By Randy Brock
We all remember the fairy tale in which the gnome, Rumpelstiltskin, managed to spin straw into gold.
Rumpelstiltskin sprang into action after a miller lied to the king and told him the miller’s beautiful daughter could produce abundant gold from straw. Of course, even the peasants knew she could not. Nevertheless, the evil king imprisoned her in a tower, telling her she would be executed if she didn’t produce. That’s when Rumpelstiltskin appeared, agreeing to do the spinning, but demanding an increasingly expensive price – and ultimately her first born child –in return.
Fast forward to 21st century Vermont: the king would dispense with the young girl and her father and would certainly not wait for Rumpelstiltskin to appear unbidden. The king would simply issue a Request for Proposals (RFP) and solicit competitive bids for Gold Spinning Services.
The specifications of his RFP would require that the successful bidder agree to produce a specified quantity of gold from a defined amount of straw by a date certain. Put another way, it would require that the bidder produce the appropriate amount of gold at the appropriate time in the appropriate setting.
Lots of bidders would respond, but that doesn’t matter. The king already knows which contractor he will select: Rumpelstiltskin, Inc. The company is run by a gnome that he knows who is also providing similar services for a powerful emperor nearby. He also knows that in his RFP he will ask for less than 1/10 the amount of gold he actually wants produced. That way, Rumpelstiltskin can quote a very low price and look great compared to all the other potential bidders. But secretly, with a wink and a nod, Rumpelstiltskin and the king both know that this will be a no-bid contract and once the deal is inked, like many of the king’s other contracts, it will be amended by ten times the original paltry amount, again without the need to go out to bid. What’s more important is that the amendments will never receive any scrutiny about whether Rumpelstiltskin’s increased price is fair or not. Rumpelstiltskin rubs his little hands together – being a king’s contractor is even easier than spinning straw into gold.
Despite Rumpelstiltskin’s promises, of course, the gold does not arrive when scheduled. There are software issues with the computerized spinning wheel, insufficient horses available to pull the straw carts, unclear contract specifications (is it 14 carat or 18 carat; yellow gold or rose gold?), and no one figured out that the floor of the tower needed to be reinforced to hold that quantity of gold.
Eventually, the king’s subjects get a bit restive. They were looking for their fair share of the prosperity that the gold windfall would bring. But the king, a master of spin, has an answer: “We never expected the spinning to be without knots. Besides, our kingdom leads the empire in the amount of projected gold spun per peasant,” he says. Of course he doesn’t mention that no other kingdom has insisted on producing all of its gold by spinning it, much less entrusting the process to a gnome. To keep the peasants from storming the castle with pitchforks, the king, who has known all along what Rumpelstiltskin has been doing, finally threatens to “hold their feet to the fire” and withhold, for show, a measly 5% of Rumpelstiltskin’s payments as a penalty. But Rumpelstiltskin, whose profit margin is 500%, could care less.
So the kingdom gets no gold, but the clever Rumpelstiltskin continues his fruitless spinning, billing the kingdom for every undelivered batch. You see Rumpelstiltskin has met most of the (thrice amended) contract milestones. He got paid for setting up the spinning wheel (even though the wheel didn’t work), he got paid for writing a plan to commence the project (even though the plan was unrealistic) and he got paid for devising a gold security plan (even though there was never any gold to secure). He is frequently seen cackling all the way to the bank. The peasants’ complaints that the king and Rumpelstiltskin have failed to deliver any gold fall on deaf ears. “We just need a little bit more time,” the king says, and “we’ll get this right.”
Well, at least we now have until March 31st to deliver up our first born child.
Randy Brock heads Rockledge Risk Advisors LLC. He is a former Vermont state auditor, state senator and he was the 2012 Republican nominee for Governor of Vermont. He is a Certified Fraud Examiner.