Performance Outcomes: Judgment Day is Coming

So Fiscal Year (FY) 2011 is now in the books, and the new government FY 2012 begins. I don't think anyone can argue that this end of FY was one of the most challenging end of FYs in recent memory, with budgetary issues and Continuing Resolutions adding to a sense of doom in industry, if not outright confusion and desperation in most government procurement shops. Many of the acquisition divisions at federal agencies did not have a clear sense of what the budgets and fiscal environment for the rest of the year would be, thanks to a dysfunctional political system and a Congress willing to sellout stable government operations in the name of political sensationalism and outright partisanship at the expense of the nation.

From what I have seen over the last few months and winding up this FY, coupled with the bleak fiscal horizon in the next few years, government operations are in serious trouble. Frankly, if you think government operations are bad now, you ain't seen nothing yet. The Government Accountability Office, Office of Management and Budget, and other watchdog groups and organizations can expect their workload to increase to the point of trying to move a mountain with a shovel.

One only need taking a look at what is happening with alarming regularity, and will no doubt continue as the government continues to find ways to save money and reduce the amount of contractor support and contracted dollars; low price is the only price.

Granted low price, despite illusions of "best value" has always been around, things seem to be spiraling out of control. I have seen with alarming frequency contracts be awarded to low-priced bids, at prices that are ridiculously low compared to both other bidders and government estimates. Sometimes 20% or more below. So much for price not being the most important factor. Price reasonableness and realism? Looking at the bottom-line figure is not enough. Sometimes performance costs money, and should actually save money in the long-run. That is a concept seemingly lost on procurement officials right now.

Although "buying in" is a prohibited practice according to the Federal Acquisition Regulation, it has now become a sanctioned activity. Expect to see many more fixed priced contracts, despite the requirement, in addition to modification after modification. Performance will be an afterthought, as multipliers in industry (the final amount that a contractor bills the government for a dollar of labor, often referred to as “loaded” cost) get lower and lower. Anything less than 2.4 is considered inexpensive; with 2.4 – 2.7 the norm and anything greater than 2.7 considered expensive. I have heard of firms lowering their multipliers to 1.9 to be competitive. Competitive? How can you be profitable?

Size is the answer, as only very large firms can absorb that type of contract strategy. Make it up in volume, and the modification circus that poorly written and "cheap" contracts is also another outcome. This strategy simply decreases competition, especially for small businesses, and will result in even further poor contract performance. Just what we need. Forget about even developing proper requirements, as that is now a cost driver.

So how to you staff these contracts if you are "lucky" enough to win a contract? Answer: on the cheap. Hire know-nothing consultants straight out of college or inexperienced staff to support the requirement, pay them rock-bottom salaries with little if any benefits, and put them through the sausage grinder for a couple of years. Repeat the process. How will government get any decent performance? The current environment and abilities of the acquisition workforce are not conducive for governance and oversight as it is. Now you're going to expect them to provide even more?

Industry: How are you planning to succeed in this environment? What adjustments are you making? What experiences have you had in this "new" low-cost paradigm?

Government: What are you doing to ensure performance with such a low-price? What price reasonableness and realism checks are being done? What technical acceptability checks are being done?