Before GSA awards a contract, it will either look at your D&B financial report or review your submitted financial statements. Many ask what is GSA looking for, and often times it seems somewhat subjective depending on the CO, however here are some rules of thumb:
Current Ratio (current assets divided by current liabilities) - looking for something over 1.0, and generally between 1.33:1, but we have seen anything over 1.0 accepted..
Quick Ratio - generally look for a 1:1
Debt to Equity Ratio (total liabilities divided by total equity) - GSA generally looks for a ratio between .72 and 1.11
Generally GSA looks for annual sales growth over a 2-3 year period
GSA is looking for:
If you have any financial issues or liquidity issues, these need to be explained.
If your financial do not look that positive (i.e., similar to above), you may want to consider obtaining a line of credit equal to the estimated contract value of the GSA contract you will be seeking. In this case, the an irrevocable letter of credit from a bank. The amount varies but at least $125,000 would be minimallyminimally desirable. Again, that is only one way to get around problem liquidity issues. If your firm does not have negative issues, then a letter of credit is not needed.
The above are rules of thumb only and firms with weaker financial have obtained a GSA contract. Contact TurboGSA if you have any questions or concerns about whether your firm may qualify.
Initially, the GSA CO or contract specialist will plug key information from the previous two years financial statements into a financial calculator they have devised and look at some key ratios. There are no hard and fast rules but they do look for red flags and make a judgment as to the riskiness of the firm.
For example, they will look at the current ratio and it needs to be higher than 1.0; the higher the better but anything over 1.4 would be really good. They will also look at the Debt to Equity ratio and profit margin. And of course they do not want to see negative equity.
They may also look at D&B’s comprehensive financial reports for a firm to see how D&B has rated the firm’s risk factors. The problem is that many small, privately held entities do not provide D&B with their financial information, which casts a doubt onto D&B ratings.
If the CO is then unsure of the financial stability of a firm, then they can refer it to the GSA Financial Analysis office in Kansas City. That office will require a completed SF-527 and a bank reference from the firm’s bank. If Kansas City gives the OK to the firm’s financials, then the CO can proceed. If Kansas City does not give an OK, then the CO would be hard pressed to award the contract.
At that point, assuming the CO would otherwise award the contract, the offeror will be offered the chance to withdraw the offer and resubmit when the financials are stronger, or go through SBA ‘s Certificate of Competency process, which takes another 30 days (and is often grueling). If SBA approves the COC, then GSA must award the contract (again, assuming all other responsibility determinations have been made).
Hope this helps clarify the financial responsibility assessment GSA goes through.