Between Ethics and Earnings: A Deep Dive into Defense Contracting

Ready to delve into the murky waters of defense contracting? Witness how businesses, both small and large, balance on the knife-edge between ethical standards and profitability in this fascinating episode of Country Intelligence Report. Together, your hosts, Spencer Bentley, Devin Floresak, and Terrell Cummings, illuminate the hidden world of pre-award phase conflicts of interest and the essential role of discretion and education in preserving ethical conduct in dealings with government entities. 

Fasten your seatbelts as we journey through the thorny terrain of defense contracting. Hear the intriguing case of 'the war dogs', their prohibition from doing business with the federal government, and the potential shockwaves their second coming might create. We explore how corporate giants have successfully embedded themselves in the national security enterprise, often escaping accountability. Savor our in-depth exploration into the paradoxes of defense contracting, the challenges smaller businesses face in preserving ethical standards amid competition with larger corporations, and the potential implications for national security. This is one ride you won't want to miss!

• Hosted by: Terrell Cummings & Devon Florczak
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Transcript

Speaker 1: 0:19

Hello and welcome back to the Country Intelligence Report. We are your hosts, spencer Bentley, devin Floresak and Terrell Cummings. Today we are going to be discussing ethics and defense contracting. This is a conversation that I think every defense contractor, every small business, really can draw some wisdom from, because, when it comes to ethical considerations, there are many, many conflicts of interest within business settings that it can be difficult to navigate. Sometimes it can be especially troublesome when you run into larger actors that may be not working above the board. We'll go ahead and dive right into it.

Speaker 1: 1:13

First question I have is how important are ethics and defense contracting Just regarding integrity, accountability, the impact on national security throughout the entire process, especially when obtaining new work? For this, I'd really like for us to discuss the complexities that might come up during the entire process that can be from bidding to the pre-award phase and how these different circumstances can enable conflicts of interest and other ethical considerations or ethical crossroads part of me that we have to navigate. I'll just throw this out to the team here. Start out how important are ethical considerations and defense contracting?

Speaker 2: 2:08

To me it's extremely important, I think, to our company as well. We really like doing things by the book and making sure that we can have good faith and not only the work we're putting out but our process for getting that work. As far as what we see during the pre-award phases and while we're bidding on items, there's all sorts of complexities that do come out regarding when we're having face time with government leaders about certain work that might come out or just hearing hints about new work that might come out as well. There's a lot of things, I think, have a gray area and you have to be really careful as a company especially as a small business where you might not have much legal counsel to work with some of these gray area items.

Speaker 2: 3:04

One of the things that I've seen within the last couple of months and being in the defense contracting industry for a couple of years now, is that it seems like these conferences that we go to.

Speaker 2: 3:16

There's a lot of information that is shed at these conferences. To me, it seems like some of it might not want to be shared and some of it might be more better shared in a classified setting. Especially, there's some conferences that we've attended that have specific classified sessions, where you're sitting there for four to six hours in a classified area offsite from the conference, discussing these things. Some of the things that we've attended in the last couple of years have definitely seen that some of the government folks speaking have brought up items that maybe should have been classified or things that should have been held until it's been released and cleared to the public. In regards to new work that was coming up, our role as a defense contractor is that I guess we can take some of these things into consideration, but we just have to really be clear about our own role and make sure that anything that we're speaking on, at least, is classified and good to go from our end.

Speaker 1: 4:23

I agree, especially being in the defense space, you learn very quickly that discretion is part of the tradecraft. You are going to be privy to a lot of knowledge that really it's not just sensitive but it has the potential to be incredibly important or detrimental to a lot of different aspects of the organization you may be working with things like that. I think it comes down to what's in your company having an open dialogue about certain things and ensuring that your staff is knowledgeable about the nature of the work that they're in best practices, especially when it comes to classified information, things like that. You really have to take it upon yourself as a business to educate your staff and, you know, hold that accountability internally, because once you're facing the client, you have to remember that the client is acting in the best interest of the government. They're going to rightfully always be sort of clocking your movements and listening intently on what you're saying and the type of information that you're sharing with them.

Speaker 2: 6:08

Yeah, knowledge is key here, especially social settings outside of conferences, or maybe that would have been a little bit more prevalent if we were all more in the office more often. One thing that I think was definitely pressed on us was that or at least I think we're all aware of that we can't really actually buy dinner or buy drinks or essentially I think the technical or legal term is exchange gifts with the client and government folks. Something that was explained to me at least very early was that we can go out and interact with our clients and our government folks that we work with day to day, but when it comes to actually paying for something or doing favors, that's definitely a no-no. I think that's something that obviously, like I said, we're all pretty much still remote, but I'm assuming that a lot of that stuff still goes on where favors are being done by certain contracting groups and for these government folks, and if you want to say quote-unquote, ethical and within your own bounds as being a good company, then you can't really be doing that.

Speaker 1: 7:23

Yeah, yeah, I think we've all heard of that.

Speaker 3: 7:27

No, please, I think it's one thing to get out there. Yeah, and that situation is different for the TREP. Lightly, you know, because I feel like a lot of the government entities, they may have certain stereotypical thoughts about contractors in the first place. So you know, especially, I think, around the NCR, the DC area, they're like, okay, contractors, contractors, you know, seeing that as being kind of slimy or just going after money or doing money grabs or whatnot. So they already have like the notion that, all right, they're going to come in, they won this contract, they're just up to get the money. They're not going to do quality work, you know, are they going to be worth keeping or bringing on for, like the other option, years or whatever? They already have that negative connotation and a negative stereotype about that coming into it.

Speaker 3: 8:11

So obviously you're trying to make the good first impression but you're not trying to do anything that's unethical. You know you have your guidelines for your company you want to follow. We also want to show the client that, yeah, you know we're for real, we're serious about our job. We're serious about our work. You know we're serious about our relationship with you coming into it and you just got to show that you're accountable on what you're doing on your end and show that your company follows suit of what your leadership does. So this is one of those things you have to keep mind as far as that there as well.

Speaker 1: 8:41

Agreed, yeah, and I think we all know of some bad actors in the space. And unfortunately, you know, human nature is such that you know there can be those situations where awards are granted on the strength of relationships rather than the strength of, you know, competency or ability to, you know, handle the workload. And it can be frustrating, especially for, you know, small business like ours, that you know we go above and beyond at every opportunity we can and sometimes just the opaque nature of the contracting process can leave you with a lot of questions. But I think it is important that you know companies understand, especially small companies, that your reputation precedes you and unfortunately it is the case that a lot of contractors that you know take aim of the government. You know a few of them have poisoned the well they have. You know, you know a lot of the reputations frankly can be warranted for how some contractors act in the space. And you know the only way to overcome that sort of obstacle with, you know, in sort of ingratiating yourselves to the client, the government, is to just do quality work and keep everything above the board, ensure that you are instilling ethical practices in your team and then you know that effort will become self-evident in the type of work that you're trying to execute and the type of clients that you're trying to secure.

Speaker 1: 10:37

So, yeah, definitely it's an ongoing process, I think, for all of us to ensure that we're maintaining those high ethical standards, and you know. On that, I just want to you know, I guess, broadly ask how do we remain committed to being ethical, especially once we secure the new work? Because it can be very easy for you know companies to talk a good game, but then, once you have the work, once you're locked into the contract, you can't really take your foot off of the gas in terms of, you know, acting on your strong ethical foundation. And I'd like to just discuss this in regards to you know how we remain ethical throughout the entire contract execution. You know that can be delivering on commitments, it can be, you know, quality assurance, you know all of those sort of gray areas that are sort of in between the dealings on how we interact with the client. You know what are our thoughts on that.

Speaker 2: 11:44

I think it's a two-way street regarding you know us as a company being ethical versus you know our clients and you know the federal government employees and those that are in the military being ethical as well to you know to their contractors and you know just talking about. You know us initially. You know when we do when that new work. You know it's on us to you know be sure that we can complete each of the task areas and make sure that you know when we do have status reports out, that you know we do include our tasks and we do include you know what we actually did and that we're also up front with you know any issues that we might have ran into.

Speaker 2: 12:25

And going back on the client side as well, I think it's up to them to make sure that you know they do actually read the contract, that you know they signed and they approved, and it's on them as well to make sure that you know they're assessing us and you know making sure that you know our stuff is up to standard as well and use tools such as the C-PAR system, which is the contractor performance assessment reporting system. Use tools that you know they have access to to report you know whether or not we're doing a good job and being honest and up front with that. And I think you know just being. You know the key theme there is just, you know, being up front. You know both ways. You know, like I said, whether you know we, as the contractors, are having issues or you know them as the clients having issues, because you know, once you know one of us goes off the beaten path and that's not really good for anyone.

Speaker 1: 13:25

I agree, and you know it is crucially important and I think that especially a lot of smaller contracts will attest to this. Like you said, devin, it's crucially important that the client understands what is to be expected. You know it's very easy to run into situations where, due to a lack of communication, there is a misalignment in expectations, and you know that can. Unfortunately, those conversations are always going to be biased towards the client, you know, just because they're the ones that are writing the checks, they're the ones that are judging the quality of work and things like that, and it can create some tensions and it can create some misalignments that can escalate rather quickly.

Speaker 1: 14:25

So, you know, for businesses in this space, it's as important that we're continuing to communicate our competencies and communicate expectations and ensure that expectations are aligned throughout the duration of each process, you know, from the bidding to, you know, winning the contract to executing the contract. You know it's kind of incumbent upon the companies to ensure that there's transparency. You know that the expectations are laid flat and bare on the table so that you know there isn't any issues down the road, which is not uncommon, especially even, I'd say more so in the longer term contracts or the more complex contracts where companies can get sort of pigeonholed into a certain set of tasks and just due to, you know, turnover or just simply lack of communication on the client's side, you know that you can lose sight of what the expectations are. I'll say it like that. So yeah, that's an important thing.

Speaker 3: 15:44

I also think that I think it also comes down to on the small businesses side. You know the leadership that they communicate to their teams. You know, here's what our expectation is for work, here's what our expectation is on how we run this company. You know, and like this, is this where we want to hold it, like, yes, the client, you know, holds you here. In our bid we said that we do this, this and that we want to make sure we do this to the most standard.

Speaker 3: 16:11

As far as doing that, and I said there, you know there can be a lot of turnover.

Speaker 3: 16:15

You know in this world as far as that.

Speaker 3: 16:17

So it's just something where we share our lives on the same page and they come on and make sure the new individuals that are coming in, if they've come into the contract and get the appropriate training, get understand the type of work that we're, that we expect as a company and you know, just make sure that they can, they can follow line and provide that same amount of, I guess, quality. You know, overall that we, that we set out to the client that we could do in the first place and that way they have the client's confidence of us. You know they may expand our contract that currently they're currently on, or maybe suggest that there's another contract that's going to be coming up. We want you guys to put in a bid for it. You think it'd be good for it. You know, whatever it is, this is a lot of times getting new work is going to be that referral from your current client, whether it's more work for them, or maybe they refer you to another client you know that could be just waiting to expand your business.

Speaker 1: 17:06

So yeah, I agree. I agree Great points there. And you know it is the case that you know maintaining high ethical standards is is a task, it's an effort. It's an effort and often and this is especially true in the private sector that you know that companies I used to work for, companies my some of my older colleagues work for Oftentimes that that effort pardon me, that effort to maintain high ethical standards can run into conflict with making a profit and being profitable and being competitive on the open market.

Speaker 1: 17:52

You know it's sort of a different beast with defense contracting, but those tensions are still certainly aligned there, where it can be difficult to maintain a focus on creating profit for shareholders, continuing to grow as a company, while still enforcing a very high ethical standards that sometimes, especially in the defense space, can have legal ramifications to them. It's not, we work in a highly regulated space. I just want us to discuss the tension between, especially in the defense space, being ethical and making a profit and how some ethical compromises may arise when profitability becomes the sole focus of a company, especially in the defense space.

Speaker 2: 18:50

Yeah, when we were taking a look at our outline here and seeing what we might want to say, I was just thinking about the movie War Dogs, which I don't know if you guys have all seen that, but the one thing obviously they're doing is that they're taking on multiple contracts at a time with only two people, which honestly that seems like there probably are some companies that are doing that right now, especially in the remote age of everyone's doing telework.

Speaker 2: 19:24

There are some contracts that are enforcing some sort of hybrid schedule, but at least for the work that's remote. I could see where that would be rather easy to do right now.

Speaker 2: 19:34

I think that just falls back on the cores and the folks working at the contracting office to do their due diligence on who they're actually hiring and make sure that no one's really double dipping and they actually have the staff to support the work that they're approving. As we know, once a contract is signed, it's pretty tough to get out of it, at least from the government point of view. They have to provide real reasons as to why they don't feel like the work is being fulfilled or some other reasons, and that's really tough to get by. That's the one thing that I thought of where obviously most companies are doing that. I'm sure there definitely are some that are doing that right now, but I just think that kind of falls back on the government, the people working the contracts, to make sure that they actually do their work and do their job that they should be doing to make sure that everything is looking good when they do approve a contract.

Speaker 1: 20:37

Yeah, I think, just on the business side, that you have to understand, like I said earlier, that your reputation precedes you. If you want to have a long lifespan in this industry, you have to understand that there are going to be those compromises where you have to put your ethical standards over short-term profitability, because in the long term, that's how you grow, that's how you establish trust with the client, that's how you build upon relationships that pay dividends into the future. If you want your company to outlive you, if you're looking to establish a true company, that's not just an entrepreneurial hobby. For the time being, this is a very small world that we operate in. Once your name gets tainted, it's very hard to shake that stigma.

Speaker 2: 21:40

Yeah, especially as a small company. I feel like it only really applies to federal contract groups that have a small business side-to-side, or these smaller mid-to-small companies. To me, I think it's a dilemma, though, for the large companies, because I feel like the federal industry as a whole is too reliant on Booz Allen and all the big contracting guys, where maybe they can get away with some of the shady stuff, because what's the government going to do? Contract or cancel out all the contracts, the billions of dollars worth of work that these companies are doing that support national security? I think that's a real dilemma and that just further proves I think there needs to be even more work dedicated to these small businesses to avoid these conflicts of interest from these larger companies. Definitely.

Speaker 3: 22:31

Yeah, it is the case, I'm sorry. No, please, the small businesses should look out for too, when they're partnering with other companies, make sure you do your due diligence as well, because it would be out there in the community these companies are seen as unethical or being shady or whatnot that all of a sudden you're partying them on a particular contract and your name is lumped in with them. Then all of a sudden that could take your name as well. So, small businesses, make sure you're out there and your due diligence prior to actually partnering with someone on a particular bid.

Speaker 1: 23:05

It is. Yeah, that's incredibly true. Yeah, if you make that connection, it's very difficult to shake that association. It is the case that there's certainly a double standard and, unfortunately, small businesses just have to play the game because the larger corporations, at this point, the larger corporations that operate in the defense industry, they've they found ways, you know to their credit and you know just, from a capitalistic point of view, it is to their credit they found ways to ingrain themselves within the structures of the, you know, national security enterprise in such a way that you know they, you can't just exclude them, you can't just cut them off, you can't just stop utilizing their services. It takes quite a lot for them to be held accountable because they, over the years, over the decades, have just ingrained themselves in everything from, you know, the technological requirements to the politicians that support these contracts. You know these larger, you know the big defense contractors have found a way to sort of enmesh themselves into every aspect of the federal government. So they have that leeway that small businesses simply don't have.

Speaker 2: 24:33

Yeah, and in fact the war dogs, you know, those two individuals in their group was, you know, barred from doing business with the federal government, for I think it was like 15 years. I think I'm pretty sure this is the year that they could actually bid on contract work again. So I thought that was interesting. Yeah, if you watch the movie again, they do that little synopsis at the end and they give the date. I'm pretty sure it was sometime in 2023. So it's kind of wild looking back at that movie and be like, oh, this year it's 2023. But yeah, well, I mean that wouldn't be surprised if we saw that.

Speaker 1: 25:08

That, I think, is like spot by Again, like that's.

Speaker 2: 25:10

The issue, though, is that you know the US government can, can, bar, you know, smaller companies like that from doing business, and it's relatively easy to do that, and it's a lot more complicated when you know you got the giant corporations. You know that might be doing something shady, where, if they're a small business, you know it wouldn't need to be like a consideration. It would just be an automatic, you know ban or fine, which we know that you know all these large contracting companies have gotten at least fine before, but that's really all that the government can do. You know they can't, they can't really bar them from doing business because you know they seem so reliant on them.

Speaker 1: 25:49

Yeah, yeah, I mean, and reliant in ways that have direct national security implications, which I think is a I mean now we're getting into the politics of things which we won't touch too much on, but it's it's.

Speaker 1: 26:03

It is an unfortunate circumstance that we have become overly, overly reliant on very few actors in this space, but again, you know, just bringing it back full circle.

Speaker 1: 26:16

This is why ethical considerations need to be paramount in small businesses, because, you know, just because these, these large corporations are deeply enmeshed into the fibers of national security doesn't mean that you know decision makers on the client side necessarily like that. You know, we speak to many people that are dissatisfied on the client side with larger organizations, larger contractors, just dissatisfied with the quality of work with the, the, the, you know, the reliability, maybe some ethical considerations. So, in order to really create that, that gap between you know, expectations for your small business in the larger spaces, the larger corporations, part of me is to maintain that high ethical standard, you know, maintain high customer service values, maintain high quality product and it does show it doesn't it doesn't go unnoticed and you can see that you know per the numbers that have been released regarding you know how much federal contracts have been awarded to small business and different sorts of status sides within the last two years.

Speaker 2: 27:33

You know last year, I think, set a record, for you know as far as the amount of money awarded to in general for federal contracts. You know a certain percentage. I forget the exact percentage, but you know obviously there's a legal standard there for a certain percentage to go to small businesses or those of status sides and I believe it exceeded that by a couple percentage points. And then you take a look at this year the numbers were just released and you know even even greater than you know the previous year. More money has been, you know, allocated to small businesses and those with other different status sides. So you know it's not going unnoticed. You know the work that we're doing as a, as a small business, here in the federal contract space is not going unnoticed and just you know, keep with it.

Speaker 1: 28:20

I agree. You agree High ethical standards, people, your reputation precedes you. That's all we have for now. Until next time. This is the country intelligence report. Thank you for listening to the country intelligence report. Please like and subscribe to stay on top of the latest developments with the show. For more information on the country intelligence group, please visit our website at wwwcountryintelcom. You can also be found across multiple social media platforms at countryintel.