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I acknowledged in my comment that even if the most charitable explanation was assumed, the method of accounting is misleading and makes determining the cost of

I acknowledged in my comment that even if the most charitable explanation was assumed, the method of accounting is misleading and makes determining the cost of anything impossible.

flavius29663 3y ago
How is that? If you buy an engine, do you itemize by: engine block, alternator, water pump and starter? You might include in the requirements that the engine must come with all 4 extra elements, but you will pay for the whole engine. Now, if someone wants to be misleading, they could say the water pump was 1/4 of the price...
- karaterobot 3y ago
  If the total R&D cost for all items is split across every single product equally, there's no way to tell how much of the $435 hammer is R&D for the hammer. It's a really weird way to do accounting, almost like they just didn't keep track of how much R&D they did for each item. And that makes you wonder if the amount they are charging is even real in the first place. In general it lowers confidence and makes you think you're probably being ripped off (which, hey, is true).
  - hgsgm 3y ago
    You know what you are paying for the bundle you get. You can also get multiple bids for different bundles. The problem here, if any, is not getting competitive bids for the bundles.
  - juhanima 3y ago
    The article is not quite clear why the contractor had to split the intangible goods cost to the tangible ones, but it does give a hint. Federal accounting is meant to prevent possibly corrupted overspending and that's why charging for intangible services is not allowed or made more difficult than charging for something tangible that can be measured and counted afterwards and compared to market prices. So to me it sounds like this: you hired me to make a wall of bricks around your garden. I did it and presented you a bill: bricks 100$, mortar 20$, work 300$. Then you say I cannot charge for work as that's intangible and I have to restructure the bill by allocating the cost of work to the tangible objects. So instead of charging for work I split the cost of it by two and charge a bricklaying fee of 150$ divided by the number of bricks for each brick and another 150$ for mixing the mortar. Because I'm pissed off by your awkward and unpractical accounting requirements and not going to start figuring out more complex ways of dividing the cost between the materials, when everybody knows that it's the bricklaying that counts and not the bricks or mortar. And that's how you get very expensive mortar or 600$ hammers.
    - lmm 3y ago
      > Federal accounting is meant to prevent possibly corrupted overspending and that's why charging for intangible services is not allowed or made more difficult than charging for something tangible that can be measured and counted afterwards and compared to market prices. Right - so if contractors are doing an end run around those requirements by padding the prices of hammers or whatever, that's a problem.
      - db48x 3y ago
        No one is saying that it isn’t a problem. But there is an additional problem when a congresscritter makes a big song and dance about the “$600 hammer” and uses it as an example of government waste instead of using it as an example of dubious accounting that could be used to hide waste but probably didn’t in this case. This article is about the mythical costs and how they have mundane explanations that don’t really support the song and dance.
        lmm 3y ago
        I don't see a problem with a congressperson taking the accounting at face value and assuming it means what it says. Our accounting should be trustworthy.
        db48x 3y ago
        It was purely a stunt for the congresscritter in question; they were not fooled into thinking that the hammer had really cost that much. If they had been honest, they would have talked about how the repair kit cost a lot of money, and tried to figure out if it had been worth it. Along the way they could have discussed the accounting fiction by which the cost of assembling the kits from bulk purchases of common tools such as hammers and screwdrivers had been baked into the prices of the items themselves. But since all they wanted was soundbites for television news shows to repeat over and over, the simpler and more emotional narrative was what worked best for them. They created the myth in order to profit from the outrage that it generated. Sound familiar?
  - flavius29663 3y ago
    > almost like they just didn't keep track of how much R&D they did for each item. so what? Like another commenter has said, you bought the package, it's not your business how much each individual piece is actually worth. You pick the best bid and move on.
  - mattkrause 3y ago
    > almost like they just didn't keep track of how much R&D they did for each item. That’s often almost the whole point! Tracking the R&D effort for each item in the repair kit would add an enormous amount of overhead and accomplish essentially nothing. The numbers will be wild guesses and you’re going to have to make tons of ad hoc decisions about allocation anyway. Suppose you tweak the design so it a part can be attached with a special pin rather than a screw and spend an hour testing it. What’s the “right” allocation of time to the pin, hammer, part, and screw (that you’ve eliminated)?
    - MichaelZuo 3y ago
      At the very least the cost could be split into 1. actual cost 2. guesstimated additional cost of 'very hard to split X'. So that people looking at the accounting many degrees of separation removed will still be able to understand which is which and the relative proportion.
- 6510 3y ago
  I cant help but think how hard it would have been to do that 60 years ago compared to today. It would not be all that challenging or expensive but it would be revealing.
cbsmith 3y ago
> The hammer did indeed cost $435. If the government wanted to buy another one, the contractor would have charged them an extra $435. But the above statement wasn't true.
- mattkrause 3y ago
  The article has a nice example of this in the B2 bomber. The first 21 planes cost $2B each. The next one costs $700M. If, for some reason, we were to make a hundred or a thousand of them, the cost per plane would be even lower.
  - lmm 3y ago
    Unfortunately the military has now cottoned onto that trick with the F-35. Every time there's a budget overrun they just order another 100 planes so that "the price hasn't changed".
  - cbsmith 3y ago
    The B2 bomber case isn't a precise analogy. The hammer really was purely an accounting phenomenon. It's not that the first hammer cost $600. The first hammer was part of a collection of goods, of a wide variety of different values, that were billed as a single line item... and this was resolved, from an accounting perspective, as each item cost $600. In reality, most of the items only cost a few dollars, but a few big ticket items skewed the average. Think of it like you're buying a car, and you have the dealer add in a half-dozen options & extras, and then they bill you for all of them, as a package, as a single line item. If you then said the cost of each item in the package, including the car, was worth 1/7th the price you paid for the package, that would be the equivalent of what is going on here.
nerdponx 3y ago
Isn't this somewhat inevitable in any complicated engineering project?
D13Fd 3y ago
Your main comment is literally untrue and contrary to the article, and pointing out a separate problem with telling what things cost doesn’t change that.
kibwen 3y ago
From the article: > The new moral is that numbers, taken as self-explanatory truths by the public and the press, can in fact be the woefully distorted products of a broken accounting system. So it appears you're just in agreement with the OP that the accounting system is broken, while also being the exact same sort of victim of misunderstanding that the broken accounting fosters.
- aflag 3y ago
  We don't even know if the system is broken. It's not clear whether this was common case or a one off instance that they didn't really have an appropriate form for.
lamontcg 3y ago
If you own a car how much did the engine in the car cost you to buy? Unless you've done an engine swap recently you probably can't answer that, because you bought the whole car, and the engine came with it.

I acknowledged in my comment that even if the most charitable explanation was assumed, the method of accounting is misleading and makes determining the cost of anything impossible.

flavius29663 3y ago

How is that? If you buy an engine, do you itemize by: engine block, alternator, water pump and starter? You might include in the requirements that the engine must come with all 4 extra elements, but you will pay for the whole engine. Now, if someone wants to be misleading, they could say the water pump was 1/4 of the price...

karaterobot 3y ago
If the total R&D cost for all items is split across every single product equally, there's no way to tell how much of the $435 hammer is R&D for the hammer. It's a really weird way to do accounting, almost like they just didn't keep track of how much R&D they did for each item. And that makes you wonder if the amount they are charging is even real in the first place. In general it lowers confidence and makes you think you're probably being ripped off (which, hey, is true).
- hgsgm 3y ago
  You know what you are paying for the bundle you get. You can also get multiple bids for different bundles. The problem here, if any, is not getting competitive bids for the bundles.
- juhanima 3y ago
  The article is not quite clear why the contractor had to split the intangible goods cost to the tangible ones, but it does give a hint. Federal accounting is meant to prevent possibly corrupted overspending and that's why charging for intangible services is not allowed or made more difficult than charging for something tangible that can be measured and counted afterwards and compared to market prices. So to me it sounds like this: you hired me to make a wall of bricks around your garden. I did it and presented you a bill: bricks 100$, mortar 20$, work 300$. Then you say I cannot charge for work as that's intangible and I have to restructure the bill by allocating the cost of work to the tangible objects. So instead of charging for work I split the cost of it by two and charge a bricklaying fee of 150$ divided by the number of bricks for each brick and another 150$ for mixing the mortar. Because I'm pissed off by your awkward and unpractical accounting requirements and not going to start figuring out more complex ways of dividing the cost between the materials, when everybody knows that it's the bricklaying that counts and not the bricks or mortar. And that's how you get very expensive mortar or 600$ hammers.
  - lmm 3y ago
    > Federal accounting is meant to prevent possibly corrupted overspending and that's why charging for intangible services is not allowed or made more difficult than charging for something tangible that can be measured and counted afterwards and compared to market prices. Right - so if contractors are doing an end run around those requirements by padding the prices of hammers or whatever, that's a problem.
    - db48x 3y ago
      No one is saying that it isn’t a problem. But there is an additional problem when a congresscritter makes a big song and dance about the “$600 hammer” and uses it as an example of government waste instead of using it as an example of dubious accounting that could be used to hide waste but probably didn’t in this case. This article is about the mythical costs and how they have mundane explanations that don’t really support the song and dance.
      - lmm 3y ago
        I don't see a problem with a congressperson taking the accounting at face value and assuming it means what it says. Our accounting should be trustworthy.
        db48x 3y ago
        It was purely a stunt for the congresscritter in question; they were not fooled into thinking that the hammer had really cost that much. If they had been honest, they would have talked about how the repair kit cost a lot of money, and tried to figure out if it had been worth it. Along the way they could have discussed the accounting fiction by which the cost of assembling the kits from bulk purchases of common tools such as hammers and screwdrivers had been baked into the prices of the items themselves. But since all they wanted was soundbites for television news shows to repeat over and over, the simpler and more emotional narrative was what worked best for them. They created the myth in order to profit from the outrage that it generated. Sound familiar?
- flavius29663 3y ago
  > almost like they just didn't keep track of how much R&D they did for each item. so what? Like another commenter has said, you bought the package, it's not your business how much each individual piece is actually worth. You pick the best bid and move on.
- mattkrause 3y ago
  > almost like they just didn't keep track of how much R&D they did for each item. That’s often almost the whole point! Tracking the R&D effort for each item in the repair kit would add an enormous amount of overhead and accomplish essentially nothing. The numbers will be wild guesses and you’re going to have to make tons of ad hoc decisions about allocation anyway. Suppose you tweak the design so it a part can be attached with a special pin rather than a screw and spend an hour testing it. What’s the “right” allocation of time to the pin, hammer, part, and screw (that you’ve eliminated)?
  - MichaelZuo 3y ago
    At the very least the cost could be split into 1. actual cost 2. guesstimated additional cost of 'very hard to split X'. So that people looking at the accounting many degrees of separation removed will still be able to understand which is which and the relative proportion.
6510 3y ago
I cant help but think how hard it would have been to do that 60 years ago compared to today. It would not be all that challenging or expensive but it would be revealing.

cbsmith 3y ago

> The hammer did indeed cost $435. If the government wanted to buy another one, the contractor would have charged them an extra $435. But the above statement wasn't true.

mattkrause 3y ago
The article has a nice example of this in the B2 bomber. The first 21 planes cost $2B each. The next one costs $700M. If, for some reason, we were to make a hundred or a thousand of them, the cost per plane would be even lower.
- lmm 3y ago
  Unfortunately the military has now cottoned onto that trick with the F-35. Every time there's a budget overrun they just order another 100 planes so that "the price hasn't changed".
- cbsmith 3y ago
  The B2 bomber case isn't a precise analogy. The hammer really was purely an accounting phenomenon. It's not that the first hammer cost $600. The first hammer was part of a collection of goods, of a wide variety of different values, that were billed as a single line item... and this was resolved, from an accounting perspective, as each item cost $600. In reality, most of the items only cost a few dollars, but a few big ticket items skewed the average. Think of it like you're buying a car, and you have the dealer add in a half-dozen options & extras, and then they bill you for all of them, as a package, as a single line item. If you then said the cost of each item in the package, including the car, was worth 1/7th the price you paid for the package, that would be the equivalent of what is going on here.

nerdponx 3y ago

Isn't this somewhat inevitable in any complicated engineering project?

D13Fd 3y ago

Your main comment is literally untrue and contrary to the article, and pointing out a separate problem with telling what things cost doesn’t change that.

kibwen 3y ago

From the article: > The new moral is that numbers, taken as self-explanatory truths by the public and the press, can in fact be the woefully distorted products of a broken accounting system. So it appears you're just in agreement with the OP that the accounting system is broken, while also being the exact same sort of victim of misunderstanding that the broken accounting fosters.

aflag 3y ago
We don't even know if the system is broken. It's not clear whether this was common case or a one off instance that they didn't really have an appropriate form for.

lamontcg 3y ago

If you own a car how much did the engine in the car cost you to buy? Unless you've done an engine swap recently you probably can't answer that, because you bought the whole car, and the engine came with it.