More oversight takes market back two steps

Market Watch | Financial views of a competitive environment

Jerry Grossman

Remember the 1990s? Back then, reinventing government, streamlining federal acquisition procedures and refining procurement regulations were the order of the day.

Some of the unpleasant realities of federal procurement were acknowledged. Ongoing retirements were shrinking the acquisition workforce. Government was unable to attract the high-level technology employees needed to assess and implement increasingly complex technologies. Federal information technology companies needed improved profitability to attract capital and effectively recruit high-tech talent.

By working together, the government and the contracting community were able to develop solutions to those issues. Government systems were improved and upgraded. Selected program management functions were migrated to lead systems integrators.

Improved contracting vehicles added efficiency and raised contractor returns on capital. Outsourcing of functions deemed not inherently governmental increased.

Overall, these changes in contracting have been highly beneficial to both government and industry. Accordingly, and just in time, certain members of Congress are threatening to undo many 1990s procurement changes to fix the broken procurement system.

As is often the case, no additional laws or regulations are needed. The well-publicized contractor abuses generally fall into two categories: upon closer inspection and review of the facts, no abuses occurred, or some existing regulations were violated or billing errors were made that are discovered after the fact.

Contractor abuse allegations frequently occur in circumstances where the government has faced emergencies or urgent support requirements. Hurricane Katrina and Iraq come to mind. In these situations, procurement officials place contractor experience and capabilities over cost. Lengthy competitive procurement processes usually are not appropriate. Retrospective review of results and costs under these rapid-response circumstances often suggest that mistakes were made; controls were missing.

Fast action was demanded and delivered. Perfect performance was unlikely. Responding quickly and getting things done was the priority. Situations were uncovered where rules were broken, unauthorized costs were billed or other improper actions occurred. I'm confident that the record would show that those situations represent a small percentage of the overall contracting experience. And convictions, debarments or other effective remedies typically result from these abuses.

Other recent examples of contracting problems cited by members of Congress and other critics include the Coast Guard's Deepwater and Army's Future Combat Systems programs. It may be easy for critics to design, build, integrate, install and support complex military systems, but in the real world, it's not that easy. In fact, it is extremely challenging and uncertain. Most major systems and platforms are likely to take longer to finish and cost much more than original estimates.

Complete system requirements and specifications are never clear at the front end and usually change along the way. Government program managers may come and go during the process. Unforeseen technical challenges crop up. And human beings aren't perfect. Although the contractors are not blameless, most of the companies and their employees are highly committed to getting things done right.

Instead of conducting seemingly endless investigations of contractors and the system, Congress should be increasing funding for the acquisition workforce.

Agencies need to develop proactive programs to recruit, train and compensate acquisition and procurement professionals. Programs such as Deepwater and Future Combat Systems require competent government program managers working with contractors to deal with complexities and control costs.

Today's federal market has enough issues and uncertainties for companies and investors to sort out. Upcoming elections, budget deficits and changing customer priorities are among the challenges contractors face.

Underneath all this, the federal contracting business remains solid. Assuming minimal damage from current congressional sentiment, the fundamental strength of the federal contracting industry should prevail.

Jerry Grossman is managing director at Houlihan Lokey Howard and Zukin in McLean, Va. He can be reached at jgrossman@hlhz.com.

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