Monday, February 23, 2009

Stimulus Packages Changes COBRA Requirements

Our accountant, Glen Todd of Glen Todd & Company PC, sent me a very interesting email. He forwarded what he considered a really good synopsis by McKenna Long & Aldridge LLP of a very serious provision of the Stimulus Act. On February 18, 2009, McKenna Long sent out a Corporate Advisory entitled “Employers Required to Front COBRA Costs Beginning March 1, 2009.” According to the information they provided, there is a section in the Stimulus Act that relates to the COBRA subsidy. The Act changes the COBRA requirements for businesses. Previously, only companies with 20 or more employees were required to provide COBRA to eligible terminated employees. Now, each state will dictate the company size where COBRA requirements kick in – in Maryland, where we're headquartered, it is 2 employees.

The other big issue with the change is that the Act requires the employers to pay 65% of the premiums for the COBRA-covered employees for up to nine months, where previously the employee paid 100%. The employer will be reimbursed by the government later in the form of tax credits, or a direct reimbursement if the company’s tax liability doesn’t cover the premium cost. This could cause huge problems to small businesses who can’t afford to pay the 65% premium for employees who are no longer working for them.

In a nutshell, the McKenna Long newsletter says “If you sponsor a group health plan, you must act quickly to implement the new requirements by March 1, 2009 (or earlier where coverage terminates before the end of the month, e.g., on date of termination of employment).” Note: McKenna Long’s newsletter states that their information is “only a summary of portions of the Stimulus Act.” They recommend contacting them or your own attorney for more information about the subsidized premiums for continuation coverage and assistance in revising your forms.” For more information on McKenna Long, visit

I read the information and my blood ran cold. The implications and impact on small businesses probably will be extreme. With the cost of health insurance already being high, am I being expected to front the 65% of the monthly continuation costs for an employee that no longer works for me? Imagine laying off employees because you can't pay them and then having to pay their COBRA coverage. It doesn't make sense. I thought the Stimulus Act was supposed to help small businesses. The financial impact will affect how and if companies offer health plans to their employees and may result in companies cancelling the plans they already offer.

The newsletter continues saying “the company must subsidize both the cost of COBRA continuation coverage and state-mandated health continuation coverage (collectively referred to in this alert as “COBRA”) elected by the Eligible Individual. McKenna Long indicated the definition of eligible individual as “any employee who is involuntarily terminated between September 1, 2008 and December 31, 2009 (employees terminated for gross misconduct or voluntarily terminating are not eligible); and the employee’s spouse and dependents.”

To help determine if a company is subject to State mandates, McKenna Long provided this link to COBRA Continuation Coverage for Small Firm Employees (

Their newsletter has a list of 12 bullets with action items and 4 key dates beginning on March 1 and ending on April 30, 2009. This is not a lot of time to review the provision, make decisions and implement a plan to address the new requirements.

Since this is an overview, there is probably information that the McKenna Long newsletter does not address. To make good decisions, I need to find out how this will specifically impact my business. My first calls on Monday morning were to our insurance broker, accountant and attorney so I understand the financial, legal and paperwork implications of this provision. My recommendation to other small business is do the same.

Sunday, February 15, 2009

Are You Ready to Date the Government?

With the recent passage of the Stimulus package, a lot of companies previously uninterested in federal government contracting are now looking to get in, particularly since the commercial market is still slow. But are you ready to be a government contractor? It is a time consuming endeavor that needs proper preparation and an understanding of the environment.

We often use the analogy of dating in context of government contracting. Dating is social activity performed with the aim of assessing another's suitability for a relationship. Successful businesses cultivate long-term, mutually beneficial relationships - ergo, they date their clients and customers. They put their best foot forward and present their benefits as a long term partner. Before entering into or expanding a relationship with the government, management should determine if they are ready to "date the government."

Steering a company into a new market always requires careful consideration and the government sector is no different. Companies who want to enter into government contracting or ways to expand current business lines should examine the qualities they bring to the table. Think of your clients and services in four quadrants:

Quadrant 1: providing current products/services to existing clients/customers
Quadrant 2: providing current products/services to new clients/customers -- a good way to expand your client base.
Quadrant 3: providing new products/services to existing clients/customers -- a good way to expand your business lines.
Quadrant 4: providing new products/services to new clients/customers -- high risk because you have an unproven product/serice that you are marketing to potential clients you have never worked with. You do not want to be in the fourth quadrant.

Next ask yourself "do the qualities I have (e.g., your products and/or services) interest my prospective date (e.g., the government)?" Here are a few basic items to consider when considering whether to date the government:
  • Strategic Planning-You want to date someone with whom you have something in common and you won't know that unless you have done your homework. Knowing your partner in advance improves your ability to create and sustain a successful relationship. Developing a well-researched strategic plan for entering the government space serves the same purpose. Strategic planning provides the information necessary to identify the right agencies for a company to pursue and to implement focused business development and marketing efforts.
  • Accessibility & Visibility-Being visible and accessible is a must in any relationship. Cultivating a relationship with the government is difficult if you can't be found and/or don't have the proper contracting vehicles in place. Being on the right contracting vehicles allows government customers to find you and provides access to your goods and/or services.
  • Contract Administration-Every successful relationship has ground rules that each party must understand and agree to follow. Government contractors must understand the policies and regulations governing the government contracting arena, as spelled out in the Federal Acquisition Regulation (FAR) and agency supplements. A company's ability or inability to adhere to these rules can dictate if it can operate in the government arena and which government opportunities it can pursue.
  • Personnel-Relationships are all about finding the right match. Government contracts often require contractors to provide specific personnel for a given contract. If your company does not have the personnel required by the government for the goods and/or services it provides, you may not be the right match. Or you may need to develop a plan for hiring the right personnel for each contract awarded.
While many commercial sectors face an uncertain future, more and more business owners are looking to the stability of government contracting as a way to grow their business. If you're looking to get into or expand your government offerings, be sure to do so with a critical eye and be able to answer "Yes - I would want to date me."

Wednesday, February 11, 2009

Mentor-Protégé Relationships

Adapted from the D2DInc e-Newsletter

A Mentor-Protégé relationship can be mutually beneficial to large and small businesses because it expands the resources and opportunities available to small businesses and provides a unique tutoring experience to large companies and establishes a reliable relationship with the small business. A Mentor-Protégé relationship can help improve the performance of small businesses on contracts and subcontracts with government agencies.

Mentor-protégé agreements can be mutually beneficial as long as both parties are clear on the objectives of the relationship. Each agency has its own Mentor-Protégé program with its own requirements, but generally the mentor company must hold a prime contract with that agency in order to participate in the program. Agencies require the execution of a formal agreement between the parties that spell out the expectations for and benefits to each party. These could include teaming and subcontracting opportunities, training, assistance in raising capital, program management, process development, ownership resulting from the relationship, and others as agreed upon by the parties. Some agencies allow a mentor to have more than one protégé, but most do not allow the protégé to have more than one mentor; although companies may have different mentors through different Agency programs.

The Small Business Administration (SBA) manages a unique Mentor-Protégé program that is designed to allow companies to serve as a mentor to 8(a)-certified small business protégés. In order to enter into a SBA-approved Mentor-Protégé agreement, the mentor and protégé must have a written agreement and also meet certain requirements in order for SBA to accept them into the Mentor-Protégé program. Mentors have their own requirements, but to qualify, the protégé must be:

  1. a) in the developmental stage of the 8(a) Business Development program OR b) never have received an 8(a) contract OR c) must be less than half the size of a small business, as defined by the SBA, based on its primary Standard Industrial Classification code
  2. In good standing in the 8(a) Business Development program
  3. Current with all 8(a) reporting requirements
What is unique about the SBA program is that once the mentor-protégé agreement is approved, the companies may form a Joint Venture (JV) to pursue Federal government contracts with any agency, and the JV is considered to be a small business, provided the protégé qualifies as small for the procurement (and if an 8(a) sole source procurement, has not met the dollar limit). Without a SBA-approved agreement, the size of a JV is determined by taking the aggregate of the sizes of the two companies. This is a benefit because it allows the 8(a) to use their mentor's experience and relationship to pursue work jointly as a small business prime.

8(a) firms should contact their Business Opportunity Specialist to determine if their company and a prospective counterpart qualify for the SBA Mentor-Protégé program. Additional information is also available on SBA's website (

Wednesday, February 4, 2009

Great Event on Surviving in this Economy

So as I mentioned in my tweet on 2/3/09, I went to a really great event called "Succeeding as a Government Contractor in a Challenging Economy" hosted by Shulman Rogers Gandal Pordy & Ecker, PA. The presenters included Ira Hoffman and Jacob Ginsberg (both attorneys with the firm), Brad Wood (Sr. VP of Commercial Banking for The Columbia Bank), and James Scott, Jr. (a Principal with accounting firm Penan & Scott, PC). Usually I go to these events and have to "gently" correct the speakers because they misrepresent something about federal government contracting. But I have to tell you, I was impressed with the speakers and their presentations.

Ira presented first and covered information pertaining to the Stimulus Package. He gave examples of where the money was going and what areas contractors should consider targeting. He also discussed other topics relating to set-aside designations and the GAO ruling on the "rule of two." One interesting thing he pointed out you should note is per a GAO ruling, HUBZones get preferential treatment to SDVOs (if you don't know what these are then you probably aren't one). There is such a push for SDVOSBs that people forget this is the case. There were SDVOs in the room so I’m sure this caught their attention.

Brad spoke next and provided good insight to the participants on the banking relationship and its nuances. I think most companies discount the importance of a well established banking relationship. They know they need a good one, but don’t know how to develop it. Or in most cases, they only contact the bank when they need something (like a loan) instead of cultivating a partnership than grows more solid over time. I can speak to the benefits of this because we have a great relationship with our bank. Anyway, we all know that we should choose a bank that offers us the services we need.

What Brad emphasized was the need to find a bank that is suited to our business. For instance, the business owner should ask the bank what level of expertise is in the bank and what they understand about your particular industry. For instance, my commercial business is very cyclical and we had to teach our banker about our business and the industry so he could discuss specifics when he presented our loan package. You should ask who you will be working with on a daily basis and very important – ask about the bank’s processes for reviewing loans. Brad also stressed the importance of documentation and your financials. You need to make sure everything is kept up-to-date and is readily available to the bank upon request. As an aside, my personal suggestion is to scan documents such as your corporate documents (Articles of Incorporation, By-laws, etc); your company taxes and owner’s personal taxes for at least the previous three years; government certifications; annual reports (P&L and balance sheet); and any other relevant papers so you can email them over quickly. Bottom line is you have to show that you are a good credit risk and the bank should give you the resources you need to grow.

Jim’s presentation tied in nicely to Brad’s since both firms deal with the financial side of companies. Jim was on point when he said that cash flow and profitability are key, and they are. He talked how the company needs to understand the numbers, particularly since there is legal language in loan documents that pertain to the company’s financials. He also stressed the need for the company to implement a good accounting system that can support government contracts, and institute good internal controls (thank you Jim – we say this to people all the time!). He also stressed that companies need to make sure they are working with a qualified accountant and not Uncle Joe who thinks he can be the company accountant since took math in high school back in 1939 (OK I embellished what he said, but you get the point). Anyway, I’m sure there were people in attendance related previously on a subconscious level, but left with a different appreciation of the situation and its importance. I would not be surprised if several accountants got calls yesterday afternoon.

Jacob spoke last. His job is related to the loans the bank makes. He provided a checklist to participants so we could see what documents are needed related to the loan package. He suggested that companies get a legal review of all loan documents. I would bet you that there were companies in there who have gotten loans without counsel reviewing the specifics, but it makes sense that they would just sign the papers. Why? Because most companies believe they will pay the loan on-time and none of the provisions would be invoked. Well this ties in with Jim’s points. The loan documents contain provisions that relate to the companies ratios (debt to equity, etc.). If you don’t know the benchmarks and aren’t staying up-to-date on your financials you could get the loan called in even if you’re paying on time. Not a good situation.

Like I said, this was a great event that provided helpful information to a pack room of attendees. I’m looking forward to the next event they host!