The increasing burden of risk in federal contracting

The increasing burden of risk in federal contracting

The administration has been clear: Greater risk needs to be shifted to industry in contracts, often through fixed pricing. Those contractors willing to shoulder more of that burden will often walk away with the win.

Protesting contractor: WingGate Travel Inc., AirTrak Travel, and Alamo Travel Group

Protest issue: The solicitation places undue risk on the contractors.

GAO decision, Nov. 29, 2011: Denied.

The protestors argued that the choice of a fixed-price contract with no opportunity to adjust pricing if needed was unreasonable. GAO disagreed – noting that some risk is part of business, especially in terms of fixed-price contracts.

This case is a poignant reminder that just because the government has assumed the risk in the past, does not mean it will do so in the future. This is a bid protest, which means that there were companies willing to take that risk and, as such, were awarded the contracts. They may regret it if costs pile that they then must absorb, just as government could find themselves at a loss if huge fluctuations cause the company to default on its contract obligations. But the fact remains – both parties are willing to shoulder such risk.

I am reminded of a quote by Hellen Keller, “Security is mostly a superstition.”