The news and entertainment media love to depict Silicon Valley and its most iconic residents as quirky, or maybe even a bit crazy at times. We remember Mark Zuckerberg's hoodie more often than we think about Facebook's share price. We visualize those corporate headquarters that seem to be modeled to be a giant teenager's rumpus and game room. And no matter how important or iconic the tech products they make are, Silicon Valley's people have the overall reputation of being brilliant, but also too young and even a little frighteningly brash. Just watch one episode of HBO's "Silicon Valley" if you don't know what I mean.
But one very interesting truth that should shatter that image is emerging from the Pentagon's continuing courtship of Silicon Valley. As this process continues to develop, we're seeing more and more clearly that it's the Silicon Valley guys who are the sane and rational ones while the Defense Department and Washington as a whole look certifiably insane.
This is all taking shape as the new 2017 National Defense Authorization Act makes its way through the Senate, (the House has already passed its version of the bill). This is the usual annual defense spending bill that needs Congressional approval and the President's signature. But what's unusual about it this year is the Senate Armed Services Committee is showing some bi-partisan support for reforming the way the Pentagon makes contract deals with defense contractors. You see, many of the key defense contracts work under a rule called "cost plus," that essentially guarantees profits for the defense contractor. If the company suffers some kind of cost overrun or even mismanages or miscalculates a cost, too bad taxpayers, that company's making a profit! Does this sound like a sweetheart deal for the established defense industry? Does it sound like crony capitalism? Of course it does, because it is.
Okay, okay. Sometimes those cost overruns are the Pentagon's or Washington's fault. Maybe the company has to shift production to some powerful Senator's home state, or maybe the Defense Department changes the specs midstream. But "cost plus" is still a great deal, if not manna from Heaven. And you'd think any company not enjoying that kind of a deal would be just clamoring to get in on the action. But if you're looking for that kind of attitude from Silicon Valley, it's simply not there. One of the takeaways from Defense Secretary Ash Carter's new outreach to the tech sector is that the "cost plus" contract structure is disincentive, not a lure, for Silicon Valley.
Why? Well it's not like the tech companies don't like guaranteed profits, it's just that navigating the traditional contracting process with the Pentagon is almost impossible for a neophyte. "Cost plus" sounds great, but to do it right you need a team of the best lobbyists, lawyers, and drafters who actual know how to do it right. If you don't have those kinds of established connections and a legion of insiders, you're at a disadvantage. And as alluring as "cost plus" sounds, if you can't ever get to the promised land it might as well not exist at all. Silicon Valley's leaders told Ash Carter that they're used to private sector rewards and incentives and just aren't equipped or all that interested in joining a 60-year-old procurement game that takes almost as long to figure out. So with Secretary Carter's urging, a number of Senators who also want to make sure America's defense remains technologically superior are working to eliminate "cost plus" as de rigueur in Washington.
And there you have it. Washington lives in a fairy tale world of guaranteed pensions, "cost plus" contracts, and 100% job security. Silicon Valley has offices with ping pong tables, and the techies are the ones who are childish?!? But maybe if this push to change things in the new defense bill works out, at least one part of our government will be forced to grow up.