The Homeland Security and Defense Business Council recently released The Business of Homeland Security report authored by Grant Thornton that’s part of the 20/20 Project on the Homeland Security Enterprise. The report is based on a survey conducted last summer (2017) of current and former DHS officials as well as industry representatives. The report listed numerous findings about what is getting in the way of more effective acquisitions including:
- Government expects innovation, but there is no consistent understanding of what is meant by ‘innovation’
- An apparent assumption exists that innovation is always necessary when in fact it is not
- Industry lodges too many protests
- Acquisitions need to happen significantly faster than they do given the pace of technology change, threats, etc.
- Government continues to effectively use lowest price technically acceptable (LPTA) as a key evaluation factor even when not overtly specified
- Communication from government Contracting Officers handling acquisitions is inconsistent and tends toward less transparency than more
- Industry continues to not understand what government wants, ask for too much detail in requirements, and submit unrealistic lowball prices
These concerns are, I believe, well known to most government and industry leaders who deal with acquisition and contracting issues. One particular point raised in the brief report especially caught my attention:
Some government participants additionally said industry sometimes comes across as being about “money first, not mission first,” and industry too often behaves as if it holds business interests (read: profitability) as its only goal. While profitability is a business reality, government participants want to see [Industry] apply appropriate focus on mission achievement. This includes “delivering the right people, as opposed to the most profitable people,” to meet government needs. [emphasis added]
I couldn’t agree more! The problem is, government absolutely has to do a better job of asking for “the right people” than it does today.
For the sake of those on the government side, let me explain how this part of the black box often works on the contractor side. I’ll note right up front that AEGIS and many of our closest partners routinely lose bids on price because we believe in bidding “the right people” even though we know many competitors follow the following rough formula:
- Get the government to provide job category descriptions, ideally as vague as possible avoiding mention of college degrees, professional certifications, years of specialized experience, and so forth. Even better is when it’s not explicitly required for the personnel to be located in a particular area like the Washington, DC metro.
- Avoid requirements for specific program experience in a re-compete of existing work. That makes it way too hard for a lowball competitor’s offer to steal the work of a team that’s been doing an excellent job at a fair price on the current contract.
- Use salary surveys to determine the lowest salary acceptable for meeting that requirement. I.e., commoditize the job category and frame the acquisition of people just like paper clips.
- Apply internal formula for calculating the “wrap rate” that covers that salary with benefits and delivers the target profit margin.
- Bid those rates with a plan to hire people at the required salary (or lower if possible) post-award.
- After award, when those people prove to be not adequately qualified for the actual work needed by the agency, argue with the CO for a contract modification to allow higher rates. If not, fall back to the letter of the solicitation and contract and tell the government, “We’re delivering exactly what you asked for.”
Yes, it’s sad but true – the model plays out every day in federal government contracting. Many (most?) government procurements (and some private sector ones for that matter) play right in to this approach. And when the dust settles officials complain industry didn’t give them “the right people.” My guess is that if they revisit the bids and look at the ones they rejected because the price was a little higher, and maybe even a lot higher, that’s where they’ll find “the right people.”
The reason is “the right people” in most cases cost more than the minimally qualified people, because the right people are getting paid a certain salary that they expect will continue and they would like to maintain a certain quality of employee benefits. They’ve invested time and effort in making themselves better than average, much better in many cases than their peers and they know there is an associated market value. When you think about a procurement in terms of real people you want to end up doing the work, it’s impossible to ignore these basic economics. My guess is that many contractors have similar cost structures (with the possible exception of the quality of employee benefits offered) and similar profit targets. And for most contractors, believe it or not, those profit targets are not unreasonably high contrary to the stereotype. If that’s right, it means the primary explanation for differences in rates is the total compensation of the people the contractor intends to place on the job. In turn, the difference in compensation will mainly be explained by experience, education, and the soft and hard skills displayed by the personnel. The minimally acceptable ones will be at the lower salaries, generally speaking, while those who might be considered the “right people” will be higher to some degree and demanding better benefits – moving to employers who offer those things as necessary.
The bottom line is that if the evaluation process for offers doesn’t have a way to give extra consideration to the bids with the “right people” then the concern noted above will remain a problem. It boils down to the basic truth: you tend to get the outcomes you incentivize. When you effectively incentivize price, even when you frame it as the least important evaluation factor, you’ll get a low price. Incentivize “the right people” and you’ll probably get that instead.