the lectern banner

By Steve Kelman

Blog archive

Is the government getting aggressive on vendor prices? (Round Two)

During the economic crisis of 2008-2009, I wrote a number of blogs and columns (and also discussed at speaking engagements) the need to urge the government to seek price reductions in existing contracts and to be more aggressive about seeking discounts when new contracts were awarded. In one column, that I must admit went over like a lead balloon, (one commenter asked what I had been drinking when I wrote it), I urged defense contractors to accept a temporary 1 percent reduction in prices for weapons in production and 10 percent for spare parts. In general, I think the government response to this suggestion was underwhelming.

Look, what I was proposing was exactly what was happening at the time in the commercial world, in deals between private buyers and sellers.  A good Washington friend had commented to me that bids for renovating his apartment declined noticeably after the economic crisis set in.  The media at the time was filled with stories about big companies seeking to re-open lease rental rates and other prices. I remember myself at the depths of the crisis going from counter to counter at an airport rental car center seeking discounts off best published rates – and ended up getting discounts negotiated on the spot. This is not “anti-vendor,” or anti-good relations between government and industry, it is part of how the world works. (When the economy is tight, do vendors hold back from being aggressive on price in the name of industry-government cooperation?)

At any rate, I see from a story in this week’s Federal Times, with the in-your-face title “Agencies Press Vendors to Cut Prices – Or Else,” that this issue has re-emerged, now in the context of the budget deficit and shrinking agency budgets. The article began with the brief anecdote:  The Equal Employment Opportunity Commission had been paying $800,000 last year for hundreds of BlackBerry smart phones. Then the commission’s IT budget was cut by almost 15 percent. The agency pressed Verizon for some concessions it needed to maintain the service, and the company agreed to bundle cell phone minutes, scrapped underutilized phones from the plan, and moved employees to voice and data plans that would accommodate their phone use.  The EEOC cut its costs by $240,000 for this fiscal year.

The article goes on to cite other examples, all driven by budget cutbacks where the agency simply doesn’t have the money any more to buy what it was buying at the same prices, of mid-contract renegotiations and greater aggressiveness on re-competes.

Of course this isn’t pleasant. In some situations, industry profit margins are already cut to the bone, so, like everything else, this shouldn’t be one size fits all. (My guess is that hourly labor rates for some labor categories may be a fairly ripe target for discounting, especially since the discounting off of General Services Administration schedule rates or Indefinite Delivery, Indefinite Quantity contracts can be temporary.) If agencies do this, they should also be giving significant past performance credit to vendors who are willing to understand the government’s situation and step up to the plate – this shouldn’t be punitive, and should provide an opportunity for vendors to show their support for their government customers.

The bottom line is that this is something contracting offices should be looking at aggressively.

Posted on May 16, 2012 at 12:09 PM


The 2015 Federal 100

Meet 100 women and men who are doing great things in federal IT.

Featured

  • Shutterstock image (by venimo): e-learning concept image, digital content and online webinar icons.

    Can MOOCs make the grade for federal training?

    Massive open online courses can offer specialized IT instruction on a flexible schedule and on the cheap. That may not always mesh with government's preference for structure and certification, however.

  • Shutterstock image (by edel): graduation cap and diploma.

    Cybersecurity: 6 schools with the right stuff

    The federal government craves more cybersecurity professionals. These six schools are helping meet that demand.

  • Rick Holgate

    Holgate to depart ATF

    Former ACT president will take a job with Gartner, follow his spouse to Vienna, Austria.

  • Are VA techies slacking off on Yammer?

    A new IG report cites security and productivity concerns associated with employees' use of the popular online collaboration tool.

  • Shutterstock image: digital fingerprint, cyber crime.

    Exclusive: The OPM breach details you haven't seen

    An official timeline of the Office of Personnel Management breach obtained by FCW pinpoints the hackers’ calibrated extraction of data, and the government's step-by-step response.

  • Stephen Warren

    Deputy CIO Warren exits VA

    The onetime acting CIO at Veterans Affairs will be taking over CIO duties at the Office of the Comptroller of the Currency.

  • Shutterstock image: monitoring factors of healthcare.

    DOD awards massive health records contract

    Leidos, Accenture and Cerner pull off an unexpected win of the multi-billion-dollar Defense Healthcare Management System Modernization contract, beating out the presumptive health-records leader.

  • Sweating the OPM data breach -- Illustration by Dragutin Cvijanovic

    Sweating the stolen data

    Millions of background-check records were compromised, OPM now says. Here's the jaw-dropping range of personal data that was exposed.

  • FCW magazine

    Let's talk about Alliant 2

    The General Services Administration is going to great lengths to gather feedback on its IT services GWAC. Will it make for a better acquisition vehicle?

Reader comments

Thu, May 17, 2012 OccupyIT

The sad fact is that the USG has no means to recognize any sort of 'partnership' with vendors. It simply doesn't happen when push comes to shove (that is everytime now). In this compettive environment vendors are buying work with deeply discounted rates that aren't sustainable and COs aren't doing their due dilligence. The FAR says it is in the interest of the USG to ensure fair and sustainable pricing. This is largely ignored for the 'crack fix' they should know isn't real. You get what you pay for and the USG is paying for future pain with this myopic focus on labor rates and discounts. Only overall cost for an SLA should be considered but performance-based contracting is beyond the maturity level of most requiring offices, sadly.

Thu, May 17, 2012 PK Alexandria, VA

Interesting that they view this as "price reductions" when, in fact, it appears that they decided to buy smart! Buying "one-size-fits-all" cell phone/data plans makes no sense when it's clear that there are "power" users of the devices and those that only use it for email. Vendors aren't going to offer alternatives unless asked!

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above