Thursday, May 16, 2013

Defense Contractor Small Business Phoniness

A stock analyst once said America could elect Gandhi and still increase its military budget. As long as the US is going to spend so much on defense, it might as well reach out to more of America than just giant defense contractors like Booz Allen. "Where is the money for the little guy? Small businesses are the backbone of America". It looks like the bastards in Congress and our president signed into law new rules forcing the department of defense to hit their small business contracting target, which they have missed for six years straight. New rules and regulations with big fines, so it will help the little guy. Wrong. This new rule is not going to change anything and in reality shift more of the pie to individuals of the contractor management-skilled expert structure instead of the big contractors themselves.

A very thorough rundown of the changes and potential effects is here with some nice criticism of the changes. As the article explains big contractors can still have ownership stakes and still do up to 40% or 60% of the work awarded to the small business. What is the point of this? It is a Potemkin small business hand out. Even if giant contractors like Booz do not go through the trouble of creating small business proxies to suck up contracts and then subcontract the work right back to themselves, the work will still get done by the big contractors. With the sophisticated tech and amount of classified knowledge and experience required, what small business can compete with the resources of big contractors? The fines for not following rules rose, so someone needs to know the ins and outs of contracting to avoid penalties, which may scare off some small businesses and cause current small contractors to leave. This is a fake fix for helping small business, but reading the above, there is an unspoken set up that could excel in this framework.

Take a few big contractor workers (Booz Allen ees) and let them for a small limited liability corporation with another, external partner called Fat Patriot Consulting (FPC LLC). FPC LLC will bid on the contracts that are up, and in these arrangements (maybe make one of the partners a vet or disabled vet), they get awarded the contract. In a small 3-5 man operation, how will they actually complete the complex work? The small firm will not. The FPC LLC will subcontract the work back to Booz to be done by the contractor workers of Booz. Specific technical work comes with the contract and is done by the Booz guys, but the administrative, final presentation, 'management' and procurement work is done by the outside partner. This lines the pockets of the Booz workers and kicks nice dough to the non-Booz partner of FPC LLC. Why would Booz love this? First, they are getting the contract anyway. All this set up does is pretend to help small businesses and make one guy or two richer off the government teat. Second, Booz (and other contractors) expect project managers and principals to bring in business if they want to be promoted. This FPC LLC will automatically give Booz business but it comes in through the expert technical guys hoping to move up.

The rise of large corporations was going to need a centralized state to enforce laws across states as well as internationally. Aligning the interests of corporate management teams with the government is not a problem when their livelihood and longevity depend on it. By forming these type of small businesses, the large defense contractor firms retain business while their employees boost their economic security and get a slice money that was formerly for corporate retained earnings. When Eisenhower warned of a military industrial complex controlling the foreign policy and direction of the nation, I do not think he envisioned large corporations recruiting random Americans to cover for their increase of government expenditures. After the development of nuclear weapons, I don't think Eisenhower envisioned an American public so indifferent to constant warfare. Small business outreach expands the circle of those dependent on the war machine. Even when it appears that our government is helping the little guy, all it is doing is shoveling more money to the big boys but expanding the circle of who gets a cut.


vultureofcritique said...

This is a brilliant post.

I think I need to reblog it, possibly twice.

At any rate I'm going to print off some copies to share with Internet-challenged folks.

Son of Brock Landers said...

Thanks. The nugget in the legislation that contractors could own up to 40% of the small business is the tip off.