Why Private Companies May Stop Taking Incidental Government Contracts
Bruce McQuain has an article on how McDonald's is closing some contract-operated fast food outlets at military bases. The article speculates that the closures on new government minimum wage regulations for government contracts.
Frankly, I doubt this explanation. I know something of the world of government contracting, and contractors in these cases routinely just pass on wage increases to their customers in the form of higher prices. After all, their contracts give them a monopoly of sorts in these bases.
I would like to offer an alternative explanation.
In March, a new regulation took effect that all contractors with anything larger than a $50,000 a year contract with the government must go through an expensive affirmative action planning process for ALL of their locations, not just for the people involved in that particular contract (41 CFR 60-2.1 and 41 CFR 60-4.1)
We don't do government contracting work. We lease government facilities, but get paid 100% by customers -- since we don't take government money, we are not a contractor. But there is one exception. We have a $52,000 a year contract to clean bathrooms near the campgrounds we operate in California. Basically, we bid this contract at cost because we want the bathrooms cleaned well -- if they are not, it hurts our nearby businesses.
In this contract, we have government-mandated wage requirements under the Service Contract Act. When these mandated wages go up, we just raise the price to the government in proportion. No big deal.
We were informed that having this contract, under the new March Obama regulations, now made us liable to go through an expensive and time consuming affirmative action planning process for every location -- of which we have over 120 -- not just for this one contract. So this one contract was going to force us to create 120 annual written plans and presumably get them approved by someone in the government. No way. I might have done it if I only had to do a plan for the contract, but it is just too much work to do this everywhere merely because I have a $52,000 contract on which I make no profit. So we told the Feds we were dropping the contract.
I think it is very unlikely that private businesses will be accepting government contracts as 5 or 10% of their business any more. This new regulation just imposes too much cost on the other 95% of the business. Many will drop the government contracts.
I wonder if this is what is really going on with McDonalds. A regulatory requirement that applied just to the base operations, like a minimum wage, strikes me as manageable. But having these three or four contracts drive an expensive requirement to create some sort of affirmative action plan for every location - essentially every one of their tens of thousands of stores, so tens of thousands of plans - that would drive them out of these contracts VERY fast.
