[ndarwincorn]

This entirely misses the forest for the trees. And granted the author's bias gets in the way of his attempt to point out that forest. Their bias aligns with mine, but with less editorialization IMO the following would be more clear:

It's not that the work is or isn't valuable, or where that value is. It's that McKinsey charges 72% more than a competitor for the same consulting, and that there's a massive perverse incentive for public servants in charge of awarding contracts to pick the most expensive one.

From the article, bias left in:

Back in August, I noted that McKinsey’s competitor, the Boston Consulting Group, charges the government $33,063.75/week for the time of a recent college grad to work as a contractor. Not to be outdone, McKinsey’s pricing is much much higher, with one McKinsey “business analyst” - someone with an undergraduate degree and no experience - lent to the government priced out at $56,707/week, or $2,948,764/year.

...

And this gets to the second reason why McKinsey can charge so much, which has to do less with McKinsey and more with an incentive to overpay more generally. It’s more likely something called the ‘Industrial Funding Fee,’ or IFF. The GSA’s Federal Acquisition Service gets a cut of whatever certain contractors spend using the GSA’s schedule, and this cut is the IFF. The IFF is priced at .75% of the total amount of a government contract. In the case of McKinsey, since 2006, “FAS has realized $7.2 million in Industrial Funding Fee revenue.”

...

Does McKinsey do a good job? The answer is that it’s probably no better or worse than anyone else. I’m sure there are times when McKinsey is quite helpful, but it’s in all probability vastly overpriced for what it is, which is basically a group of smart people who know how to use powerpoint presentations and speak in soothing tones. You can just go through news clippings and find areas McKinsey did cookie cutter nonsense. For instance, McKinsey helped ruin an IT implementation for intelligence services. In the immigration story, MacDougall shows that the consulting firm encouraged ICE to give less food and medical care to detainees. That’s cruelty, not efficiency.

[unreal37]

One could argue that $3 million per year for a university undergrad with no experience is not merely "72%" overpriced, but is in fact 1000%-3000% overpriced.

[bumby]

> there's a massive perverse incentive for public servants in charge of awarding contracts to pick the most expensive one.

I'm not quite following your logic here, could you elaborate a bit more? There's nothing prohibiting well-funded competitors from similar GSA approval, is there? My understanding is that this method is used to streamline contract awards...being listed on a GSA schedule means you've gotten a stamp of pre-approval (i.e., you've checked all the boxes to meet government contract requirements).

An overly simplified example would be that an agency can go from a whole soup-to-nuts bid process that takes, say, nine months to award. Or, they could select a contractor from a GSA schedule list of contractors and have it awarded in two months. Those numbers are arbitrary, but hopefully you get the point. Agencies have a variety of reasons they may want to hurry the process along, but over-paying isn't likely one of them.

Further, most government contracts go to "lowest bidder"; in order to be awarded to a higher priced contractor, they usually need to be part of a "best value" contract that is generally more difficult to justify.

I could be off on this, but understanding has been that the government is almost overly incentivized to award to the lower bidder, even when the lower bidder is the riskier bet.

[ndarwincorn]

Everyone replying answered this, I'd just like to point out that the answer to 'could you elaborate a bit more' is to read the parent article.

Another excerpt:

> In 2013, the GSA Inspector General traced a similar situation with different contractors. Managers at GSA overruled line contracting officers to raise prices taxpayer pay for contractors Carahsoft, Deloitte and Oracle. Government managers at GSA micro-managed and harassed their subordinates and damaged the careers of contracting officers trying to negotiate fair prices for the taxpayer.

[bumby]

Thanks, what I'm not quite getting is that the other contractors are listed. What seems to get lost is that the GSA doesn't select the contractors, they just list them.

The connecting dot that's missing is why agencies choose the more expensive option when it benefits the GSA, not the agency using their schedule.

For the perverse IFF incentive structure logic to hold true, it seems like GSA would be incentivized to approve rate increases across the board. Why just McKinsey?

In other words, the GSA sets the contract but not the order. If there are cheaper contracts available in place on the GSA schedule, I would think agencies are incentivized to choose the lower bid.

edit: mistakenly stated "agencies" instead of "contractors" regarding what gets listed

[ndarwincorn]

This is reading more and more like you're begging the question. One of the sibling replies that predates this comment by a quarter of an hour already addresses your specific missing connecting dot here. Not to mention the article itself, which is also well cited.

It's good. I suggest you read it. Interrogating my two sentence oversimplification of the forest is not a useful way to learn about this.

[bumby]

I get the impression some of the commenters don't really have experience with government contracts on either the public or private side.

The IG report points out real problems, but I think people are extrapolating too far because they don't truly understand how contracts are awarded via the GSA schedule. I think people are confusing being awarded a listing on a GSA schedule with an actual order. Being on the GSA schedule just means is there is an agreed upon price for a product or service. An agency still needs to chose that product or service before any money changes hands.

The GSA essentially produces a catalogue of products and services. Like the article mentions, it seems like the GSA allowed McKinsey to name their price and that is, as the article says, "honest graft". The article also implies other contractors are also listed, although they don't get similar preferential price treatment. So the GSA isn't down-selecting the number of "items" listed in the "catalogue" to force agencies into selecting the expensive McKinsey. It's just inflating the price of one item. What isn't covered is why agencies are selecting the more expensive item. To me, that is where the real corruption would be.

To play devil's advocate, the whole IG issue could potentially be attributed to a bad contracting supervisor who reassigned the contracting officer who was fighting against the price increase. The fact that the other companies were denied similar price increases indicates to me that it's not a cultural issue of "honest graft".

[ndarwincorn]

I get the impression you're over-simplifying this and grasping for whatever assumption you need just to try to make your point.

While some of us have run with my oversimplification, there are plenty of comments in this sub-thread about down-selecting. Your answer to that is a giant assumption on what the article (which again is rigorously sourced) 'implies'.

> The article also implies other contractors are also listed, although they don't get similar preferential price treatment.

In fact, the IG report[0] that is cited in the selection of the article I replied with has nothing to do with McKinsey, but a different contractor altogether. Reading comprehension is your friend here: "In 2013, the GSA Inspector General traced a similar situation with different contractors."

Agencies aren't necessarily selecting the more expensive item. As you point out, in most cases they have a mandate not to. They're awarding the bid to an already-short list designed to generate the highest IFF possible for the GSA.

Which is what the article's about.

[0]https://www.gsaig.gov/sites/default/files/audit-reports/A120...

[GlenTheMachine]

This is actually quite a good question, and I don't understand why you're being given such grief for it. But I also might have an answer. TL;DR: the government isn't paying McKinsey for services rendered. It's paying for bureaucratic capital, which is a Veblen good.

There is a confluence of two dynamics going on here. The first is that once a contractor is listed on the GSA schedule, you don't have to justify their price. The process of getting listed on the GSA Schedule is supposed to mean that the government has already vetted the goods being offered and the price they're being offered for. No further competition is needed. You can simply place an order for the goods or service listed and like magic it sails through the government procurement process.

So the next question is, if contractor A and contractor B are both listed on the GSA Schedule as providing a given service, and contractor A is twice as expensive as contractor B, why would any rational individual choose contractor A? And the answer is, in this case, you aren't paying for the advice. You're paying for the social capital needed to make the advice stick. If all you wanted was the advice, you could certainly go to contractor B and pay them twice minimum wage to get a 23-year year old college graduate to give you advice. But that advice would not carry the weight you need to get upper management to take it as gospel, because you clearly didn't pay enough money for that. Nobody cares if you pay $50,000 to get consultant advice and then ignore what they told you.

So what you do instead is pick the name with the most cachet out of the entire list, given that you don't have to justify the price on a cost-benefit curve any more since it's already been GSA approved, knowing full well that they'll give you identical advice but now with a million-dollar price tag attached... and that fact will carry enough weight to get the changes they recommend all the way up to your agency director, who'll either sign off or have to take an incredible amount of public heat explaining why he/she didn't take the advice his/her own agency spent millions of dollars to get.

Basically, a straightforward application of the Washington Post rule.

[alistairSH]

GSA gets paid a % of the fees charged by the consultant.

Therefore, the GSA has an incentive to have a very short list of highly paid consultants.

The individual agencies using the scheduled are supposed to pick the low bid, but if GSA has restricted the schedule, well, we all get ripped off.

[bumby]

That is the way the article reads, but I think it reaches too far in it's conclusion.

Take the example schedule used in the article:

>McKinsey asked for 10-14% price hike for its already expensive IT professional services (which is a catch-all for anything).

The IT services schedule lists over 13,000 vendors [1]. McKinsey is listed on this schedule under four categories: 132-32, 132-50, 132-51, and 70-500. The most relevant to the article is 132-51, "IT Professional Services" which has 3,872 other contractors listed besides McKinsey. I personally wouldn't consider that evidence of the GSA restricting the schedule or indicative of a monopoly. This is what led me to my previous question as to why an agency would select the more expensive McKinsey given a reasonable amount of competition.

The ghostwriting brought up is a genuine concern and I would be in favor of investigating other funding mechanisms outside of the IFF pay structure. However, the author admits they are selling a book about how politics and monopoly are intertwined. Speaking of perverse incentives, I worry that the conclusions drawn are too heavily biased to support the book thesis rather than objectively looking at the broader context.

[1] https://www.gsaelibrary.gsa.gov/ElibMain/scheduleSummary.do?...

[zentiggr]

Reread the part about the IFF - GSA gets paid a percentage of their contracts.

So the bidding process gets corrupted, ignored, anything and everything the staff can do to inflate the contracts so they get more IFF back.

That IFF honestly sounds like the cleverest pork barrel hack since all the military contractors got theirs set up...

[bumby]

The part I don't understand is what's keeping competitors like the Boston Consulting Group from listing similar services on the GSA schedule at a better rate.

The article talks about the IG finding evidence that the GSA improperly approved cost increases for McKinsey. This makes sense in regards to perverse incentives but I didn't see anything about the GSA shutting out less costly competitors from the schedule of approved contractors. Since the GSA generally doesn't award contracts, I would expect to see some evidence that McKinsey was unduly favored in the schedule listing for stronger evidence of corruption.

[zentiggr]

It's the fact that the affected staff deliberately didn't follow policy, and chose the inflated bids regardless of any others, that drives this.

There's no reason at all why BCG can't submit better rates. But that ensures the corrupted decision making will have the awards go to someone else. No one was preventing other bids, they just had the selection process locked up.

McKinsey wasn't favored in listings, only in the off-the-record selection bias.

[bumby]

I think maybe people are conflating being awarded a contract on a GSA schedule to a purchase order. A GSA contract award is just a listing on the GSA schedule.

The GSA schedule mentioned in the article has 3000+ other vendors offering similar services. They all have been awarded GSA contracts. However, no purchase orders are attributed to those contracts until a government employee looks through that list of thousands of vendors and selects a specific vendor at the contract rate. The GSA doesn't actually select the execution of the contract, they just list the contract as part of the schedule of approved vendors.

It's like listing an app on the Google Play Store that charges 30%. That 30% is like the IFF from the article. Is it unethical if Google allows you to specify a really expensive app price? You could set your app price arbitrarily high like McKinsey but your app price is a moot point if nobody selects your app and instead chooses your competitors. What's interesting is that agencies do select McKinsey, indicated they at least perceive those costs are justified over the competitors listed on the same schedule.

[Freestyler_3]

They pick more expensive because they get a percentage.

They get to ghost write their own assignment.

[bumby]

The GSA awards the contract which sets the price for the services/products. The contract just sits there until another agency decides to leverage it. (i.e., the GSA isn't spending money executing the contract or forcing other agencies to do so either).

That contract isn't executed until another agency decides to use that service or product. The end-user agency benefits from a streamlined procurement process but does not receive any percentage of the contract. They are generally de-incentivized from selecting an expensive contract from the schedule, all things being equal.

Contractors influencing an unfair price is still a problem, but much less so if there are other contractors offering comparable products/services at a better rate because agencies are forced to buy the expensive option. What I haven't seen is discussion or evidence that the price inflation is systemic across a schedule that would elevate this to a full-blown scandal.

As stated in other replies, this doesn't appear to be nearly as outrageous as the article is interpreted in this discussion unless the GSA is inflating costs across the board. In the absence of that, end-using agencies can just select the cheaper option.

What was eluded to by another comment is that the more expensive contract may be selected if it's perceived to carry other social value above competitors. (e.g., "If it's coming from the prestigous McKinsey, it must be accurate")

[JoshTko]

I've seen this trend get worse on HN were top voted comment is just a response to the title and not the actual heart of the article.

[kinkrtyavimoodh]

HN in the last 3-4 years has had the discussion quality of a mediocre subreddit (there are plenty of subreddits which are better than HN), but with an extreme air of self-importance.

I sometimes wonder what the demographic looks like, since most replies betray 1) lack of actual domain expertise and 2) the humility required to recognize (1)