When times are leaner for the government, it should be safe to assume that times are leaner for government contractors, too. However that is not always the case. In fact, the us vs. them undercurrent that is often present between contractors and civilian employees is growing thanks to financial pressures on the federal government. The current budget dynamic can make government officials suspicious of industry motives.
The tension heats up when CEO compensations increase, and government contractors face another year of pay freezes. When government officials see contractors’ profits increase during a time of continuing resolutions and sequestration, it is easy to assume that any increase in contractor efficiency is not being passed on to the government with a decrease in cost.
Some industry CEOs understandably perceive increased government scrutiny as a “war on profits,” and even one general understands the irony of defending capitalism, while also wanting to control profits and costs of services and products. Contractors are dependent on government contracts, which are paid for by taxpayer money just like federal employee salaries are paid by taxpayer money. This dependent relationship means that defense contractors do face a level of scrutiny over profits that they would not face with a different client.
In a climate where government is growing and the spending is freely flowing, scrutiny of profits is not a factor. Earmarks also regulated how much profit some contractors were able to make. With today’s changed climate when it comes to government spending, the question is being asked – how much insight should the government have into the actual cost and profits of its contractors? Especially when the more insight the government has, the less it looks like a free market.
If industry has an incentive to save the government money, it will happen. One option is to increase the opportunities for small businesses, with reduced overhead costs, to compete for government contracts. Incentive-based contracts could also move us in the right direction.
Some movement has been made towards contracts that are favorable for the government, but this simply swings the pendulum too far in the other direction. Both government and industry need to focus more on a partnership, rather than lobbing grenades over the fence at each other. If a company can find efficient cost savings that can be split as a return to the government, they should take advantage of this. It helps secure a relationship with a key customer and also reflects well on contractor evaluations…much more so than an evaluation that reads “multiple cost increases and period of performance increases.”