Friday, April 10, 2015

Your Tax Dollars Not at Work, Part Deux

I just know that if the first sentence of an essay has the words "government cost accounting" in it, it will be a lot to expect that readers will still be around for the end.  But hold, ye!  I'll make the story short and hope to sustain your interest ... and possibly enrage you at least a little.

Since the days of the $700 hammers, defense contractors have been obliged to keep rigorous records of every penny they spend.  Each cent must be classified into a category, and then is billed to the government, either "directly" (i.e., the government bought a box and that's the cost of the box), or "indirectly" (the contractor's cost of doing business, like rent, erasers, secretaries, health insurance and management).

When the government buys the box, it pays the contractor the cost of the box, plus a percentage that covers those "indirect" costs, plus a tiny profit.  That's the system, and it actually protects the taxpayer from overpaying ... sometimes.

One of those "indirect costs" is the costs of writing proposals which, of course, I do for a living.  The Government puts out a request for, say, five years of IT support at Fort Umpdesquat, or at the Department of Hosiery, and ten companies write proposals that say how well they'd do it and what great people they are and have great processes and stuff.  And they bid a price to do the work.

Ultimately, because proposal writing is an indirect cost, the government ends up reimbursing the contractors.  Not directly, penny for penny, but inside the percentage(s) that are added on when they do win something.  So yes, we do pay for that.

There is a 465-pound set of regulations that govern the Feds buying stuff and buying services.  It's called the "FAR", for "Federal Acquisition Regulations", and it covers a lot.  But it doesn't always get followed, particularly when it encourages communication.

Generally after I'm done writing a proposal, I move on and forget about it.  I'm not going to be asked to work on the program if it is won, since I'm not an employee of any of my client contractors.  But I just heard about one that my client lost, and it's head-shaking.

During the six weeks of writing the proposal last fall (and over Christmas), my client repeatedly asked the customer (the agency shall remain nameless, but its initials are "United States Air Force") about how many staff members were thought to be required.  We knew how many were currently working for the contractor whose contract was expiring, and the number had been slowly drawing down.  Was there a budget telling the customer that for the next three years they'd only be able to afford 2/3 of the current staff count?

The United States Government wouldn't say.

"We cannot tell you how to do your proposal" was the answer.

So now we find out that the incumbent contractor was awarded the new contract, and that they bid 30% fewer staff members than we did, 30% fewer than they themselves had working there.  Asking around to other contractors (you can't do that till after the award), we find that the incumbent bid 30% fewer staff members than every other bidder, not just my client.

Well, gee, how did they know to do that?  Because as incumbent, they knew that the budgets had been cut -- something that the customer refused to tell us, or answer questions about during the proposal process.  So the incumbent knew how many technical staff members were affordable.

Hmmmmm.   So by not telling the competitors, they ensured the incumbent would win.  Intended or not, they ensured that, since the difference in price was so great, a much better quality proposal offering a much better solution would not be considered -- if a losing bidder had known about the price ceiling, they (and the other eight losing bidders) might have gotten a lot more creative coming up with a not-as-good-but-affordable-in-the-new-budget solution.

But here's the thing ... based on the typical cost to do a proposal, the losing bidders wasted as much as $12 million in proposal costs on bids that they could not win.  That money was actually spent, and will, eventually, get charged to the Government as indirect costs on programs that are won.  Moreover, it came out of finite corporate budgets, meaning that by bidding on this unwinnable opportunity, they could not bid on a possibly-winnable opportunity, over here at this other agency.

Boys and girls, this crap happens all the time and there is a cost to it.  There's also a cure.  Contracting officers of Federal customers need to have free-flowing, open conversations with industry about their budgets and about ongoing work.  "We cannot tell you how to write your proposal" is an offensive answer to reasonable questions asked by contractors who deserve the same level of knowledge as incumbents already have.

It's really simple.  Stop hiding and talk to industry.  The taxpayer deserves it as much as industry does.

Copyright 2015 by Robert Sutton
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  1. So how, exactly, does what the government does differ from insider trading? I can't tell you how often we ignore RFPs because we assume they are wired for the incumbent.

  2. Not terribly different, Anon. RFPs often ARE wired for the incumbent, and sometimes it's even in the best interest of the government not to change contractors. I get that. There are, of course, differences in that insider trading is definitionally corrupt, while wired RFPs are most often for the government's convenience. I prefer that in those cases, the government find a way to avoid running up the tab of contractors not privy to the same information. Good question, though, and thanks for reading.