The problem is that there’s an incentive to game the system, especially when there’s requirements that restrict how the government picks contract winners
If it’s fixed cost, they cut every corner to be picked, then deliver something shitty and the government either lives with it or awards a second contract to fix it. Sometimes they don’t even complete it - sometimes there’s a bail where you put up collateral meant to be used as punishment and so someone else can be paid to finish your failed contract, but with large companies there’s often so much proprietary shit/institutional knowledge that no one else could reasonably complete the contract without starting over… So they can fail a contract and still come back for more
If it’s cost plus, big contractors take a loss initially to basically buy revenue streams they can milk indefinitely. Sure, they can only make so much per head, but that’s money they know will be coming in so they’re incentivized to push the headcount on the project to the limit and keep the party going as long as possible
That’s the problem with rules, if you have clear boundaries corporations will inevitably exploit them. They are meant to fight corruption or bad/incompetent actors, but by codifying all of it they clearly divide what is illegal and what isn’t, setting it all up to be gamed
Thanks for the thoughtful reply, those are definitely some good arguments. Sadly you are probably right that in the end no matter the rules companies will try to game them as much as possible.
For space craft, the risk of development was considered to be massive and involving a lot of cutting edge technology. To offset the risk, a cost plus was used so the US government would bear a lot of development risk in exchange for owning all the technology.
The recent contacts were developed at a time when the US government felt that the technology to put people in space was cheap enough to go from cost plus to a fixed fee.
Makes one wonder why fixed price contracts aren’t more common compared to cost plus, with this being the perfect example in their favor.
The problem is that there’s an incentive to game the system, especially when there’s requirements that restrict how the government picks contract winners
If it’s fixed cost, they cut every corner to be picked, then deliver something shitty and the government either lives with it or awards a second contract to fix it. Sometimes they don’t even complete it - sometimes there’s a bail where you put up collateral meant to be used as punishment and so someone else can be paid to finish your failed contract, but with large companies there’s often so much proprietary shit/institutional knowledge that no one else could reasonably complete the contract without starting over… So they can fail a contract and still come back for more
If it’s cost plus, big contractors take a loss initially to basically buy revenue streams they can milk indefinitely. Sure, they can only make so much per head, but that’s money they know will be coming in so they’re incentivized to push the headcount on the project to the limit and keep the party going as long as possible
That’s the problem with rules, if you have clear boundaries corporations will inevitably exploit them. They are meant to fight corruption or bad/incompetent actors, but by codifying all of it they clearly divide what is illegal and what isn’t, setting it all up to be gamed
Thanks for the thoughtful reply, those are definitely some good arguments. Sadly you are probably right that in the end no matter the rules companies will try to game them as much as possible.
For space craft, the risk of development was considered to be massive and involving a lot of cutting edge technology. To offset the risk, a cost plus was used so the US government would bear a lot of development risk in exchange for owning all the technology.
The recent contacts were developed at a time when the US government felt that the technology to put people in space was cheap enough to go from cost plus to a fixed fee.