The $600 hammer: Who’s got an eye on your vendors?

Posted by: Matt Rivera

I came across a news article last week concerning the case of a small business owner who plead guilty to making false statements to the U.S. Small Business Administration. Basically, the story boils down to the fact that although the business owner was president, she wasn’t actually running the company. Therefore, her company was not really a woman-owned small business, and should not have qualified for the contracts set aside for this categorization of companies.

The article led me to the question, Who’s watching out for things like this? You might not be aware that your tax dollars fund the National Procurement Fraud Task Force (NPFTF) that was founded in 2006. The task force was created to protect U.S. taxpayers from procurement fraud (like the $600 hammer we all paid for back in the 1990s, but more on that later).

When you have vendors providing critical services, such as hiring talent, who is responsible for making sure those vendors are properly screening candidates, checking paperwork (I-9s, etc.), and verifying independent contractor status?

It’s a great question to ask someone in procurement or human resources at your company. There are two big issues that make it even more important right now.

1. As a result of lay-offs, there are fewer people to keep an eye on vendors. Even good vendors left to their own devices might let things slide if the pressure to book business gets intense enough.
2. This economic climate makes it much more likely that vendors will do whatever it takes to just plain survive. They’ll let their workers’ compensation insurance payments become delinquent, or stop doing background checks and drug screens. And why not? Who’s going to know for a few weeks, months, or longer?

It’s more important than ever to make sure you have the right processes in place to protect your organization, even for services you buy from a vendor. We’ve seen situations time and again where a customer of the service is either guilty by association or brought under increased scrutiny because a vendor is caught up in a local or federal audit. It’s a Pandora’s Box that once opened, cannot be closed.

And now, as I promised, more on the $600 hammer. If you don’t remember, this was a scandal that made headlines in the 90s. A government accountant found a charge of more than $400 for a hammer (a number which was later inflated to $600). It resulted in the “Golden Hammer Award,” created by then U.S. Vice President Al Gore to reward companies that helped save the government money.

The funny part is that we really didn’t pay $600 or even $400 for the hammer. At the time, it was a common practice to distribute total project costs among the different materials or cost elements. This often resulted in big dollar amounts falling into the “hammers” category.

Overall, whether a hammer costs $1 or $600, we all still paid billions for the plane, the building, or whatever it was. But the point is: Did we really know exactly what we were buying? And do you know exactly what service you are getting from your talent supply chain? Hopefully, no one will be naming an award after the $250-an-hour independent contractor you just hired.