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I think you need to articulate why you think the govt. is forced into this insurer role. They are no different to any large private buyer. Any insurance would

I think you need to articulate why you think the govt. is forced into this insurer role. They are no different to any large private buyer. Any insurance would be expensive, and would be a cost passed to the government, as any other project related costs are. The insurance provider spreads risks across policies but since all these policies would probably be for government contracts, the costs would all be passed on to government. The government would end up paying for all the policies plus the insurance company profit margin. The only winner here is the insurance company, maybe the contractors. The government will be slightly worse off.

gpm 4y ago
> I think you need to articulate why you think the govt. is forced into this insurer role. They are no different to any large private buyer. An insurance provider is a party taking financial risk if something goes bad for someone else. In the cost plus contracting model, the government is taking the financial risk if the project goes poorly for the contractor, that is the government is providing insurance. > The insurance provider spreads risks across policies but since all these policies would probably be for government contracts, the costs would all be passed on to government. Of course, there is no free money here. However the government can correctly evaluate the costs of the different proposals under a fixed cost contract model, whereas they are not capable of correctly evaluating the cost of the insurance that they add on top in a cost plus model, because they aren't set up to correctly price the insurance they are selling. This means that in the fixed price model, they can get a much better approximation of the cost in the value/cost equation they are trying to maximize when evaluating bids, and it means that contractors are motivated to provide options that maximize the same, instead of being motivated to provide options that maximize the difference between how the government miss-prices the insurance, and the actual value of the insurance. In the end everyone ends up better off, because there is less waste.
bluGill 4y ago
They don't have to, but someone will be the insurance provider and the government will pay for it. The government by playing insurance has better options to cut a project if things are getting to expensive, but this requires some willingness to cut project scope which they might not be willing for (and a contract that allows such a thing).

gpm 4y ago

> I think you need to articulate why you think the govt. is forced into this insurer role. They are no different to any large private buyer. An insurance provider is a party taking financial risk if something goes bad for someone else. In the cost plus contracting model, the government is taking the financial risk if the project goes poorly for the contractor, that is the government is providing insurance. > The insurance provider spreads risks across policies but since all these policies would probably be for government contracts, the costs would all be passed on to government. Of course, there is no free money here. However the government can correctly evaluate the costs of the different proposals under a fixed cost contract model, whereas they are not capable of correctly evaluating the cost of the insurance that they add on top in a cost plus model, because they aren't set up to correctly price the insurance they are selling. This means that in the fixed price model, they can get a much better approximation of the cost in the value/cost equation they are trying to maximize when evaluating bids, and it means that contractors are motivated to provide options that maximize the same, instead of being motivated to provide options that maximize the difference between how the government miss-prices the insurance, and the actual value of the insurance. In the end everyone ends up better off, because there is less waste.

bluGill 4y ago

They don't have to, but someone will be the insurance provider and the government will pay for it. The government by playing insurance has better options to cut a project if things are getting to expensive, but this requires some willingness to cut project scope which they might not be willing for (and a contract that allows such a thing).