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mtbcYesterday morning on the radio I heard discussion of the large amounts of money paid by Her Majesty's Government to private contractors to assess people's ability to work, regarding eligibility for disability benefits. I think it was Stephen Crabb, a previous Secretary of State for Work and Pensions, suggesting that the sums paid are probably reasonable if the private companies are not making much profit on them. A quick search online finds him quoted as saying,
Paying companies according to their actual cost in doing the work gives them very little incentive to work at all efficiently. For much work by far the largest cost is labor plus, with a reasonable funder, fringe benefits, indirects, overheads, whatever: heating, associated HR, paid leave, management, security staff, etc. The government ends up paying for badly managed companies to not assign employees to the work they are best at and not taking easy steps to make them able to work well. In short, productivity is often not high so the work becomes unnecessarily expensive.
I found it a little surreal at Aetion for the government to pay for our time in interacting with the government auditor who would come in, analyze our timesheets and books, and find that we had slightly underbilled the government so we could then ask for more money. Given that I honestly tried to run projects efficiently our government customers were often surprised at how much we could deliver even for just $100k. In contrast, I recall Boeing wanting several thousand dollars just for telephoning us and delivering a slide presentation: it was easy to laugh and say no thank you.
Given that the mortgage on the property in which one's government-project contractors work is a fair overhead to bill, it is hard for me not to see some government contractors as an opaque device to have the taxpayer buy the owners a handsome piece of real estate over the course of some years.
I would far rather see private contractors given tight verifiable-outcome requirements for each milestone payment and, while open to competitive bidding to limit typical profits, able to go ahead and do the work cheaply if they find a way to without losing revenue for achieving that. The occasional larger profit margin is well worth scrapping the overhead of carefully measuring and auditing how much it costs companies to achieve goals inefficiently in the knowledge that the government will still pay.
One might reasonably counter that some projects are inherently risky and their true cost is unknown at the start, in which case I think that it is for the private sector to consider how lucky it feels in deciding how to bid and for the government to first engage a service to plan the larger projects out into detailed steps that can be separately bid and verified.
I should clarify that none of the above relates to my current employment: the meteoric decline in my career means that not only am I not currently having to deal with such matters but I have minimal visibility into the details of how my position is funded and for all I know I would rather see how sausage is made. It is interesting, and not unpleasant, to be in a position where the contract management is wholly somebody else's problem.
If the payments being made reflect the actual economic cost, then I think that is a fair contract.
Argh, no!, I thought in response. Actual economic cost is one thing, a fair one perhaps, but he was definitely referring to profit in the discussion, and I was reminded of my supporting John McCain in a relevant respect, an example being his statement last year that,
I will not authorize a program that has a cost-plus contract, such contracts being a way that the Federal Government limits the profits of private contractors. I have been involved with such contracts myself, including winning then leading a half-million-dollar one.
Paying companies according to their actual cost in doing the work gives them very little incentive to work at all efficiently. For much work by far the largest cost is labor plus, with a reasonable funder, fringe benefits, indirects, overheads, whatever: heating, associated HR, paid leave, management, security staff, etc. The government ends up paying for badly managed companies to not assign employees to the work they are best at and not taking easy steps to make them able to work well. In short, productivity is often not high so the work becomes unnecessarily expensive.
I found it a little surreal at Aetion for the government to pay for our time in interacting with the government auditor who would come in, analyze our timesheets and books, and find that we had slightly underbilled the government so we could then ask for more money. Given that I honestly tried to run projects efficiently our government customers were often surprised at how much we could deliver even for just $100k. In contrast, I recall Boeing wanting several thousand dollars just for telephoning us and delivering a slide presentation: it was easy to laugh and say no thank you.
Given that the mortgage on the property in which one's government-project contractors work is a fair overhead to bill, it is hard for me not to see some government contractors as an opaque device to have the taxpayer buy the owners a handsome piece of real estate over the course of some years.
I would far rather see private contractors given tight verifiable-outcome requirements for each milestone payment and, while open to competitive bidding to limit typical profits, able to go ahead and do the work cheaply if they find a way to without losing revenue for achieving that. The occasional larger profit margin is well worth scrapping the overhead of carefully measuring and auditing how much it costs companies to achieve goals inefficiently in the knowledge that the government will still pay.
One might reasonably counter that some projects are inherently risky and their true cost is unknown at the start, in which case I think that it is for the private sector to consider how lucky it feels in deciding how to bid and for the government to first engage a service to plan the larger projects out into detailed steps that can be separately bid and verified.
I should clarify that none of the above relates to my current employment: the meteoric decline in my career means that not only am I not currently having to deal with such matters but I have minimal visibility into the details of how my position is funded and for all I know I would rather see how sausage is made. It is interesting, and not unpleasant, to be in a position where the contract management is wholly somebody else's problem.
