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By Nick Wakeman

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Nick Wakeman

Are more contract crackdowns on the way?

Two bits of seemingly unrelated news – the General Services Administration canceling Oracle’s IT services contract and Lockheed Martin paying for a contract overrun – have a common thread: Agencies are going to hold contractors accountable.

First, let’s look at Oracle. The software company has had a long dispute with GSA, part of which it inherited when it acquired Sun Microsystems, which was having its own issues with the agency.

The fights between GSA and software and hardware companies over pricing are well chronicled. In fact, Oracle settled with GSA in 2011, paying $199.5 million.

This time apparently is different because it only deals with professional services. Details have been sparse with GSA only saying that the contract was “no longer in the government’s best interest.”

What exactly does that mean? GSA won’t say more and so far, Oracle has been silent on the topic.

While this might be an embarrassment, it isn’t a huge deal from a business perspective. Oracle has plenty of other vehicles at other agencies to sell through, plus it has a well-established partner and reseller network.

The fact that the cancelled contract is for professional services also lessens the financial blow.

But even if it means little in dollars and cents to Oracle, GSA’s action is a loud warning to other contractors that it isn't afraid to use its powers to control contractors.

It is a dangerous thought. Imagine if GSA did this to a small or midsize business?

Now, let’s look at Lockheed, which had won an Air Force contract for $1.5 billion to build two new global positioning system satellites. The problem is that the cost actually reached $1.62 billion. Because of the overrun, Lockheed loses its 5 percent fee or about $70 million.

Similarly, Lockheed is bearing portions of the cost overruns from the F-35 Joint Strike Fighter.

I’ve heard plenty of comments and complaints from people that companies often knowingly underbid to win a contract and then use modifications and contract changes to recoup the actual costs of the project. It is often described as a standard way of doing business.

I’m not saying that Lockheed did this on the GPS or F-35 contracts. These big hardware development contracts have a history of escalating costs that often cannot be anticipated.

But I think Lockheed’s situation should be a warning to the rest of the industry that there is growing reluctance by agencies to absorb cost overruns or to rework contracts for contractors to recoup their costs.

The lesson is that it is paramount in today’s environment to understand your costs and to understand what you are bidding on.

The thread that ties Lockheed and Oracle together is that whether agencies are misguided, impatient or growing desperate, contractors need to understand that their customers are more willing than ever to use tools at their disposal to hold their feet to the fire. Fair or not.

Call it the age of the contractor crackdown.

Posted by Nick Wakeman on Apr 20, 2012 at 7:23 PM


Reader Comments

Thu, Apr 26, 2012 Jack M. McLean

The real issue is the usual condition: both govt and contractor officials by sins of omission (e.g., lousy or no oversight) or commission (lousy staffing and thus performance by the contractor) have resulted in late, over-run, below-spec results. What do they do? They link arms to try to obscure the problem so that they are not implicated alone. A wall of silence is usually the first gambit.

Mon, Apr 23, 2012 SPMayor Summit Point, WV

The Government should rightfully exercise it's rights when circumstances warrant. However, using tools in a random and uninformed manner benefits neither the Government nor the vendor contracting community. In my view, first and foremost is a need for contractors to develop some spine to push back on the Government when poor SOW's and sloppy solicitations are issued.The anxiety that a client might get upset is not worth the risk of winning a flawed contract. It also means pushing back when the Government is asking for information is the proposal or performance stages that by any conventional and traditional understanding of contract type it has no rights to request as a matter of routine.The Government is all too willing to draw fine distinctions between contract types and and its solicitations; but, after award it attempts to manage all contracts in the same data intensive manner regardless of those distinctions.You want cake, you get cake; you want pie, you get pie - don't confuse the two and tell me you wanted dessert.

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