Tuesday, September 09, 2014

Decades of federal government ‘cost-plus’ contracts increase taxpayer costs 2, 3, 4+ times

The biggest issue with federal government purchasing is the use of cost-plus contracts. This should be an issue that most people agree with regardless of their political leanings.

Cost-plus contracts are a way for government acquisition professionals to pass on research and development risks to the taxpayers. The acquisition professionals cause this risk to taxpayers through two different actions: 1. Writing poor system requirements and 2. Not contracting for the proper lab work, experimentation, and prototyping for new technologies. Essentially, programs are going forward for full funding without the proper engineering and scientific effort being conducted to refine new designs and catch unforeseen problems with new technologies. There are programs funded that contain requirements for technologies that don’t even exist in a proven prototype.

For some programs that are funded by Congress, there are several high risk technology requirements that are rolled into the same project, compounding risk to taxpayers. While the contractors experiment, fail, and experiment again to try and meet those requirements, the bills keep piling up.

The Space Based Infrared System (SBIRS) – High, which provides infrared sensors in space as part of the missile launch alert system, is an example of what happens when small scale sensor prototypes aren’t developed slowly in a laboratory research and development environment, and then introduced in stages (first as a small test sensor on an operational satellite and later as its own acquisition program for full-scale development). The program experienced massive cost overruns on the order of 400%; see Budget Busters:  The USA’s SBIRS – High Missile Warning Satellites.

Poor system requirements writing continues because in many cases acquisition professionals are just taking various inputs from organizations, consolidating the requirements, and pressing forward with a new program without understanding where to cut and shape requirements in order to bound risks. It’s an ignorance of what’s state-of-the-art practice in industry today versus what isn’t feasible to accomplish in the near-term.

The cost overruns and schedule slips include naval ships and aircraft. The Navy can’t even purchase small ships designed for coastal operations without having costs more than double; see Cost overruns have military facing ‘train wreck,’ McCain says.