Entrenched, Entitled, Political
Okay, I’m going to admit upfront that this is something of a rant. I need to release a bit of “steam” as it tends to build up after dealing with certain segments of the “governmental/business establishment.” Let me also say: if I EVER begin to resemble any member of this group, I hope and pray someone will do everyone a favor and kick me (at the very least)! Now, having gotten that out of the way, on with the rant …
It always (yes, expect exaggeration—after all, this is a rant) happens. As inevitable as time, taxes, and death, the effect a meeting with someone that has been “doing business with the government for 30 years” and needs to “teach everyone the way business is done” and “you wouldn’t want to lose all the experience of 30 years of being inside the system” is always the same. It also seems to be inevitable to hear “now I don’t know anything about those finance and accounting rules or stuff like that” from these people. They’ll also say, ”I’m about doing business with the government. I don’t need to understand all that other stuff it isn’t necessary to the contracting and the dealing.” In other words, they are saying, “Don’t bother me with the rules and regulations. I ’know‘ people.”
Laws, Rules, Regulations Apply
Well from the “wheeling and dealing” perspective it may not be necessary. From the complying versus lying perspective it is not only necessary: It is required. Furthermore, there are “little details” of putting together the proposals and contracts for “doing business,” whether those proposals are for research grants or research contracts, construction projects or non-construction projects, defense or non-defense. The proposals and contracts are about price and cost data, actual costs and profit margins, and not overcharging the government. You simply cannot propose a project that contains cost information that represents “reasonable” costs and profits and then proceed to execute the project in a manner that ultimately results in your company not performing the level of effort, purchasing the quality of inputs, or other aspects of the scope of the project and subsequently cause your company to go from, for example, a normal profit level of 7% to an unreasonable 50%! A “fixed price” doesn’t mean you get to use inaccurate or overstated cost and pricing to arrive at the fixed price, nor to change how you execute the contract to reduce the costs and earn an unfair profit! (If you do, you better ‘know’ people in the legal profession!)
Ethical Business Practices: Government or Non-government Contracts
Whether you are doing business with the government or not, how you do business is as important as why you are in business. Unethical business behavior isn’t going to build a sustainable business. If you have to lie, cheat, and steal from your vendors, customers, and employees to make a profit, then you don’t know what you are doing. The LCS (Lie Cheat and Steal) Model isn’t a business model; it is a symptom of a business that doesn’t know how to do business and be profitable. When you use the LCS Model when working with the government, it means you are also likely to gamble big and take a chance that you won’t end up in jail and lose everything.
Fixed Prices: Sound Costs and Reasonable Profits
If you are going to accept a fixed-price agreement, then you are accepting the risk that the business can execute the work as planned. If anything in the project changes, then you also have the risk that you will have to accept the higher costs. You can also—within reason—have the upside of earning more profits if you manage the project well and control the costs; just not a unreasonable profit (you can’t go from 7% to 50%). There are the little things, like certifications of cost and pricing data, in which you represent that you have used valid and reliable information to arrive at the price you are charging the government. Then there is the other little thing: You are required to use materials and workers of equal quality as proposed in the project to execute the actual project, no substitution of less-qualified or inexperienced workers or lower quality materials. Also, there can be no reduction of “effort” on the project. The bottom line is that you can manage a project well to make a better profit, but you can’t implement a LCS model to make more profit.
Good Ol’ Boys and Everyone Does It
“Wink, Wink. Nudge. Nudge. Everyone does it. We’re the good ol’ boys.”
No, everyone doesn’t do it. And has even if they did, it doesn’t make it right. This argument is reminiscent of the teenager arguing with his/her parents for permission to do something that all the other kids are doing. You just want to respond “If everyone was jumping off a cliff would you do that too?”
The little “misdemeanors” everyone is doing may not seem “that big a deal.” But, wrong is wrong. So don’t do it. Compliance is required, not optional.
What Is It All About?
As an advisor to businesses receiving government funds, I know that these businesses must be focused on compliance. Compliance includes understanding the rules and regulations, the risks and rewards, and the expectations and requirements of each type of funding instrument. If you accept a fixed-price award or a cost-reimbursement award (with fee or without, with ceilings or without, or with any of the variations in terms and conditions that can be included), then you need to understand just what that means for your business’ finances and operations. Then deal with it. If you can’t afford to deal with the government, don’t accept the funds. It is as simple—and as complicated—as that.
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