The changing world of government contracting

Much has been written and said about government contractors recently. When I started in the field I came out of over 20 years of commercial business and was astonished at how the large government contractors were operating. At the time I worked for one of the big five contractors to the US Department of Defense (DOD). The wars in Afghanistan and Iraq were at there height and the DOD was throwing money at all types of contractors, large and small. I was at the time a district sales manager for a large plastic extrusion company and also a member of the Army Reserves. I was mobilized to active duty and sent to the Pentagon. After two years, as my active duty time was coming to an end, I was offered a job with a contractor and decided to take it, my company had gone through several changes and had just been bought by a foreign company. I started out as a direct labor individual contributor, in other words I was doing what I did on active duty only in civilian clothes. I was soon also put in charge of a small part of the team and then deputy project manager and ultimately I became the Program Manager of a different contract. I began to get more and more involved in the business of contracting versus the delivery of services to the government, and this is where I started to get a true education.

When I got to look behind the door I realized how different it was selling service to the government from selling to private industry. I then realized it should not be that different. The problem was that for most of the time the business was growing, it had little or nothing to do with the management of the contracts or business. The government needed bodies and the fast way was through contractors. Basically all a company had to do was produce compliant proposals and they would be assured of winning enough of them to make money. The problem with this was, that as successful as it was for the time, it was not a sustainable business model.

Those of us who have been in business long enough accept the fact that all businesses go through cycles.  As always happens the customer base begins to shrink and competition became an actual fact of life. What was once an asset, the senior leadership in these companies were, for the most part, retired or former military officers and government executives.  While these people understood the customers’ requirements, needs, and desires, they did not always appreciate the requirements, needs, and desires of business. I had many discussions the need to increase the margins on a contract and was told by one senior director “I don’t care about profit I am here to continue my service to my country.” Another time I asked a VP of Operations what the corporate minimum fee (profit) was, he said he did not think there was one and it depended on the contract (I later found out it was 8%). I suggested at one time we be careful about the salaries we were hiring at since we may be in trouble in the future when the salaries exceed the rates the customer is willing to pay. I was told that I was to interested in profit and that they would continue to grow by providing the best of the best and the customer would be willing to pay for the services.

Government contractors now find themselves in a strange new world. Due to reduced requirements and reduced budgets the customer is looking for lower numbers and lower rates. To be honest the government still wants the best of the best of the best, but wants them for up to 50% less than before.  The government continues to declare that they are looking for best value in a contractor but continue to issue contracts based on what is known as Lowest Price Technically Acceptable (LPTA) criteria.  Again to be honest the requests for proposals are in some cases released as LPTA. 

This is causing great confusion in the Business Development offices of companies large and small. In Corporate America there are a number of ways to adjust to a downswing in business. Proctor and Gamble for instance is reducing the number of products offered based on profit.  Others sell off lines or purchase smaller companies that will get them into a new market. Others merge to survive. Many of us remember when Lockheed, Martin, Northrup and Grumman were all separate companies. Some reorganize to reduce the number of middle and senior managers. Jack Walsh was famous for firing the lower 10% of his managers regardless of performance.

What does the contractor do? Much the same is the answer. Following inflated rates which inflated salaries the contractor is left either to reduce salaries and try to keep the long term employee or reduce the work force and replace the old with newer lower paid personnel. This last is usually the result and is not generally received well by the customer.  Some of the larger companies can cross finance to keep senior personnel on the customer’s site, but not for long. Smaller companies do not have this luxury and must work through the problems or be swallowed up by larger firms.

The world of government contracting is changing faster than many companies can adjust. That is why companies such as mine, JANUS Think, have come into existence.  Most companies are better at providing service then trying to understand the changing requirements of the customer, customers who do not themselves understand the changed. A company must be willing to accept the fact that they may not have in-house expertise on all matters. They may also come to realize that ii is more cost effective to hire consultants then retain personnel who in effect are not always fully utilized or burden personnel with excessive requirements that keep them from doing their actual jobs.

Paul Davis is the founder of JANUS Think dedicated to helping business expand and grow. Named for the Roman god of beginnings and transitions we will help you open doors to the future but keep you rooted to your values. With over 25 years of business experience JANUS Think can help you write effective marketing plans and wining proposals. We will always listen to you but will not be afraid to give our advice and the reasons for them.

Veteran owned and operated



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