CON 280 CON 280: Source Selection and the Administration of Service Contracts Market Research...

CON 280

CON 280: Source Selection and the Administration of Service Contracts

Market Research Exhibit

IOSS Requirements

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Key Market Research Topics Data

Market Segmentation • Facilities support services (NAICS code 561210, PSC code 33620)• IOSS requirements may include the following services:

landscaping, housing, transportation/motor pool management, engineering, janitorial, personnel management, security protection, financial management, food services, airfield management, port support

Market Size • $22B market

Market Growth • Market is projected to be entering a period of recovery

Market Share • Over 1500 firms total• 4 largest firms account for 27.6% of sales

Government Market • There has been a tendency for federal government to self-perform some of these services• Pressure to reduce costs could lead to increased outsourcing, if

the financial case can be made

Source: www.census.gov, IBIS World; Censeo Analysis

Market Research: IOSS Requirements

http://www.census.gov/

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Value Chain • Basic services value chain, with inputs of Time, Knowledge, Equipment, and Systems

Cost Structure • Labor is the major cost component

Cost Drivers • Local and job-specific wage rates• Use of labor-saving equipment

Pricing • May vary by specific service component• Cost plus incentive fee was the most common type of contract

in the commercial sector• Encourages continuous process improvements• Promotes supplier-customer partnership• Flexibility in responding to emergency or crisis• Visibility into performance and costs

• Fixed overhead rate for life of contract has been used in some contracts

• 50-50 share ratio has been used in some contracts




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Pricing (cont’d) • Typical Profit Margin rate: between 5% and 9%• Typical G&A rate: 7%• Typical Overhead rate (assumed to be indirect expenses/direct

labor): 40%• Industry standards for the fee percentage are between 2% and

8%, depending on company performance and risk




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Small Business • Approximately 750 firms with fewer than 10 employees• There is a high percentage of small businesses in many of the service

industries included in IOSS requirements (e.g., 86% of landscaping firms have fewer than 10 employees)• The small business size standard for NAICS code 561210 is $35.5

million• Industry survey suggests a reasonable small business subcontracting

participation target between 20 and 50%, with most responses in the 25-35% range

Competitive Dynamics

• Management/service integration expertise is a potential barrier to entry for firms that want to handle large (>$100M) requirements

• Some firms provide service only within a specific geographic region• Large firms are generally better positioned to provide the full range

of services required; competition among these firms may be great




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Market Trends • Decrease in small businesses serving as prime contractors (often due to the complexity of managing a large number of integrated services), with increased participation as subcontractors focused on a sub-set of the services required

Best Practices • Use of integrated service providers for IOSS requirements• Broader range of skill sets across the labor pool, so workers become

fungible resourcesPerformance Metrics

• Specific performance metrics will vary by service but are generally based on : • Customer satisfaction• Performance results• Response time (“regular” and emergency)• Up-time/availability (e.g., for motor pool) • For Government: Small Business goals




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Performance Metrics (cont’d)

• Sample performance thresholds include: • 100% availability of essential base infrastructure services• Acceptable Quality Levels (AQLs) 99% achieved• 25% base operating cost reduction over 5 year period




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Company Size InterestAleut Facilities Support Services Alaska Native Prime or SubcontractorApplied Planning Internations Inc, WO, SDB Partner or SubcontractorArctic Slope World Services/DBA ASWS Alaska Native Prime or SubcontractorBechtel National, Inc Large Prime or SubcontractorC. Martin Company, Inc 8(a) Prime or SubcontractorCSC Applied Technologies LLC Large Prime or SubcontractorDel-Jen Inc Large PrimeDiversitech, Inc WO, SDB PrimeDyncorp International Large PrimeEG&G Technical Services, Inc Large PrimeH&S Resources Corp WO SubcontractorITT Systems Division Large PrimeJacobs Engineering Group, Inc Large PrimeJanKell, Inc. Large PrimeKellogg Brown &Root Services, Inc Large PrimeLargo, Inc. Large PrimeLockheed Martin Mission Services Large Prime or Subcontractor ManTech Large Prime or SubcontractorNEDCO SDB Prime or SubcontractorNorthrop Grumman Technical Services Large Prime or Subcontractor Parsons Large PrimeRaytheon Large Prime or SubcontractorScience Applications International Corp Large SubcontractorSierra Lobo, Inc SDB SubcontractorSIP, Inc. Large PrimeTEDCO Large SubcontractorYang Enterprises Inc WO Subcontractor

Potential Sources

Market Research: IOSS Requirements (cont’d)

CON 280, Day 2

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• Since many of the services included in IOSS requirements are in industries with a high percentage of small businesses, there may be political issues if small businesses risk being displaced by an IOSS contract

• The industry is projected to be entering a period of recovery, so key players may be hungry for additional business

• There is a high level of competition among large firms in the industry, which is generally good for potential buyers

• If our required service levels are higher than average, we may be a more expensive customer to serve and should therefore consider changing our requirements to be better aligned with Industry

Key Implications for the Acquisition


CON 280 CON 280: Source Selection and the Administration of Service Contracts Market Research...

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