The Skyway team had a good discussion the other day that resulted from an observation I made about the different ethos and corporate cultures one finds in the arena of Government Contracting.  By this, I mean that one can draw sharp distinctions between contractors in how they approach negotiations and exchanges with the government personnel that sit across the table.  The most prominent examples reside in the defense industry, with annual contract expenditures in hundreds of billions of dollars.  These large corporations have worked in that space so long, in many cases fifty years or longer, that their corporate cultures have become jaded, cynical, and extremely opportunistic.  Before I go further, let me emphatically state that I understand how things got this way, and why they are this way.  The business is competitive, often to extremes, and hundreds of thousands of employees and their families have livelihoods that depend on the success of these government contracts.  They operate with bottom lines, and quarterly profit and loss margins can have huge impacts.  It’s big business, it’s serious, and it is not for the faint of heart.

Regardless, the point of this essay is to articulate the effects of the cynicism that shades government contracting, and then to express some sincere appreciation for companies that have not yet succumbed to that cynicism.  Most of the largest government contractors, concentrated in the defense industry, have become exceptionally skilled at the game.  This skill and expertise inform cultures that focus on minimizing risk and maximizing gain, and the gains are substantial.  These high stakes drive policies, procedures and engagements that combine to work against the Win – Win outcome that government contracting personnel are charged to achieve.  Basically, corporate program managers, contracts directors, and negotiators are incentivized to maximize profits and minimize costs (and prevent losses).  This means that the two sides approach the same negotiations from two different outlooks: the government seeks to achieve a fair and reasonable price that includes sufficient profit to maintain contractor interest and efficacy, while the contractor seeks to achieve the maximum possible profit.  The government negotiator is not charged to minimize the contractor’s profit, but the contractor’s objective is to garner premiums for every item or period of service.  Essentially, if the government achieves a ‘win’ regarding cost savings, that implies that the contractor has left money on the table, and therefore has not maximized their earnings, and thus did not achieve a ‘win.’  Or, at least less of a win than is desirable.

This culture also results in a guarded, defensive and restrictive demeanor amongst the corporate personnel, wherein information is closely held, and government requests for data and clarification often get mired in obstruction, obfuscation and diversion.  I do not mean to impugn the character of anyone involved, and I concede that corporations have every right to protect their proprietary data and preserve their standing in the market.  But this means that a general lack of transparency, and a reluctance to be forthcoming, cloud the interactions with government, and hamper the negotiation and contract administration efforts.

As mentioned above, much hinges on this negotiated profit, so the contractor’s motivation is understandable.  This disparity in intent is dismaying enough, but that does not factor in the additional aspects that complicate government contracting, including graft, corruption and political influence.  Moreover, sole source contracting often serves to undermine the efficiencies and integrity that full and open competition promotes.  Unfortunately, in an already cynical environment, that fierce competition further degrades the process, integrity and overall outcomes of the government contract endeavor.  So, while the corporate culture is understandable, it should be acknowledged that the current represents a broad departure from free-market capitalism and shared civic interests between government and industry that the Founders imagined.  I admit that I am still somewhat taken aback at what appears to be a lack of appreciation for the generosity shown and concessions granted by the government, in terms of price, cost accounting factors, and statutory and regulatory measures that tilt in the favor of the contractor.  The government always pays, and usually pays higher prices than commercial counterparts, and yet the contractor usually seems intent on taking full advantage of these factors.

Considering the cynicism and near-contentiousness that established government contractors typically display, it is always interesting to encounter a company that does not have the extensive experience in government contracting that results in that cynicism.  In the past few months, I have worked with two well-established, highly successful companies that have ventured into the defense sector but have not yet fallen into those detrimental patterns.  One is a leading developer of super computers that performs in the government arena but to a much lesser extent than the major defense firms, and the other is a large commercial firm that is expanding into government and defense as major subcontractor.  What I found interesting about working with this firm is the openness and transparency they demonstrated in preparing and submitting requested documentation, and the cooperation and earnestness that they displayed in their efforts to satisfy the government’s requests.  It was truly refreshing to work with people and organizations that maintained a focus on quality and service, rather than profit, with the awareness that commitment to these factors usually results in greater profits anyway.  Of course, they care about profit, but they don’t appear to focus on it, and thereby they end up reaping the profits they strove for anyway, with the additional benefit of collecting satisfied customers that promote future opportunities and repeat business.

The Skyway team noted this distinction and likened it to our own customers.  We prefer to work with people that, like us, focus on doing the best job for their clients, and are comfortable with the knowledge that profits will result from our superior commitment and service, not from our dogged pursuit of them for their own sake.  Additionally, we observed that customers that focus on profit, to the detriment of their performance and customer relations, typically do not establish and maintain long-term relationships.  In the short-term, that may be an effective strategy, but we feel that in the long run, such practices lose out, because business operates in cycles, alternating from boom to bust and back.  Anyone can succeed in a booming economy, but in a slowing or stagnant phase, many firms struggle and fail.  We find that firms that demonstrate mercenary, short-sighted visions often do not prove reliable and trustworthy when the cycle slows down.  And therefore, we prefer to work with clients that place their clients’ need first, as they know that in the end, that customer-focus pays off.