COMMENTARY

The hidden cost of strained government/industry relations

Jaime Gracia is president and CEO of Seville Government Consulting, a federal acquisition and program management consulting firm. He is also the industry chairman of the Better Government IT initiative, a joint effort by the American Council for Technology/Industry Advisory Council, the Office of Management and Budget, the Office of Federal Procurement Policy, and the General Services Administration to improve government/industry communication and collaboration in the IT acquisition process and implement items 24 and 25 of OMB’s IT management reform plan.

The clouds and storms that rolled into Denver during the National Contract Management Association’s World Congress in July were harbingers of things to come for the week as the relationship between government and industry seems to continue a downward trend at a time when it needs to improve. However, the current adversarial atmosphere was on full display at the conference and illustrated the difficulties that lie ahead in improving and creating an environment of productive communications.

The conference kicked off with an address by Linda Hudson, CEO of BAE Systems, who explained the difficulties that businesses currently face and the troubles that are on the horizon. A panel session immediately following the speech was aptly titled “Show Me the Money: Corporate Survival in Tough Economic Times.”

It is simply a fact that budgets will shrink or remain flat for the foreseeable future, and businesses must adjust to this reality. However, another reality is the ever-increasing pile of regulations, oversight and scrutiny that contractors must continue to deal with. Consider the new ethics regulations, numerous reporting requirements and ever-increasing mandates on security. Contractors must comply with this new environment and the subsequent increases in costs of doing business. There simply is no choice: Either comply or fold.

The emphasis on compliance and increasing oversight — with more likely to come in the future — creates choices for industry in how to remain competitive. These choices will result in increasing layoffs, scaling back of benefits, decreasing small-business subcontracting opportunities, and a restructuring of the industrial base to remain viable and profitable.

Further exacerbating the issue is the continued focus on risk transference to industry through more and more focus on fixed-price contracts, regardless of requirements. Because requirements continue to be inadequately defined, the result is increased costs to both industry and government in time and money to adhere to a construct that should have never been developed in the first place. This leads to industry having to continue readjusting its pricing strategies to remain competitive through bids that go lower and lower until margins are razor thin and profitability suffers even more.

I was disappointed with how Steve Kelman portrayed conference discussions in his Federal Computer Week blog. He seemed to ignore the fact that industry is facing the most difficult period in some time and will continue to suffer. He barely mentioned the vulnerability of small businesses, which will face fewer opportunities and even more risk through insourcing. This issue was barely addressed by the panel or Kelman, a significant deficiency that I raised via a question to the panel, but it did not get answered. Comments like Kelman’s and the environment he describes illustrate the work ahead.

The key to working in this environment productively is increased and transparent communications between government and industry and an understanding that both sides have the same objective: completing a mission on time and within budget. However, that reality and the current environment for industry seem to be lost on government, and the tone at the NCMA conference exacerbated the “us vs. them” attitude.

Both sides need to understand the mission from the other side’s perspective and recognize the ways in which new regulations and other actions can affect efforts to complete that mission. This is of vital interest to effective government management, and deteriorating relationships will make getting the job done much more difficult for all parties in the challenging times that lie ahead.

Reader comments

Fri, Oct 7, 2011 Dave Virginia

I've been contracting to the federal government for 34 years. The reappearance of CPFF contracts is disturbing as it only serves to further distance the government/private partnerships that are now a part of our infrastructure. CPFF contracts cause increased, and unnecessary government oversight ranging from COTR's objecting to specific staff salaries on contracts to taking 10 years or more to close out CPFF contracts. The CPFF contract form was never envisioned to be one of first resort for non-critical, non-time sensitive procurements. Over the years, it became a first choice of agencies. Then, in a burst of rationality, that arcane and outmoded form of contracting was declared to be a "last choice" by the President of the United States. However, many contracting officials blatantly ignored this directive and continued to issue Cost Plus contracts. So, the government will be unnecessarily paying for costs which it should not pay and will be employing thousands of government employees to oversee this unneeded form of contract.

Thu, Aug 11, 2011 Bob Coleman San Diego

I'm an old guy and I have watched this adverserial attitude morph from warm hugs to concealed carry. I remember the days when a few companies which already possessed the core competencies to fulfill a requirement were downselected to one winner that got all the marbles from R&D to development to fielding and all the follow-on additions and modifications. Then small businesses were given advantages to grow the field of competitors and aid in national technology and industry goals. When this got out of hand with too many bidders causing delays and unexpected costs even before contract award, the government moved toward an ID/IQ strategy. This created "clubs" limited to potential winners... a sort of poor man's sole source strategy. Newcomers were essentially cut out of the loop for many programs, happy for crumbs from the ID/IQ list of companies. Playing favorites was back in vogue. Budget cuts have always been with us, but the current administration has turned this into an art form. And the recent debt ceiling debacle has set up defense for hitherto unknown levels of cuts. (A Committee taking effective action to make cuts eleswhere? LOL... If you believe that please contact me. I have a really good deal on a bridge for you.) After 41 years working in defense in and out of uniform, I'm going to spend my remaining years using my skills, expertise and experience in the civilian sector. There isn't much future left in defense acquisition, at least for the foreseeable future.

Wed, Aug 10, 2011 randy

Good points, Jaime. FFP contracts are fine IF requirements are clearly scoped. As you suggest the government struggles with this and, as such, the risk is transferred to the contracting community. Good communications and partnership are critical, now more than ever, to accomplish the mission on behalf of the taxpayer in an efficient manner that still allows companies to earn a fair profit for services rendered.

Wed, Aug 10, 2011 Jim Michigan

Hooray on the comments about long term firm fixed price contracts! In a time of extreme price volatility in the commodity markets, industry has no choice but to quote very high to protect themselves against rising raw material prices. The government ends up paying more for goods because of this contracting policy. We won't quote long term firm fixed price contracts any more after being burned by costs rising faster than inflation factors.

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