by reader ilsm
Whittle a Beak: Return to Reagan Era Warfare Waste
A cronie still in the acquisition business related that the DoD has gone back to using fixed price development contracts.
In 1991, the Congress passed a law requiring DoD to use cost plus development contracts with its warfare welfare partners. This was required because during the Reagan warfare state raid on the treasury DoD would contract for weapon system development using fixed price contracts. An aberration occured in the fairly big Navy A-12 fighter program where a fixed price development by Mc Donald Douglass (now a subidiary of Beoing) was terminated for convenience when a defense department civilian blew the whistle before the Navy could write a new contract to redo the profitable but shoddy work.
Here is a link to an article about the law passed before the congress went over to the democrats in 2007:
The following is misleading:
“They’re trying to drive a lot more development into the fixed-price arena, and that’s problematical,” Heinemeier said. He said the measure shifts the risk of such projects disproportionately to the contractor, hurting its ability to take on development projects, especially when they involve leading-edge technologies.”
As exercised, management of development contracts in fixed price did not put the risks on the contractors. In fact during the Reagan era huge profits were made on development contracts which similar profits could not be achieved in safer for industry cost plus contracts.
The way it worked: The A-12 contractor received a fixed price contract to design the A-12, too heavy, stealth fighter for unnneeded fleet aircraft carriers. The contractor had planed to make a lot of money by delivering a bad performance and get a new contract to do the work over. Fixed price means if the contractor don’t expend the costs they still get paid the agreed price and make a lot of margin.
But, some dedicated civil servant blew the whistle, Dick Cheney as Secretary of Defense terminated the effort and now the litigation continues as the DoD tries to get its money back.
In 1991 congress required development and engineering efforts be done under cost plus contracts. As the quote above notes the government assumes all the risk in cost plus, but the contractors do not get much profit since for the contractor there is no risk. So, unlike A-12, the contractors can redo the shoddy design in cost plus forever but not make any real money.
On the way out the door the republicans changed all this. Now it is back to bad work being compensated with excellent margins, to be redone at good margin.
Back to very profitable whittling beaks like they enjoyed with Reagan……………………………
This one by ilsm