There has been a lot of discussion about jobs lately. Apple CEO Steve Jobs resigned his position. Many American workers don’t have a job. There was a collective sigh across the country as a presidential address about jobs preempted early prime time television and threatened the start of the NFL season. In the meantime, the Department of Labor issued a final rule that would have really been great for me if it would have been in place in 2008.
It was a beautiful summer. I was consulting with the DOE on a financial management project that was really hitting its stride. We had finished a tool that we had worked on that would take the “silo” effect out of the CFO offices across the agency when it came to financial management. The next step was to make sure the tool was used appropriately and to get the best practice approaches to all the financial risks uncovered through the tool’s use. Then the call came… it was a Friday… at 5:00 or so… when my boss got the call. I got the call on Saturday that we had been issued a stop work order.
My understanding is that the project was taken up within a few months, but in that time I was given my walking papers from the consulting company and left to find a new path. The DOL has finally given some power to displaced contract workers under their final rule. http://www.federalregister.gov/articles/2011/08/29/2011-21261/nondisplacement-of-qualified-workers-under-service-contracts
In this rule, service contract workers are given the right of first refusal to the job that they would otherwise be technically qualified to perform were they to be employed by the successor contractor. I find this to be a great step in the right direction. Finally, it appears that there is a desire to keep that “institutional knowledge” from contractor to contractor intact. I have witnessed first-hand the learning curve that takes place when a predecessor contractor loses out and takes its service workers to other projects. The biggest loser in these situations has historically been the government (read “taxpayers”) in the amount of data and knowledge about a program that is lost and then re-learned. Hopefully this new rule will set that straight – taxpayers win.
Now allow me to put on my “devil’s advocate” hat. WARNING: Financial and accounting content ahead! Let’s assume that a contract for professional services (we’ll go with financial management assessment for argument’s sake) has 5 people working on the contract. The workers are paid well and their loaded labor rates range from $150-$200/hour. This includes indirect costs and a burden of 150%. The employees enjoy the work and the company provides good benefits. In walks Contractor B at the end of the contract term and their burden is in the 90-120% range. They could pay the workers the same or more and still cut the price of the contract. Government keeps the same workers (if they choose to go to Contractor B) or at least gets equally qualified personnel – Contractor A loses, Contractor B wins, taxpayers break even.
Ok, so the math isn’t fun in the example, but you can at least see where I am going with that example. The indirect costs will become a big focus with this rule weighing on service contractors. Time to cue the dramatic music again – stay tuned for the cases that come out of this one. It will be interesting to see how contractors deal with this and get some real feedback.