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The government paid a lump sum for a bunch of stuff. They should be able to verify that the items received represent the lump sum. To do that, they need to item

The government paid a lump sum for a bunch of stuff. They should be able to verify that the items received represent the lump sum. To do that, they need to itemize the purchases. 1 trash can costs $300, etc. There are many obvious reasons for this. For example, avoiding fraud and record-keeping (we need 4 more trash cans; how much did we pay last time?). If we paid $300/can last year, and now Boeing wants $52000/can, we should say "no" and demand Boeing bring down their price or else we will entertain other bidders, to which we can provide exact specifications and retired examples of the required product.

ceejayoz 3y ago
> To do that, they need to itemize the purchases. It'll be something like: Paperwork / contract negotiation: $50k Legal review of paperwork: $20k Project management: $50k Activating mothballed production line: $39,400 Trash cans (4): $1200 Mothballing production line: $39,400
- pphysch 3y ago
  This does not make the picture better. Here are two models of production: 1. You mostly make the thing yourself and pay the R&D + production costs in-house (i.e. public sector). There is little to no profit-waste. You need the thing, and so you created the thing. In this case, you are aware of the personnel, R&D, production costs. AFAIK this was mostly the state of play during WW2, or at least a lot more common. 2. You notify the market that you want a thing, and pay a profit-seeking vendor for the finished thing. You need the thing, so you bought it. The price breakdown beyond the product itself is opaque. You should not need to be aware of the personnel, R&D, production costs of BigContractor Inc. Does it actually cost $40K to produce a trash can? Fine, then that+profit will be the lowest bid. You are describing a corrupted third model, where you essentially manage the entire production process, but also give extra money (profit) to a third-party. To say nothing of the massive waste of involving unnecessary middlemen. This third model may or may not be how the government actually procures stuff, but again, it does not improve the picture of enormous government waste here.
  - ceejayoz 3y ago
    > 1. You mostly make the thing yourself and pay the R&D + production costs in-house (i.e. public sector). I would love to see the US return to this in a variety of realms, but I doubt that's coming anytime soon. It would still involve paperwork, lawyers, production lines, etc.; making four very specialized trash cans every few years will always be costly. > 2. You notify the market that you want a thing, and pay a profit-seeking vendor for the finished thing. They will need to charge you for all the same things, and they don't have a mothballed production line to start with, either.
  - Symmetry 3y ago
    The current cost-plus model actually worked pretty well for a time. When it was first introduced defense contractors hadn't figured out how to use the rules to their advantage and really it's pretty counter intuitive for a businessperson to try to maximize their costs. But the big historical problem with (2) is that if you give people discretion they can just choose to award the contract to their cousin Joe and end up paying $600 for a $300 trash can. What kept graft in check under the old system was fear of being found out and fear of being fired after embarrassing an elected official who might fear the voters getting angry. In the current system everybody is following the letter of the rules. Boeing has really managed to structure their costs so that they can charge $52k. They really did win the bid according to the rules. The bureaucrats who awarded the contract to Boeing followed the rules. And while elected officials might bitch and moan there's nothing they can do to disrupt the careers of officials who follow the rules - by very intentional design.

ceejayoz 3y ago

> To do that, they need to itemize the purchases. It'll be something like: Paperwork / contract negotiation: $50k Legal review of paperwork: $20k Project management: $50k Activating mothballed production line: $39,400 Trash cans (4): $1200 Mothballing production line: $39,400

pphysch 3y ago
This does not make the picture better. Here are two models of production: 1. You mostly make the thing yourself and pay the R&D + production costs in-house (i.e. public sector). There is little to no profit-waste. You need the thing, and so you created the thing. In this case, you are aware of the personnel, R&D, production costs. AFAIK this was mostly the state of play during WW2, or at least a lot more common. 2. You notify the market that you want a thing, and pay a profit-seeking vendor for the finished thing. You need the thing, so you bought it. The price breakdown beyond the product itself is opaque. You should not need to be aware of the personnel, R&D, production costs of BigContractor Inc. Does it actually cost $40K to produce a trash can? Fine, then that+profit will be the lowest bid. You are describing a corrupted third model, where you essentially manage the entire production process, but also give extra money (profit) to a third-party. To say nothing of the massive waste of involving unnecessary middlemen. This third model may or may not be how the government actually procures stuff, but again, it does not improve the picture of enormous government waste here.
- ceejayoz 3y ago
  > 1. You mostly make the thing yourself and pay the R&D + production costs in-house (i.e. public sector). I would love to see the US return to this in a variety of realms, but I doubt that's coming anytime soon. It would still involve paperwork, lawyers, production lines, etc.; making four very specialized trash cans every few years will always be costly. > 2. You notify the market that you want a thing, and pay a profit-seeking vendor for the finished thing. They will need to charge you for all the same things, and they don't have a mothballed production line to start with, either.
- Symmetry 3y ago
  The current cost-plus model actually worked pretty well for a time. When it was first introduced defense contractors hadn't figured out how to use the rules to their advantage and really it's pretty counter intuitive for a businessperson to try to maximize their costs. But the big historical problem with (2) is that if you give people discretion they can just choose to award the contract to their cousin Joe and end up paying $600 for a $300 trash can. What kept graft in check under the old system was fear of being found out and fear of being fired after embarrassing an elected official who might fear the voters getting angry. In the current system everybody is following the letter of the rules. Boeing has really managed to structure their costs so that they can charge $52k. They really did win the bid according to the rules. The bureaucrats who awarded the contract to Boeing followed the rules. And while elected officials might bitch and moan there's nothing they can do to disrupt the careers of officials who follow the rules - by very intentional design.