Wonderful quote from the article:
"(This concept may be foreign to some traditional government space contractors that seem to believe that cost overruns should be the responsibility of the taxpayer.)"
"(This concept may be foreign to some traditional government space contractors that seem to believe that cost overruns should be the responsibility of the taxpayer.)"
Then through further discussion, after the contract is signed, everyone realizes they actually need product X2. And so the contractor revises their bid to $Z where $Z exceeds the original $Y by a wide amount (i.e. Provide a new sidewalk and re-landscape the grass on either side for $250,000)
There are no cost overruns in government contracts. Just changes in scope. You don't find out what they really need until you really get into talking with them.
Umm, there are tons of cost overruns in government contracts (and in non-government contracts). Consider the James Webb Space Telescope for example. Or the F-35. Or about any software project. It's very hard to predict costs of new inventions.
I've heard (and I'd love to hear whether or not this sounds reasonable) that one of the big problems is that you'll source a part like a resistor, ASIC, or something, and then for whatever reason it'll get changed--maybe a cheaper part became available and you were forced to use the cheaper part, maybe the part is no longer in production and has to be switched out, maybe the part just failed to function correctly.
The effect of this, of course, is that you have to redo all of your integration testing and verification work, and for something like a 6-month endurance test on an avionics box this just plain takes a lot of time and money.
I'm not sure that my friend was accurate, but it seems reasonable to me that that kind of thing could cause big delays.
It's the same way in software -- when estimating how long a large project will take to complete, you have to assume that some things will go wrong. Maybe you have to track down a nasty bug in a third-party library, or you lose a team member, etc. All of this has to be considered based on its impact and likelihood as part of up-front estimation.
F-22, JSF, the Kiowa repalcement, the new tankers, A400M, NH90, Eurofighter, Rafale, B787, A380, B747-8, A350... you name it. Almost all of them were over budget, late and ran into serious technical and performance issues. Not all of them were due to design changes. And even if, when you know that certain changes are going to blow your development apart you just don't ask for them as a customer.
A good counter example is the F-117, that one was, aparantly, in budget, on-time and did what it was supposed to do. My theory is that it's the grown bureaucracy that it messing it all up. In the F-117s development there was none since it was more than just top-secret, they took what was available and turned out good. I know that one example doesn't make a proof, but it's pretty cose for me.
However, even with cost plus there are incentives to come in faster/better/cheaper. If you run a company and have the choice between '1 project scheduled for 18 months, stretched to 2 years and collect the extra' or '2 projects scheduled for 18 months, each finished in a year, and collect all the extra bonuses', you typically choose the second plan.
Launching a satellite these days is a relatively known quantity whereas many horrifically over-budget government projects are doing things no one has ever done before.
Sure, it's not a great thing that this happens, but it seems like a douche point to make when the government simply has no other choice.
Edit: Sorry, misread 'government contractors' as 'government agencies'. I was under the impression that he is talking about NASA.
So apparently it is possible for the government to agree to contracts that do not leave the taxpayer holding the bag for overruns.
The contractor who underbid. If Roger's submits a bid for $1m to deliver 50k widgets he shouldn't be able to come back after the fact and demand $4m to complete the project because he underestimated his costs.
The contractor has to swallow all the extra costs, because they were foolish enough to sign a vague/wrong contract?
I'm not asking this to suggest a particular answer, just wondering where this strategy takes us.
[Edit: total profit, not margin.]
I don't think the old government contractor system made long term sense, but it was a great start to space exploration and money "wasted" looks more like invested to me.
For a brand new stealth fighter though, there are a lot of unknowns and a lot of development to do before they can build the first plane. The contractor can say "We think we can do all the necessary research for this with 100 people over 3 years plus $2 billion in additional costs for materials and to contract out the construction of new factories etc. All that added up would be $5 billion (plus $100 million per additional month beyond 3 years) and we expect a 15% return in profit on this development." This is called a Cost plus Fixed Fee contract. If they were to bid it as a firm fixed price contract they would just say "we want $3 billion per plane for the rest of time" and the government would likely overpay comparatively. The government agrees to the cost plus fixed fee terms because the know it allows the contractors to price their offering lower if they don't have to take on the risk.
So option 1: Government takes on risk of overruns but pays a lower price if on time and on budget. Option 2: Contractor takes on the risk and makes out like a bandit if they are on time and on budget.
well let's just say it did go well. Lesson to be learned: If you are in full ontrol of everything from scratch to delivery and have clear costumer specs you can do that.
If you are a quasi state-run business with political obligations serving multiple customers with different requirements, you better don't.