As the government changes its spending habits this year, the federal contracting marketplace will get more competitive.
Companies are hunting for any advantages to outdo their competitors and win more contracts. Making acquisitions has become a common tool for companies looking to gain that advantage.
“The primary reason for these types of mergers and acquisitions is to offer broader and more robust capabilities,” IDC Government Insights wrote in January in a report.
But with all the M&A activities, companies can’t lose sight of the role their customers play in the process.
First, they must interact closely with their government customers to make the transition run smoothly. A company’s representatives won’t go wrong by talking with their customers, many experts said. Poor communication is a big blunder a company can make as it acquires another business or is acquired itself.
They should explain what’s going on to keep their customers abreast of changes, said Roger Waldron, the General Services Administration’s acting senior procurement executive from 2005 to 2007 and now president of the Coalition for Government Procurement.
“They have to reassure their government customers that all will go well,” he said.
Kevin Carroll, former program executive officer of enterprise information systems at the Defense Department, said the smoothest mergers came when the new and old managers visited their customers and talked them through their plans.
“So, good-old communications has worked best,” said Carroll, who now is president of the Kevin Carroll Group LLC, an IT consulting company.
To make it go well, companies going through the changes have protocols to follow, based on regulations and security clearances.
Carroll said security is critical, particularly those companies working with DOD or other agencies related to national-security matters. It’s especially important with the large number of foreign-owned companies that have acquired U.S. government contractors. Six of the buyers on the 2010 M&A roundup are foreign owned, including CGI Group, which had the best single deal of the year.
“DOD’s security people are very tough on how the companies organize and handle their classified programs,” Carroll said. “This has led to delays in the finalization of some mergers and, on occasion, a few companies have lost their current contracts at the top-secret level.”
On a more personal level, people feel the effects of an acquisition or merger. Employees get nervous about the future of their jobs. As the newly formed company reviews its operations and business development costs, it reduces necessary overhead, Carroll said.
“So many people leave,” he said. “And the turnover does affect customers.”
However, the mergers and acquisitions within the IT industry don’t have the same major changes compared to other fields, such as the aviation industry, Carroll said. A merger or acquisition among major airplane manufacturers could change future competitions for contracts.
Recognizing that mergers and acquisitions are commonplace in the business world, regulators have laid out how government contractors should proceed . The Federal Acquisition Regulation dedicates an entire section to novations, or the process of changing the original name on a contract with the new company’s name.
According to the FAR, the company that is going through the transition needs to determine which administrative contracting officer would handle the changes. They need to send a written request to that contracting officer to recognize a successor regarding their government contracts.
“The devil is in the details, but that’s really important in contracting protocol,” Waldron said.
The company must also send three signed copies of the proposed novation agreement. It should describe the purchase or memorandum of understanding, a list of the affected contracts, and evidence that the new company can still do the work. Further, the company must submit to the contracting officer a copy of other documents, such as, for example, the bill of sale or certificate of merger, the opinion of legal counsel that the transaction meets legal requirements, and a resolution of the corporate parties’ boards of directors authorizing the transfer of assets.
If everything goes well, the responsible contracting officer will sign a novation agreement with the two sides of the acquisition.
If things don’t go well during a transition or a company forgets about its customers, it will feel the effects.
“Customer will get their revenge at recompetition time,” Carroll said.