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2009-01-31 Home Front Economy

Hidden Bonuses Enrich U.S. Government Contractors

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Posted by tipper 2009-01-31 11:08|| || Front Page|| [4 views ] Top

#1 These things always sound outrageous and sometimes they are.

OTOH, fed and state agencies are notoriously horrible customers for new, massive IT systems. They tend to have incomplete, conflicting and impossible requirements and assumptions for the system. The result is that the contractor is desperately trying to comply with shifting, inadequate and sometimes just plain crazy specs.

If they're working on an award fee basis - and these guys probably were - their only way to make any profit at all is through those 'bonuses' which are periodically awarded over and above approved expenses.

Sometimes those expenses fail to reimburse the basic cost of corporate level support. If so, the award fee is the only way to avoid LOSING money on the contract.

So the game is: the contractor tries to up his hourly rates, the GAO cuts them back. The contractor signs up to deliver a system according to specs, specs change, everyone has to negotiate who's to blame for how much of the mess.

Not to say that there aren't incompetant, greedy contractors. There are. But there are also, and even more prevalently, hugely incoherent agencies issuing conflicting, inadequate or changing specs too.

This has been a huge issue for IRS, FAA and a bunch of other large centralized control system acquisitions - to the point that some major players won't even bid on these contracts anymore.

Posted by lotp 2009-01-31 15:57|| 2009-01-31 15:57|| Front Page Top

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