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Comment by Symmetry | Hacker News Reader

In theory the regulating agency overseeing the cost plus contract is supposed to scrutinize the expenses of the overseen entity to prevent this. In practice just form a matter of program complexity this is hard to do. When you bring in politics it gets even worse, "You don't want to endanger our pilots by giving them any less than the most gold plated fighter jets, do you?" argue the defense lobbyists.

The worst example I can think of would probably be the nuclear industry where operators providing grid power on cost plus contracts teamed up with environmentalists after Three Mile Island to get laws passed insisting that nuclear power had to be as safe as possible regardless of cost, which turned into essentially a license to print money.

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> In theory the regulating agency overseeing the cost plus contract is supposed to scrutinize the expenses of the overseen entity to prevent this

The entire point of getting the private sector is that their insentive should be to do it in the most efficient manner possible, and noone has to manage them - the inefficient ones just die out.

The second-best approach is to have the government manage the whole thing, where they have no real incentive to be efficient.

But what we have here is employing the private sector and incentivising them to be as inefficient as possible, and the government must still hire an army of accountants and experts to keep them in check. it's combines the worst aspects of both!

The government would have no reason to rip itself off as well unless there's corruption but that should be investigated.

You must be somebody who's never had to remove an underperforming colleague on a public project.

What happens is that they get promoted to another team, or put on a project that has absolutely no future, and everyone knows it.

Why is it difficult to remove people? Because in the old days, newly elected executives would clear out the civil service and hire or contract with people that supported their election campaign.

Underperforming colleague is a different problem - the cost differences we are talking about here are not 50%, they are 5X, those only come from structural problems, not 'this one guy only works 5 hours a day"

They wouldn't have a reason rip themselves off, but the decision-makers may not be well-incentivized to control cost (or might be incentivized to make "safe" choices over "smart" ones).

I have wondered if we could ~endow government agencies in a way that would let them fail, and do the same to spin up ~internal competitors when we feel like turning up competition/innovation.

But it's not something I have gamed out enough steps to feel confident about...

For what it's worth, while on any single contract you might get bad behavior from a contractor, their reputation will matter when they go for a recompete or bid on a new contract vehicle.

Not all contracts are automatically won by the lowest-cost bidder. Yes, it allows corruption on the part of the person doing the hiring, but it's better than the alternative.

In California, Tutor Perini seems to be famous for winning government construction contracts despite constant failures and unexpected price increases, because the law does require lowest bidder and doesn't allow ignoring low bids from known liars.

Why hasn't the law changed to make bids binding?

> but it's better than the alternative

Which of many possible alternatives and how do you demonstrate that it's better on any of the areas where tradeoffs are made?

Having a government managed but privately delivered program, having a totally privatised program, having a completely government run program?

Having the private firm take on the risk instead of the taxpayer? having the risk split 50/50?

>The entire point of getting the private sector is that their incentive should be to do it in the most efficient manner possible

It seems like a common misconception that businesses do anything in 'the most efficient manner possible'. A business's incentive is to do things in 'the most profitable manner possible'. It happens that efficient and profitable have a lot of overlap, and business schools love case studies about eliminating inefficiencies, but in the real world it is often easier to boost profit thru marketing/client relations/lobbying than thru searching for possible inefficiencies.

Plus once the contract is signed and you're a few years into the process there's not really any competition to speak of. Sure the govt could scrap the whole thing and go with another competitor, but in some industries there's effectively one option now for a particular thing and for larger projects like jets it's a decades long process to get to start building anything, and there are of course costs and delays associate with that because you have to start the same broken process over again. To top it all off the next contractor doesn't have much of an incentive to do things cheaply either because they're in the same broken system.

  >  the private sector is that their insentive should be to do it in the most efficient manner possible

"efficiency" is a very overloaded term, and can also mean "got the most profit from the smallest input", and in that case, yes, they are being efficient, just not in the way the client expected

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