Making money at the expense of ethics

posted Washington Business Journal, 11 Jul 2013

By Ray Bjorklund, President, BirchGrove Consulting

Recent news items about crackdowns, investigations, and criminal convictions of small and disadvantaged contractors are disturbing. Not that anything shockingly new has come to light. But the fact remains that with each new report about misrepresentation in contracting, more damage is done.

Whether it's company executives distorting their qualifications, companies forming convenient pass-through "front" entities, or businesses failing to report material changes in their circumstances, these negative poster child images are especially troubling when the federal government is struggling to reduce its spending.

In my procurement experience, I have seen companies stretching the rules. I have participated in decisions to cancel federal contracts on grounds that the contractor defrauded the government. It is not a pretty picture for either party to the contract. The contractor has a black eye and maybe a lighter wallet. The government typically has to incur additional expense to start over.

Manipulating circumstances to position your company as a small or disadvantaged business, just because the regulations provide the path and process, may compromise the spirit, if not the letter of the law. Don't get me wrong: the socioeconomic contracting programs are good things. Whether helping veterans get a new start, leveling the playing field for economically-disadvantaged peoples and locales, or providing opportunities for women entrepreneurs, socioeconomic programs in government contracting can provide the fuel for the national economic engine. Small businesses often need some competitive advantage to jumpstart their revenue stream. Growing companies often contribute to regional economic growth.

That in fact makes the instances of fraud or misrepresentation more disturbing. It's harming the companies and individuals that these programs were created to serve.

So why does the rule-stretching continue to happen and often go unnoticed? While the reasons don't always occur concurrently, there are three main ones.

First, greed. Yes, there are some greedy mercenaries attempting to take unfair advantage of business opportunities meant for truly disadvantaged businesses and individuals.

Second, convenience. In looking for an expedient means of satisfying its socioeconomic goals, the government often does not question company representations and certifications. It is often difficult for the contracting organization to challenge a certification because it calls into question the integrity of the person and the commercial entity. Instead of judiciously interpreting the regulations, it's easier to rely on the information provided by the offeror or by other agencies.

Third, lack of differentiation. There are many thousands of small and disadvantaged businesses. Relatively few have anything singular to offer except hard work and domain experience. That allows many of the less scrupulous companies to function under the radar.

The numbers are in fact pretty astounding. There are over 4,300 certified services companies and joint ventures under the 8(a) program for small disadvantaged businesses. There are over 2,600 service-disabled veteran owned small businesses performing services, about 2,000 of which are verified by the Department of Veterans Affairs. There are over 2,200 economically disadvantaged women-owned small businesses performing services. Add in manufacturers, resellers, and construction firms, and these numbers almost double.

So then the question for those companies that legitimately hold status under one of the socioeconomic programs becomes this: How do you compete in this environment, when fraud just might provide others with a masked advantage? The answer is to rely less on socioeconomic labels, and more on those capabilities that differentiate your company.

Ultimately the government must make a contract award on the basis of how well your offerings connect with what that customer agency needs. What makes your company offerings special? Do you offer something that 80 percent of your contemporary companies don't? What would make you stand out within your socioeconomic cohort, especially in a set-aside procurement?

A thoughtful approach can position your company to stand out among all competitors—even the unethical ones. Carrying a socioeconomic label then becomes icing on the cake.

©2013 Washington Business Journal. Used by permission.