Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
mattstoller.substack.com
Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
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Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#2Matt Stoller wrote a really interesting book giving a history of monopoly power in America: https://www.amazon.com/Goliath-Monopolies-Secretly-Took-Worl...
On my winter reading list :)
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#3TL;DR organizations respond to incentives and the incentive laid out in the legislation for the organization responsible for setting prices the government pays is to spend money, not save it and McKinsey takes advantage of that.
Considering that a big player like McKinsey can't systemically overcharge the government and get away with it due to how noticeable it would be in terms of sheer dollar amount there are likely be other smaller players that are making even more absurd profits on their services and I wonder who they are since IMO their existence is more worthy of investigation than some BigCo walking right up to but not over the line drawn by the law (as BigCos do). This is not to say that the incentive structure shouldn't be changed to categorically prevent all this.
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#4Only recently discovered Mr. Stoller's media/reporting, and I have been absolutely impressed with his weekly mailing. Can highly recommend subscribing.
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#5The IFF referenced in the article seems like a great example of how good-intentioned changes to incentive structures can have very warped outcomes, potentially years later. These kinds of effects keep popping up for me, even in industry contexts (e.g. stack ranking).
Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied? How many "hops" of influence can you get away from the change before the effects are impossible to predict?
Or does it just boil down to "ask very smart domain experts to think about the problem very hard for as long as you can afford to pay them"?
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#6Title’s terrible, I read it as taxpayers pay $3M a year per U.S. college graduate. It’s not even the original title, “Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor.”
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#7Matt Stoller wrote a really interesting book giving a history of monopoly power in America: https://www.amazon.com/Goliath-Monopolies-Secretly-Took-Worl... On my winter reading list :)
Thanks for the recommendation, I didn't read the article either.
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#8from the article >>> "In other words, the agency of the government in charge of bulk buying isn’t paid for saving money, but for spending too much of it. The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time."
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#9TL;DR organizations respond to incentives and the incentive laid out in the legislation for the organization responsible for setting prices the government pays is to spend money, not save it and McKinsey takes advantage of that. Considering that a big player like McKinsey can't systemically overcharge the government and get away with it due to how noticeable it would be in terms of sheer dollar amount there are likel…
Okay, I'll ask the next question. How do I get to be one of those smaller players. Ha!
Re: Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor
#10The IFF referenced in the article seems like a great example of how good-intentioned changes to incentive structures can have very warped outcomes, potentially years later. These kinds of effects keep popping up for me, even in industry contexts (e.g. stack ranking). Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied?…
The key quote this is responding to:
> ... less [to do] 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.”
> ... The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time. 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.
> How did the GSA get such a screwed up incentive...?... [T]o become more entrepreneurial as part of its “Reinventing Government” initiative, Bill Clinton’s administration implemented the Industrial Funding Fee structure. It worked in generating money for the GSA ... so well that Congress’s investigative agency found in 2002 that the GSA stopped having to rely on Congressional appropriations.