.

2. This is typically accomplished via a DD1423 or equivalent document, which delineates the data to be delivered by the contractor, including the submittal, approval, and distribution requirements. This document also provides general instructions applicable to all CDRLs within the contract, unless otherwise specified.

3. CDRLs should be linked to specific requirements in the SOW or PWS, and each deliverable type should have its own form. The 1423 is a standard form, and it needs to be filled out correctly by the government prior to inclusion in the contract.

4. Additionally, deliverables and/or milestones don’t necessarily come with payment, unless you stipulate that in the negotiation. Depending on the contract type, you’ll need to discuss either the payment plan or contract financing arrangement with the Contracting Officer as part of the negotiation (if sole source) or make sure you understand those requirements in the solicitation (if competitive).

General relationship expectations: How to talk to the government as a Contractor.

1. Know your role–No matter how well you work with your government counterpart, you are still a contractor, so do not speak ill of other government members or ask if you can speak “off the record.” Unless you are sharing something that can be shared with the entire government team—don’t. They are not a journalist, and you are not a source.

2. Get it in writing–Do NOT accept any verbal promises from government team members. Also, government team members are not interchangeable. Be sure to measure promises from government team members against what’s within the bounds of their individual authority. If you aren’t sure, it’s best to loop in the Contracting Officer. Always remember that the Contracting Officer retains certain unuqie rights within the government and oftentimes needs to be your focal point for the majority of contract-related determinations.

3. ALWAYS be professional–Oftentimes the government will interact differently with contractors outside of the SBIR/STTR program. No matter how frustrated you may be, not matter how wronged you may feel–always be professional in response to government–especially in writing.

Was this helpful? Let us know in the comments below and good luck in TACFI/STRATFI season!

Megan VanHorn

Feel free to debate this in the comments section, but it is my opinion that small businesses should be required to create a basis of estimate (BoE) more often, particularly in TACFI/STRATFI proposal submissions (and arguably some Phase II SBIRs).

What is a BoE? The BoE is what connects your technical volume to your cost volume. It is the explanation of why you believe a specific product or service will cost a certain amount. The technical volume portion of your proposal explains “what” you intend to provide and your cost volume explains how much it will cost you to accomplish the work in your proposal. But the real exercise is in developing WHY you think the work will cost what you propose.

While there can be several required areas of information in formal BoE’s, the two main components of a BoE are task description and justification. Task description is just as it sounds. It’s a description of the tasks you will be accomplishing by contract line-item number (CLIN), work breakdown structure (WBS) task, and labor category. The justification is also just as it sounds. It’s a justification of how you came to your estimated material cost or labor hours. The numbers you provide in your cost volume came from somewhere and the BoE is where you show that math.

To better explain this, I’ll use an example of a contractor building a deck. You’ve requested a quote from a contractor to build a deck at your house. You have given them the specifications and requirements and you’d like them to provide a cost estimate. The contractor comes back with a cost estimate of $10,000, with $6,000 in labor and $4,000 in materials. There is no additional justification or explanation for these numbers. Wouldn’t you have some questions?

That situation is the equivalent of providing a technical volume and cost proposal with no basis of estimate. There is an explanation of what is going to be accomplished and there is a cost provided but there is no explanation for how that cost was estimated. In the contractor example, you would want more specific information before you’d be willing to commit to paying for the job. For example, a good cost justification would include something along the lines of this information: the labor rate is $75 an hour and they believe the job will take roughly 80 hours (based on their expert opinion or past experience with similar houses like yours, etc.), to include trips to and from the hardware store. Additionally, material will include concrete, wood, and nails. Based on current industry material rates, the estimate for material is about $6,000. Now you, as the potential customer, understand that the cost estimate was made based on industry standard labor rate, estimated number of labor hours to accomplish the task compared to historical data, and current industry material rates. With this information, you have a complete picture. You understand what the contractor intends to do, how much that work is estimated to cost, and have an explanation of how the task, materials, and costs are all related.

What you learn by breaking down a cost estimate is INVALUABLE for a company starting off in any space but specifically in the government space. How can you justify your product or service if you aren’t even sure yourself what it takes to operate and produce?

Being able to substantiate your proposal will become a requirement for most businesses upon transition. It will be a non-negotiable requirement that often results in higher cost proposal preparation due to a lack of understanding from companies on what it takes to provide their product or service. This learning curve exists simply because most companies on government SBIR contracts have never been asked to explain their estimates in such a manner. By requiring companies to provide a top-level BoE for TACFI and STRATFI proposals, the government is better preparing those companies for transition to larger non-SBIR contracts. The level of effort in creating a BoE should not be any harder than what companies SHOULD already be doing. Again, you came up with a number for your cost proposal somehow. You should be able to show that math. Evaluating operating costs, labor hours, and material costs are part of everyday operations and how rough cost estimates are already made. By making it a requirement to add a few additional steps explaining task description and cost justification by labor category, companies will be much more prepared for transition than they presently are without that exercise.

Let us know what you think! Please leave a comment below with your take on BoEs.

Keep moving forward,

Haley Yeagley

Direct to Phase II season is coming up, and will be quickly followed up by the TACFI/STRATFI rush. Below are some tips to help sharpen your proposal.

1. FOLLOW THE SOLICITATION

The solicitation will have a flow for what they want you to include in your proposal. They will have instructions for each section describing what they want you to include. It will be a bit redundant, and it may not follow the flow you prefer when giving your pitch. FOLLOW IT, ANYWAY.

In many cases, not following the flow/order is actually a disqualifying offense. Even if that isn’t specified as a “rule” in the solicitation, there’s another really good reason to follow the flow. It was designed to help the evaluators do their job, and you will be evaluated best if the answers to their questions are where they expect them to be. This is true for any solicitation, and the advice holds for any proposal you’re writing.

For the open topic SBIR/STTR program, I’ll argue that it’s even more important. In this case, you will have a set of evaluators review your proposal covering the three main criteria for SBIR/STTR program evaluation - technical viability, commercial viability, and military utility. In some cases, the evaluation process is actually scored independently - so one evaluator is looking at technical viability, one at commercial viability, and so on. The solicitation is structured to support that process.

That also means, if the requests are redundant, be redundant. There may be a question that is highly relevant to more than one evaluator, and therefore repeated with slightly different wording in a different section of the proposal. Don’t skip out or skimp on your answer just because it was covered elsewhere! It may be that evaluators are focusing their time on the portion of the proposal that was structured for their segment of the review.

2. EMPHASIZE IMPACT

The second most important metric the SBIR/STTR program team cares about is mission impact. Odds are, most will tell you this is #1, though the incentive structure isn’t necessarily aligned for that. In either case, it’s important! If you are working on a phase II contract award and you’re demonstrating your tech by helping a small unit improve mean time between failure on a component of flight line equipment, that’s awesome! But your intro should be elevating that impact - talk about the aircraft that equipment supports and the people who fly it. In fact, go further! Extrapolate and envision how you could impact the entirety of OSD if they adopted your technology across multiple platforms. Your impact statement needs to go way beyond your demo, and really describe your vision of success in the defense market!

I am not asking you to be disingenuous. You’re helping the evaluators see beyond this stepping stone to the broader implications of your technology. The SBIR/STTR program is meant to be introductory, and they want to choose winners that will have a broader impact. Help them understand what that can be.

When you point to high level impact, connect the dots from your demo to the vision so the pathway to success is obvious to the reader.

It’s always helpful to lean on the strategic documents that are relevant to the agency you’re working with. For defense, products like the most recent National Defense Strategy and the relevant services current focus areas or strategic objectives derived from that are always winners! There is usually some good content in the most recent defense budget products, as well. A great source for quotes is to seek out leadership keynotes at major events like the Air Force Association Symposium (or other service or agency equivalent events).

3. A PICTURE IS WORTH 1000 WORDS

It’s well known that using images, plots, and tables to break-up your writing makes it easier to process. That’s highly relevant for proposals which can become monotonous to review, especially when reviewing many of them. That said, common knowledge is not always common practice. Don’t underestimate the value of well-placed visuals.

The best time to use an image is when it can save you space from a lengthy explanation. Do you have a chart that can explain your major breakthrough in a quarter of a page rather than a 20 page thesis? INCLUDE IT! It may also be a great way to demonstrate a use-case that would otherwise require a lengthy description.

Images are also really useful if the section requires a PhD to understand. If an image can very clearly depict a technology breakthrough or advantage, use it. While you will have at least one technical expert reading your proposal, and they’ll be responsible for evaluating technical viability, you can generate more interest in your other evaluators by making sure they get that it’s a big breakthrough too!

In general, review your whole proposal and consider areas where text seems to drag on - strategically place images, reformat content into tables when possible, or make other modifications to make sure the reader doesn’t start to glaze over and skim! While evaluators do their best, remember they are reviewing HUNDREDS of these. Make yours memorable.

4. COMPARE AND DIFFERENTIATE

Writing an overly technical proposal often doesn’t serve you. If it’s too dense to understand and doesn’t clearly walk from technical to common language and mission impact, it won’t perform well. But there are a few places where highly technical input is valuable:

• Your “Uniqueness”: Yes, I understand that you want to protect your secret sauce. I always recommend you mark your proposal as proprietary, but if you can’t communicate why your offering is differentiated without it, then you’ll have to get into the proprietary details. Be clear and be specific about why you are better, different, or unique.

• Comparisons to the Existing Solution: You’re solving a problem for your customer. What are they currently doing to solve that problem, if anything? Talk about why your solution is better.

• Comparisons to Competitors: Do you have known competitors on the market that aren’t on the list of “current solutions”? Be sure to compare yourself to these, and show how you stand out.

When making comparisons, use numbers whenever possible. If they aren’t direct comparisons, that’s okay. Numbers tied to the impact of your solution relative to others may hit home better. Another approach to numbers is to identify the numbers or metrics that an organization uses to assess impact, value, or effectiveness.

5. SPEAK DIRECTLY

At no point in your proposal should the reader need to make assumptions or extrapolations to know what you mean. They also shouldn’t need to work in your niche to follow your terminology.

Use common language as much as possible. Try to weed out vernacular. Did you talk to one customer and pick up a hot phrase from them? Be cautious when including that, as well. Know that even the language used across the Department of Defense or within a service may differ from unit to unit. It’s great to use the language from the solicitation, but otherwise be wary, and pick the easiest to understand vocabulary available.

“Write it so your child or grandmother can read it” is the common advice I’ve heard. I don’t fully agree with this. It IS a technical proposal and the technical volume should be technical. But it’s ideal to take every idea and spell out why someone might care in no uncertain terms. The better advice is “Write it so your child or grandmother will understand it.” They may not understand every line or section, but they should be able to walk away understanding the big ideas.

With that, do not assume any a priori knowledge, and be very detailed in your proofreading. Consider enlisting help. When you are close to a subject, it’s easy to unintentionally leave a thought unfinished. The implications are so obvious to you that it doesn’t cross your mind that more needs to be said, when in fact your actual written words are one or two ideas removed from the bottom line impact. Make sure the logic on paper follows all the way through to the end!

6. SELL YOUR STAKEHOLDER STORY

I would argue that the thing the SBIR/STTR program cares most about is the likelihood of transition. The metric by which they are most heavily assessed is their transition rate. That transition may be commercial or it may be defense. The TACFI and STRATFI programs are designed to support transition into defense use, so selling the story on how that is going to happen is critical.

Begin identifying your “ideal” stakeholders early, and work to align them. This means you should have identified all of the stakeholders critical to your transition, from the organization that will do the development work, to the organization that will buy it, to the operators who will use it and maintain it. The closer to the ideal team you come, the better your story will be!

The open topic phase I award is meant to pay you, at least a little bit, to do this leg work. The sooner you do it in the process, the better your odds become. If you’re on a phase II marching towards STRATFI, this should be taking up some of your focus and time. Succeeding with your tech is important, but so is finding the teams who are going to bring it in. Technology transition in the federal market is all about timing, so the earlier your stakeholders are aware of you, the better odds you have of synching.

If you don’t have the ideal stakeholders, that’s okay! You can still sell a good transition story. There’s no one path to success, and while your solution may have an ideal or “textbook” pathway, a story can likely be told with any set of signatories. Make sure your commercialization plan and transition strategies back your story up.

I’ll be expanding on selling your stakeholder story in detail next week!

Would you like to deep dive into these and other great tips? Join our FREE webinar, Hot Tips for a Successful TACFI/STRATFI on Wednesday 17 April 2024 at 9AM PT/12 PM ET, and join Auxo live for some further advice and Q&A! (Event over; please message us to get more info)

Any specific questions on this topic, or any other topics you’d like us to cover? Please share in the comments!

Your Fan,

For the final installment in my series about how to improve your reputation within the Government, we’ll be discussing the importance of managing risk and being transparent. Risk is present in every project no matter how big or small. Being open, honest, and proactive about risk goes a long way in building trust in your relationship with your government customer. Risk does not mean failure or poor performance. Risk just means there are hurdles to your success that you may need to overcome. Identifying those risks as early as possible and having a plan to mitigate that risk should it arise, is your best defense against those risks derailing your project. Including your government customer in that risk analysis early and often not only helps build your reputation of being transparent, but it also provides the government an opportunity to be proactive in their ability to assist with mitigation.

By design, risk will likely come up early in your interactions with the government, whether it be in your first pitch, an industry meeting with a PEO, or in your SBIR proposal. The government is interested in hearing not just about your product, your goals on product development, and how you can help them solve a problem, they are also interested in hearing about your challenges and how you plan to overcome them. Whatever the challenge, overcoming that hurdle is typically a requirement for prototype success, making it a potential risk to your ability to make progress. Some of those risks could be supply chain backlog, data sharing issues with the Primes, or access to the necessary government equipment to properly test your prototype.

How those risks are presented in the beginning is largely up to you and your preference of communication–maybe it’s simply bullet points in a proposal or maybe it’s a table or chart. However, as you progress through government contracts, it will become more important to share your risks in more detail and more frequently. It is not enough to simply list and explain your risks. You absolutely must discuss how you intend to mitigate those risks and where you’ll need government help to do so.

If you’ve been around the government long enough, you have likely seen or filled out a risk matrix. Depending on the organization you have worked with, the matrix and its contents may look slightly different, and the risk acceptance criteria will likely change, but for the most part the primary pieces are all the same. Risk is generally calculated based on probability, which is the frequency or likelihood of an event occurring, and severity, which is the impact a risk event would have on a situation should it occur. To help you better understand how to think about risk, below is an example DAF risk matrix from DAFPAM 90-803 [1].

This risk matrix helps you determine a risk assessment level or a risk rating. In this case, that output is high, medium, or low. You simply decide the probability that your risk will occur in the top row and then go down the severity column and pick a level you think is most appropriate. This process is usually subjective. Once you have a risk assessment level, you can move on to the risk mitigation assessment. In other words, you’ve now identified a risk, you’ve evaluated the probability and severity of the risk, and you now have a score. Knowing that is half the battle, mitigating your risk is the other half. Unless otherwise directed, how you present risk mitigation is flexible. The important thing to remember is when presenting your risk analysis, you must state the risk description, your overall risk assessment level, and how you intend to mitigate that risk to prevent it from occurring.

Depending on your government contract, there may or may not be a requirement for a more formal risk assessment like the one I briefly described, but that doesn’t mean you shouldn’t always be evaluating risk. There is no project or product that doesn’t come with some level of risk. You know that and your government customer knows that. And there are multiple ways to accomplish a risk analysis. As long as you include the probability, severity, and mitigation aspects of your risk, you’ll be off to a good start.

There are entire courses and areas of study on risk management that cover the steps of identifying risk, categorizing risk, risk mitigation, and risk management. It is a serious subject and there are a lot of resources on how to become more efficient at risk management. If you find this subject interesting, I highly encourage you to check them out.

As it relates to building a good relationship and reputation with your government customer, there are things that you can do with minimal knowledge to help make you more successful. By including your understanding of your risk early in communications with the government, including risk description, risk assessment, and mitigation, you are going a long way in building credibility with the government while simultaneously being prepared for the challenges that will come your way.

Do you have any success or failure stories of risk mitigation? I’d love to hear them, so please leave a comment.

Keep moving forward,

Haley Yeagley

[1] DAF Pamphlet 90-803, “Risk Management (RM) Guidelines and Tools”, 23 March 2022, https://static.e-publishing.af.mil/production/1/af_se/publication/dafpam90-803/dafpam90-803.pdf

“All’s fair in love… and GovCon negotiations.”

1. Know what you’re allowed to say to USG and understand the limitations of privity.

Oftentimes, government members are hesitant about speaking directly with subcontractors because of a concept known as privity. In short, the government has a direct contractual relationship with their prime contractor, which gives them privity of contract. In turn, the prime contractor has a direct contractual relationship with their subcontractor(s), granting them contract privity. No privity exists between the government and a subcontractor, meaning the government cannot negotiate directly with a subcontractor or direct a subcontractor to do something. However, the government can, and should, ask subcontractors questions, so long as they do not specifically violate the privity of contract between the prime and the sub or between the prime and the government.

However, there is a second piece to consider before you jump into a conversation with the government customer: your teaming agreement or subcontract with the prime. Many primes will write additional requirements beyond the FAR and supplemental flowdowns into their agreements with subs that impose additional restrictions when it comes to speaking with their customers. These can range from “Let us know if USG asks you something” to “Thou shalt not look at USG without prior written permission.” Ideally, you should be aware of these restrictions before you sign up to them. However, if you intend to speak directly with the government customer, which you should, double-check to see what limitations exist concerning customer communications and evaluate any potential risks before engaging.

Assuming reasonable restrictions, I recommend that you communicate directly with the government on a regular basis concerning how your solution is helping meet their requirements, as well as sharing any technical or programmatic risks that you see from your viewpoint as a supplier to help them assess how their program is doing overall. This will help you and the government get a balanced view of the information provided by the prime contractor, without requiring any unprofessional behavior on your part. If the government attempts to solicit feedback from you on the prime’s performance, be careful. At the end of the day, you are a contractor, just like the prime (i.e., not family), and the government likely cannot and will not step in and save you if you burn a bridge with your prime.

2. Understand your leverage.

Determining your negotiating power as the seller is crucial, both in terms of timing and context. In a sole source environment, the seller’s leverage may exceed that of the buyer, but this greatly hinges on the buyer’s commitment and the maturity and importance of the requirement. For instance, the leverage varies significantly between dealing with a buyer like the F-22 SPO and a buyer that is acquiring a software license using SBIR Phase III authority in conjunction with End-of-Year fall out funds. In other words, is it a Requirement or is it a requirement?

The uniqueness and indispensability of what you offer also play pivotal roles in defining your leverage. Consider the following to assess your position:

• Are you the exclusive provider of your product or service?

• No seriously, are you the ONLY company that offers your product or service?

• How easily can your solution or product be substituted or replaced by competitors or the USG? Do you have a robust IP plan that protects your offering?

• Has the USG fully embraced your solution? Is it critical to their operations, to the extent that its absence would cause a mission or system failure or a significant service gap?

• Is there a time sensitivity associated with the award, driven either by funding availability or mission need?

These questions can help you assess the amount of leverage you have in your negotiation. Note that no matter how much leverage you have in a particular negotiation, GovCon is a small space, where things may change or cycle. Being professional is always important. Today you may have the upper hand, but tomorrow you may not.

3. Do your homework.

Know the rules. Many contractors get their start doing grants or SBIRs/STTRs and become accustomed to how friendly those offices are and how simple those agreements can be. Once you enter the “real world” of government contracts, the view can look very different. If you want to win the big dollars that come with big contracts, you’ve got to take the time to learn the rules (or hire someone to do that for you).

Know the negotiation. This means doing a lot of reading, to include looking up any references you don’t know and cross-checking documents as required. As I said in my previous post—read the solicitation (if you’re negotiating an award); read the contract (if you’re negotiating a dispute); or read both (if you’re negotiating an ECP/add work modification). You must read the entire document(s) because the other party will use anything they can find to support their position in negotiations, and you are already starting at a disadvantage by being small. Also, most government offices or primes don’t expect smalls to have read everything, so you’ll have the element of surprise, which never hurts!

Know your offering. This includes not just the business pitch for your technical solution, but your execution plan as well. Nothing will lose you credibility in a negotiation faster than not being able to explain how your technical solution meets the requirements or how you plan to deliver. You also need to understand your pricing methodology and the numbers behind it, even if it’s only for internal use. Some information may not be included in the first offer, but will be used later in negotiations. Some information will never be shared with the other party. Regardless, you and your team should know how to walk from the requirements document to the technical proposal to the basis of estimate to the price proposal and back to the contract itself.

4. Use questions to challenge gently and remember that not every question is a challenge.

It is very common, especially in sole source negotiations, and especially when either the entity relationship is new or a member of either team is new, that the buying party asks for more information than they need or are entitled to. Pushing back can be uncomfortable, so I like to ask questions: “Can you share with me what we can better explain?” “Is this required information that we missed from the RFP?” “Is there an alternative product that would serve the same purpose?” In some cases, a common example being indirect rates for small businesses that are dual-use, my answer is a lightly disguised “No.”

Pricing in particular can be incredibly difficult when the evaluating party has no competitor solution, historical data, or commercial/published pricing to compare against. It is a very human solution to think that filling your PNM (Price Negotiation Memorandum, for the fortunate that have to ask) with numbers, percentages, graphs, and/or formulas will show that you did your homework and the price really is fair and reasonable. However, keep in mind that the government or prime is only required to show that the price is fair and reasonable, not that it’s the lowest possible price that they can secure. It isn’t in their best interest to put you out of business or turn you away from the federal sector. You don’t have to accept a loss just because the work is for the government, nor are you obligated to provide services ‘at-cost.’ You can alleviate some of the challenges of this process by doing your homework (as mentioned previously in “know the rules”) and gaining an understanding of how pricing evaluations are conducted in the federal space. It’s also beneficial to know how prime contractors and the government determine the fairness and reasonableness of prices and how they are required to document and justify these determinations.

Don’t be a shrinking violet. If the other party makes an observation, it doesn’t require you to move from your position. “Your rates seem high.” Compared to what? “I haven’t seen it done this way before.” I guess we’re creative. Likewise, if they ask a question, don’t assume you’ve done something wrong—answer it. If you don’t know, go find out. If in the process of answering or finding an answer, you discover an error in your proposal, own it and fix it.

And lastly, do not let the other party use time against you. Most of the time in GovCon negotiations, time is a limiting factor for the buying party, and it’s a limiting factor because of poor planning and because being the buying party is hard. This is not your problem. If they ask you to make an adjustment and you need to go check if you can accommodate their request—you can politely ask for some time as a courtesy, but take it. If you need to step outside and make a call, make the call. Negotiations are a team sport, so don’t play at a disadvantage. Also, negotiations can get tense. If you need a minute, take it.

5. Is this the hill you want to die on?

I’ve found that those who are good at negotiations (and business) also tend to be competitive and have healthy egos, so at the end of a long negotiation, it can be difficult to step back and assess when and what’s worth compromising. As a small business, consider whether what you’re asking for is easy or even possible for the other party to accept. If your sticking point involves something that the prime contractor or the government cannot grant, due to legal or policy restrictions, then their answer will not only be ‘no,’ but you could also create additional frustration for both sides and potentially damage your credibility.

Two of the most common areas where one or both parties struggle to concede in a negotiation involve budget and terms and conditions:

• Financial Realities—Are you aware of the available budget? If you’re requesting a price above the budget, you’re making an impossible ask. When negotiating with the government and asking for a price higher than their approved budget, you’re making a request that could range from being merely annoying to outright impossible. This depends on several factors: 1) the authority or amount they were granted when they received clearance, 2) the requirements for obtaining a clearance increase, and 3) the time remaining to award the contract before the funding expires or is withdrawn. This situation could also arise when negotiating with a prime contractor. Similarly, if you’ve requested a price within the overall budget but beyond what the prime allocated for you as a subcontractor, you might need to reassess your options. Consider your relationship with the USG, how much you’ve exceeded the prime’s budget for your offering, and the fairness of the prime or how much effort they are contributing to the overall project versus your contribution. Additionally, evaluate if your request for more funds is driven by desire, necessity to achieve goals and retain investors, or operational requirements. Understanding these elements is a crucial part of your preparation for a negotiation.

• Terms and Conditions—If you’re requesting a change to a T&C that is mandated by law, regulation, or policy, it may or may not be within the Buyer’s authority to comply. For primes, it is crucial to determine whether the T&C in question is a mandatory flowdown. If it’s not, and you want to remove or modify it, be ready for the response, ‘It’s corporate policy.’ Your leverage in the situation will dictate whether you need to assess the risks and timeline to decide what battles are worth fighting. I would also recommend that you consider if there are easier documents to amend. For instance, some T&Cs can be effectively nullified by modifying the scope description or CLIN descriptions, which is often easier than altering a specific clause or provision, as it is usually within the authority of the negotiating team to change such text, whereas T&Cs usually require higher level approvals. In such cases, I recommend consulting legal counsel or an expert.

Negotiations were my favorite part of being a Contracting Officer, and I still enjoy them today. They are much more challenging from the Industry side, but you can still be successful if you are prepared, professional, and a little bit brave. What are your top tips for or stories about GovCon negotiations? Leave a comment below!

Be Brave!

When people talk about the “Valley of Death” in defense innovation, the conversation almost always centers on funding. The story usually goes something like, a company develops promising technology with SBIR funding, demonstrates technical feasibility, and then struggles to bridge the gap to procurement and production.

While that’s true, there is more to the story.

Another valley that many companies encounter around TRL 5 or 6 is not a funding gap, it’s a partnership gap. From TRL 2-4, most technology development can happen within the four walls of a startup. Engineers build prototypes, algorithms mature, components are tested in the lab, and the company controls nearly every variable.

Then, it’s time to take the technology out into the wild and something changes. It’s time to show the USG what you can do, with results that are ideally not post processed or altered in any way. At this point in the process, it’s not uncommon to encounter a tree laying across the way ahead. To continue increasing technical maturity, you often need capabilities that don’t belong to you.

You need access to military equipment. You need representative platforms. You need government test ranges. You need flight hours. You need classified or operational data. You need an OEM willing to integrate your technology into their system. You need a prime contractor willing to take you along to participate in an exercise. You need an operator willing to evaluate your capability in a realistic environment. And none of those things can simply be purchased off the shelf.

Money certainly helps. USG support helps even more. Contracts help the most. But none of those are a particularly fast process. It’s not uncommon for USG and business to business partners alike to say, “this is great, come back when you’re a bit farther along.” So, you do. And THEN the process to get the capabilities that don’t belong to you starts.

This is especially true for component companies, hardware and software alike. An autonomy stack or AI/ML model may perform exceptionally well in isolation. But until it’s integrated with the sensors, operational data, communications, and mission systems that exist in the real world, technical maturity eventually slows down. This is the same for hardware. A new battery, new fuel, or new way to manufacture replacement parts can prove exceptional performance to a certain point. But until you know more about the larger operational systems it will work with, it’s hard to finish the last mile of development and engineering. It’s difficult to demonstrate operational relevance without operational partners.

Ironically, the very organizations that want technologies to reach higher TRLs are often the same organizations that control access to the environments needed to get there. That’s why so many successful defense startups begin looking outward around TRL 5. Not because they’ve run out of ideas. Because they’ve reached the point where collaboration becomes part of the technology development process.

Government organizations provide access to ranges, representative users, and operational experimentation. OEMs and Prime’s provide integration pathways and platforms. Other technology companies provide complementary capabilities that make the overall solution more valuable.

The companies that successfully cross this stage often stop asking, “How do we build more?” and start asking, “Who do we need to build this with?” Technical maturity is no longer driven solely by engineering effort. It’s driven by relationships.

Perhaps we should think of the Valley of Death as having two dimensions. The first is financial: finding the resources to continue development. The second is collaborative: finding partners who can provide access, integration opportunities, and operational environments that no startup can realistically create on its own.

For many companies, that second valley is just as difficult to cross. And recognizing it early may be just as important as raising the next round of funding. TRL progression eventually stops being an engineering challenge and becomes an access challenge. The companies that recognize this early don’t just build better technology, they build better partnerships.

I’ve had an alarming number of conversations with folks looking at unfunded requirements (UFR) lists in order to find problem sets they can get after with their technology.

I believe there are two reasons driving this behavior. The first that’s been expressed to me is the logic that generally these are defined problems with existing requirements that have not been solved, and therefore represent an open opportunity.

While these are published by law for Congressional review and do occasionally get funded, they aren’t necessarily the best place to look for opportunity. The Congressional Research Service has a great primer on defense unfunded priorities that can be read here.

“Unfunded” is “Unprioritized”

When a project is put on an unfunded list, that means it was assessed, put on a priority list, and fell beneath the funding line. If it’s a requirement, that means it’s a reasonably well understood problem (or at least one in which the government believes they understand well). So let’s think about this for a minute:

If the government has thought about a requirement and consciously decided not to prioritize it, is that really a requirement you want to tether yourself to?

If it is an unfunded requirement that you do happen to authentically solve, consider reframing it as something new, or as a subset of a funding requirement. Yes, resources are constrained and there are often things on unfunded lists that are true needs and would get funding if additional resources became available. You definitely CAN make this work leveraging congressional inserts. You may also have a novel enough solution to bump the requirement up the priority list, but in general you’re going to find yourself battling against a decision that’s already been made.

“Unfunded” is not always “Unsolved”

Occasionally a project or requirement is unfunded because we don’t have a viable or timely solution available or we don’t see something out there that would make enough of an impact on a problem. In most cases, however, “unfunded requirements” are not “unsolved problems”. Often there is a solution or project under consideration, and they have decided not to prioritize it anyway.

“Fallout” Money

The second driver of searching for opportunity in unfunded priority lists is a misunderstanding of the fallout funding process. Fallout funding is often referred to as “UFR” money because it can be applied to unfunded requirements at the end of the fiscal year.

Near the end of the fiscal year, funding that has not been obligated and spent as projected is often pooled at various levels and allocated to projects that are over budget, new opportunities, or unfunded.

Consistently not spending the money an organization has been authorized is believed to put that organization at risk of not receiving their full request in future years. As a result, being under budget is actually considered being “in the red’‘ for federal program managers, and there is incentive to spend all of the money you have, regardless of cost savings in your program.

To smartly spend all remaining funding in an organization, there are various exercises at different levels in which “unfunded requests” can be pushed up to funding authorities at various levels to drive this unspent money towards a project that requires more funding. We often refer to this as an “unfunded requirements” list as well, and in this context, it can be a great exercise to be pushed onto these lists by your government partner.

Your offering does not need to be associated with a formal, reported unfunded requirement to get this funding! It is actually more likely that you’ll achieve success through this process if you are pushing a new opportunity to affect high priority needs.

While aligning to unfunded requirements is not generally a helpful exercise in receiving fallout funds, there are some things you can do to increase your odds of success in this approach to year of funding. Next week I’ll walk through some things you can do to increase your odds of success at securing these current year funding opportunities.

Your Fan

,

People say that communication is the key to a healthy relationship, and I can say with absolute certainty, it is key to successful government and contractor relationships. Several weeks ago, I started this blog series based on building a good reputation with your government customers. A key area I highlighted in that post was that your reputation follows you around the government and if you end up with a bad one, it is hard to recover from. One of the reasons that those relationships break down is due to poor communication. Poor communication could mean anything from lack of communication to hostile communication. Whatever the reason, executing a government contract requires up front, honest, and respectful feedback from both parties. It’s important to note that you can only control how you communicate and not how your government customer communicates in return. So even if you find yourself in a situation where you feel communication on their side is unsatisfactory, continue to stay respectful and cordial.

In my opinion, the three key pieces of communication to help improve, strengthen, and maintain your government relationships are:

1. Communicate early.

2. Communicate often.

3. Communicate clearly.

No one likes to be surprised with bad information. If there is a known problem arising such as a schedule slip, struggles with software development, vendor problems, or money problems, it is in your best interest to communicate that to the government early on in discovery of that problem. I’d like to repeat that. If you know there is a problem, communicate that to your government customer as early as you can. Waiting to communicate doesn’t make bad news better. Even if you can fix the problem with no adverse effects to your customer, let them know there is a problem and you’re fixing it. By communicating this way, you do several things. First, you give the government an opportunity to offer their assistance. There may not always be assistance to give but more often than not, they would like to help. Second, it builds trust. By communicating early, you aren’t trying to hide anything or make things seem better than they are, and you aren’t trying to quickly fix a problem hoping no one finds out about it later (because guess what? The government always finds out.).

In the same vein as communicating early is communicating often. Do you need to talk to your government POC every day? Probably not. But as it is relevant to give status updates on progress, problems and solutions, or questions, do it. Keeping communication lines open for easy, frequent, and informal communication continues to build trust in both parties. It is worth mentioning that some communication requires formal written notifications per the contract and you must send those letters. However, formal communication should ALWAYS be preceded by an informal “heads up” conversation with your government PM or contracting officer.

Last, clear and concise communication is an art form and I applaud those that have a knack for articulating themselves perfectly on paper. I’m not saying that you must have an English major to communicate with your government customer. What I am saying however, is to think before you speak or write. If you’re asked a question, make sure you address that question. Don’t respond with everything but addressing the question. If you’re relaying information, make sure it’s relevant information. Remember from the last blog, the information you need and care about is most likely different from the information the government needs or cares about.

Communication seems so simple, but it is repeatedly something that frustrated me as a government employee and it continues to frustrate me as a consultant. People assume that e-mails are read, meetings minutes are passed, and documents are shared and read amongst their own team. Communication breakdowns occur when those things don’t happen and people hold onto information. These are simple tasks that can help make sure everyone is on the same page and that applies outside your internal teams as well. By communicating early, often, and clearly with your government customer, you’re building a relationship of trust and cooperation, and those two things will go a long way to building a good relationship.

I’d love to hear your communication failures and successes, so leave a comment!

Keep Moving Forward,

Haley Yeagley

This isn’t a hit piece on DSIP. It’s going to feel like it but it’s not.

If you’ve never used DSIP, then you are in for a real treat. You’ll be left asking yourself, “Was everything I just went through worth that (best case scenario) $75,000 SBIR Phase I?” Which is a fair question.

If you have experience using DSIP, you’re still going to get halfway through and think, maybe I really don’t care that much about this SBIR.

To help alleviate some of the pitfalls of DSIP, I’ve put together a short list of things you can do to prepare for your submission. These will hopefully reduce stress and potential errors.

1. Start Early

If you have found a SBIR/STTR solicitation you’re interested in, and you have never submitted a proposal on DSIP, log in and start the proposal AS SOON AS YOU’RE ABLE. Let me repeat, as soon as the solicitation opens, click the button that says, “Start New Proposal”.

This is not going to oblige you to anything. You don’t ever have to submit it. But it will allow you to click through the entire submission to become aware of everything you’ll have to submit and answer. If you don’t know, you’ll have time to find the answers. If you do know, you can go ahead and fill it out and click save.

Even if you have submitted in DSIP before, I still recommend starting the proposal in DSIP as soon as you can to answer as much as you can in advance of the final submission.

I cannot stress enough that the submission process will take longer than you think it will. If you’re doing it all from scratch, I’d say at least 3 hours should be blocked off. Or, you could do as suggested here, and start filling things out as soon as you can in chunks so you’re less rushed.

2. Check your Company Commercialization Report

The Company Commercialization Report is a report generated on sba.gov. There is sometimes confusion that that this is a report for SBIR’s on commercialization and your plan/history. It is not. It is the report generated by sba.gov.

This is one of the tasks you can complete early in the submission process. What you write in your technical volume will have no effect on this report. So go ahead and get it done early then it’s off the to do list.

3. Don’t overthink the Fraud, Waste, and Abuse Training

The Fraud, Waste, and Abuse training is on the DSIP website. It’s a link you click that takes you to training slides and then you check a box saying you’ve done it. This is not a standalone training you must find elsewhere.

4. You don’t need to submit something for every section of Volume 5 unless the solicitation says too.

Vol 5 will suggest many attachments for you to load there. READ THE SOLICITATION. Just because DSIP has a box for every possible attachment does not mean those are mandatory. You only need to upload what is asked for in the solicitation.

5. Do Not Hit a Submit Button Until You Are 100% Ready to Go

Instead, hit the save and continue button for each section. The box at the top will say “99%” once you’ve filled out everything. The 100% will happen when you hit “submit” for each Volume.

6. Don’t wait until the last minute.

It’s a website where people are submitting proposals for millions of dollars. It’ll crash. Don’t wait until an hour before it’s due to submit. Aim for a day or two before the due date and time.

These are just a few tips and tricks based on questions we’ve been asked and the experiences we’ve had submitting through DSIP. My hope is that they will save you some time and confusion.

Good luck! And please do no apply the concept of “waiting until the last minute and it’ll only take a minute to do.”

Keep Moving Forward,

Haley

In the world of GovCon proposals, whether you’re aiming to clinch a win in a competitive bid or respond quickly in a sole-source scenario, understanding and meticulously reviewing the solicitation is a fundamental step. It’s not just about reading the document; it’s about engaging with its contents deeply, ensuring you and your team are fully aligned with its requirements, and being proactive about seeking clarifications. Here’s how to elevate your approach to handling USG solicitations–setting a foundation for crafting proposals that stand out.

Thoroughly Reading the Solicitation: Your First Move

I cannot overstate the importance of thoroughly reading the solicitation. It is your roadmap to understanding exactly what your customer expects from your proposal. But it’s not just about skimming through; it’s about digging deep, identifying potential contradictions or areas that lack clarity, and not hesitating to ask questions. Even if you’re past the RFI period in a competitive proposal scenario, raising valid concerns about ambiguities or errors is likely still be considered. The USG aims for transparency and fairness in the bidding process, so addressing any potential issues upfront to avoid disputes that could lead to protests later on is in all parties’ best interest.

Become an RFI Master

Engaging in the Request for Information (RFI) process is more than just firing off questions; it requires a strategic, organized approach. Here’s how you can refine your RFI engagement:

- Number Your RFIs: Assign numbers to your RFIs for ease of tracking and reference. This is invaluable for internal discussions and for effective communication with the USG.

- Be Specific in Your Inquiries: Detail is key when asking questions. Whether it’s a particular section of the SOW or a specific contract clause, providing clear references helps the USG efficiently address your queries.

- Ask, Don’t Tell: There’s a significant difference between stating an opinion and asking a well-crafted question. Professionalism in how you phrase your RFIs can influence the type of response you receive. Aim for clarity and directness in your questions to foster productive dialogue, and only ask an RFI if it is required for you to be able to write your proposal.

- Implement a Tracking Sheet: A comprehensive RFI tracking sheet not only keeps your questions and the corresponding USG responses organized but also provides a clear record of the dialogue between your team and the USG. Such a system is invaluable for ensuring all queries are addressed and can serve as a reference throughout the proposal process.

Crafting Your Proposal: Do’s and Don’ts

When it comes time to respond to the RFP, adherence to the USG’s instructions is non-negotiable. Here are some essential practices to guide your proposal development:

Don’ts

- Overlook Any Section: Skipping sections or attachments, or failing to address specific requirements can lead to a non-compliant proposal.

- Make Assumptions: Assumptions about the RFP can lead to misunderstandings. If something isn’t clear, it’s crucial to seek clarification.

- Ignore Stipulated Requirements: Every requirement, no matter how minor it may seem, is vital for compliance. Ignoring them can jeopardize your proposal. So if the USG says that everything must be in size 24, pink, comic sans font—do it.

Do’s

- Inquire When in Doubt: Always ask questions if there are uncertainties. Clear communication ensures that your proposal meets the USG’s expectations.

- Conduct a Comprehensive Review: This means going beyond a cursory glance to ensure you understand all the clauses and requirements in the solicitation.

- Employ a Compliance Matrix: Breaking down the RFP into manageable sections or requirements helps ensure that every aspect of the proposal is covered and that the document is organized logically and clearly.

-Ask for Flexibility: If you believe that the USG should consider an alternative–ask. This may be more difficult for them to allow in a competitive environment, but oftentimes the USG is open to considering alternatives. Sometimes this type of adjustment is only practical pre-proposal, but you can always ask if they’ll allow you to propose differently or provide multiple proposals for them to consider. If they do grant your request–make sure that you can substantiate your recommendation through clear justification and substantiation.

Solicitation review and the RFI process are integral to the success of your proposal. By taking a detailed, organized approach to reviewing solicitations, asking well-considered questions, and meticulously preparing your proposal, you can significantly enhance your chances of success. Remember, the depth of your engagement with the USG solicitation documents can make a substantial difference in the competitive bidding landscape. I plan to take time in future posts to dig deeper into specific aspects of proposal preparation and solicitation review. In the meantime–what are your top tips and tricks for proposal review? Leave your thoughts in the comments below.

“How do I get someone to palm for our tech?” A question that I and my colleagues have all received more than once! (Rest assured - if you’ve been corrected for this mistake, we’re chuckling with you! We were just as confused by the nomenclature as lieutenants.)

If you’ve opted to read this, I assume you’ve at least heard the term “POM,” which stands for Program Objective Memorandum. At the very least, you’ve likely been part of discussions about becoming a program of record. After many questions and conversations on this topic, I wanted to clarify what this means and when it really matters to you.

First, it’s worth noting that the POM is a defense-specific product. The Department of Defense budget planning process, known as the Planning, Programming, Budgeting, and Execution (PPBE) process, is unique due to the cost and complexity of defense agency activities and acquisitions. Most other agencies prepare a simpler annual memorandum that covers 1-2 years of budget planning in the form of budget priorities, which is sent to the White House Office of Management and Budget (OMB) for congressional consideration and inclusion in the President’s Budget.

The memorandum from OSD covers a five-year spending plan (FYDP) for all services and is generally referred to as the POM. Because of its complexity and the number of layers that priorities need to be reevaluated, this budgeting process takes over a year, resulting in a 2-3 year gap from the time a request is made to the time it is funded, even if it’s incorporated. Planning for fiscal years 24-28, for example, was due in July 2022. The internal exercise likely started 6-8 months before that due date. This is often considered a leading cause of “valley of death” failure in the defense market. While I could argue either side of this statement, it’s undeniable that it can be prohibitive for certain entrants, and a lack of understanding of the process and timelines can halt good work in its tracks.

As a colloquialism, government personnel often refer to this product as a verb and state that they are “POMing” in reference to making a budget request. What is actually in the POM is a prioritized list of requirements rolled up across all organizations and how the respective application of the funding cap for each fiscal year is applied to the execution of those programs. Essentially, it’s a high-level and highly complex prioritized program and spend plan.

So, how do you “get into the POM”? The detailed answer varies widely across services. Generally speaking, you bring in something so new, novel, or different that military leaders are willing to reprioritize their spending plans to incorporate your product and pose it as a new and highly prioritized requirement. This may mean adding additional requirements to an existing program but causing a large enough shift in budget and spending that it affects overall financial planning, or driving the establishment of a new program.

There is a common sentiment that going for a new program or POM activity is the answer because you are otherwise competing with an incumbent. We’ll discuss why that’s not always true shortly, but it’s also worth noting that you’re competing with an incumbent in some form, either way. Such an action will require giving something up elsewhere in the budget. While you may not be dealing with a direct competitor, this style of competition can be just as fierce and puts you in the position of arguing value and impact rather than comparing technical merit. If this is the right move for you, your business development or sales team or advisors should be pushing you to invest in lobbying and senior leadership engagement.

There are many circumstances in which an existing program has technical gaps or opportunities that don’t require you to compete with an incumbent. This is especially true of early programs with trade space for newly developing technology. While there is often a political game in the research and development sphere on developing options, the program integration and procurement fund for that capability or feature is often still up for grabs. Targeting young programs can be a great way to get in the game without POMing or engaging in a proverbial cage fight for consideration.

For capability portfolios, the level of specificity in the POM leaves a lot of discretion in the hands of the program manager. In these cases, their requirements often allow the introduction of new solutions, and they can move how money is expended within their portfolio. Even better news, research and development portfolios are even more flexible and designed to be exploratory, so there are likely buckets of development dollars available to you. Garnering advocacy in the program office that results in direction to the research and development teams to partner with you and inspires them to rearrange their program-level priorities is your goal. While this is often easier said than done, it’s several steps removed from moving all the levers required to “POM” for you.

It’s true for all programs that the program managers are responsible for deciding how they will meet a particular requirement. Assuming a reasonable requirement exists for your technology, the most influential decision-maker in your stakeholder chain becomes the person who can decide how to spend, which is generally a combination of a program manager and the Program Executive Officer for whom they work.

The bottom line: Most technologies can find their corner of the defense budget without making their way explicitly into the POM. Do your research, know your stakeholders, and understand your pathway before investing in such an endeavor. If the answer does land here, know that it’s time to roll up your sleeves and go “all in”!

Are you as jazzed as I am about the wonderful world of PPBE? The Air Force has kindly published a great reference manual, condensed into a short 105 pages here! For those who are less enthusiastic about this informative read, I’ll be breaking down some elements that are actually relevant to you in the coming weeks.

The popularity and complexity of this topic always result in a lively Q&A when discussed live. Have questions? Use our comment section below to share your experiences and ask additional questions on this topic! Auxo would love to dive in deeper with you!

Your Fan

,

You’ve won a government contract, congratulations! You are very excited to continue developing your product or service for government use. You’re likely focused on the main deliverable, your product. You know there are other contractual deliverables but those are less important than the main product the government is paying you to develop, right? Wrong. The quality and timeliness of ALL your deliverables is a direct reflection of your company, and the government absolutely notices the difference between good and bad deliverables.

So, what makes a good deliverable? The answer is quite simple, quality and timeliness. In some cases, there are specific required templates for deliverables and in other cases, you will get to decide how the information is presented. Regardless of the amount of guidance given on deliverable content, you should always do your best to provide a high-quality product that you’re proud to have associated with your company name. Deliverables don’t just end up with the contracting officer that you submit them too. Those deliverables are sent to numerous people in the government space relative to your project. They are often seen by the program manager, engineers, potential interested government organizations, the user, etc. So, when you haphazardly throw together a deliverable, assume that the government doesn’t care as much about one deliverable as the other, or simply do the bare minimum to get paid, that type of behavior is noticed, and it’s interpreted that you are a company that only cares about what is important to them and not what’s important to their customer. This interpretation can lead to a poor company reputation that follows you.

As one way to explain this, I’ll use a commonly overlooked yet highly shared deliverable: meeting materials. Slides are created by the contractor for the government for a variety of reasons. Kick-off meetings, preliminary design review, critical design review, and status updates are a few examples. When slides are presented to the government that look thrown together, are incomplete, are full of typos, are missing relevant information, or simply look sloppy, you are doing yourself a disservice. Are you technically meeting the deliverable? Most likely. Very rarely do I see the government give a template for meeting slides, so you really can build them however you wish. However, the quality of your product tells the government that you have a lot of priorities and that portraying information to them via this meeting and these slides either is or is not one of them. By cleaning up your slides, making them look professional and complete, including relevant and up to date information, you have spent a little bit of extra time to demonstrate that you do care about ALL the products your company produces, not just the products you’ve deemed the most important.

Another example is quarterly or financial reports. Quarterly reports usually come with some baseline of required information the government is requesting. Financial reports regularly come with a required template or format for presenting information. Both reports are a standard requirement for most government contracts. They take some time to put together. They require manhours to gather the data, sort the data, and present the data. While these reports may seem arbitrary to you, especially when they take away resources from development, they are a requirement (depending on the contract, a legal requirement) for the government to obtain. These reports are important to the government because they are also obligated to provide status and financial reports “up the chain” on a regular basis. So, reports that you may see as arbitrary, and a waste of resources are not arbitrary and a waste of resources to your customer.

You may be thinking, this is a lot of effort on some slides and reports, and you’d rather be developing your product. I understand. I’m not recommending that you spend a lot of manhours making everything perfect. All I’m suggesting is that you look at each document, each product, or each service you deliver to your government customer and ensure it’s something you’d be willing to defend on quality and timeliness. Make sure it’s something you’re proud to associate with your company.

Lastly, be on time. Timeliness is one of the most basic actions you can take to garner trust and dependability. Are there times when schedules get away from you? Absolutely, yes. We will discuss this further in next week’s blog, but this is when communication with your government customer is crucial. Early communication on delayed deliverables is much better than surprising the government by missing a deadline. If you become a company that continually submits deliverables in a timely manner and communicates early and often, that will go a long way in building a solid relationship with your government customer. Communication is crucial for understanding the content and context of deliverables and is crucial when timelines will be missed.

I’d love to hear your thoughts on quality and timely deliverables, so please leave a comment! Also, be on the lookout for next week’s blog regarding the importance of good communication with your government customer.

Keep moving forward,

If you read the subtitle and you laughed at the absurdity, you can probably stop reading this.

If you’re here for a pipeline manual, I’m going to start by letting you in on the dirty little secret to building a credible pipeline–it just has to make sense.

That’s it.

I have the MBA. I’ve done the business school version of the 5-year-plan. I’ve taken the Osterwalder classes, thrown the five year plan out the window, and built a dozen versions of the Business Model Canvas. There are codified and expected ways to build out revenue projections. Sometimes they are relevant. Sometimes they are a round hole, and your company simply is not.

In the real world, I’ve helped to build projection and valuation models for numerous companies in the defense tech space. Every single model was different. Because every single company was different. They also successfully defended them, and successfully raised capital.

If you are being asked to take on such a task, I’ll make two assumptions about you: (1) you’re intelligent and (2) you know at least a little bit about the defense or federal market, acquisition process, and federal budget. Before you go ask Claude how to build a revenue model, take 5 minutes to brainstorm what makes sense to you.

Even if you use a traditional model, you need to justify where those numbers are coming from. Your justification matters much more than how traditional your model looks and feels. If you can clearly articulate your anticipated revenue streams and your confidence levels in each one, you can make a valid case.

We like to think of this as a spreadsheet activity. It’s just math, right? You will, of course, end up with a spreadsheet. But investment decision making is a very emotional practice, whether we like to admit it or not. Therefore, the justification we make to entice such decisions is more than just numbers–including the spreadsheet.

Morgan Housel continually makes this point in his 2020 book, “The Psychology of Money.” It’s critical to have a clearly logical path, but in most cases, good investors are not making purely logical decisions. Housel, himself, advises against it, encouraging readers to “be sensible, not logical”.

“Successful investing is not about being logical; it’s about being sensible. Understanding what you invest in and believing in its purpose builds resilience through uncertainty.”

Defense investing is, undoubtedly, a passionate venture. It’s not the most logical place to invest, but it’s an incredibly sensible one. More than that, it’s emotionally justifiable to anyone with a strong sense of civic duty.

My advice is to do a little bit of both. There are always due diligence practitioners whose sole job is to track your logic train. It needs to be there. At the same time, we all expect a little bit of guess work. That’s where your market capture rate or equivalent weighting structure has to follow a sensible line of thought.

It’s not practical, in a single article, to walk through every way you can build this out. Further, it’s a nuanced practice, and it would be irresponsible of me to try. My best advice on the matter is that the best pipelines start with critical thinking. Don’t worry about how someone else did it. Worry about whether or not it makes sense.

That said, you didn’t come here just to be told to figure it out yourself, so I’ll share a few things to consider while deciding what makes the most sense for you.

Root your numbers in logic

You will likely have two elements to your pipeline in this space. One will be your ACTUAL nearterm pipeline. This is the list of known opportunities you’re chasing, weighted by your probability of winning them (p-win). I’m going to set p-win to the side for a moment. While we like to neatly put a number to this, it’s the quantified manifestation of a very subjective assessment.

Overall, however, this part of the process is easy. This likely doesn’t go more than 18 months out, and the p-wins likely taper off for anything past 12 months, with few exceptions. These numbers are rooted in the funding available, cost of the work you’re asserting, and/or cost of your product.

The second element is your longer term projected sales. If you’re currently in R&D, then at some point you’re likely transitioning to procurement contracts and are looking at selling items. If you’re in software, you’re likely transitioning from demonstration and trial licenses to some kind of enduring and codified license model.

Where do you get the numbers? If you are trying to create a logical backing to your projections, you should be rooting some piece of this to published budget documentation–that is to say, the Justification Books (j-books).

How this is done will vary. If you’re selling a component to an existing system, that’s relatively easy–published procurement quantities and future year projections for those systems exist. Often you can hunt down numbers on the international market, as well, and come up with a logical international multiplier. If you are doing something fundamentally unique and may need to build out new spending, there is likely some program you can point to that logically validates the numbers you’re asserting. You can lean on those lot buys and make a case for similar numbers.

For something more pervasive, like software, your approach is more nuanced, and you may be laying out all major relevant programs that your software can produce, and the forecasted budget for those programs.

Whatever the argument, tying back to these real, published numbers gives your model credibility. If you haven’t done this, it can also be a healthy and valuable reality check on what opportunities are out there and what the market potential really looks like.

Another source of clear, logical data is your company’s capacity. In my five year projection, am I really referencing all 87 programs I could work with? Some software teams may have the ability to scale rapidly, and it’s simply a function of the number of account executives. Make that case, clearly–how many people do I have? How many people will I hire? How many accounts can one person handle on average? What’s the average account size? Root the answers to all of that in existing numbers where you can.

For other teams, the numbers are much more concrete. There needs to be some reality tied to your production capacity, infrastructure plan, hiring plan, engineering and technical roadmap, etc. Anywhere that there’s a clear, quantifiable, limiting factor, that should be pointed out. If you’re going beyond one of those numbers, you need to have a clear plan or sensible argument for how that’s going to happen.

Back your approach with good sense

Rooting in the hard numbers of the j-books and your production capacity is logical. How you project off of those numbers is where critical thinking and a sensible argument has to come into play. This is where the true nuance comes to the table.

When considering j-books, the details are not always discretely laid out. If you’re selling software or sub-components, you need to be able to reasonably communicate what percent of the budget or unit price is relevant to you. For some, there is logical, historical data to lean on. For many, there’s not (at least not publicly available). I’ve worked with some pipelines where we had to make a case line by line through every program identified, and the justification and numbers were unique and different to each.

There also needs to be a clear tether between your R&D activities and your transition to sales. The timelines need to be based on assumptions about how quickly you can execute, and how the government will behave. You should be prepared to speak to the risk associated with that and how you have reasonably accommodated that in your model.

And perhaps the most nuanced game of all–you need to be able to clearly articulate how you weighted your pipeline. One piece of this will be market share. How have you determined a projected market share capture and year over year growth? What makes you think you can achieve that? Is there a logical or sensible basis to justify those numbers? Again, sometimes you can point to historical or general market trend data, but odds are, you’re going to have to come up with an argument that feels sensible.

Now it’s time to take our p-win out of the parking lot. For nearterm capture, if you don’t have a p-win calculator, make one. There are several out there–Shipley is likely the best known in the GovCon world. I generally encourage clients to make their own criteria that make logical sense for their company. Be ready to back it up, though I’ve found most appreciate the fact that thought went into it, and are willing to hit the “I believe” button on p-win model assumptions once the term “likert scale” comes out of my mouth.

For future year line items, you’re likely pulling a number out of air–be prepared to justify it. If you’re going to go with a future year win rate over 50%, you should be able to clearly walk the dog between current executing projects, and that projected opportunity.

As we discussed earlier–you are an intelligent, logical person. Don’t get caught up in the formality of what a pipeline should look like. Don’t be frightened by the finance guy you suddenly have to collaborate with (he’s probably pretty cool). He’s got your six on the actual nuances of financial model construct. You’re there to make sure the assumptions and inputs make sense. That’s a face-value request.

Sit down, write out your assumptions, and make your argument. If it doesn’t make sense, you’re not there. If it makes sense to you, you have a good start. If you can explain it to your colleagues and it makes good sense to them, you’ve got something. I don’t say this to flippantly ignore good finance practices - use those! But the inputs you choose can be highly variable and are up to you. You’ve got this.

Your Fan,

We often talk to clients who have had several good meetings with the USG where phrases like “This is exactly what we’ve been looking for” or “We love this” are the outcome of the conversation. And then… nothing happens.

No path forward. Just a slow fade of polite interest that never turns into anything real. For a lot of small businesses, especially those new to working with the DoW, this is one of the most confusing parts of the process. The feedback feels genuine. The need sounds real. So why doesn’t it go anywhere?

The answer to this isn’t great but it’s honest. The positive feedback usually doesn’t go anywhere because in government, liking something and being able to buy it are two very different things.

There have been many Auxo posts about how not everyone working in the USG has the same needs, missions, or authorities. Depending on who you’re talking to too, when they see a capability that could solve a real problem, they mean it when they say they like it. They’re not being polite. They’re reacting to something that genuinely fills a gap. The problem is that reaction doesn’t come with a checkbook.

Money spent by the USG is (supposed to be) tied to a specific purpose, a specific timeline, and a specific set of rules. What most companies don’t see is everything sitting behind that moment of enthusiasm: money availability and type, the phase of the budget cycle, existing program commitments, and whether there’s even a mechanism available to acquire your technology.

So, when your stakeholder says, “We love this,” what they’re really saying is, “This aligns with a problem we have.” What they’re not saying, because they often can’t, is whether they can act on it.

Timing is usually one of the barriers. If you show up after budgets are submitted or too late in the FY, there may be no flexibility left to introduce something new, no matter how compelling it is. On the flip side, if you show up too early, before requirements are shaped or funding is aligned, your solution may be remembered but not resourced. In both cases, the interest is real. The outcome just isn’t actionable.

But sometimes, the problem is even more fundamental. The person you’re talking to may not be the one who owns the requirement or the funding or the acquisition authority. They can advocate, they can introduce you to others, they can try to help but they can’t move money on their own. So, the conversation stays positive, the door stays open, but nothing progresses.

None of this means those conversations are wasted. In fact, they’re critical. That early enthusiasm is often the first signal that you’re pointed in the right direction and you’re building the right “thing”. But it’s only the starting point. Turning that interest into action requires a different set of questions and a different kind of engagement.

The farther ahead of the USG you can think the better. Think through things like:

• How will you sell your technology?

• Are you ready for procurement? Or do you need R&D?

• If you need R&D, how much IRAD are you willing and able to put into further development?

• Most importantly, what problem or capability gap does your technology solve? How do you help your stakeholder achieve their mission?

Coming to the meeting with these things already planned can help you point conversations in the right direction. Some organizations just don’t have R&D available but they’re willing to help connect you to those that do and the sooner you can get to that conversation, the better.

At the end of the day, the goal isn’t just to be liked (though it certainly helps). The goal is to be executable.

And once you start framing conversations that way and once you understand the constraints your customer is operating under, you can take the compliments and enthusiasm and use that to build your pipelines.

If you’re building the right product, stakeholders will keep saying, “We love this.” The companies that win are the ones who know what to do next.

Keep Moving Forward,

Haley Yeagley

Building labor rates isn’t sexy, but you should know how to do it, and you should know the terms associated. Sometimes as a SB, it can feel like when someone has already told you their name but… it’s been too long and now you can’t ask without it being weird. So this is me telling you what those words mean, so you don’t have to ask my name way too late for it to not be weird.

So let’s start with some basic terms.

First, when we talk about fully-burdened labor rates, we might actually be talking about two different things—a labor rate with the direct labor rate (the hourly rate you pay the employee without benefits or company costs) plus all “burdens” or indirect costs (we’ll come back to those in more detail in a minute, but these are basically what it costs a company to have an employee). Or, sometimes we use this term to mean all of those costs (direct plus indirect costs/burdens) plus profit.

Another quick term—sometimes, we do a shorthand to calculate what it costs a company to have an employee, or what we might call a wrap rate. This is what we would apply to an employee’s equivalent hourly rate or salary to determine how much it costs the company in total to have an employee (all indirect rates together with no profit). This is usually something in the realm of 1.25-2.5 (this is what I can say without violating any of the many, many NDAs I have signed). So if I have a company wrap rate of 1.9 and I pay an employee $150,000 per year, at a full-time equivalent number of annual hours (technically per the department of labor, this is 2087, but most companies use 2080 without subtracting leave), that would be an hourly rate of $72.12/hr—with my wrap rate, that employee would cost me $137.03/hr or $285,000/year. If that number surprises you, that’s actually the point and it’s exactly why pricing to your actual costs matters.

That’s for quick math. In reality, companies have more than one indirect rate.

A simple, common way to do that is with fringe (cost of having an employee like benefits, PTO, etc), overhead or OH (cost of doing work that benefits more than one contract like production equipment, security, specialized training…), general and administrative or G&A (cost of running a business, like accounting, legal, furniture…), and… profit. These burdens, or indirect rates, compound.

So…

Step 1: DLR

Step 2: DLR × (1 + Fringe Rate) = Labor w/Fringe

Step 3: Labor w/Fringe × (1 + OH Rate) = Labor w/Fringe and OH

Step 4: Labor w/Fringe and OH × (1 + G&A Rate) = Labor through G&A

Step 5: Labor through G&A × (1 + Profit Rate) = FBLR

That’s how you do it. But how do you come up with each of those numbers?

Well, there are a few different ways. And DCAA/FAR says to do what’s legal, compliant, and appropriate for your business (obviously that’s me paraphrasing).

Let’s start with Direct Labor rates.

If you have gone through a DCAA audit to the level where you are submitting actual DLRs, and they are approving either provisional and/or approved/final DLRs for a FY… those are the ones.

If not, there are three data points you can use to come up with your proposed DLR for a given LCAT (Labor Category—think type of work, like Software Engineer, not role, like Director of Software Engineering) and level: I (entry), II (standard), III (senior), IV (expert). Those three data points are your actual salaries, data from USG sources (GSA pricing, BLS, any other Government contracts or information you have access to), and commercial sources (ERI, salary.com, Glassdoor, etc.). You can decide how you want to weight these values and how you want to use them to set your single Direct Labor rate for each Labor Category and for each tier within those LCATs.

Sometimes LCATs are provided—in that case, your job is to map your people and their actual salaries into whatever structure the Prime or USG has prescribed, which may or may not align cleanly with how your company actually works. Sometimes they aren’t, and you need your own. Either way, you should have your own standard labor categories—a general description of the work and expertise required, degree requirements, and years of experience for each—so that when someone hands you a different structure, you’re mapping from something established rather than guessing.

Before we get into indirect rates, it helps to understand the distinction. A direct cost is one you can tie specifically to a single contract—your software engineer working on Program X, the materials purchased for a specific milestone. An indirect cost is everything else that supports the business but can’t be cleanly assigned to one contract—your office lease, your accounting team, your HR function. Those costs are real, they’re allowable, and the USG expects you to recover them. That’s what indirect rates are for. You group indirect costs into pools by category, then divide that pool by an appropriate base—usually some measure of direct activity—to get a rate you can apply to your proposals and contracts.

Indirect rates are more complicated inputs to create. You must first determine which pools you need—do I need just Fringe, OH, and G&A? Do I need a separate OH for Customer site and Contractor site? Do I need a separate OH for Engineering and Manufacturing? Do I need a MSH (Material, Subcontractor, Shipping and Handling Overhead)? Then you must determine what costs are appropriate for each pool, meaning how you want to divide or assign any costs not directly attributable to a single contract to each of those rates you’ve decided you need.

Then you need to decide what the appropriate allocation methodology or base is for each of those rates. Fringe is usually pretty straightforward — it’s your total direct labor dollars (the cost of having the employee maps directly to what you’re paying them). OH can be more difficult, especially if you have more than one type — common bases are direct labor dollars, direct labor hours, or direct labor dollars plus fringe, depending on what most accurately reflects how your overhead costs are driven. G&A is more and more commonly Total Cost Input, or TCI (every dollar of cost flowing through the business, which makes sense when G&A truly supports all business activity). But that is not the only allowable methodology. You can also use a value-added base (TCI minus subcontractor and material costs—useful when you have large subcontractor or material spend that would otherwise inflate your G&A rate disproportionately) or a single element base like direct labor dollars or hours. All of these are based on your business and your financial and pricing strategy. There are a few wrong ways, but there are many, many right ways to do this.

Once you have your indirect rates, you should not treat them as negotiable. Your indirect rates are what they are. If you have been approved by DCAA (provisional) or DCMA (FPRA) you REALLY should not treat them as negotiable. This will save you some time.

The last piece of the puzzle is profit. DFARS requires a structured approach to evaluating profit or fee in many—though not all—of the cases that I talk about in this blog series, and the default method is Weighted Guidelines. This is technically accurate. But the USG waives or deviates from WGL all the time. Why? Because it is very outdated and if they stuck to the letter of it, most Primes would never sign a contract.

So when you are preparing your profit or fee justification, I recommend you read through the WGL methodology, and keep one word in particular in mind…“risk.” From there, build your justification around what you are doing, what your specific scope is, what you are being asked to do—not just technically but in terms of delivery timelines, cost management, and innovative technology delivery. You can mention the market and what they are willing to pay in profit. It likely won’t hurt, but it likely won’t help much. Risk is the number one way the USG evaluates profit. So for each subsequent contract with the same customer for the same program or scope—be prepared for them to expect your profit or fee to go down. If you cannot point to a specific reason why your risk has gone up, you need to be prepared for them to aggressively fight to reduce that percentage point. And keep in mind, this isn’t just about the people you are working with directly, but this is one of the main elements that will be evaluated when they are briefing to higher levels for approval. It’s also what typically gets flagged in GAO reports, White House memos, and Wall Street Journal articles—even, and sometimes especially for FFP contracts.

In order of precedence of negotiation, I’d negotiate factors first (escalation, risk factors at the hours or overall contract level), then hours themselves, then profit, then direct labor rates. The sequence matters—each element has a different level of exposure and a different threshold for what the Government/Primes can realistically push back on. When we talk about hills to die on—indirect rates make the list. And I’m not saying I’d die on the hill—but someone absolutely would, unless I knew that number was completely pulled out of my, I mean thin air.

One last note if you are doing this with a Prime. First, they are going to tell you your rates are too high. I would ask, “Compared to what?” Until they raise a specific question or counter—do not change a thing. You don’t need to negotiate with yourself. Second, when it comes to the makeup of your FBLR, the only things you need to explain are your profit (and why it is justified) and your general labor mix (why you need this type and experience level of human) and hours (and for how long). They do not get your indirects and do not get your direct labor rates. Those are proprietary. If they say they can’t justify those or believe the rates and your proposal are too high or unjustified, tell them you will take your chances with the USG and are happy to send an unsanitized proposal to them. Many times, that will end the discussion, and you’ll end up with an award without having to talk to USG at all. If not, you can have a reasonable conversation with the USG if you came up with the rate methodically. The rules for the Primes are different than for a SB and also—the Primes lie (gasp). It is in their best interest to intimidate you into reducing your rates without having to do any actual work. There’s gambling going on in Casablanca.

If you do end up doing an unsanitized proposal with the USG, likely you’ll have to provide some documentation. Hopefully you did the actual work and didn’t make shit up. This is usually where I see companies get in trouble. As long as you had a method of some kind, you’ll usually be just fine. Errors can be fixed. Differences in judgement can be discussed and adjudicated. And if budgets can’t allow for a certain price, negotiations can be conducted. It’s better to adjust your hours or reduce scope in terms of unnecessary reports or meetings than to drop DLRs or profit. And remember—a fair and reasonable price doesn’t mean the lowest possible price that you can offer. You’re entitled to make a profit. Welcome to GovCon.

Information is power—many SBs don’t understand rates or what is normal and abnormal. What is allowed and not. Hopefully this gives you a clearer picture. But if you take nothing else away from this—ask questions. And don’t trust the Primes.

Recently, @Guy Filippelli sparked a discussion about the requirement from OSD SBIR that Phase II awards be cost-plus contracts, which requires small businesses to undergo accounting system audits by DCAA. This requirement has raised several concerns and considerations among small business owners, and is a soapbox topic for me. Rather than simply commenting on the thread, I decided to dig deeper into this topic in an Auxo blog post.

Let’s start by clarifying that this post isn’t aimed at providing an education on DCAA audits themselves. For that, interested parties should refer to DCAA’s Small Business FAQ’s [1] or seek out an expert (message me if you need a recommendation). Instead, my focus here is on helping businesses determine whether they should consent to such audits and exploring the associated pros and cons. Additionally, I’ll speculate on why the USG implements such requirements, drawing from my personal experiences and observations both inside and outside of the USG.

Firstly, it’s crucial to acknowledge that undergoing a DCAA audit isn’t a trivial matter. It’s a significant commitment that involves continuous procedures, controls, and audits throughout the company’s lifecycle. Businesses must carefully evaluate whether this aligns with their business model or planned federal sales before agreeing to it.

Cost-plus contracts, as opposed to fixed-price contracts, require contractors to report actual costs incurred. For SBs, this becomes particularly pertinent in sole-source contracts, such as those awarded through SBIR Phase III authority, where the government lacks comparable offers for price comparison. In such cases, alternative methods can be used to determine if a proposed price is fair and reasonable, which oftentimes requires a more detailed evaluation of a contractor’s proposal [2].

But why does the USG insist on small businesses having audited accounting systems and/or being able to undertake cost-plus contracts? One rationale lies in the nature of the work being performed and the contract type. Particularly in R&D endeavors, there’s a logical basis for awarding cost-plus contracts, considering the evolving nature of such efforts [3].

Furthermore, audited accounting systems provide valuable data to the USG and offer protection to the Contracting Officer. Many COs lack direct pricing support, especially for smaller contracts, and having an external agency validate a small business’s rates can mitigate risks and provide insights into the true cost of fulfilling a requirement.

In my experience, the USG often emphasizes the importance of completing a DCAA audit, citing it as a sign of maturity in the federal space and a gateway to more diverse award opportunities. In fact, many of these USG members may have no idea what it takes to undergo an audit, and likely do not know whether or not it is to the SBs advantage to take contract types other than Fixed Price or Hours-based unless they are familiar with your company’s GTM strategy and product roadmap. However, each small business should carefully weigh these considerations for themselves, based on their specific offerings, business model, and sales goals.

For dual-use companies or those solely seeking eligibility for initial grants (such as OSD SBIR/STTRs), I recommend exploring alternative avenues for funding initial R&D. There are numerous ‘lightly competitive’ vehicles available that don’t necessitate cost-plus awards, such as those awarded via Commercial Solutions Openings (CSOs).

Additionally, commerciality or having commercial historical sales/published pricing is both an exception to the requirement to provide certification of pricing (which ties to the requirement for a more detailed price proposal) and a method that the government can use to determine if your price is fair and reasonable. So, once you are able to generate commercial sales, you should not need to undertake cost-plus contracts unless you choose to do something exclusively for the USG that does not meet the definition of a commercial product or service.

Please note that opting out of a DCAA audit doesn’t negate the need for a well thought-out and documented pricing model and methodology. Beyond being GAAP-compliant, you should consider what data your company needs to collect, analyze, and monitor to understand what it costs to sell your offering and what an appropriate price point is for your market. If you are dual-use, you should consider how your pricing model fits your use-case. For example, if your government use case is to sell software to USG customers that operate on classified networks, a per-seat model is going to be difficult to maintain and enforce.

Additionally, the timing of leveraging funding opportunities like SBIR/STTR while generating commercial sales, with the intent of selling commercial items back to the USG, is not an easy feat. However, there are ways to manage such a path without accepting a cost-plus contract.

In conclusion, while DCAA audits and cost-plus contracts may offer certain benefits, they aren’t always the optimal choice for every small business. Understanding the nuances of contract types, market demands, and business objectives is crucial in making informed decisions in the federal contracting landscape.

Has your small, dual-use, or federal business undergone a DCAA audit? Please share your thoughts, experience, and advice in the comments below for others weighing this decision.

References:

1. DCAA Small Business Frequently Asked Questions - [Link](https://www.dcaa.mil/Small-Business/Small-Business-FAQs/)

2. DOD Proposal Adequacy Checklist - [Link](https://www.dcaa.mil/Checklists-Tools/Contract-Pricing-Proposal-Adequacy-Checklist/)

3. DAU Comparison of Major Contract Types - [Link](https://www.dau.edu/tools/comparison-major-contract-types-chart)

It feels a little dramatic to start talking about the end of the fiscal year in early May. After all, there are still five months until 1 October and plenty of time, on paper, to close deals. But in the world of government contracting, May isn’t early. It’s already late enough that the shape of September is starting to take form.

If you’ve been in this space for a while, you can feel it. Conversations start to shift. Program offices begin taking a harder look at what they can realistically execute before funds expire. Contracting teams quietly start prioritizing actions they know they can award without friction. And the opportunities that seemed wide open in Q2 begin narrowing into something much more defined and much less flexible.

The reality is simple. Money moves fast at the end of the fiscal year, but contracts do not.

That disconnect is where a lot of small businesses get caught off guard. There’s an assumption that if funding becomes available in August or September, there’s still a shot to win it. And technically, that’s true. But typically, only if you’ve already done the hard part of getting onto a contract vehicle that allows the government to move quickly.

Because as the end of the fiscal year gets closer, it becomes harder and harder to start the contracting process from scratch.

Solicitation and competition requirements, negotiation timelines, and legal reviews don’t just compress because money needs to be spent. There are very few “short cuts” because the USG is low on time. If you’ve ever talked to a contracting officer during the last two weeks of September, I assure you, if there was a better way, they’d have found it.

Instead, teams turn to what’s already in place like existing IDIQs, OTAs, and any contract structure that lets them obligate funds with minimal delay and risk. If you’re not already there when that time comes, you’re likely too late.

That’s the part that doesn’t get talked about enough. End-of-year success isn’t about being the best solution in September. It’s about being accessible in September. It’s about having already done the paperwork, already joined the consortium, already positioned yourself inside a vehicle that the USG can easily use. And getting there takes time.

Securing a contract, negotiating terms, and understanding how task orders flow doesn’t happen overnight. Even the “fast” paths in government contracting usually have lead times measured in months, not weeks. Which is why waiting until summer to think about end-of-year funding is, more often than not, too late.

Right now however, in early May, there is still a window where those decisions still matter. There’s still time to get aligned with the right partners. Still time to pursue access to the vehicles your customers already use. Still time to ask the uncomfortable but necessary question, “If funding showed up tomorrow, how would they award it to us?”

If the answer is unclear, that’s the gap to close. Because come August and September, the pace will pick up whether you’re ready or not. Money will move and awards will be made. The companies that positioned themselves months earlier will be the ones able to say yes when the opportunity finally arrives.

The end of the fiscal year doesn’t start in September. It starts now.

Keep Moving Forward,

Haley Yeagley

The growing emphasis on co-investment is not happening in isolation and reflects a set of structural changes over the past decade.

First, private capital has become materially more available for national security-relevant technologies. The rise of “American Dynamism” as an investment category has expanded the pool of venture and growth capital willing to fund capabilities with defense applications at a scale that did not exist even five to ten years ago.

Second, the government’s own posture toward capability development is evolving under pressure. The FY2026 Department of Defense budget request reflects a more constrained and selective R&D environment with a focus on more mature technology demonstration. The discretionary RDT&E request of approximately $142 billion sits below FY2024 actual levels, with reductions in basic and applied research accounts relative to FY2025 enacted levels, signaling a need to prioritize and leverage external sources of innovation and capital more effectively (Office of the Under Secretary of Defense (Comptroller), FY2026 Defense Budget Overview, 2025).

Third, there is increasing recognition that commercial markets can sustain and evolve certain capabilities more effectively than government-owned systems. Commercial demand can absorb a portion of long-term sustainment cost while driving iteration and improvement that defense programs often struggle to maintain over time.

Fourth, and more recently, the government has begun to operationalize this shift through a growing set of strategic capital initiatives explicitly designed to attract and align private investment. Efforts such as the Office of Strategic Capital, the Army’s Strategic Capital Initiative, and the expanded use of development finance tools through organizations like the U.S. International Development Finance Corporation are not simply funding programs. They are mechanisms to structure shared development, where government capital is used to shape outcomes while private capital drives scale and sustainability.

Taken together, these shifts create the conditions for a model where capability is not solely developed and maintained inside government systems, but instead shared across public and private investment.

In practice, the term “co-investment” is often misunderstood as simply “matching dollars.” That interpretation is incomplete. What the government is now signaling is something more structural. Private capital is expected to carry a meaningful portion of early technical and market risk, while government investment is used to shape capability, accelerate scale, or enable infrastructure where national security interest is high. Over time, commercial markets are expected to sustain and advance the capability over time.

In this model, private capital is not just a funding source. It is a signal that reflects external validation that a capability can attract capital, reach markets, and continue evolving outside of government funding cycles.

This signal matters, particularly as the government continues to struggle with assessing risk in non-traditional companies. Private capital, while not a perfect proxy, can reduce both perceived and actual risk by demonstrating that a capability has been vetted, funded, and is expected to scale. This dynamic does shift how advantage is distributed across ecosystems, although similar concentration of influence has existed in different forms historically.

Despite the broader shift toward co-investment, many companies still present themselves in ways that do not fully align with how defense stakeholders are evaluating opportunity and risk. The gap is usually not in the business model, but in how it is framed.

Commercial traction is often treated as a secondary narrative rather than a central part of the defense value proposition. In reality, it is one of the strongest indicators that a capability can be sustained and improved without relying entirely on government funding. Companies should be explicit about how commercial demand reduces long-term cost and keeps the technology relevant.

Private capital is also frequently underutilized in the story. It is often presented as a signal of momentum, but not as a reduction in government risk. Venture backing reflects external diligence, shared financial burden, and an expectation of continued growth. Making that connection clear is critical.

There is also a tendency to position government funding as the primary driver of development. This can reinforce the perception that the government is expected to carry the majority of the burden. A stronger framing shows government investment as catalytic, accelerating something that is already being built and funded. If the government is expected to carry the burden of development, there should be a clear advantage in the sustainment phase, such as priority access or uniquely defense-relevant capability.

Finally, many companies still assume that the end state is government ownership and sustainment. Increasingly, that is not the objective. The government is looking for ways to secure access, priority, and scale without taking on the full lifecycle cost. Building a story that allows the government to gain ownership level access without the cost and responsibility of modernization is a discussion previously considered in niche dual-use areas. Today, this conversation is slowly edging into an expected norm. In practice, the emerging pattern reflects a different division of roles between government and industry.

In areas of strategic importance, the government helps enable early infrastructure, establish demand signals, or accelerate scale where it might not otherwise occur. Companies, in turn, retain their intellectual property and continue to operate with a commercial orientation, allowing the capability to evolve through broader market forces. Rather than owning the capability outright, the government secures priority access, surge capacity, or assured availability, ensuring it can rely on the capability when needed without assuming the full burden of long-term ownership and sustainment.

The Army’s Strategic Capital Initiative makes this explicit. It is framed as a “new framework for public-private partnership” intended to “supplement traditional funding with strategic capital” and create “commercially viable and self-sustaining ventures” that strengthen readiness and the industrial base (U.S. Army, Strategic Capital Initiative, 2024).

At the Department level, the Office of Strategic Capital (OSC) is operationalizing a similar approach. OSC is designed to partner with private capital providers and deploy loans and loan guarantees to accelerate investment in critical technologies, explicitly aiming to scale capabilities that have both national security and commercial relevance (Office of Strategic Capital, Chief Technology Office, DoD, 2024). Early demand for this model has been significant, with the office receiving approximately $8.9 billion in financing requests for an initial lending capacity under $1 billion (U.S. Department of Defense, 2025).

Beyond DoD, the U.S. International Development Finance Corporation (DFC) provides a mature example of this approach. DFC’s mandate is to mobilize private capital in support of U.S. national security and foreign policy objectives, using tools such as loans, guarantees, and equity investments to crowd in commercial investment. Its participation in a $1.8 billion critical minerals consortium alongside private and sovereign partners, illustrates how government capital can be used to unlock strategically important capabilities without assuming full ownership (U.S. International Development Finance Corporation, 2025).

The throughline across these efforts is consistent: government capital is increasingly being used to shape and accelerate, not to fully own.

The advantages of this model are material. It reduces lifecycle cost, lowers the “always-on” maintenance burden associated with government-owned systems, and allows capabilities to continue improving through commercial investment and competition. It also creates more flexible surge capacity, particularly in areas like manufacturing and infrastructure, where fully government-owned capacity is expensive to maintain.

The model is promising, but it is not self-executing.

On the government side, there are still real challenges in assessing and trusting non-traditional companies. While venture participation can serve as a signal of reduced risk, that signal is not always consistently leveraged in acquisition or investment decisions. Mechanisms to translate co-investment into scaled programs remain uneven.

On the company side, the model breaks if “dual-use” is nominal rather than real. Commercial demand must be substantive enough to sustain the capability and justify continued private investment. Over-reliance on government funding, without a credible commercial base, undermines the premise of shared development.

There is also a broader timing consideration. The current level of venture interest in defense and national security is significant, but not guaranteed to persist indefinitely. If pathways to scale, adoption, and return are not clear, capital will move elsewhere.

Co-investment is often framed as a partnership model, but in practice it is also becoming a filter. It is beginning to separate companies that can share the burden of building and sustaining capability from those that cannot, and just as importantly, it is testing whether the government is willing to move away from default ownership when better options exist. If this moment is not used effectively, the likely outcome is not a gradual evolution, but a reversion. Capital will move, innovation will consolidate elsewhere, and the system will fall back on models that are more familiar, but less efficient. The question is not whether co-investment works in theory, but whether both sides are willing to operate differently enough to make it work in practice.

Your Fan,