Jump to content
The Wifcon Forums and Blogs

Recommended Posts

Concur with Vern's comments about NFP entities. I have done some work with NISH entities (or AbilityOne or whatever they call themselves today). Let me tell you, they are very focused on revenues and costs and cash flow -- the same things that Boeing, LockMart, Raytheon, etc. are focused on. They have marketing departments and program managers and financial analysts and IT departments -- just the same as any for-profit company of comparable size. Compensation and benefits tend to be comparable as well, as least among the larger NFPs.

The difference, as Vern noted, is that "profits" (the difference between price and costs) is not distributed to owner(s) but, instead, returned to the entity for use in furthering the mission. To be clear: on a project-by-project basis, there is definitely a profit or loss; the difference is that project profit is reinvested in the business and not distributed via dividends or other means.

Share this post


Link to post
Share on other sites

Again, I agree. I was thinking that the differences mentioned can shape contracting operations. Or are for-profits and nonprofit/not-for-profit supply chains essentially run the same?

I think nonprofits are run similarly to the Government. It all takes money, but what they do with that money is a distinguishing factor. Since nonprofits - like the Government - aren't concerned with distributions to owners (shareholders) their goals and objectives are different from for-profits. One less consideration in capital allocation. By nonprofits putting the money generated back into their operations instead of distributing it to their owners the can go about business differently.

I think of my personal shopping experiences I have witnessed great disparities in pricing schemes of for-profits and nonprofits:

- Nonprofits consisting of one person selling items at cost in an effort to generate enough money to stay afloat and raise awareness

- Complex nonprofits selling items or providing services to generate money to help a cause

- For-profits selling items at 177,475 percent over cost - presumably in an effort, partly, to increase distributions.

In my experience for-profits leverage supply chains to maximize profits (distributions or compensation to shareholders, officers, and directors). Outside of volunteer efforts, I've never worked for a nonprofit, but I wonder if nonprofit supply chains operate under the same principles as for-profits. Intuitively, I feel they place a greater emphasis on operational efficiency (affordability and budget) versus increasing profits. 

I can likely find the answer by doing as you stated - reading up on nonprofits and breaking out the old finance books and looking over capital allocation.

 

Share this post


Link to post
Share on other sites

Girl Scout cookies?  There is nothing "charitable" in the marketing and business plan for Girl Scout cookies -- maximizing profits is the goal -- true, the profits are not taxable and are used for a good cause, but there is a pure profit motive there.  

Share this post


Link to post
Share on other sites

There is an interesting article in the online Defense News today that shows how the cult of "fairness" has hurt the government. See "As Pentagon Dawdles, Silicon Valley Sells Its New Tech Abroad," by Patrick Tucker. http://www.defenseone.com/technology/2016/04/pentagon-dawdles-silicon-valley-sells-its-newest-tech-abroad/127708/?oref=d-topstory

Quote

CEOs said the sluggish pace of Pentagon contracting is preventing commercial tech firms from responding to the entreaties of Defense Secretary Ash Carter and other DoD players. Prime contracting processes can take a decade, far longer than Silicon Valley investors are willing to wait for a return on their investment.

“They don’t want a sale cycle that’s [even as long as] nine to 18 months,” Charvat said. “So just think of that in the context of the prime contract process with the United States government that can take a decade. A decade from now they [the investors] expect us to have exited this company. They expect an acquisition or an IPO. They expect to no longer be primary shareholders in my company.”

But a company can’t just find a military outfit that needs its product and ring up a sale. Such a transaction requires a no-bid, or “sole source,” contract. And those come with a lot of unattractive demands.

“In order to justify a sole-source contract you have to write down why what you do…is so unique,” Charvat said. “And they want you to go into the kind of detail that would make a patent officer blush. That’s a huge IP [intellectual property] concern because what they also want to do is show this to all these other companies and see if they can do it too. Well, no, no, no.”

She said she walked away from a recent sale when military buyers wanted her to put too much proprietary information in a white paper.

We need modern laws and regulations for modern markets. CICA is based on thinking that is grounded in 19th Century competitive bidding. Pricing rules like TINA are grounded in the mentality that companies that sell to the military are wartime profiteers.

CO education and training needs to be greatly improved so as to develop a crop of genuine businesspersons, who should then be given the freedom and authority to exercise sound business judgement.

"Fairness" is killing us.

Share this post


Link to post
Share on other sites

Further to Vern's thoughts, a Google search on DOD + Innovation returns some interesting discussion points. Here's one, for example --

http://www.apogeeconsulting.biz/index.php?option=com_content&view=article&id=1045:the-quest-for-innovation&catid=1:latest-news&Itemid=55

 

Share this post


Link to post
Share on other sites

The paradox of fairness is that you can never be fair to everybody.  The current rules are skewed in favor of fairness to vendors.  But, that fairness comes at the expense of inefficiencies that harm taxpayers and customers.  That's unfair to them.   And I don't believe there's can be a middle ground where we're objectively maximizing fairness to everybody.

If you're for fairness (however it's defined), you have to ask, "fairness for whom?"  As it's currently implemented, it fairness for the vendors at the expense of others.  Given the realities of the squeaky wheel and regulatory capture, how can it be otherwise?

It's been probably 20 years since I read the book, but I think I first heard of the fairness vs. efficiency argument in Steve Kelman's,"Procurement and Public Management."  I read it when he was nominated to the OFPP.  It was exciting reading it at the time, though there was never a real drive to implement its principles.  I don't suppose there was ever really a chance.

Share this post


Link to post
Share on other sites
3 hours ago, David Bodner said:

The paradox of fairness is that you can never be fair to everybody.  The current rules are skewed in favor of fairness to vendors. 

I'm going to have to go ahead and disagree with you there. Ask any small business. In fact, I have a small business in mind -- and you don't need to ask; you can read that small business' opinion regarding acquisition fairness, in great detail. The business has many relevant blog posts on the topic.

https://quimbasoftware.wordpress.com/author/quimbasoftware/

 

Share this post


Link to post
Share on other sites

H2H:

Is that a reflection of the rules not being in favor of fairness to vendors or individuals who are incompetent or rogue?

Share this post


Link to post
Share on other sites

Jamaal,

We are dealing with "fairness" and it's about perception more than reality, in my view. Small businesses commonly perceive that the rules are rigged against them. Many DOD contractors commonly perceive that the role of DCAA is to reduced negotiated profit after completion of performance. Is that reality? Doesn't matter -- it's a common perception.

Personally I believe the the transition from SBIR Phase I to Phase 2 (typically moving from FFP to CP contract type) is extremely difficult for small businesses. Is it "fair"? Maybe, in the sense that the rules apply to every business making that transition. But to the SB who suddenly has to deal with a huge change in management approach, it does not feel "fair".

Shrug. My comment is basically that the vendors do not feel the rules are biased in their favor. How can we analyze a feeling?

Share this post


Link to post
Share on other sites
18 hours ago, here_2_help said:

I'm going to have to go ahead and disagree with you there. Ask any small business. In fact, I have a small business in mind -- and you don't need to ask; you can read that small business' opinion regarding acquisition fairness, in great detail. The business has many relevant blog posts on the topic.

https://quimbasoftware.wordpress.com/author/quimbasoftware/

The COFC made two decisions based on the story told in the blog post to which H2H provided a link:

  • Quimba Software, Inc. v. U.S., 120 Fed. Cl. 107 (12-142C, March 25, 2015)
  • Dourandish v. U.S., 120 Fed. Cl. 467 (14-937C, March 25, 2015) (Dourandish is the "Bob" in the blog post.)

The Court of Appeals for the Federal Circuit denied the appeal from Dourandish v. U.S. See Dourandish v. U.S., 629 Fed. Appx. 966 (Oct. 20, 2015). It appears that the plaintiff represented himself in court, which is always a mistake.

I'm ready to be corrected by H2H, but until I am it appears to me that the blog entry is a rant by a clueless person who decided to wander about in a world where he had no business being without a guide, i.e., a competent government contracts accountant and a competent government contracts attorney.

A lot of small business persons want to do government contracting work on-the-cheap, hoping to strike the mother lode of business deals. Rather than pay to properly prepare themselves to tangle with a behemoth, they seek free advice at websites like Wifcon or from seminar instructors whom they call or email weeks or months after attending to seek free help. Remember me? I took your seminar last year and I'm having trouble with DCAA and I wonder if you have time to answer a quick question.... (It's always "quick.") I am not sympathetic. I will never write a book entitled Government Contracting for Dummies or The Idiot's Guide to Government Contracts, because dummies and idiots don't belong in that world.

Ironically, the rules on which the Quimba/Dourandish decisions are grounded are written down in order to be fair to contractors by putting them on notice. The contractor, either unaware of the rules or unable to interpret them properly, screwed up and then wasted his and taxpayer money by seeking "relief" in court. I pity the poor contracting officer who stumbles upon a fool masquerading as a "contractor."

Share this post


Link to post
Share on other sites

Vern,

My post was about perception and feelings. I provided a link to one small business who perceived -- felt -- that it was wronged. You are discussing reality and the rules and what happens when you run afoul of the rules. You are not wrong ... but that misses my point. It's not about whether Quimba's perceptions were correct; it's about my assertion that those perceptions, to one extent or another, are widespread within the SB community.

Disclosure: At one point I was hired by Quimba to advise on the validity of a government counter-claim. So I know more about the situation than I'm allowed to say. I simply cannot get into it other than to post the link to the blog.

Edited by here_2_help
Corrected a pesky typo

Share this post


Link to post
Share on other sites

Vern,

Apologies for the delay.  Just as I thought I knew what to say in my response, I read the latest CNR and the thought occurred to me that we may be "argreeing" (arguing, but in agreement) at least when it comes to the subject of fairness and business judgment in the contractor selection phase.  You stated in "Highest Technically Rated Offerors with Fair and Reasonable Pricing: A New Source Selection Technique" 30 No. 5 NCR. NL ¶ 23:

Quote

The only part of CICA worth preserving is the part that calls for some level of competition and justification and approval for the lack thereof.  The rest of CICA, which calls for the use of specific competitive procedures, needs to go.  Those sections should have been repealed long ago and the case law based on them sent to the rubbish heap.  Agencies should have been freed from the tyranny of the awful FAR Part 15 source selection procedures in the mid-1990s.  There are many ways to select contractors and form contracts with them.  Why should agencies be straightjacketed the way that they are, especially in this era of seemingly never-ending calls for critical thinking and innovation?

While I may take exception to the phrase "some level of competition" depending on the specifics, generally, I support the preceding comments as follows.  Unless I'm reading too far into them or outright misunderstanding your position, it appears that any exceptions to the standard of competition would not be based on business judgment, but rather on justifications and approvals tied to statutory exceptions (similar to the status quo).  Business judgment could then be used to fashion/employ various techniques to select a contractor to fulfill the Government's requirement.  I'd support that type of acquisition environment as those techniques need not be uniform throughout the DoD (or any agency) to provide for fairness as long as that process allows for competition to the maximum extent practicable and equal treatment of similarly situated or like offerors.

Still, I'm left a bit concerned.  I've read on numerous occasions your (and others') indictments of the acquisition system, the lack of training and professionalism, and the overall youth and inexperience of the workforce and can't help but wonder: if the Government acquisition workforce isn't well trained, can't critically think, write well, etc. would they not do more harm in a world where they have this wide-latitude afforded to them by invoking business judgment?  Forgive me in advance for what might be an oversimplification of the matter, but I'm reminded of a comical scene in the movie The Big Short where the investors are talking to two mortgage brokers in Florida about their process for issuing homebuyers loans and these brokers' "business judgment" (the term is used quite loosely here) was basically non-existent due to the latitude they had from their banks.  Moreover, during the time (as we all know from the economic crash in 2008) the resulting sub-prime loans were par for the course.  In hindsight, sure they look like poor business judgment (or a complete lack thereof), but when they were being issued beforehand it certainly didn't appear that way - home loans were driving profits and empirically carried small amounts of risk (which banks then thought could also be offset further).  Where were the critical thinkers and experts then to stop such behavior by employing business judgment?  Where will they be in an alternative world of acquisition policy if left quite unrestrained and to their own devices and conceptualization of "business judgment?"  Finally, if we're going to hold acquisition officials accountable for utilizing "business judgment" as the standard, how do we do so fairly?

Share this post


Link to post
Share on other sites

Matthew,

 

Not Vern but I want to respond anyway. In my view the Kelman reforms of the mid-1990's were half-right. We needed to give people more discretion. The problem was that we didn't increase their accountability. We increased discretion without commensurate accountability for that discretion.

My two cents.

Share this post


Link to post
Share on other sites

H2H,

No problem - Vern doesn't have a monopoly on the discussion of my remarks so I welcome the input.

37 minutes ago, here_2_help said:

Not Vern but I want to respond anyway. In my view the Kelman reforms of the mid-1990's were half-right. We needed to give people more discretion. The problem was that we didn't increase their accountability. We increased discretion without commensurate accountability for that discretion.

I'm confused though...are you saying we're currently in an environment with discretion, but without accountability?  Or was increased discretion granted back in the mid-1990s without commensurate accountability and, as a result, that discretion was subsequently curtailed?  Because I think the concerns raised by most individuals on this thread, in particular Vern, is that there is a lack of discretion, or as he would state, the ability to make business decisions (and I would agree).

Share this post


Link to post
Share on other sites

Matthew -- To clarify:

The Clinton reforms, championed by Kelman, were intended to increase individual discretion. That they did, but there was no commensurate increase in individual accountability. Most of the Obama "reforms" have consisted of rolling-back that discretion, substituting instead centralized command and control. (Hello Review Boards!) Accountability is still generally lacking.

Again, my personal views.

Share this post


Link to post
Share on other sites
17 hours ago, Matthew Fleharty said:

I'd support that type of acquisition environment as those techniques need not be uniform throughout the DoD (or any agency) to provide for fairness as long as that process allows for competition to the maximum extent practicable and equal treatment of similarly situated or like offerors.

Emphasis added.

Matthew:

That quote from your last post begs the question, and leaves me uncertain about where you stand on resolution of the issue between us. The issue has been whether fairness or business judgement is a better foundation for policy. The fact that my approach would be okay with you as long as it provides for fairness, which is what I think you said, does not resolve the issue. It merely presumes resolution of that which is yet to be resolved. In any case, I have no idea what you mean by "competition to the maximum extent practicable." Without further explanation from you, that's just regulatory gobbledegook, written long, long ago, before I entered the contracting field.

As for your observations about what I've said about workforce competence and its bearing on the wisdom of adopting business judgement as a foundation for policy, those comments pertain whether the foundation is fairness or business judgement, since fairness, too, requires the exercise of judgement. If we want optimal results from the system, then we must either improve the workforce or accept suboptimal performance, no matter what the foundation for policy.

It's been an interesting discussion. Thank you.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×