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Comment by adinb | Hacker News Reader

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]

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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.

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.

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.

>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)

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