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Resolution #8: We Will Finance Our Business More Effectively

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By Timothy J. Duggan, Senior Vice President, SunTrust Bank Technology & Government Division

Managing Loan Covenants – Some Best Practices to Consider

Loan covenants are often an important part of your Bank’s credit agreement. While at one level covenants may seem to be a nuisance, they are frequently a necessary part of the deal that delivers to you inexpensive and relatively flexible access to debt capital. Rather than thinking of them as a nuisance, negotiating covenants can be used to your advantage to build a better relationship with your bank by helping the bank to develop a deeper understanding of your business objectives. For this reason it pays to give some thought to how to manage them from creation through monitoring, reporting and of course compliance.

When negotiating your credit agreement, keep in mind that most bankers use covenants not as litmus tests but as road markers on the path you originally projected your business to take. Take the time to be sure your banker knows what your business objectives are and how the requested credit facilities will help you achieve them. Discuss variables that could impact your Profit & Loss statement and balance sheet during the life of the facility, as well as any resulting impact on covenant levels (sensitivity analysis). Against this background, work proactively with your banker to develop covenants that make sense to both of you (reasonable and achievable for you, meaningful as a risk management tool for the bank). Ask your banker questions: Which covenants are most important to the bank? Why? How would the bank react to a covenant violation? The idea is to create a framework of understanding by both parties about what is important, what variables could affect covenant compliance, and try to develop an understanding of what reactions to expect.

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Resolution #8: We Will Ace Our Next GSA Schedule Compliance Report Card

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Now more than ever, the General Services Administration (GSA) relies on Contractor Assistance Visits (CAVs), and the resulting compliance report card, to measure how well GSA Schedule contractors manage and comply with contractual requirements. CAVs are performed regularly, usually annually, by an Industrial Operations Analyst (IOA) to test contractor compliance with their GSA Schedule contract terms and conditions. Contractors with failing grades may be putting their contract in jeopardy of cancellation or non-renewal. The CAV is designed to provide contractors with helpful feedback on how they are managing the many obligations that come with holding a GSA Schedule contract.

Like most “tests”, knowing the material results in good grades. The best way to prepare for your CAV is to be able to answer the questions on the Contractor Report Card. A sample report card can be found at: http://vsc.gsa.gov/reportcard/reportcard.pdf.

Following are the most important questions the IOA will be reviewing for compliance:

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2010 Resolution Recap

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During the first weeks of 2010 we shared our second annual “New Year’s Resolutions” for government contractors to get on track, get in compliance, and get ahead.  Did you catch it?  If not, don’t worry – you can access the 2010 and 2009 resolutions under Categories: New Year’s Resolutions.  While you’re here, subscribe to our Fed Point RSS Feed – and have the news delivered directly to you! (Click here to learn more about RSS).

Here’s a 2010 resolution recap:

  • Resolution #1: We Will Avoid Jeopardizing Contract Awards by Getting Our Accounting System Approval–Ready
  • Resolution #2: We Will Complete Required Contract Reporting Accurately and On-Time (Subcontractor/ Stimulus/ VETS100/ eVerify Reporting)
  • Resolution #3: We Will Assess Our Tax Risks and Support Our Tax Accounting Positions
  • Resolution #4: We Will Review our Pricing Annually to Avoid GSA Schedule Price Reductions Ramifications
  • Resolution #5: We Will Ensure our Compliance Program is Robust Enough for Government Work (Code of Business Ethics and Conduct)
  • Resolution #6: We Will Eliminate Redundant Work and Erroneous Reporting (Deltek)
  • Resolution #7: We Will Stay the Course and Protect Our Most Valuable Assets to Ensure Long-Term Success (Insurance)
  • Resolution #8: We Will Finance Our Business More Effectively – Best Practices for Managing Loan Covenants
  • Resolution #9: DCAA Hot Button – Bonuses
  • Resolution #10: We Will Be Ready for the Inevitable Government Contracting Economic Crisis

Looking for more information or assistance implementing any of these items?  Contact Aronson & Company – Hope Lane, Lead Officer, Government Contract Consulting Practice at 301.231.6266 or Pete O’Neill, Officer, GSA Schedules Group at 301.222.8226.

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2009 Resolution Recap

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During the first weeks of 2009 we shared our “New Year’s Resolutions” for government contractors to get on track, get in compliance, and get ahead.  Did you catch it?  If not, don’t worry – you can access the resolutions under Categories: New Year’s Resolutions.  While you’re here, subscribe to our Fed Point RSS Feed – and have the news delivered directly to you! (Click here to learn more about RSS).

Here’s a resolution recap:

  • Resolution #1: We Will Strengthen Our Employment Eligibility Verification Procedures (updated!)
  • Resolution #2: We Will Actively Monitor Our Contracts for GSA Price Reductions
  • Resolution #3: We Will Pass Our Next DCAA Review of Our Internal Control Systems
  • Resolution #4: We Will Meet Our Subcontractor Reporting Deadlines – embrace the “e”, save a tree!
  • Resolution #5: We Will Upgrade Our Deltek GCS Premier to Version 5.0
  • Resolution #6: We Will Embrace Federal Opportunities (Nurture Your Network!)
  • Resolution #7: We Will Not Have a Single Ethical or Compliance Failure in 2009!
  • Resolution #8: We Will Ace Our Next GSA Schedule Compliance Report Card
  • Resolution #9: We Will Return the Favor to Our Bank (Financial Presentation)
  • Resolution #10: We Will Know Our Competition By Thinking of “ET” (Competitive Intelligence)

Looking for more information or assistance implementing any of these items?  Contact Hope Lane, Partner, Government Contracts Solutions Group at 301.231.6266 or hlane@aronsoncompany.com.

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