How is inflation affecting your performance on existing contracts? Is it hindering your ability to win new and bigger contracts? Can you afford to hire and pay well the people you need to meet the contract requirements? Not to mention, if making a profit is the goal, are you meeting and exceeding that indicator as intended?
Widening the Gap
The rising costs of doing business are a real problem for big and small companies alike. There seems to be no telling when we will see some relief on this issue. In today’s market, there aren’t many resources available to your business that haven’t also seen this increase affect their costs, and consequently they are passing that surge in expenses on to their customers to make ends meet. This snowball effect is creating a wider gap between the bigger companies who are better equipped financially to handle the hit and the small or startup companies who have less borrowing resources and more uphill costs infringing on their bottom line.
As if calculating costs accurately enough to turn a profit isn’t a conundrum enough! Paying more equates to needing to charge more and this effect is felt on all sides by all parties.
Banks Are Feeling the Heat
Historically, a business that has some skin in the game with generated and consistent revenue and quality past performance records could get small lines of credit from their bank to cover costs before they have the increased revenue stream that new contracts provide. This is still true in some cases, but the vast majority of businesses of all sizes are seeing an increased tightening of qualifications and restrictions from their traditional lending sources. Banks are feeling the heat of not being able to lend at the level needed by all of their customers. So not only are these businesses looking to alternative lenders more than ever, they are seeking a greater overhaul of pricing requirements that are antiquated as it pertains to today’s expenses forced by inflation.
Too Little Too Late?
The largest pool of contractors, those engaging in Department of Defense work, did see some efforts to, at minimum, address the elephant in the room. But are officials just pointing out the obvious instead of actually meeting the providers in the reality in which they work? Late last year, much was being said about the DOD’s ability to get in this discussion and truly roll up their sleeves and help. While the interests of small business are addressed in this matter, we have yet to see a solution that actually provides relief that is achievable.
In an online article published by Reuters in December 2022, Todd R. Overman writes,
“Inflation has posed a daunting problem for the DOD contracting community as many FFP contracts awarded over the last two years are more expensive to perform than was anticipated at the time bids were prepared. That has tangible impacts not only on U.S. national security capabilities, but on the broader economy with small businesses particularly vulnerable. Unfortunately, previous DOD guidance was not sufficient to effectively address the problems. While the DOD seemed ready to offer a helping hand, DOD claimed it could only go so far given existing legal authority.”
Will this actually make an impact? Is it enforceable? Will those who truly need it be able to access it or is this just another relief package that will provide to big business first, and be laden with fraudulent awards and wasteful disbursement of funds?
Overman writes, “The guidelines should outline the eligibility requirements for the contractual modifications defining “inflation” broadly to encompass all costs borne from factors out of the contractor’s control including wage growth and supply chain problems resulting from COVID-19 shutdowns and the Ukraine war. The guidelines should also provide objective and concrete guardrails for the COs to follow when reviewing modification requests. Discretion allows COs to pick winners and losers, even if done so unknowingly. An objective and definitive framework will help eliminate biases and ensure relief gets to all who need it.”
Is there a perfect solution to this problem?
Is any business actually getting relief due to this idea for a remedy?
We may see a further lapse in our technology race against China and other world powers if we don’t start thinking about the financial impact our small businesses are bearing in this uncertain economic terrain. While the rest of us are adapting to paying more for what we have always gotten, maybe the government should look to join the crowd.
Are inflated costs of doing business keeping you from making headway in this industry? If so, what are you doing to be proactive in ensuring you continue to win more and make money, too?