I had lunch today with a former student who graduated from the Master in Public Policy program almost 20 years ago, served for many years in government working in the Defense Department (he had served in the Army before coming to the Kennedy School). He now is a manager for the aerospace practice of a consulting firm that works mostly for commercial clients, but has done a little government work.
I say "has done" because the company has now decided basically to stop competing for federal government work.
During the last year, the company has competed for two federal contracts, one defense and one civilian, both fixed-price and both competitive ( this was not sole-source business). In both cases, although the contracts were fixed-price competitive contracts, the company was required not only to provide a price but also to provide a cost "build up" explaining the underlying cost structure that had produced its price.
The former student noted that his company's labor rates for government business were already l5 percent under its rates for the same labor categories for commercial customers. Add on the hassle, oversight and second-guessing for a cost buildup for a competitive fixed-price contract, and his firm has concluded it's just not worth it.
This is a theme I raised in my post on the IBM suspension last week. This example suggests a reversion to practices that were abandoned when the government was trying to encourage predominantly commercial firms to compete for government business.
Why is this happening? Government contracting officials are afraid that, if they don't get this cost data, they risk attack from their inspector general, the media, or Capitol Hill for some purported contractor rip off, even though profit is not supposed to be an issue for competitively awarded fixed-priced contracts (do we as consumers get cost data on toothpaste or cosmetics?).
This kind of development is a threat to quality, customer service and competition in federal contracting. If the goal of the fear industry is to have only the Lockheeds and Northrups of the world bidding for government business, the current approach makes a lot of sense. If, on the other hand, we would like the mainstream of U.S. industry to compete for government business, current trends are a move in the wrong direction.
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