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I've always wondered why the government doesn't try a payment-on-delivery model. That would put the risk on the supplier and fix the incentive problems. A count

I've always wondered why the government doesn't try a payment-on-delivery model. That would put the risk on the supplier and fix the incentive problems. A counter-argument would be that it creates significant barriers to entry, but it seems like these contracts go to the big powerhouses anyway.

throw0101a 7y ago
> I've always wondered why the government doesn't try a payment-on-delivery model. Because we're not talking about generic widgets here. It's the difference between buying a bespoke Saville Row suit and a 3-for-1 Suit Warehouse suit. There are all sorts of off-the-shelf (OTS) designs for general use vessels like tugboats: * https://ral.ca/designs/tugboats/ https://ral.ca/designs/tugboats/ And there are some 'generic' designs for combat vessels: * https://products.damen.com/en/clusters/combatants https://products.damen.com/en/clusters/combatants But if you purchase a generic design, then you don't have an advantage of your (potential) opponent because they may also have purchased a generic design. The US military specifically does not want a generic design (at least in some areas) because they want (perceived) advantage with more (supposedly) advanced design. And someone has to pay for the R&D on that advanced design. Given that the only market for these boats is the USN, why should the builder pay for the R&D? It's their (only?) customer that's asking for this, and they can't use what they learn for any other designs (because of ITAR export restrictions). When Ford is doing research for a new F-150 they can spread the R&D over millions of units getting economies of scale, but (e.g.) Bath Iron Works can't exactly amortize the fixed costs of the Zumwalt-class destroyer if their only customer, the USN, says they'll buy 32 but then only builds 3. Why should BIW be the ones to pay? It's the reason why the F-22 and F-35 have different costs: the Raptor is a US-only plane that no one else can touch, the Lightning II is cheaper because it's available for export and gets economies of scale.
- hapless 7y ago
  In reality BIW gets to double dip — they charge for R&D and also postpone the “D” part until after the ship is built, at which point the Navy will pay again to fix problems that should never have made it out of the yard. Why do anything right the first time if you can get paid twice, thrice, or six times to fix your fuckups later? P.S. if I buy a bespoke suit, I pay a fixed cost and it’s guaranteed correct — problems are paid for by the maker, not me.
  - throw0101a 7y ago
    > P.S. if I buy a bespoke suit, I pay a fixed cost and it’s guaranteed correct — problems are paid for by the maker, not me. Using materials that have been used for decades. If you want to create a new nano-fibre fabric in a lab that's never been used before, and will not be purchased by anyone else, why should Henry Pool or Huntsman & Sons be the ones to pay for all the lab equipment? If the USN wants cheap and cheerful there are OTS options: * https://products.damen.com/en/clusters/combatants https://products.damen.com/en/clusters/combatants It's kind of what the USN is doing for the FFG(X): * https://news.usni.org/2018/02/16/navy-picks-five-contenders-next-generation-frigate-ffgxprogram https://news.usni.org/2018/02/16/navy-picks-five-contenders-...
    - hapless 7y ago
      Last I checked, ships are still built from steel, just as they have been for a century. Also the ffg/x “competitive” “bidding” process is a joke. They are paying five vendors to make PowerPoint presentations, then whoever made the prettiest slide deck gets billions of dollars. The folks who run this are sensitive to criticism but also either unwilling or unable to enact any substantial change.
      - throw0101a 7y ago
        So tell me: which COTS design are the Zumwalts based off? Or the LCS designs? Or the Ford carriers? Where was the Fords' EMALS catapults tried before?
  - greedo 7y ago
    If you buy a bespoke suit, then change the design because you've gained weight, then it'll cost you more...
  - rwmurrayVT 7y ago
    BIW even gets to triple dip by being the planning yard during repair availability while never being the yard to actually do the work. Same goes with HII. Usually it's Pascagula yard instead of Newport News.
- falcor84 7y ago
  You have some good points there, but I don't see why those issues wouldn't be possible to address with some well written legal clauses and perhaps a 3rd party insurance provider.
  - throw0101a 7y ago
    Except that R&D and experimentation has no guarantee of success, so how who would want to underwrite a policy to protect something that is inherently risky?
    - falcor84 7y ago
      Well, it's not intended to be basic research, right? From what I understand, a company shouldn't be applying for the contract if it has serious doubts about the feasibility of the project. Otherwise, what's stopping a schmuck like me from creating a shell company and promise the navy state of the art ships? Shouldn't there be accountability here? Btw, the pdf mentions that the military signed off on the purchase after the inspection, so my assumption was that they still could avoid paying.
      - throw0101a 7y ago
        There may be serious doubts about the feasibility, but the customer (e.g., USN) may want to go ahead anyway. It's only money, and what's that compared to a potential strategic/tactical edge? Nothing is stopping you. But there will (hopefully) be a due diligence phase in which the bidders are evaluated beforehand. It's why there are such a thing as a approved / qualified bidder list: * https://www.findrfp.com/Government-Contracting/Government-Bidder-List.aspx https://www.findrfp.com/Government-Contracting/Government-Bi...
- dooglius 7y ago
  I'm not suggesting that the builder finances the R&D itself, NRE costs should be baked into the contract. What I am saying is that the entity doing the cost estimates (which AIUI is also the researcher and builder, though it could also be an insurance firm) should bear the risk of those estimates being wrong.
- jvanderbot 7y ago
  The failures of "new" systems are not new. Did everyone read the article about the m-16 or the torpedo failures in WW2? During peace we can gamble on advanced systems while during conflict production and refitting is king.
labcomputer 7y ago
The three main factors are probably: 1) There is (just like with any bespoke product) a real risk that it won't be completed (at all / on time / for a profit). 2) It's very capital-intensive (so even the biggest defense contractor is going to need to borrow). Even civilian ships cost tens or hundreds of millions of dollars. 3) The capital is tied up for a minimum of 1-2 years (depending on the size of the ship). Re 3: Even during WWII, with "all hands on deck" and less complex ships, the US wasn't able to build a fleet carrier in less than 24 months (authorization through commissioning). "Liberty ships" (mass-produced, unarmored transports) took about 2 months through commissioning. So the Navy would probably have to arrange some sort of loan guarantee... and now we're back to the supplier not having a strong incentive to do things right.

throw0101a 7y ago

> I've always wondered why the government doesn't try a payment-on-delivery model. Because we're not talking about generic widgets here. It's the difference between buying a bespoke Saville Row suit and a 3-for-1 Suit Warehouse suit. There are all sorts of off-the-shelf (OTS) designs for general use vessels like tugboats: * https://ral.ca/designs/tugboats/ https://ral.ca/designs/tugboats/ And there are some 'generic' designs for combat vessels: * https://products.damen.com/en/clusters/combatants https://products.damen.com/en/clusters/combatants But if you purchase a generic design, then you don't have an advantage of your (potential) opponent because they may also have purchased a generic design. The US military specifically does not want a generic design (at least in some areas) because they want (perceived) advantage with more (supposedly) advanced design. And someone has to pay for the R&D on that advanced design. Given that the only market for these boats is the USN, why should the builder pay for the R&D? It's their (only?) customer that's asking for this, and they can't use what they learn for any other designs (because of ITAR export restrictions). When Ford is doing research for a new F-150 they can spread the R&D over millions of units getting economies of scale, but (e.g.) Bath Iron Works can't exactly amortize the fixed costs of the Zumwalt-class destroyer if their only customer, the USN, says they'll buy 32 but then only builds 3. Why should BIW be the ones to pay? It's the reason why the F-22 and F-35 have different costs: the Raptor is a US-only plane that no one else can touch, the Lightning II is cheaper because it's available for export and gets economies of scale.

hapless 7y ago
In reality BIW gets to double dip — they charge for R&D and also postpone the “D” part until after the ship is built, at which point the Navy will pay again to fix problems that should never have made it out of the yard. Why do anything right the first time if you can get paid twice, thrice, or six times to fix your fuckups later? P.S. if I buy a bespoke suit, I pay a fixed cost and it’s guaranteed correct — problems are paid for by the maker, not me.
- throw0101a 7y ago
  > P.S. if I buy a bespoke suit, I pay a fixed cost and it’s guaranteed correct — problems are paid for by the maker, not me. Using materials that have been used for decades. If you want to create a new nano-fibre fabric in a lab that's never been used before, and will not be purchased by anyone else, why should Henry Pool or Huntsman & Sons be the ones to pay for all the lab equipment? If the USN wants cheap and cheerful there are OTS options: * https://products.damen.com/en/clusters/combatants https://products.damen.com/en/clusters/combatants It's kind of what the USN is doing for the FFG(X): * https://news.usni.org/2018/02/16/navy-picks-five-contenders-next-generation-frigate-ffgxprogram https://news.usni.org/2018/02/16/navy-picks-five-contenders-...
  - hapless 7y ago
    Last I checked, ships are still built from steel, just as they have been for a century. Also the ffg/x “competitive” “bidding” process is a joke. They are paying five vendors to make PowerPoint presentations, then whoever made the prettiest slide deck gets billions of dollars. The folks who run this are sensitive to criticism but also either unwilling or unable to enact any substantial change.
    - throw0101a 7y ago
      So tell me: which COTS design are the Zumwalts based off? Or the LCS designs? Or the Ford carriers? Where was the Fords' EMALS catapults tried before?
- greedo 7y ago
  If you buy a bespoke suit, then change the design because you've gained weight, then it'll cost you more...
- rwmurrayVT 7y ago
  BIW even gets to triple dip by being the planning yard during repair availability while never being the yard to actually do the work. Same goes with HII. Usually it's Pascagula yard instead of Newport News.
falcor84 7y ago
You have some good points there, but I don't see why those issues wouldn't be possible to address with some well written legal clauses and perhaps a 3rd party insurance provider.
- throw0101a 7y ago
  Except that R&D and experimentation has no guarantee of success, so how who would want to underwrite a policy to protect something that is inherently risky?
  - falcor84 7y ago
    Well, it's not intended to be basic research, right? From what I understand, a company shouldn't be applying for the contract if it has serious doubts about the feasibility of the project. Otherwise, what's stopping a schmuck like me from creating a shell company and promise the navy state of the art ships? Shouldn't there be accountability here? Btw, the pdf mentions that the military signed off on the purchase after the inspection, so my assumption was that they still could avoid paying.
    - throw0101a 7y ago
      There may be serious doubts about the feasibility, but the customer (e.g., USN) may want to go ahead anyway. It's only money, and what's that compared to a potential strategic/tactical edge? Nothing is stopping you. But there will (hopefully) be a due diligence phase in which the bidders are evaluated beforehand. It's why there are such a thing as a approved / qualified bidder list: * https://www.findrfp.com/Government-Contracting/Government-Bidder-List.aspx https://www.findrfp.com/Government-Contracting/Government-Bi...
dooglius 7y ago
I'm not suggesting that the builder finances the R&D itself, NRE costs should be baked into the contract. What I am saying is that the entity doing the cost estimates (which AIUI is also the researcher and builder, though it could also be an insurance firm) should bear the risk of those estimates being wrong.
jvanderbot 7y ago
The failures of "new" systems are not new. Did everyone read the article about the m-16 or the torpedo failures in WW2? During peace we can gamble on advanced systems while during conflict production and refitting is king.

labcomputer 7y ago

The three main factors are probably: 1) There is (just like with any bespoke product) a real risk that it won't be completed (at all / on time / for a profit). 2) It's very capital-intensive (so even the biggest defense contractor is going to need to borrow). Even civilian ships cost tens or hundreds of millions of dollars. 3) The capital is tied up for a minimum of 1-2 years (depending on the size of the ship). Re 3: Even during WWII, with "all hands on deck" and less complex ships, the US wasn't able to build a fleet carrier in less than 24 months (authorization through commissioning). "Liberty ships" (mass-produced, unarmored transports) took about 2 months through commissioning. So the Navy would probably have to arrange some sort of loan guarantee... and now we're back to the supplier not having a strong incentive to do things right.