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Comment by icebraining | Hacker News Reader

I think you're right, but on the other hand I wouldn't mind for it to be a violation of something to subcontract work and resell it to the government with a 10x profit markup.

Why? If anything, it should be a violation by the department to pay x10 times for the same work they could get by going directly to the subcontractor.

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Government contracting can be tricky. If the government pays $1m to an american company, they'll recover a significant amount of that through taxes. So the actual cost to the government wasn't actually $1m. If it's paid to an indian company, they won't.

This is exactly true. Not only in corporate taxes, but payroll taxes as well. So, literally, up to 35% of each contract goes back to the government in one form or another (whether directly or through overhead personnel salaries), hence the "buy American" thing in contracting with the government.

What's the opportunity cost? If the contractors would have been sitting on their hands, then the 35% argument rings true.

If they would have had taxable earning anyway, it doesn't matter.

(Of course, that's from a purely economic point of view. We are talking about politics here.)

That falls under "violation of something". But the department has plenty of buying power, they can easily put "promise not to do this" into the spec.

Sometimes they can explicitly tell you what margins you can make in a Cost-Plus type contract. The thing is, when they dangle a 5-year long $75,000,000 contract in front of you, you'll basically take any margin at all since the amount is so large that companies will work to undercut each other drastically and even work at a loss just to get the past performance, which is treated as an asset (like cash itself) in the federal market.

They can also audit you any time they want to determine the "reasonableness" of your pricing based on overhead, margins, etc.

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