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Is there any way to fix incentives with government contracts, so that the product that is purchased is the lowest price for the highest quality? In the free mar

by daenz 5y ago

Is there any way to fix incentives with government contracts, so that the product that is purchased is the lowest price for the highest quality? In the free market, there are generally incentives for that because companies have a brand, and if you deliver poor quality, consumers eventually catch on, your brand suffers, and you lose business to your competitors. How does this work in the government? Where is the disincentive to keep contractors from delivering the shoddiest product for the government check? This mechanism seems totally absent.

jeffbee 5y ago
It's largely illegal in California to have any criteria for selecting contractors based on anything other than lowest bid. This is because historically cronyism was a worse problem than poor quality.
- anamax 5y ago
  CA has both cronyism and poor quality.
chernevik 5y ago
Not really, and this is in the nature of government programs. Management has no personal incentive to control costs or quality, and many incentives that tend to work against those controls.
haroldp 5y ago
That mechanism is totally absent. https://en.wikipedia.org/wiki/Public_choice https://en.wikipedia.org/wiki/Public_choice That is precisely why these things happen.
nonameiguess 5y ago
I'm not sure this is true for urban multi-unit housing. A whole lot of shoddy work gets sold at a high price simply because the location is attractive. Single-family and luxury builds are more held to this dynamic. But the mechanism would be the contract itself. It comes with requirements. Make high quality and low cost among the requirements. Actually hold the contractors to them. Require open competition for the bids. So why does this not work? I'm in defense contracting, not building, but at least in that realm, there isn't meaningful competition and no credible bill comes in low for a variety of reasons, but the biggest I can think of is the security and compliance requirements are so high that they represent a minimum regulatory hurdle very few contractors can clear, no matter how good and/or cheap their work might be, and when smaller operations emerge that do a good job and threaten the entrenched incumbents, the existing oligopoly just buys them. What can be done about that is the FTC not approving so many mergers and acquisitions on the part of giant contractors, and automating and/or streamlining some of the security hurdles. I don't think removing them is an option, since critical defense systems will be under constant attack by nation state actors and need to hold up under conditions of persistent warfare.

by daenz 5y ago

jeffbee 5y ago

It's largely illegal in California to have any criteria for selecting contractors based on anything other than lowest bid. This is because historically cronyism was a worse problem than poor quality.

anamax 5y ago
CA has both cronyism and poor quality.

chernevik 5y ago

Not really, and this is in the nature of government programs. Management has no personal incentive to control costs or quality, and many incentives that tend to work against those controls.

haroldp 5y ago

That mechanism is totally absent. https://en.wikipedia.org/wiki/Public_choice https://en.wikipedia.org/wiki/Public_choice That is precisely why these things happen.

nonameiguess 5y ago

I'm not sure this is true for urban multi-unit housing. A whole lot of shoddy work gets sold at a high price simply because the location is attractive. Single-family and luxury builds are more held to this dynamic. But the mechanism would be the contract itself. It comes with requirements. Make high quality and low cost among the requirements. Actually hold the contractors to them. Require open competition for the bids. So why does this not work? I'm in defense contracting, not building, but at least in that realm, there isn't meaningful competition and no credible bill comes in low for a variety of reasons, but the biggest I can think of is the security and compliance requirements are so high that they represent a minimum regulatory hurdle very few contractors can clear, no matter how good and/or cheap their work might be, and when smaller operations emerge that do a good job and threaten the entrenched incumbents, the existing oligopoly just buys them. What can be done about that is the FTC not approving so many mergers and acquisitions on the part of giant contractors, and automating and/or streamlining some of the security hurdles. I don't think removing them is an option, since critical defense systems will be under constant attack by nation state actors and need to hold up under conditions of persistent warfare.