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By Nick Wakeman

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Nick Wakeman

No love for profit in DOD's Better Buying Power 3.0

There are things to like and not like in the latest version of the Defense Department’s Better Buying Power initiavie.

We are now up to version 3.0, which Frank Kendall, undersecretary of Defense for acquisition, technology and logistics, outlined in a session this morning at the Center for Strategic and International Studies.

While I wasn’t able to attend the event, I have been reading his whitepaper and some reactions from industry are starting to flow in.

In a nutshell – well, you can’t really fit BBP 3.0 into a nutshell – Kendall’s plan is focused on affordability, incentives for government and industry, better competition, eliminating unproductive processes, more innovation and a more professional acquisition workforce.

It is hard to argue with those goals, but it’s as you dive deeper into the plan that some might find objections.

Stan Soloway of the Professional Services Council for one isn’t all that happy. Kendall’s plan doesn’t go far enough, Soloway said in a statement.

Soloway, a WT columnist, says that there isn’t enough focus on “achieving extraordinary outcomes.” Instead there is too much focus on internal process changes and there are still too many barriers to innovation and efficiency.

This is an issue close to PSC’s core. The industry group has issued multiple sets of recommendations to the Defense Department and the rest of the government including PSC’s Acquisition and Technology Policy Agenda and the 2013 Leadership Commission Report.

Few of the recommendations in those reports made it into BBP 3.0, Soloway said.

One item that jumped out at me was one of the goals under the section about incentivizing productivity. It was the first goal, in fact. A “core” initiative, Kendall said.

I quote:

“Align profitability more tightly with Department goals.”

In the white paper, Kendall recognizes the need for profits but wants to make sure profits are appropriate.

I think this is an example of what Soloway calls the focus on internal process and a barrier to innovation. Why pay attention to profits when the focus should be on the results and the cost to the government?

I just don’t get why the government cares so much about profits. Leave it to the market and competition to determine what an appropriate profit, not acquisition officials.

The government should hold contractors accountable, but the accountability should be focused on the results that get delivered and the cost to the government.

If a company meets the government’s goals on cost and performance, why care about how big or little its profits are?

I love what Amber Corrin of Federal Times wrote:

But why shouldn’t government contractors strive to be Google or Apple? If you are looking for innovation why not emulate those companies?

But if you are so focused on squeezing profits, you’ll never get a culture of innovation in the government market. You’ll never get the risk taking and flexibility that’s needed to solve some of the big problems we face.

As you can probably tell, the whole profit thing is a bit of a pet peeve of mine, so I’ll jump off the soapbox now.

Just remember profits, don’t equal greed.

Posted by Nick Wakeman on Sep 19, 2014 at 9:23 AM

Reader Comments

Wed, Apr 15, 2015

The Government should step back and provide oversight not direction after contract award - maybe industry can bring in some innovation to getting the work done. If innovation is what is really wanted...most of time it is lip service. I agree with Mr. Soloway - focus on extraordinary outcomes!!!

Tue, Sep 23, 2014 Our Gang

Ms. Corrin got it exactly right. The hardware guys, occasionally, reap outrageous profits. The services guys, who can't point to most systems as working/met budget/met ached, should quiet their longing for big bucks. First, they gotta get product that works as contracted for. And the butts in seats companies should only expect a minute markup--lo overhead, tiny profit. No need to be Apple or Google. And frankly, the execs and workers in these companies are possibly two orders of mag less capable. No shame in that. Most of what USG buys is not rocket science but mundane, humdrum stuff. That is why is is called "GovCon." In other words, a small start-up in a beat-up Milwaukee warehouse has the brainpower and cojones to equal the feats of those who buy Oxxford suits and drive the Big BMW. And, it seems, Stan S wants to offer "extraordinary outcomes." Hmm. The end-customers and taxpayers would settle for productivity, slim overhead, onetime delivery, lo overhead, and throughput. Park "innovation" at the door unless requested, which is rarely. We love those guys, and we're among them for goodness sake, but get a grip. See you at the Greenbrier, eh?

Tue, Sep 23, 2014 John Hampton Roads

I think part of the problem with some Government contractors is that although they are not Google or Apple, they are more like Verizon or AT&T profits - which are excessive because they have a monopoly in their market.

The problem for many contractors is, Government acquisition officials hear about this and think all contractors are making those profits, and the small businesses that don't have strong legal teams and contracting shops that can best defend their turf take the largest hits. Meanwhile, the big companies continue to reap their healthier profit margins.

Mon, Sep 22, 2014 Rick Studley United States

Interesting comments, and I totally agree... I'm an avid Apple user/fan and use Google virtually every single day. I don't give a flying fish what profit either of those companies make... I'm more than satisfied their value is worth what I pay and I believe their profits, as good as they are, are in the face of serious global competition. In my opinion, when a company runs its business with an eye on GPM, it will always go down. If it delivers real, and many times unique value, it's worth whatever the manufacturer can reasonably ask.

Mon, Sep 22, 2014 V Kirwan Dayton, Ohio

We (small business defense contractors) are taking on all the risk with LPTA efforts that should be Cost Plus. A small profit margin as is allowed these days barely covers the risk associated with running these efforts.

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