4 ms·

Firm fixed contracts seem like the way to go, until you try it. What happens is you get a bunch of contractors in a bidding war trying to undercut each other un

Firm fixed contracts seem like the way to go, until you try it. What happens is you get a bunch of contractors in a bidding war trying to undercut each other until the actual bid is below cost. That's not sustainable so what happens then? The winner will cut every possible corner to try to make a profit margin and read the contract in the narrowest way possible so they can hit the government with a fat change order. Quality of the product takes a nose dive and final cost still isn't controlled. On the other hand, time and materials contracts have exactly the problems you would expect. I honestly don't know how these things should be done so that taxpayers get the most value for their dollars. But I do know it's more complex than just "fixed price contracts."

mjevans 5y ago
Maybe have the military operate as a contractor as well and any 'profits' they'd make go towards the general federal budget? At the least it's then a bid by an open party with incentives that should be aligned to public service to compare all the other bids against.
dymk 5y ago
Where's the evidence that contractors will bid below-cost? Even if some do, they'll just go out of business, and the contractors who know how to do basic math will live another day.
- notreallyserio 5y ago
  Meanwhile you end up with a bridge half-built because the cheapest contractor went bust. (I don't know if contractors bid below cost.)
  - dymk 5y ago
    Which seems like an improvement, given the current failure mode is projects get cancelled after a billion dollars are spent on them anyways. At least it was partially finished.
    - namelessoracle 5y ago
      No? How often in software do we see a half finished product or product not designed to scale and we have to start over from the beginning to get it where it needs to go? You think this doesnt happen in construction projects too? Half building a bridge that you then need to tear down is awful and should not happen. You are just assuming its possible to finish the rest of the bridge later and that critial parts will be available later and that it being in a half finished state for a period of time doesnt cause major issues to the whole thing.
nradov 5y ago
For firm fixed price contracts you can write in requirements for passing independent inspections. And incentives for quality measures. For example I've seen road paving contracts that paid a bonus for achieving a certain level of smoothness. Of course writing a good contract requires deep technical and legal expertise which some local governments simply lack.
jacobr1 5y ago
Another model is having a government run project, with all the employees direct hires of the relevant government department. Though that has its own downsides. One model I haven't heard of, is the government as general contractor, hiring and managing the subs directly. I could imagine a hybrid mode like this could work.
lakecresva 5y ago
Those things have legal remedies, the US legal system has just decided that the investor class should be absolved of any risk or liability. If you intentionally underbid to win a contract, you've committed fraud and are supposed to go to prison to disincentivize the next guy. If you are a contractor and are incapable of giving a good faith estimate of your costs, you're supposed to go out of business. If you cut a bunch of corners to stay under budget and do not render satisfactory performance, you're liable for breach of contract (and are supposed to go out of business). The first two options have been removed from the toolbox of American government almost entirely.
- lotsofpulp 5y ago
  >If you intentionally underbid to win a contract, you've committed fraud and are supposed to go to prison to disincentivize the next guy. How would you measure and enforce this?
  - praestigiare 5y ago
    It's not as hard as it might seem. If you are actually held to the contract and you have underbid, you either have a plan to continue the fraud (using substandard materials or illegal labor to save costs) or you will be forced to take a loss or go out of business. If your investors, employees (or their union), or client(s) are unhappy with that, and there is any evidence of intentionally underbidding to be found (and there generally will be, these are decisions made by teams. There are emails. There are notes) those people will have incentive to find it.
  - lakecresva 5y ago
    An investigation, and the legal system. Corporations exist because they make a deal with the state. In exchange for limited liability, they're required to respect the corporate form which entails things like meeting minutes, preservation of certain business records and communications, conducting audits, imposing oversight, etc. If they don't abide by these rules, plaintiffs can sue the company and bypass the limitation of liability to recover from individuals in their personal capacity. This system of incentives and disincentives does work, and the US had a better handle on it in the past.
darkwizard42 5y ago
The contract should be ironclad on acceptable quality, consider including a term for longevity of the product in its acceptable state (bridge can't collapse in 10 years or something) The US has one of the most well-funded legal industries and we are worried that we can't write a complicated and thorough legal contract to do work? Doesn't really make sense. If the winner cuts the corners and doesn't deliver, they get sued in US's extremely thorough courts. I also think the bar for applying for these contracts should be higher. Firms with liquidity, track record, etc. get the best jobs.

mjevans 5y ago

Maybe have the military operate as a contractor as well and any 'profits' they'd make go towards the general federal budget? At the least it's then a bid by an open party with incentives that should be aligned to public service to compare all the other bids against.

dymk 5y ago

Where's the evidence that contractors will bid below-cost? Even if some do, they'll just go out of business, and the contractors who know how to do basic math will live another day.

notreallyserio 5y ago
Meanwhile you end up with a bridge half-built because the cheapest contractor went bust. (I don't know if contractors bid below cost.)
- dymk 5y ago
  Which seems like an improvement, given the current failure mode is projects get cancelled after a billion dollars are spent on them anyways. At least it was partially finished.
  - namelessoracle 5y ago
    No? How often in software do we see a half finished product or product not designed to scale and we have to start over from the beginning to get it where it needs to go? You think this doesnt happen in construction projects too? Half building a bridge that you then need to tear down is awful and should not happen. You are just assuming its possible to finish the rest of the bridge later and that critial parts will be available later and that it being in a half finished state for a period of time doesnt cause major issues to the whole thing.

nradov 5y ago

For firm fixed price contracts you can write in requirements for passing independent inspections. And incentives for quality measures. For example I've seen road paving contracts that paid a bonus for achieving a certain level of smoothness. Of course writing a good contract requires deep technical and legal expertise which some local governments simply lack.

jacobr1 5y ago

Another model is having a government run project, with all the employees direct hires of the relevant government department. Though that has its own downsides. One model I haven't heard of, is the government as general contractor, hiring and managing the subs directly. I could imagine a hybrid mode like this could work.

lakecresva 5y ago

Those things have legal remedies, the US legal system has just decided that the investor class should be absolved of any risk or liability. If you intentionally underbid to win a contract, you've committed fraud and are supposed to go to prison to disincentivize the next guy. If you are a contractor and are incapable of giving a good faith estimate of your costs, you're supposed to go out of business. If you cut a bunch of corners to stay under budget and do not render satisfactory performance, you're liable for breach of contract (and are supposed to go out of business). The first two options have been removed from the toolbox of American government almost entirely.

lotsofpulp 5y ago
>If you intentionally underbid to win a contract, you've committed fraud and are supposed to go to prison to disincentivize the next guy. How would you measure and enforce this?
- praestigiare 5y ago
  It's not as hard as it might seem. If you are actually held to the contract and you have underbid, you either have a plan to continue the fraud (using substandard materials or illegal labor to save costs) or you will be forced to take a loss or go out of business. If your investors, employees (or their union), or client(s) are unhappy with that, and there is any evidence of intentionally underbidding to be found (and there generally will be, these are decisions made by teams. There are emails. There are notes) those people will have incentive to find it.
- lakecresva 5y ago
  An investigation, and the legal system. Corporations exist because they make a deal with the state. In exchange for limited liability, they're required to respect the corporate form which entails things like meeting minutes, preservation of certain business records and communications, conducting audits, imposing oversight, etc. If they don't abide by these rules, plaintiffs can sue the company and bypass the limitation of liability to recover from individuals in their personal capacity. This system of incentives and disincentives does work, and the US had a better handle on it in the past.

darkwizard42 5y ago

The contract should be ironclad on acceptable quality, consider including a term for longevity of the product in its acceptable state (bridge can't collapse in 10 years or something) The US has one of the most well-funded legal industries and we are worried that we can't write a complicated and thorough legal contract to do work? Doesn't really make sense. If the winner cuts the corners and doesn't deliver, they get sued in US's extremely thorough courts. I also think the bar for applying for these contracts should be higher. Firms with liquidity, track record, etc. get the best jobs.