The True Cost of Government Contracting

We can do better than McDonald’s, right?

The military deserves to work with the brightest, most passionate, and hardest working people in the world. Most of the smartest, most passionate, and hardest working people I know, hate the idea of working for other people, and would rather start their “own thing”. We call these collection of “own things” — startups.

Systems and Registrations

Entire companies are built on teaching people how to register to work with the federal government. There are enough segmented systems and access points that the process can consume more than a commercial company might pay for your entire product or service. These amount to institutional barriers to entry. At least one time I was offered a service to get a contract with the federal government where, for the benefit of getting a first contract access point, I would end up taking a net loss on the value of the contract plus losing a percentage of future awards. For a small business these can be non-trivial amounts, $50,000 — $60,000 in investment to *hopefully* get a contract in that amount to pay for the services, with no guarantees (this is notional, but real, some are less, some are more). Usually there is some follow-on retainer that keeps the engagement at $5,000 or more per month and what you are buying is the knowledge of how to register and sometimes find people to pitch your product.

The system registrations do not stop at the front door. While there may not necessarily be a contractor fee to hopefully guide you through the path, you might want to get some level of clearance to satisfy national defense needs. Many folks who have never worked with the government would have a difficult time navigating the pathway to a Department of Defense Common Access Card (CAC) or Homeland Security Presidential Directive 12 (HSPD 12) identification card that usually starts you at the public trust level. Generally speaking that’s been the entry fee to being a contractor. For larger or more established contractors they have actually created their own process for managing this security process and issue external certificates or cards and manage those for their employees in lieu of the government managed cards. These external certificates work for some basic things like access to some facilities and systems.

Along the journey to getting to this point, there are opportunities to meet several agencies beyond the initial scope along the way. There is an effort in finding one registration for sending in a proposal followed by another system registration to receive notice about that award, to yet another system registration that will guide you through some of the tasks for that award. Notably, this notional flow is based on actual steps through a simpler method of working with the government. Invoicing for work? There is another system to register for, with new rules that the people who have used it everyday or are experts in know too well, that match a contract that is used informally for insomnia treatment.

This is literally scratching the surface of systems and registrations. When you think you’re done, you are just learning that you don’t have access to the REAL systems. The ones that do the real work. The ones at higher classifications that only people with government furnished equipment and special clearances have access to use. The ones that may not even be a government system at all, but rather some proprietary product that the government is dependent on (think rockets, tanks, submarines, satellites, the good stuff).

Not only that but there is a lot of work to fulfill to get in the door. Large contractors have shops dedicated to proposals and contracting. Small businesses may reasonably have one or two people available for the whole effort.

An example of all the roles that are attempted by usually one person at a small business.

Other Costs

• Understanding Contracting and Task Orders (Could be One or Multiple People) — This is likely to be a topic of its own for discussion.
• Calculating Cost and Overhead Effectively (And Accounting for Inflation)
• Marketing Investments and Outreach (and Credibility)
• Cybersecurity Accreditations (If You’re In Technology — Others for Other Classifications)
• Back Office Growth in Responsibility and Auditing

What to Do? (interesting!)

Software factories in the Department of Defense are offering an olive branch. Platform One and peers are offering solutions as well, some at a significant cost to account for, some at more ‘dirty development’ costs. Commercial companies are starting to wade into this mess and frankly those who figure it out will at least temporarily bridge a compliance and procedure gap for small businesses participation. Still — here are a few hypotheses to be tested by the government.

1. Create purposeful environments to engage with small business innovators and budget or create a program objective memorandum (POM) to achieve it.
2. Cancel legacy programs without sentimentality, politics, or nostalgia.
3. Create internal organizations to the government to manage the overhead and internal compliance as much as possible for everyone. Don’t make this a big vs. small deal. The big charges you for it. The small is ignorant, not incapable.
4. Focus less on research and development vs sustainment. It creates camps and those in sustainment don’t really care about the research unless they are the same people. I love to experiment. I want to be sustainable. I’m not sure I want to be in sustainment with the way it’s done.
5. Initiate more military members with innovation. Start early.
6. Let innovators lead. They don’t do well for primes. They do terribly for themselves under this oppressive system. Enable them creatively.

Working with the government is and should be appealing. The challenge is that the costs of doing so are not transparent and can balloon. Every part of the effort has a potential vendor ready to collect their portion of revenue. It is actually easy to exceed revenue with cost in this environment. We need to monitor all of the good idea programs and make sure that small businesses stand a realistic chance.

Ideas? I’d love to hear them — hit me up on LinkedIn.