Published Wed, Nov 13th, 2013 Floyd Brown, Chief Political Analyst
Lately, the news has talked nonstop about the outrageous cost of building the Obamacare website, Healthcare.gov, with most estimates ranging from $300 million to $600 million.
This has Silicon Valley experts wondering: How could you spend such an obscene amount of money on a simple website?
Well, the Silicon Valley experts don’t understand the way the government spends its money – or how lucrative it is to be a primary government contractor. My back-of-the-envelope calculations lead me to believe that an immense amount of money was pocketed by D.C. insiders who know how to work the system.
These primary contractors are often at the top of the Political Intelligence Portfolio. Trust me, there’s a reason that they’re experiencing triple-digit gains. Nothing is quite as good for business – and investors – as a little government tailwind. Correctly identifying the companies that are about to receive bloated government contracts is the surest way to amass an incredible fortune.
The Path to Government Waste
Of course, identifying profitable contractors is different from explaining how projects like the healthcare exchange website become so expensive in the first place.
To do so, it’s important to understand that government service doesn’t attract the best or brightest minds. For example, the best minds in tech don’t go to work for the government… they head for Silicon Valley. The next tier of experts might work for a company that’s contracted by the government. That leaves the least qualified minds for the federal government itself.
Next, you have to understand that everyone in the federal government feels they’re too important to actually do things. Government employees thrive on telling other people what to do and then taking the afternoon off to see a daughter in a school play, hit the gym, or visit a favorite watering hole.
Finally, you have to understand that nobody in government is held accountable. Somehow, Health and Human Services Secretary Kathleen Sebelius isn’t fully responsible for Healthcare.gov… and apparently neither is anybody below her.
It astounds me that Sebelius still has her job given the criminal malfeasance she’s committed in preparing Obamacare’s implementation. But with no clear lines of authority or responsibility, it’s easy to just float along.
The Power of the Private Sector
If you really want to get things done in America, don’t look to the government. Instead, look to the private sector, where profit motivates cost cutting and efficiency and produces reliable goods and services. Think Walmart (WMT), not the Post Office.
Barack Obama and the others who wanted to transform healthcare are foolish. Instead of efficiency and productivity, the program is based on winning political points. In fact, the whole idea is to get more people hooked on phony subsidies so they’ll support a political party.
The added benefit is big profits for firms that fall in line and support the correct party. No need to make the website work to score incredible profits!
Just look at CGI Federal (GIB), the primary contractor responsible for the botched exchange rollout. Not only have they billed hundreds of millions of dollars for the website build, but they’ve also been awarded future contracts from the government! Never mind that little website glitch.
Taking a Page Out of CGI’s Book
Until this debacle, few had ever heard of CGI Federal. Based in French Canada, the firm’s full name is “Conseillers en Gestion et Informatique,” which is French for Information Systems and Management Consultants. They love contracts like Healthcare.gov and have grown their business with the federal government over 90% in the last year.
This was reiterated by CGI’s CEO Michael Roach in a recent conference call with investors. Roach said, “In the federal government business, we continue to see more extensions and ceiling increases on our existing work, while we further leverage our position on contract vehicles.”
In the end, the contract is profitable to CGI whether the website works or not. And the more problems the website experiences, the more money the company can make while fixing what should’ve been built properly the first time.
That is, in a nutshell, how a simple website ends up costing the government $300 million to $600 million. It’s also the perfect example of the power of government influence. CGI’s stock has gone up 51% in the last year, and that will likely continue upward. With the right intelligence, you can easily establish a position in the next CGI – and see incredible returns in a matter of months.
To life, liberty, and prosperity,
Floyd Brown
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