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Red Tape Causes Companies to Reject Lucrative Pentagon Contracts

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Sandra Erwin of National Defense Magazine writes:

"The Pentagon is by most measures a government contractor’s promised land. Last year it spent $400 billion on products and services."

But, more and more companies--even in this economic climate--don't want anything to do with the DoD.

“Among the companies we represent, many of them have zero interest in bidding for defense contracts,” says Patrick Wilson, director of government affairs at the Semiconductor Industry Association. “They look at the ratio of what it takes to comply with all of our procurement rules, and it’s just not a good investment."

And Louis D. Victorino, a partner at Sheppard Mullin Richter and Hampton’s government contracts practice, says, “Many companies realize it will cost them a fortune to set up the bureaucracy they’ll need.”

Headaches are one thing. However, as Erwin notes, "higher overhead costs are minor headaches compared to the exposure to criminal charges if they screw up and get accused of fraud."

She quotes one Jonathan Aronie, also a partner at Sheppard Mullin, who "cites the two-year-old 'mandatory disclosure rule' as an example of the increasing complexity of doing business with the government. The rule makes it mandatory for contractors to disclose any form of wrongdoing."

“What worries me are the small and mid-size companies. … They’re more at risk than the big players,” because "they may not have the expertise to determine what information they have to divulge," Aronie says. “The government is looking for its first opportunity to nab a contractor that didn’t report what it should."

Actually, that one seems relatively self-explanatory. If you've been accused of "wrongdoing," disclose it. Kids applying for jobs as shelf-stockers at Wal-Mart are subjected to criminal background checks, why shouldn't firms hoping to work at the highest levels of national security?
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