| The Dark Side of Regulations
An
example of where rules and regulations can play havoc was in the news
recently. It was summed up with, "President Bush's much heralded
competitive sourcing program is on life support." The article
readily sums up what was hoped as well as why, as the author put it, it
is now on "life support". President Bush's plan was received with
much optimism from some quarters and, as expected, had its critics in
others. Unfortunately for the optimists, the theory did not
translate into practice as smoothly as they'd hoped.
Robert
Brodsky writes, "As the theory goes, competitive sourcing drives cost
savings and efficiency by requiring agencies to put jobs that could be
performed commercially up for competition with contractors or other
agencies to determine which organization can accomplish the work most
economically. Money would be saved even if the federal team won,
because the competitions would force agencies to streamline their
operations."
Unfortunately there was legislation which blocked
some competitions outright. In other cases, requirements were
changed so that they very clearly favored favored government
agencies. While such moves may be well intentioned to give
federal employees a fighting chance, it quickly sours the private
sector on such competitions. When faced with such incidents one
can't blame them for coming to see these competitions as a waste of
time and resources. But this was only one of many things that
spelled trouble for the idea of competitive sourcing.
"It's been
death by a thousand cuts," says William Lucyshyn, visiting senior
research scholar at the Center for Public Policy and Private Enterprise
at the University of Maryland and author of one of the signature
reports on competitive sourcing. "They are probably not going to ban
competitive sourcing. But when you have all these different rules for
all these different agencies, the program is just going to dry up and
die."
That's the crux of it. When a private sector company
has to learn new rules for doing business for each agency it has an
interest in doing business in, the prospect loses much of its
appeal. It demands an extra investment from the private sector
that these business may not be willing or able to support. That
these competitions may be weighted against them is only the icing on
the proverbial cake.
But, you say, what about all the money
these contractors make? Surely that must be incentive enough for
them to put a little extra effort into getting government
contracts? A recent survey from Grant Thornton shows that this is
not, in fact, the case.
According to the report, 69% of
government contractors generated profit rates of less than 10 percent
from their government business and 7% generated no profits at
all. "Contrary to recent public and political perception,
government contracting is not a business where companies generate
abnormally high profits," said the Grant Thornton report. Only 12
percent of responding companies said they generated profits of more
than 15 percent from their government contracts in fiscal 2006.
Of
those surveyed, most contractors said they view government contracting
as a greater business risk than most commercial ventures. One of
the leading reasons named was that "outstanding performance is never
enough to secure the future for government contractors.
Government contract terms and conditions impose unique compliance
burdens in practically all aspects of the company's business, and those
burdens are continually increasing."
|
