Report on the State of Competition within the Defense Industrial Base

Brian S. Gocial, Sara N. Gerber, and Tjasse L. Fritz

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As the federal government prepares to roll out infrastructure grants and contracts in amounts not seen since the New Deal and the defense industrial base (“DIB”) gears up to support billions in new spending to support Ukraine, a new Department of Defense (“DoD”) report raises serious concerns about the state of competition within the DIB. The report recently released by the Office of the Under Secretary of Defense for Acquisition and Sustainment analyzes the state of competition within the DIB and concluded that it can be summarized in one word: poor. The report discusses the causes for the lack of competition and makes recommendations for improving the solicitation process to increase competition, inspire innovation, reduce prices, and improve quality.

Consolidation

Foremost among the causes for the lack of competition identified by the report is consolidation of the DIB. Of 51 aerospace and defense prime contractors in the 1990s only five exist today. Although the report failed to find significant correlation between this consolidation and increased pricing, the consolidation raises additional concerns for DoD, such as national security, mission risk, and strategic technology innovation. The report notes that “having only a single source or a small number of sources for a defense need can pose mission risk and, particularly in cases where the existing dominant supplier or suppliers are influenced by an adversary nation, pose significant national security risks.” The report recommends that when a merger is likely to harm one of these interests, DoD work closely with the Federal Trade Commission and Department of Justice to take structural or behavioral measures deemed necessary, up to and including blocking the merger.

Continue reading “Report on the State of Competition within the Defense Industrial Base”

Blank Rome Government Contracts: 2021 Year-in-Review and Look Ahead for 2022

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As 2022 shifts into high gear, Blank Rome’s Government Contracts practice is pleased to share our 2021 Year-in-Review, covering key government contracts issues, recent practice news and recognitions, and our look at the year ahead.

Thanks to the continued trust and support of our clients and colleagues and our dedication to our Client Service Principles, we helped guide our clients through an unprecedented past two years, and look forward to partnering with them (and seeing more of them in person!) in 2022. We were particularly excited to welcome Partner Elizabeth Jochum and Associate Samarth Barot to our team.

We look forward this year to deepening our collaboration across our law firm through a new Blank Rome industry group dedicated to serving clients in Aerospace, Defense & Government Services (“ADG”). Leveraging technology to drive seamless collaboration, our ADG team brings together professionals with in-depth knowledge of the industry from across the firm to stay at the forefront of emerging trends, including government relations, human capital, cybersecurity & data privacy, insurance recovery, export controls, government enforcement, and mergers & acquisitions.

We continued to share our perspectives on the industry last year in many forums, from COVID-19 vaccine mandates to developments in cybersecurity regulations to M&A trends. Click here for our thought leadership from the past year.

Finally, if you have not already, we invite you and your team to subscribe to our Government Contracts Navigator blog, where we cover issues of importance to our government contracting community. Unlike other blogs out there, we keep a strong focus on the practical, with our clients’ day-to-day business considerations in mind. Interested in the greatest hits? We have included below a list of the top 10 most read posts in 2021. You can also follow us on Twitter @GovConBR.

Thank you for reading. We look forward to helping you succeed this year and beyond.

Justin A. Chiarodo
Chair, Government Contracts
202.420.2706 | justin.chiarodo@blankrome.com

Please visit our website to read our entire Blank Rome Government Contracts: 2021 Year-in-Review and Look Ahead for 2022.

M&A Dealmaker Perspectives on Transaction Structure and Value

Dean S. Nordlinger*

Recently, I hosted the third session of Blank Rome’s new on-demand webinar series, “Strategically Speaking,” with featured guests Mitchell Martin of The McLean Group and Scott Brezler of Dixon Hughes Goodman LLP bout the key issues that arise in mergers and acquisitions (“M&A”) transactions involving govcon firms. You are invited to watch the recording on demand here; I hope you find it helpful and informative.

Martin has held a number of financial advisory positions with leading investment banks focused on M&A for logistics and defense and government services companies, and is currently the co-head of The McLean Group’s M&A practice, as well as its Defense, Government & Intelligence (“DGI”) practice. Brezler currently heads the Government Contracting practice for Dixon Hughes Goodman LLP and previously served as chairman of the Small and Emerging Contractors Advisory Forum.

Our session includes an informative and helpful discussion, including:

      • A high-level overview of M&A:
          • A seller’s perspective on an M&A transaction;
          • A buyer’s perspective on an M&A transaction;
          • The reality of the M&A process:
              • Time, resources, and money; and
              • Deep scrutiny of a seller.
      • A high-level overview of purchase price (and tracking the value):
          • Identifying and understanding the purchase price component parts;
          • Breaking down the component parts and transaction terms to track value;
          • What a seller gets at closing vs what remains “at risk” post-closing; and
          • What’s the impact of each item/issue on an aggregated basis.
      • Structuring the purchase price:
          • Use of and recent trends in earnouts and impact on value; and
          • Use of and recent trends in rollover equity on value.
      • The impact of acquisition/tax structuring on purchase price and value:
          • GovCon regulations impact on acquisition structure;
          • Acquisition structure impact on transaction value to seller; and
          • Acquisition structure impact on transaction value to buyer. 
      • Weaponizing working capital:
          • Net working capital and impact on overall deal value;
          • Negotiation of working capital (in the letter of intent); and
          • Things sellers do to their advantage, things sellers do to their detriment.
      • Importance of employee incentive plans & retention:
          • “Key employees” as a buyer condition to closing;
          • Negotiation of key employee retention bonuses:
            • Cooperation between buyer and seller on what it should be;
            • Does the seller have any preexisting retention in place;
            • Who bears the burden vs. benefit; and
          • Buyer redirect of purchase price to use as retention bonuses for key employees.

PAST SESSIONS OF STRATEGICALLY SPEAKING NOW AVAILABLE ON DEMAND:

Session I: Navigating the Future of Office Leases with Featured Guests Chethan Rao and Andrew Roberts of global commercial real estate firm Newmark. Watch the Webinar >>

Session II: Pivoting & Positioning Small Businesses for Dynamic (Full & Open) Growthwith Featured Guests Gilbert Dussek of Gunnison Consulting Group and Kevin Robbins of Blue Delta Capital Partners. Watch the Webinar >>


*Dean Nordlinger is a partner in our Corporate practice whose new “Strategically Speaking” webinar series includes discussions with a variety of seasoned professionals and subject matter experts about critical and challenging issues that government contractors and other companies (and business owners) face throughout their life cycle.

Pivoting & Positioning Small Businesses for Dynamic (Full & Open) Growth

Dean S. Nordlinger*

Recently, I hosted the second session of Blank Rome’s new on-demand webinar series, “Strategically Speaking,” with featured guests Gilbert Dussek of Gunnison Consulting Group and Kevin Robbins of Blue Delta Capital Partners about the key issues that growing government contracts firms face in their business life cycle as they transform from small to “other-than-small” businesses. You are invited to watch the recording on demand here; I hope you find it helpful and informative.

Dussek has been a successful high-level operator on both large and small govcon platforms and in 2019 became CEO of Gunnison, a leader in software development, data analytics, and enterprise system testing for leading government customers. Robbins has served multiple roles as a consultant to and an owner/investor in govcon companies and is a co-founder of Blue Delta, a growth capital firm focused on the U.S. federal government services marketplace, particularly technology-enabled solutions and services companies.

Our session includes an informative and helpful discussion focused on:

  • Reviewing Blue Delta’s and Gunnison’s decision to team up:
    • Factors that went into Blue Delta’s decision to invest in Gunnison; and
    • The driving and differentiating attributes that Blue Delta looks for in “investable” target companies
  • Strategically growing from an SBSA to full & open govcon company:
    • Building, scouting, and acquiring talent; and
    • Competitively bidding on and winning, or acquiring, F&O contracts
  • Identifying and filtering acquisition targets and structuring acquisitions:
    • The roles of company culture, chemistry (of personnel), and vision; and
    • Sourcing and valuing target companies
  • Describing Gunnison-Blue Delta’s corporate growth strategy:
    • How Blue Delta thinks about portfolio company construction; and
    • Gunnison’s near-term and long-term visions and plans

*Dean Nordlinger is a partner in our Corporate practice whose new “Strategically Speaking” webinar series includes discussions with a variety of seasoned professionals and subject matter experts about critical and challenging issues that government contractors and other companies (and business owners) face throughout their life cycle.

Fifty Ways to Lose Your Federal Contract Award – Part 1: Failing to Secure Your Key Person Supply Chain

Albert B. Krachman

With apologies to Paul Simon, this is Part 1 of a series of articles on the many ways contractors can lose awards on federal contracts. These cautionary tales should inform anyone in a contractor organization with responsibility for authorizing, preparing, or negotiating competitive federal proposals.

Like a prize-winning recipe, the ingredients for losing an award are well known: one part carelessness, a pinch of greed, and some lack of attention to detail. Throw in a dash of procrastination, a late proposal revision, and then garnish it with an 11th-hour e-mailing of your proposal. Voila—you have cooked up a complete waste of proposal resources! 

We kick off this series with a story of an incumbent contractor who lost a billion-dollar follow-on contract by failing to contractually secure the services of a key person designated in the proposal.

Continue reading “Fifty Ways to Lose Your Federal Contract Award – Part 1: Failing to Secure Your Key Person Supply Chain”

Real Estate Financing in the Healthcare Space: Keep Your Eye on the Ball

Merle M. DeLancey Jr. and Ryan C. Craig*

Over the past couple of months, there have been two important developments that could affect a lender’s decision whether to finance real estate transactions involving entities and individuals in the healthcare field.

Advisory Opinion No. 19-05 (Purchasing Real Estate from an Excluded Party)

In September 2019, the Department of Health and Human Services Office of Inspector General (“HHS OIG” or “OIG”) issued an advisory opinion regarding the proposed purchase of real estate from a company owned and managed, in part, by an excluded individual. The Proposed Arrangement involved a community health center that receives Federal grant funding and owns and operates community health centers enrolled in the Medicare program (“Health Center”). The Health Center sought to purchase the real estate on which one of its community health centers is located. The Company from which the Health Center sought to purchase the property is owned and managed, in part, by an individual who was excluded from participation in all Federal healthcare programs by HHS OIG (“Excluded Person”). Continue reading “Real Estate Financing in the Healthcare Space: Keep Your Eye on the Ball”

Helping Get Deals Done: 10 Tips to Assess Rep and Warranty Insurance Language in Government Services M&A Transactions

Justin A. Chiarodo and James S. Carter

Representations and Warranties (“R&W”) insurance has burst into the market in the last five years and now plays a key role in mergers and acquisitions (“M&A”) involving government contractors. Both private equity and strategic buyers use R&W insurance to improve their competitive position, and sellers benefit by avoiding escrows and holdbacks. In short, it can help get deals done. R&W insurance continues to evolve, and government contracts deals present unique challenges.

Below we discuss the basic aspects of this important insurance product and provide 10 tips for potential R&W policyholders to consider when evaluating policies. Continue reading “Helping Get Deals Done: 10 Tips to Assess Rep and Warranty Insurance Language in Government Services M&A Transactions”

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