Uncommon Sense: Defense Contracting 101
The first contracting officer probably got his job during the Revolution, but the real surge in defense contracting began during the Civil War. The folks in Washington had to equip a whole army, quickly, without much administrative control. The predictable results-uniforms fell apart, powder wouldn't fire, food was inedible, prices were scandalous-gave defense contractors a well-deserved bad name. That bad name set the stage for all the red tape called the Federal Acquisition Regulations and the Defense Acquisition Regulations that we have to this day.
In principle, these regulations guide all government purchases from paper clips to stealth bombers. So if you intend to be a defense contractor, you will need capable contract administrators who know these regulations. Former government contracting officers are excellent candidates, and a retired "multistar" general officer won't hurt, either. An extensive and well-documented quality program is also essential.
According to policy and regulations, federal contracts are subject to vigorous competition. But most purchases, at least in terms of dollars spent, are single-sourced long before they are public knowledge. You might use the federal business publications to sell paper clips, but to sell airplanes you have to go directly to the agencies or the DoD early on, while the programs are in their infancy. Talking with your local federal representative or senator, and regular visits to the Pentagon by your retired officer, are good strategies for new programs.
Although cost-plus pricing went out years ago, price will still be based on cost plus an allowable markup. The result is a firm, fixed price. If you overrun that firm, fixed price, you eat the difference, unless you can convince the contracting officer-or your local politician-that you really deserve more.
With contracts of any magnitude, be aware that the Defense Contract Audit Agency will audit your actual cost to verify that you spent what you said you would spend, and for what you said you would spend it on. If you decide to make a bundle on a contract by becoming more efficient and productive than you were when the price was set, keep in mind that your actual cost will be the cost basis for the next buy! And if you become really efficient, you may have to give the government some of its money back, even with a firm, fixed price!
Nobody wants to participate in defense contracting until commercial business goes south; then everyone thinks it would be fun. They go in with commercial-sized prices and, if they do get a contract, most of the time they wildly underbid and get killed on profit, because they didn't understand the regulations and other requirements they didn't see on the product specifications.
Conversely, when the defense industry goes south, all the defense contractors suddenly think they can compete in the non-defense world! The problem is, they forget that nobody in the commercial world wants to pay for that expensive contract administration function. Neither does anyone want to pay for the quality organization required by MIL Q 9858, with its costs measured in delay and obstruction as well as salaries.
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They also forget the quality assurance resident from the Defense Contract Administration, there to ensure compliance with everyone's quality manuals. Finally, they forget the Defense Contract Audit Agency, there to make sure the government isn't charged for work done for someone else, and to demand "if you can do it for that cost for commercial customers, why can't you do it for that cost for the government?"
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