Contracting Officer Podcast 2.0 (samples)
THE podcast for those who want to learn about the government market from the contracting officer's perspective. Kevin Jans and Paul Schauer, both former federal contracting officers, explain the rules, processes and the "why" behind government contracts. They know because they've done it.
Contracting Officer Podcast 2.0 (samples)
216 - Incumbent Capture
If you work in the Government acquisition world, this podcast is for you. (not just for Contracting Officers!)
Kevin and Paul discuss the common practice of hiring, or at least planning to hire, the incumbent contractor’s employees when you win a bid for a service contract. Listen and learn the benefits and pitfalls of this strategy from both the Government’s and Industry’s perspectives.
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This episode is brought to you by bidprotestinsurance.com. Protect your company from the financial risks created by a bid protest with bid protest insurance.
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Kevin Jans and Paul Schauer created the Contracting Officer Podcast to help Government and Industry acquisition professionals understand more about how the other side thinks. Admittedly, the podcast’s name sounds very limiting. It is not just for contracting officers or even just for those in the contracting profession. Anyone with an interest in the Federal acquisition world can benefit from the insight and down-to-earth explanations of complicated topics provided by the hosts.
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Speaker 2:the contracting officer podcast. It's not just for contracting officers. If you work anywhere in the government acquisition world, this podcast is for you. Our topic today is incumbent capture. This episode is brought to you by bid protest, insurance.com bid protest insurance is exactly what it sounds like insurance to protect your award from bid protests. It protests are nearly impossible to predict. Since bid protests typically cost the apparent winter up to 15% of the contract value, they could be a nearly catastrophic financial event, especially for small businesses. Having insurance against this mitigates that risk. Here's how bid protests insurance works. Go to bid protest insurance.com to apply for a free no obligation quote to secure that quote. You simply pay a small fee if and only if you received the award, you'll be charged for the agreed upon premium. There's no cost if you don't win the award. Now, if someone protests your award, you're covered for many of the costs that are created by protest delays to cover yourself in the event that someone protests your next win, go to bid protest insurance.com to get started. Okay. Let's get started with our conversation about incumbent capture. We talked in an earlier episode about
Speaker 3:non displacement of qualified employees. This is a clause in service contracting that requires you to offer jobs to the previous contractors, employees, you win the contract you have to offer the people that are working there, the jobs before you can get offered the jobs to your own people or hire anyone else[inaudible].
Speaker 4:Well it turns out that even without this clause, which requires it in certain cases, it's actually a pretty good strategy to hire the people who are already doing the work. If you in the contract it can be a pretty good strategy. Fair enough. Yeah. There, there, there's a nuance to everything. One of the agencies I worked at, we had AC to contract, which is a systems engineering technical assistance contract with basically it's a service contract for professional services and every PA recompete it every five years and a lot of the same employees that roll over to the next contract. Even though that clause and non displacement of employees didn't apply, you still wanted to keep you being the contractor and even the government customer wanted to keep some of the same people and that concept is what we're talking about today.
Speaker 3:Before we get into that, let's stop and say thanks.
Speaker 4:Let's say thanks to this episode to Greg Sella Stan, he's the CEO of Sell Star Corporation here in Tampa. I want to thank Greg for being a longtime supporter of the podcast and skyway in particular for liking and sharing our content over the years. The best way for people to find this information they were given away for free is for people like Greg to share it.
Speaker 3:Thanks Greg. Back to our topic in service contract it. It's very common for a company to win a contract away from an incumbent and hire the same people to do the work. One way. This is described as with the term incumbent capture. You're going to capture the incumbents employees
Speaker 4:and depending on your role in the, in the contract and the acquisition, you have a different perspective on income and capture.
Speaker 3:The non-incumbent contractors that are competing for the work probably want to capture the incumbent contractor employees. They probably want to make it easy on themselves and hire people that they know have the skills and the experience to do the job. If you're the incumbent contractor, of course you want to keep your employees, you want to keep the contract, do you want to win again and keep all those people?
Speaker 4:If you're the government customer, they want to keep the good contractor employees, the ones that they've been working with for years, the ones who they're used to, and again, that's a fuzzy answer of the good ones, but the idea is that they want consistency and government customer who is working with these service contractor personnel, they want consistency and commonality. They don't want it to feel like, oh, it's all new people here every five years.
Speaker 3:Right. And they don't necessarily want to keep all of the people in a, in a turnover if the incumbent wins again, but they want to keep, like you said, the good ones and that's a a hazy concept of what good is.
Speaker 4:Exactly. And then as a contracting officer, I was pretty agnostic to who wins. I just want to this, it has to be re competed, let's do this. Right. Let's do it right the first time in which company actually wins the contract. As long as the employees are capable of doing the work, I'm not as concerned about that part.
Speaker 3:Yeah. On a personal basis, if you're going to end up administering the contract, you may have a preference for, hey, I know this contractor is easier to deal with in this other one. So you may have a personal opinion about which contract you might want to win, but as a professional contracting officer, the winner is the one that that best responded to the RFP and met the criteria at the lowest price or whatever your acquisition strategy was. Right. It's, it's, it's a very non emotional ice cold type of evaluation. The winter is the winter and your personal opinion, you don't get to have a personal opinion. I think everybody else gets to have one, but as a contracting officer, you don't.
Speaker 4:It's an ice cold evaluation that that sounds like a good podcast.
Speaker 3:If you were an employee of the incumbent contractor, the idea of income at capture can be good or bad. Probably those employees want to keep their jobs and they may or may not be indifferent to which company they work for.
Speaker 4:Yeah, they, they may be company agnostic, meaning that which company they work for is less important than the fact that they like the work they're doing. They like the agency, they're supporting it there. They've been working there for several contracts. They know the commute. It's near their house. You know, whatever reason that has less to do with the actual company that they work for versus the work that they're doing.
Speaker 3:Yeah. The whole of company
Speaker 4:loyalty can go out the window. In this situation. There can also be a situation where the new company who unseats the incumbent wins the contract but they have a bad reputation and the employees may not want to work for them so it incumbent capture may not be as effective as strategy if your company doesn't have a good reputation as a contracting officer. I've not heard this concept called incumbent capture. It's not a phrase that I knew of. I just knew that the people who supported our customer, they, they seem to be any elastic, like they were the same people there year after year regardless of the contractor. We had the same people in the office and it wasn't bad. It's just they were, in this case, the sum of these contracts. These are specialized people. We had a guy in our office who his badge number had three digits on it and mine had six because mine was like, you know, badge number one 100,417 his was like number 916 so other words and he was a contractor, which means that when this agency stood up he was like the 916th person to get it back and this was like probably six contracts ago, but he knew so much about the organization. He's one of those people that if he didn't have his badge that was a different color, you wouldn't know he was a contract.
Speaker 3:Yeah, he just kept doing the same job all that time, no matter which contractor had the contract. And by the way, that's one of the reasons why government offices hire support contractors because they want the continuity, especially in in the Department of Defense where program officers are often staffed by military folks that that rotate on a regular basis. They have government civilians and they have support contractors that that are that continuity despite competitions despite there being a new badge and a new name on their badge. Right. Let's shift onto the time zones. What we're talking about here occurs during the acquisition time zones all the way at the beginning of the requirement's zone. The government's deciding do we really want these same people and they can shade the RFP? I'll say two to make it clear whether they would like the same people or whether they would like a change and that's separate from whether they would like the same company or whether they would like a change but it flows through market research. Are there other companies that can do the same thing with different people? The RFP zone, how you write the RFP and the source selection zone, how you set up the source selection criteria
Speaker 4:and one big factor in this is the size of the contract is decided during the market research zone. Is this going to be one large service contract that touches everything in your agency or is it going to be a smaller, specialized one and that that is going to impact the incumbent capture because they can go from working for a small business to working for a large business, which changes the calculus for those employees.
Speaker 3:Yeah. Or the other way around
Speaker 4:or the other way around and say that's so these decisions that are made during the market research zone impacting, combing, capture two zones ahead
Speaker 3:and the execution time zones. It also shows up in the zone because as we always talk, this is a cyclical thing. The recompete zone in the execution time zones is actually back in the requirements and market research zone in the acquisition time zones,
Speaker 4:and if you're not familiar with these times Evans, the acquisition time zones or in episode number three and the execution time zones are an episode 84
Speaker 3:let's talk about why this concept is important. When a service contract is recompete it just because the scope changed, the acquisition strategy may have changed, the rates are going to change and the contracts or change. That doesn't necessarily mean that the employees will change and that can be a good or a bad thing.
Speaker 4:The more specific the positions that these employees feel are more specific, the government customer or more esoteric and unique the process, it may be behind what the government needs. The more likely incumbent capture will be an important part of the strategy. If the position is unique in hard to fill, the incumbent capture may be the only way to get the skills needed for these people I've had, I've had contracts that I awarded that there are only a few people that could fill this job and thank God we already had them and it. We are hoping that that person moves over to the next contract.
Speaker 3:It can also happen in areas that are somewhat geographically isolated, at least from a government work perspective. If you have, if you're in a smaller town that has a government office or agency or or or a military base, there may not be a lot of other jobs for those government type skillsets in the area. And when you go to Recompete, those folks, they want to stay and they'll, they'll work for whatever contractor has the, has the current contract. If it's true that you're going to recompete and end up with the same people with different badges, you could ask what's, what's the value of recomputing? We're just re competing cause the far says so and we're spending a lot of time and energy and we're ended up with the exact same people doing the exact same things.
Speaker 4:Well that's true. That is, that is the reason that pushes this process. There are other benefits to this. First, it ensures that the, that the companies that the service delivery people are keeping up with technology times that we've recompleted contracts the innovative ways to use technology integrated with the actual employees working as has shown up as part of the, of the[inaudible] competition. The other words, you're not incentivized to think smarter and harder if you never have to recompete the contract
Speaker 3:re competing every few years helps you ensure a fair price as well. If you have a longterm contract and you keep renewing it, generally escalation is built into the contract price. Every year the rates go up 1% or 2% or 3% or 10% whatever, whatever was negotiated after awhile. That escalation can far outpaced the actual escalation of labor rates or whatever you're buying. So these recompetes kind of reset that, right? That everyone's going to compete and offer a little bit lower price in order to get an edge, including probably the incumbent.
Speaker 4:A metaphor for this is your car insurance, it goes up five, 10% a year. If you just ignore it 20 years later, I almost guarantee you're paying 25% more than you should be if you competed it. Yup. Whether that's right, wrong or indifferent, it's an easy way to wrap your head around this. The cable companies the same way this just happens. And so by recopying in every five years, like you said, it kind of resets things. And of course it's also required by the far,
Speaker 3:oh yeah. Just that one. Yeah.
Speaker 4:You and I are not required to recompete the contract with the people who clean our office. That's because we were in the private sector. But in the public sector you can or is it, is it still a good idea? Yes. But you're not required to do it. Well, in government contracting, you know what's, what's your thing? Only in government contracting all this. Well, this is probably one of those cases.
Speaker 3:Let's get specific on the government side. Why does the government care about this concept of incumbent capture?
Speaker 4:Well, your government customer says, well, why can't we just keep the same people? The answer is, well, if we talked about they can, if the incumbent wins and even if they don't win, they'll probably still keep some of them, the ones that the contractor chooses to keep, and they'll keep those employees who want to stay when you transition to a new company. So just because you're transitioning doesn't necessarily mean you're going to lose all those people.
Speaker 3:Yeah. You can craft the competition to ensure that the people that you want stay the best people stay and the other people leave
Speaker 4:the danger with expecting that you're going to get the same people. I was talking to a company, they were telling me a story of how they had lost the recompete and the re competition of the contract that they had had the new contractor offered this companies effectively their former employees now the job at at t to continue to support the customer. The government customer, except they offered them 30% less pay. Well that's, that's a big bite. Right, so the story of this particular employee, he was eight stayed just long enough to find a new job because he's not going to stay that long for a 30% cut. And I would think that this is pretty common.
Speaker 3:Yeah. Some people don't even stay long enough to find a new job. They just don't accept the new offer on principle. This is very common employees that are, I'm going to say victims of incumbent captures a strategy often get offered lower pay and worse benefits in order to fit within the super low rates that they non-incumbent proposed. In order to win, because to unseat an incumbent, you have to offer better value, right? It's hard to say, we know how to do this job better than the people that have been doing it all along. You're one good competitive factor is lower rates. So in the competition, all the non-incumbents bid low rates and can't pay employees the same pay or benefits in order to execute those rates. Even incumbents sometimes low ball, their rates to compete because they know that everyone else is gonna bid lower than them. So the incumbent wins and it tells the existing employees for the exact same job. We're now going to offer you less because we can't bill as much to the government when the job market is really good like it is right now. The best people leave very quickly. So even if you awarded government with the strategy of we want to keep these people, we included resumes or key personnel in the in the RFP so that we can make sure we're getting the people we wanted. You may not be able to keep them. If you award to someone whose rates have cut below what that market rate is, you or you may only keep the people that don't have other options, which is not good.
Speaker 4:Yeah. You don't want the last person standing and this is a risk of LPT, a services of lowest price, technically acceptable services, because that story you just laid out is how it's going to play out is if you just go with the lowest price, particularly in services because lots of things get cheaper, lots of products should get cheaper over time. Services, thanks to this called thing called escalation really shouldn't get cheaper much. Right? They may stay flat. If you, there are ways that you can that you can manage that to make the overall cost to the customer less, but the wages normally don't go down
Speaker 3:over time. Wages generally go up, right? Yeah.
Speaker 4:Generally speaking, people get at least the cost of living increase every year. The things that people have to buy that they use those wages for don't traditionally get cheaper over time.
Speaker 3:Wages generally go up. Let's not limit this thought to LPGA competitions. It's really any award to the lowest priced bid. If that price is not realistic, this is the situation you could end up with where they're offering these talented people less money than they were paid yesterday to do the same job and those people may leave
Speaker 4:and as a contracting officer, I was insulated from that. I didn't realize that that that was a common occurrence is for somebody to be offered 30% less for the same job.
Speaker 3:That's why it's important in these competitions that you're evaluating, that realism are the rates that contractors have proposed actually realistic rates for the services that they're saying they're going to be able to provide for those rates in a hot job market, it can be really tough. Let's flip to the industry side
Speaker 4:and come and capture it. It's kind of expected. It's a viable strategy to win the next contract and continue to perform for the customer.
Speaker 3:The government might be giving you hints about whether they want income at capture, whether they want you to hire those employees in the RFP. If they require resumes as part of your proposal. If there are key personnel with very specific requirements where you're, you're reading the requirements for the key personnel and you're like, that sounds just like Steve, the guy that's, that's the lead scientist on this program. Huh? Must have a phd from a university in the northeast. Huh? That's pretty specific. Yeah. That might be too specific, right? Well, yeah, maybe that's a little overboard
Speaker 4:and this is one of the many reasons to be ahead of opportunities. If the RFP just comes out, those key people in those key personnel that that are being referenced in the RFP there are likely already signed up with either with the incumbent or with another bidder because they want to keep their jobs. If your awareness of the need for that capability that that person has just came to light when you read the RFP.
Speaker 3:Yeah, we're probably too late. It's common for companies to make contingent offers. So they say, if we win this contract, we will offer you this job for this salary. Please sign here. And I've seen government agencies ask for contingent offer letters in the proposal to prove that you can actually hire these people, that these people that you're proposing are not just resumes you found on the Internet, but actual people that will, will do the work. And it is contingent if we, when it's a real offer, if we don't win well then good luck. Yes. So if you're in the job market, don't get all excited that you got a contingent offer.
Speaker 4:It contingent offers a great strategy because what you shouldn't do, or I would say you can't do, is to say in different poses when we win, we'll go hire these employees. And I actually saw that in when a couple of the ones that I evaluated and I thought, well that's true, but you have to win first. Anybody can say, give me the money, I'll go do stuff. Oh, how are you going to do this stuff? Right? So that's that's one of the cardinal sins of, we don't have these employees yet, but when we, when we'll go hire them.
Speaker 3:Right, because the incumbent is saying we're going to give you these employees that we already have and that you already know in like southern governor us like, well why would I switch to a different contractor for the same people? That seems crazy. Just be aware if you are the incumbent that your employees that are currently doing the work might be signing contingent offers with your competitors just in case people do what's in their best interest. They do. That's another important life rule. Completely separate from the broadcast, but people will do what's in their own self interest. All right, let's not go there. Let's wrap it up
Speaker 4:on the government side. If your service contract has some unique skilled requirements or or even just to come and the commonality of the employees is helpful, be aware the competitors will be looking to hire those same people and be careful that you don't let them buy in with low pricing. I'm going to bring in this person, the same people in the office here by paying them less because they're going to drive away those people. They're going to do what we talked about there. They're going to stay there just long enough to find a job somewhere else and that's not what your customer wants. This is one of those third order effects of just looking at price that I didn't see as clearly when I was a CEO.
Speaker 3:I've seen so many competitions fall into that trap. Oh yeah, we're gonna Award to this lower price and somehow we're going to get the exact same thing for a lower price and unfortunately economics, it doesn't always work that way. It actually rarely works out that way.
Speaker 4:Exactly, and on the industry side, don't, don't just drop the term incumbent capture because they're not, the government folks aren't likely to know that. Of course, if they listen to this podcast, they do explain it. Explain how you plan to capture and keep those people. It's the same story and proposals of how are you going to do this cause moving from one company to another for the same job. It can highlight the intangibles of why your company, your entity is more valuable than the one that we have. Because if you don't have that differentiator as a CEO, I should be concerned that, okay, well if you come in and they don't like you, the same employees are gonna leave. And that creates a risk for my customer because if you're not gonna be able to bring in people that can do the same work at the same skillset, that's moving us backward. And my job is to make sure that we're not moving backwards as the contracting officer.
Speaker 3:Yeah. All things being equal. Every contractor offers the same employees for the same price. I might as well stick with the incumbent because I then I don't have any transition risk. I don't, I don't have much risk of people leaving just because they, they're a bad reputation for another company, but it's really all things be equal. If one company offers a lower price for the exact same thing, then you have to really wonder how, how are they different? How are they going to offer a lower price for the same thing and it's possible you could have a lot lower indirect rates because of a lot different a company structures, eyes or whatever, but it shouldn't come down to just we're going to hire the same people and pay them less and and everything will be fine.
Speaker 4:Trust me, everything's going to be just,
Speaker 3:all right, I'll wrap up by going back to the government telegraphing whether they want change or not. Are they just competing because it's been five years and they don't really want to, but they want the exact same people and contractor. The clues should be apparent in the RFP. If you go to an industry day and they're dropping hints about resumes required or key personnel or continuity or or a low low transition risk or something like that, you kind of have a clue and you have to rethink your strategy to win this. It's going to be harder to unseat an incumbent if you're getting those clues, and with that, let's end here. I'll talk to you later, Kevin.
Speaker 2:See Paul. Okay, that's it for this episode. Thanks again to our sponsor, bid protest, insurance.com and we'll see you next week.[inaudible].