Business & Technology Nexus

For some reason this 9/11 anniversary feels a little different than those before. Maybe it’s the distance and perspective we’ve gained from the event. Maybe it’s all the trouble and violence that has continued since then. Whatever the reason, it seemed fitting to post today on a topic connected to September the 11th.

And here it is.. USA Today ran a story about a July Congressional Report from the Committee on Government Reform about the Department of Homeland Security. The article is titled “Critics slam Homeland Security contracts, cite waste, lack of oversight“ – and it is a bombshell.

Spending $17.5B last year via almost 67,000 contracts, the Department appears to be out of control. Congress has taken notice & is disappointed with the execution and oversight related to that enormous amount of spending.

The Congressional Report is called Waste, Abuse, and Mismanagement in Department of Homeland Security Contracts. It is available online in .pdf – but be careful before clicking as it weighs in at 48.6Mb!

The USA Today story provides a good summary. Here is a little more detail:

• Contract spending has grown 189% since the creation of the new Department
• Noncompetitive contracts have soared 700%
• Contract mismanagement is “pervasive”
• The costs to the Taxpayer are enormous as the report details $34.3B in 32 contracts that have been plagued by waste, abuse, or mismanagement

In addition, millions of dollars in federal employee p-card abuse exists. Under the 1994 legislation, federal workers can use credit cards to buy small amounts of goods or services directly from vendors. And boy have they – including:

• purchase of 2,000 sets of unnecessary canine “booties” for more than $68,000
• purchase of “tens of thousands” of dollars for training at golf and tennis resorts

Seems more than a few federal employees figured out how to avoid auditing and oversight – or worse yet, figured out there was none! Of course, as egregious as these examples are, it’s spare change compared with the money flowing out of the Department. 11 of the 32 contracts valued at $34.3B are explored in some detail in the report. For example, here is a representative analysis on “The Contract to Hire Airport Screeners”

• was awarded in February 2002 for $104 million to NCS Pearson Inc.
• “to test and hire airport passenger and baggage screeners”
• in less than 1 year, contract “ballooned” to $741 million
• audit questioned at least $297 million of expenditures
• 1 subcontract challenged by audit agency “paid the chief executive of an ‘event logistics’ company – newly formed by two former travel agency employees – over $5 million for just nine months of work”

Now, unbelievably, the USA Today reports “Chief procurement officer Elaine Duke agrees with the House report, and says a lot of the problems cited involved contracts written ‘during a time of immense urgency.’”

So is there no one to blame for this colossal mismanagement of Taxpayer money? Seems hard to believe. Okay, impossible to believe. If the Department were private, the CPO would be fired. But in the world of governments, she is likely to get a lot more personnel. Perhaps she’ll turn things around. But adding people without fixing process would be a recipe for continued “legendary” waste & mismanagement. And that shouldn’t make any of us feel very safe.

Quite a few of us here in the US, including yours truly, shop at Costco for the wonderful values they offer. We look beyond the long lines, the lack of shopping bags, and the lack of selection. We supersize as we pursue hardcore savings.

After years of comparison shopping many of us have developed “blind faith” in Costco – just assuming the company had the most competitive prices for any product they carried. Why even check? It’s a great “brand emotion” – because it leads to a higher proclivity for spontaneous purchases.

Recently though, a nagging question has been rattling around in my head – is it actually true? Does Costco always have the best price (and perhaps the best value).

So I did some digging and took Costco to the test on a few different goods categories – electronics, durable goods, and baked goods. Here’s what I found.

Electronics – Olympus SP-700 6MP Digital Camera

Costco (Foster City, CA Warehouse) – $299.99 with $40.00 Instant Manufacturers Rebate. Curiously, few new units seem available at electronics stores, including Amazon, etc. So Costco’s deal appears to be a liquidation event for Olympus. Best comparison I initially found is to a reconditioned unit available on CompuDirect for $233.90. The savings over Costco, not counting the > 8% sales tax you avoid by going online (or the shipping fee) is $27. But for a new unit that difference seems worth it. So Costco is skating close to the edge on this one, but I can’t prove they are higher priced than others.. But wait! 1 Reader comment suggests doing a froogle search, from which a juicy newegg.com $229.99 price is available. But look carefully – the newegg unit is “recertified” – yet another reconditioned unit. So decide for yourself whether Costco is the lowest price on this one. With their $40 instant rebate I think they are.

Durable Goods – Whirlpool Duet Washer

3.8 cu ft. White on White GHW9150PW
Note: White on White in store, Grey on White Costco.com

Costco – $899.99. The next best price I could find was Sears, whose online pricing is definitely higher at $999.98 for the same unit (GHW9160PW). Some shoppers may still prefer Sears due to installation, warranty, and ongoing maintenance options, but Costco wins on price for sure.

Note: Same reader as above suggests another froogle search, from which it seems bybb.com has Costco beat at $801. Only problem is shipping to 94019 is $263. fotoconnection.com offers it for $803 but again shipping is $150. So Costco is still the winner here imho. It is close though since most online buys avoid CA sales tax.

Baked Goods – Milton’s Multigrain Bread

Costco sells a 2-pack of 40oz loaves for $6.79. That’s $1.358 per pound of bread, or 14.8 cents a slice. And boy did that turn out to be a good value! Safeway, in the 94065 zip code, sells a 24oz loaf for $3.99. That’s a whopping $2.66 a pound, or 24.9 cents a slice.

Round 1 Conclusion

Costco did pretty well. Those of us who just assume Costco costs less have some basis for that belief. Due to a reader’s alert on the camera, it’s arguable whether Costco scores a solid 2 for 3 or a perfect 3 for 3. But I suspect Costco is beatable. So I’ll be back in future Rounds – looking for chinks in their Procurement armor!