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Mar 06, 2012


[M]ost military procurement systems reward companies that underestimate the cost of new programs. The first reward is winning the program, and the second is higher revenue as a result of overruns under development contracts that are cost-plus [award fee]... Some of the same reasons for failure were defined by the U.K. National Audit Office (NAO) close to a decade ago. The NAO called it "the conspiracy of optimism." -- "Why Major Acquisition Programs Fail," Aviation Week

Programs fail because they are provided a monetary incentive to fail. We sign defense contractors up to a contract that guarantees them $1.10 for every $1.00 they spend on development, then we wonder why the cost of the development programs goes through the roof. I wish I could find someone stupid enough to sign me up to a contract that pays $1.10 for every dollar I can spend – on anything. It's free money. You could call it a "conspiracy" but is it really a conspiracy for the various organizations involved to all act in their own best interests? The military procurement office wants a particular program funded, so they turn a blind eye to the contractors' unrealistic proposal promises to provide more for less. The contractor jacks up the cost of the program feeling justified because they should have quoted more, but in reality the fact that they are making an additional profit off every dollar they can make the program cost go up causes considerably more cost growth than is accounted for by mere "optimism" in the proposal. Finally, if you're making plenty of profit designing weapons, why ever take the risk of building them? So our troops fight with old weapons while program after program fails to produce anything.

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