While a winning bid may have offered the lowest cost up front, the true total cost of ownership of the contract may not have been effectively measured. The commoditization of human service brings risk and operational inefficiency that may significantly outweigh the initial RFP spreadsheet savings projected.
Supply Chain Security Risks
Based on the dramatic regulatory changes planned for the Defense Security Service (DSS) in moving to a risk based security rating system for all DIB contractors, a race to the bottom on price may not pan well for future business opportunities. The new rating system will evaluate a prime contractor’s security program and posture based on its depth and effectiveness. Prime contractors will be asked to validate the security of their suppliers. According to the new methodology, comprehensive regulatory audits against the contractor’s Tailored Security Plan will identify gaps and risk in the business’ supply chain. These could factor into a prime contractor’s rating and adversely impact its ability to compete for new work with the government. Alternatively, a favorable security rating could become a very marketable benefit in winning new work. If a million-dollar procurement of security services can impact a billion-dollar prime contract award, it’s worth investing in more than just the lowest price supplier.
Service Quality Risks
With so much pressure on lowest pricing it often leads to lower wages and benefits for employees which increases personnel turnover. The knock on effect may include repetitive contractual negotiations to address the gaps, valuable management time lost, and regulatory compliance concerns for the prime contractor sourcing these services. Effective physical security procedures are a combination of static, recurring disciplines and dynamic, evolving responses to current threats. The actual people who execute these procedures are required to have a number of characteristics in addition to the required training and certifications. This includes but is not limited to:
- Personal discipline and accountability to consistently perform the sometimes mundane elements that effective guarding requires.
- Situational judgment to respond to specific and evolving threats with a moments’ notice
- Training in very diverse areas: classical guarding functions, customer service expectations, legal limitations, use of integrated technology
- Professional demeanor and appearance to represent a customer’s image and provide customer service
The total cost of ownership needs to factor risk to the business. Risk equals probability (of a disruptive event) x loss (damage related to the failure). Physical security is one of the most important risk mitigation tactics for all other business functions and processes. When the value of that service is shortcut by cost, it creates risk in all areas.
Comparing Apples to Oranges
It is critical that management from the business unit collaborates with supply chain personnel to ensure an accurate depiction of the security program required is portrayed in bid documents. Industrial security services may not be well known to corporate procurement or 3rd party buyers if they are primarily focused on buying commodities. Proposal response confusion between bidders on the scope of work requirements can result in widely varying price offerings and staffing expectations. Likewise, if there is a disconnect on the evaluation process based solely on comparing the hourly billing and wage rates or ‘guards by the pound’ the results can be disastrous.
Too often the RFP process includes conflicting information about operational requirements and not enough informed and transparent exchanges about the cost of delivering human services and what the total cost of ownership is. This also leads to a disconnect between the proposal, pricing and the best and final offer. As a security supplier, we all want to at least make it to the negotiation table, but our preference is for a responsible approach. Suppliers need to put forth accountable bids to support the scope of work as written. Efficiencies may be found when deploying various technology offerings and rethinking operational procedures, and they should be welcomed as alternative proposals. But those must be orchestrated and evaluated by a stable cadre of trained security staff members to actually be successful. The risk in a commodity driven model is in the actual staffing and performance of services required with a less than motivated or ideal segment of the labor pool. The implementation of alternative solutions, technology and savings targets are preferable to overall cost reductions based entirely on employee wages.
A Race to the Bottom has no Value
At face value ‘Technically Acceptable’ isn’t always easily measured effectively through past performance or sales documentation. When the evaluation of the technical approach and price offering are negotiated disjointedly, much of the focus rests solely on the hourly rates and overall cost comparison. As discussed previously in Limiting Turnover, recruitment and retention of quality personnel, in most any profession, is correlated to competitive pay and benefits offerings. Wages and associated costs (vacation, training, taxes, etc.) typically make up over 80% of the actual bill rate for guarding services leaving little room for comprehensive health plans, competitive fringe benefits, equipment, training investments, and a modest overhead and profit. With historically low unemployment and rising costs for benefit programs, recruiting personnel is not only more challenging but also more expensive. While there can be savings in controlling the costs, an inferior security program can be more expensive to operate in the long run. High turnover rates due to poor wages and benefits can create; gaps in services, knowledge gaps in procedures, lack of continuity, constant training efforts, etc. All of which can impact the end user’s security in more than just operational ways.