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Comment by bumby | Hacker News Reader

>The root of the F-35 program's problems is a cost plus style contract that gave Lockheed every incentive to overrun

I’m fond of the saying “once you understand people’s incentives, you understand everything” as it applies to contracting.

I will add, however, that fixed price contracts have their own problems as it relates to cutting corners. E.g., it can put downward pressure on retaining talent and performing best practices because it incentivizes under-bidding and then cutting corners to make a profit. E.g., “you cobbled together some VBA in a spreadsheet once 20 years ago and will work for pennies? Congratulations, you’re our new head of software development!”

A lot of the problems can be attributed to poor contract/spec management and poor oversight. Part of the key is having good requirements and also the contractual teeth/intestinal fortitude to hold contractors feet to the fire

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Firm, Fixed Price (ffp) contracts can be utilized with incentives after delivery based on metrics like tail availability, maintenance issues, flight hour cost, effectiveness, etc. Most big contracts are really a hybrid, though an existing contractor always tries for a cost plus. It's literally taught in PM classes.

I was NOT directly involved in F-35, so I can't speak to the exact amount of sleaze that occurred with the prime contractor.

I'd love to see a real competition! (new contractors, new ideas, new teams, new airframe ideas). And two engines, yeesh.

Anyways, cost plus is great at moving risk to the government. FFP is at the other end of the spectrum, moving all risk to the contractor.

[Unnecessary edit: I'm a fan of the textron scorpion-as a light attack fighter we could modify]

I think the issue is if you are going to order a million toilets, then moving all the risk to the contractor is fine. If you are asking for innovation and R&D, then the contractor already has a ton of risk. Add in requirements to make a fighter suitable for all branches of the military, and the risk is gigantic. In that environment, you need to remove risk from the contractor.

This is why R&D projects can't be treated in the same way as delivery of well understood tech that simply needs to be mass produced well and efficiently.

So don't do it fixed price but do cap allowable profits to 3-5% or so. That was how Apollo program was run.

They also cap profits based on the original bid size. So you bid 20 million for the F35 program you get 1.5 million profit. When you overrun the 20 million to 30 million you still only get 1.5 million "profit". Typically you also have to go ask for that 10 million in piecemeal as well. I need 500k to do this and 500k to do that and the program office approves or disapproves.

Of course, the contractors probably skim a little bit off the top of the 20 million back to themselves. They might for example bill for machine team on the CNC or charge $200/hr per an employee and only pay $60 (note that they have expenses for training, downtime, office space, equipment and management which that 200/hour needs to account for so the employee isn't getting screwed that badly.

Less moral contractors might build projects which intentionally fail but meet the specifications so that the gov't needs to execute a change order at which point they would get additional fee as part of the change order, however with the DOD you can get your company put on a blacklist which will mean you cannot win any more DOD contracts. But I have heard of a California construction company doing that repeatedly over the course of 30 years successfully. In the dod world, most companies try to propose improvements to the original contract. Typically they will have yearly goals associated with submitting and winning change orders as its an easier source of revenue than bidding and winning new contracts which typically have a 30% win rate.

OK, but that's still a cost plus contract. I don't think the size of the percentage in the "plus" is what explains the failure of the F35.

You’re creating a situation where the only way they can increase profit is to increase total spend.

>FFP is at the other end of the spectrum, moving all risk to the contractor.

I agree with your overall opinion but I do think the govt has a lot of residual risk in cost-plus. When a contractor is incentivized to cut corners, the mitigation is govt oversight. Meaning the contractor can keep cutting corners until caught. Since the govt ultimately owns these systems they can be left holding the bag (particularly when requirement specs are weak)

This is quite similar to one of my favorite saying that comes from my background in psychology: "When the mouse presses the lever, don't blame the mouse."

Oooo, that's profound.

I ran across an interesting one earlier, understanding Maslow's Needs by negative example: We usually say that, when someone has food and shelter and safety, when they have friends and feel a sense of belonging, they can pursue higher stuff. And we know at some level that if someone is starving, they will do anything to find food -- civilized behavior goes out the window in that mode. But we forget that if someone has no friends and doesn't feel a sense of belonging, they will also stop at nothing to rectify THAT.

Suddenly so much conspiracy stuff makes sense.

understanding Maslow's Needs by negative example

Those are usually called “hygiene factors” in the literature.

Aye, the most common I've seen being 2-factor hygiene approach to HR & Retention.

"Hygiene" for the record has nothing to do with deodorant, at least not per se, but instead the willingness to remove negative traits. However, just because you remove negative traits doesn't mean you have any positives. Just cuz you took a shower this morning, wear clean clothes, and trim your fingernails doesn't mean you're not an asshole, and that we should friends with you.

Same deal with jobs, cultures, etc. The work may be risky and dangerous, but if there are enough positives to outweigh those negatives, people might stick around. But even if you strip out the negatives, people will eventually float away from jobs that aren't fulfilling or that don't offer any positives.

For the other side "No, it’s not The Incentives—it’s you"

https://www.talyarkoni.org/blog/2018/10/02/no-its-not-the-in...

Interesting read, thank you.

There’s a distinction to be made between excusing bad behavior, but rather they explaining it. The article seems focused on the former, I’m more interested in the latter.

There are intrinsic and extrinsic incentives. I think the important part not touched upon is that for those actors extrinsically motivated (e.g., status, money, etc.) the system incentive will influence behavior much more than those more affected by intrinsic motivations.

The article is right that extrinsic motivations don’t excuse immoral behavior but when morals are lacking external controls are still needed. Developing the right extrinsic incentives provides guardrails for those who tend to lack intrinsic motivation that align. The article seems to think the solution is to “just act morally” which works at the individual level but that’s not really a policy at a system level (especially once we acknowledge everyone doesn’t share the same goals/motivations/morals)

I don't really see it as "the other side". Identifying root cause of behavior is critical to modifying it. The "don't blame the mouse" saying is simplified; scientists (as in this article) live in a more complex world. Just because we can understand what led to a set of behavior for scientists, or others, doesn't mean they have no accountability for their actions, but it usually does mean there is a systemic problem that requires a systemic solution, otherwise we'll only ever be treating the symptoms.

That's not a problem with fixed price contracts so much as selecting the lowest bidder. An agency which is allowed to pick the more expensive contract that is justifiably better usually won't succumb to these problems.

And those of us that spend govt money generally do this, it's totally fine to not pick the cheapest, you just have to have a sound reason to do so.

I.e. if you aren't willing to stand up in court and talk about why Tootie is better than Tito, despite Tito being 10% cheaper, you better be selecting Tito or looking for another job.

Thanks for offering your experience. That matches with my own as well, albeit from the other side. I worked for a large government contractor on our bid, and we knew we weren't going to have the cheapest option but rather banked on the value-add. And most of the time it worked.

The government doesn't have to select the lowest bidder, that is a misconception. If they think the bid is too low, they can "risk up" the cost, adding in the cost of the additional risk not accounted for. The FAR specifies that they select for best value.

https://blog.theodorewatson.com/understanding-the-federal-go...

I know! I used to be a government contractor. I was rather pointing out that the failure mode in question only arises when budget is the deciding issue between proposals. A proper procurement process decides based on delivered value, however.

“Best value” can be very hard to get approved when lower bids exist. Circling back to the incentive theme, I have a feeling contracting officers are graded, in part, by how much they “save”. (In quotes because you can often pay much more in the long run by selecting the lowest bidder).

I’ve found people are very risk adverse in this regard and would prefer to select the lowest bid instead of potentially defending their decision during a protest.

I think it all depends on your local purchasing department(every govt agency/department gets their own, pretty much). Our department's attitude can be summed up(by me) as:

select the best solution to meet your needs, mostly irregardless of cost, but be sure you can articulate why you are buying from A.

I.e. You can pick whatever vendor you want, provided you are happy to stand up, under oath, in court and talk about WHY you selected vendor A over vendors B, C and D.

So far so I have no experience in court defending our choices.

Incentives seem to have huge explanatory value wherever you look, don’t they. I’d like to add a classic Warren Buffet quote into the mix: “Show me the incentive and I'll show you the outcome.”

Does anyone have any views on what constitutes canonical reading on incentives? Some of the classic game theory works? Would love to hear opinions on this.

Incentives in my opinion leads to Goodhart's law [1].

In fact, I will go a step further - most incentives are chosen by well meaning people. There is neither malice nor incompetence going on. What happens is that every incentive can be perverted, and will be perverted over time. Over time, then that incentive, that was once chosen with good intentions, becomes perverse.

[1]https://en.wikipedia.org/wiki/Goodhart%27s_law

I've never heard of Goodhart's law. To save others clicking on the link, it's:

> When a measure becomes a target, it ceases to be a good measure.

In my experience, it might actually be a useful approximation of reality.

Incompetence may be too strong of a word but I think there can be a lack of thinking about second and third order effects when the “measure becomes the target”.

I am not trying to be a smart ass but how about this for an human incentive: Build us plane that fulfills these outlined objectives, that meets are budget requirements, or we will shop somewhere else.

I get what you’re saying but I wish it were that easy.

Take the requirements for example. If they aren’t airtight, you’ll get into a wordsmithing scenario where the contractor claims they met the requirement and it becomes a game where the team with the best lawyer wins. Write the requirements too explicitly and contractors will push back saying “tell us what you want, not how we’re supposed to do it.”

A somewhat silly example is if you specify you want unit testing on all safety critical code paths a contractor may claim they define running a compiler as “unit testing”. A contracting officer may not be technically savvy enough to push back and when the subject matter experts try to leave negative contract comments (that get reviewed when awarding future contracts) they get scrubbed because its not worth the fight in the eyes of the contracting officer.

Unfortunately, just saying “do good work” just doesn’t...work

And the parent's comment is any contracting work, really.

With DoD you have to add in various accountability steps, political footballs, public opinion, etc.

If you've spent time around the DC area you'd be shocked at the number of adverts for things like the F-22 that you see. One time I took the metro from NoVA to MD, with a stop off downtown, and counted at least 6. They're not just bringing lawyers and playing contractor games, they're aggressively marketing to everyone.

Having only been to the US a few times I'm floored by this. You mean to tell me that there are actual printed ads in public places for _fighter planes_? I can sort of understand the rationale in DC, but it just seems surreal to me.

Those kinds of purchases being swayed by subway ads... I really hope it's a joke.

WTOP, which is the All News/Traffic station is filled with ads from contractors during the Drive time. Of course, I last listened to them a year ago, but I suspect that hasn't changed. Listen to them anytime between 7am and 9am EST.

Thank you, my ignorance on the subject has summarily changed

Sounds like the Air Force still needs the F-20 Tigershark (killed by Ft. Worthless Jim Wright to protect the F-16 from competition) to bail out the F-35 Trillion Dollar Turkey.

The F-20 may have been the last time an aircraft company ever pitched an airplane developed on the company's money. Despite being highly praised by all who flew it (including Chuck Yeager), it's ugly demise at the hands of politics (it was less than half the price of the F-16) was an example to all to never do this again...

I believe one of the objectives of the F-35 was for the plane to be able to fulfill all kinds of different roles. That idea in itself seems pretty much impossible for me. Especially on a budget.

https://www.youtube.com/watch?v=aXQ2lO3ieBA

Wonderful! Thanks for that.

Your main error is a simple assumption: that both parties are honorable.

Where do you shop?

The problem with massive development efforts like this is that there aren't a lot of competitors. In this particular field, there are two, and not really even quite two exactly.

i don't understand why 200 billion dollars wouldn't be enough for the US to make their own plane company.

There would have to be organizational will to do so, and one pole of the American political system doesn't have it for a military plane program and the other actively hates the idea of nationalized industry.

We did, we made several of them.

Lockheed, Boeing, Northrup, etc...

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